Tech Deciphered

Competing in a Future World of Infinite Intelligence Navigation: Intro From Knowledge Workers to Judgment Workers The AI-Native Company: Org, Hiring, Culture The Human Element: Are We Underestimating It? Scenarios 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 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 Nuno Gonçalves Pedro Introduction Welcome to episode 79 of Tech DECIPHERED. Today, we take a leap into the big unknown. This is a thesis episode, not your classic analysis, in-depth sharing episode. The big idea for this episode is that we may be approaching the cognitive age, and how would one, or how would a company compete in a world of infinite intelligence? The big idea, again, is that intelligence, which has been mostly scarce and expensive for all of human history, might become abundant and cheap. If that happens, what happens to work, what happens to companies, what happens to society? This episode will be really framing a lot of these discussions. From knowledge workers to judgment workers, addressing the AI native company and how does that change, going into the human element and whether or not we’re underestimating it, and finally, ending up going into scenarios, feasible scenarios of a future where, well, intelligence is abundant. Intelligence is quasi-infinite or infinite itself.Bertrand Schmitt Yes. Big questions for this episode 79. From Knowledge Workers to Judgment Workers We can start with from knowledge workers to judgment workers. Let’s go back first to how came the knowledge worker. It’s a 20th-century invention from Peter Drucker in 1959. The idea here is that that category might be splitting. The production of knowledge itself is on its way to being commoditized by AI. However, our perspective is that judgment around production of knowledge is not disappearing and is staying for a bit control managed by humans. What’s your take on this, Nuno? Do you agree with this split?Nuno Gonçalves Pedro I think it’s a little bit more profound than that. It’s not just judgment. Definitely, human judgment will be needed. We’ve seen agents perform all sorts of funny things in the wrong way when left alone to their own devices. Even some very well-known AI researchers coming forward and saying, “Hey, I tried to use this myself, and actually I messed up some of my systems,” or “I messed some of my code. I messed up some of my flows for a period of time.” I think just having human-in-the-loop from a judgment standpoint will be needed for a significant amount of time. That is something you can’t just delegate into machines, into algorithms, et cetera. The second part is, ultimately, there needs to be contextualization, and that contextualization, I think, comes from two forms. One from actual data, where the machine, I think, at some point will catch up, or the machines will catch up. The algorithms, at some point, on the data analysis will get better and better and have probably the closest to the truth that you can get, minus all the biases that are in the data, just to be clear, because data has a ton of biases. We’ve looked at this in the past and discussed it at prior episodes. But maybe on that, I think the machine has a chance to catch up, or the machines have a chance to catch up, so there’s less of distinctiveness from the human standpoint. But then, on just the attributes, the ability when you’re judging some situation, you’re in the middle of the situation. You’re judging the person and how it’s acting, in some ways, a lot of the things that end up happening, end up happening because there’s human interaction. There’s someone on the other side. I see how they’re delivering the message, how they’re implicating. We’ll talk about it later in the context of the organization and what changes in companies. I don’t think it’s just judgment. I think there’s a little bit more than that. One of the reasons I went to the dark side of management early on in my career from being an engineer was Peter Drucker and this notion of the knowledge worker, which he later on reemphasized with the publishing of his book, which for me was seminal and defined a lot of my career in life, the post-capitalist society, which is this notion that information rich and information poor is going to be the key distinctiveness that will happen in the world. The two big camps, information rich, information poor, which links back to this invention of the term knowledge worker, that knowledge is going to be key in some ways. I think that’s what we’ve seen for the last decades. Again, I think judgment is not going anywhere, but I think it’s beyond judgment. There’s elements of humanity and involvement that won’t go away anytime soon, where human-in-the-loop are particularly critical. We’ll discuss later some scenarios, but for me, that’s my stick in the ground. I think human-in-the-loop is going to be critical for many decades to come.Bertrand Schmitt While we are talking about all of this, and we share some possible scenarios, there is always that question. This is moving so fast right now. If you think about AI 10 years ago, AI 5 years ago, AI with the launch of ChatGPT 3, and then AI the past 2 years, now we have agents that are running at scale. Things are moving very fast. I can tell you, me in 6 months, the change has been pretty dramatic in terms of what I can use AI for. There is always that question that whatever we are thinking about cannot just be connected to what we were able to do 6 months ago or even today, we have to think and project ourselves at least in the next 6–12 months. Of course, we can go beyond that, and we will do that with some future scenarios, but it’s a very fast-moving, and it’s not clear yet where are the limits.Nuno Gonçalves Pedro I think that’s a very fair point. Let me try to analyze things that I don’t think will change anytime soon for the next few years. Agreed with you that many things will change, and we’ll have a lot better tools, platforms out there. That will be difficult to predict what exactly won’t change. I think there’s elements of humanity, and some of them do relate to judgment, like having good or bad taste, having a view on it, on whether something looks good or bad. Obviously, all of this sometimes is subjective, but some of it may not be as subjective as people think it is. The elements of contextualization. I think a little bit going back to what we did at Chamaeleon ourselves, where we built this platform, Mantis, and the objective of building Mantis was not really to replace us, was that it was a core augmentation layer in some ways that we would use investment or investor judgment as humans in the loop to systematize pattern recognition and a variety of other things, but that Mantis would really elevate all that judgment, not just in terms of timing, us being more productive, but also in terms of the quality of the decisions we’re making. Think of it as a little bit like having our human judgment in the context of operating Chamaeleon at a higher altitude, where we are more aware of the things that are happening and how they actually happen. The ability to really get to the data pieces and then make decisions on top of that that generate the needed alpha in our case for investors. What I mean by this is I think there’s always going to be core elements of humanity that I do think are going to be difficult for the machines to replace. For example, the taste piece people are like, “I can figure out what’s the taste in the market.” Yeah, but that’s mainstream. That doesn’t identify what’s the next big thing, which normally doesn’t start from mainstream. It starts from something else. It could start from opinion leaders and influencers. It could start by someone having a different way of addressing a problem and having a solution that hasn’t been thought through. For example, elements of creativity, I think, in human judgment and in human operations is something that I feel the machine will still have difficulty to replace.Bertrand Schmitt Let’s not forget how today current algorithms are working by feeding them enormous quantity of data, actually as much data as we can find. Finding more data is becoming a limitation these days. What it means is that it’s very hard for AI to think beyond its training data. There is some level of logic that’s being added, but at the same time, take the launch of the iPhone. What was the opinion before launch? Is that no, it doesn’t make sense. Not enough battery life, no keyboard, no this, no that. If you just base your analysis on what’s written out there, what’s being sold out there, you would just say, “It’s going to fail.” AI might really follow that more generic advice and perspective because that’s what in the training data and that’s what they’re in volume. It’s, of course, raising a lot of questions of, how do you improve the quality of the training data? How do you separate the weed from the chaff? There are a lot of questions there, and obviously, it will get better over time. But it’s still a critical part of how it’s working today. It won’t be that easy to change. I really like your point regarding Mantis, and I will say in general, platforms that you build with AI or leveraging AI capacity. Because when we say knowledge production is going to disappear, but we’ll keep judgment, it will be a different type of judgment because the quantity and quality of knowledge we will have in front of us to build our judgment will be very different. If suddenly we have for free the work of 10 interns or 5 junior analysts or whatever, and you can run that on nearly anything you do in life or at work, it’s completely dramatic. Your judgment was not used to be exercised so often because often you were missing quality data to have a judgment. Before it was a lot of finger in the wind and trying to smell something, but you didn’t have enough to make a serious analysis. Except if you are working as a strategy consultant, as you used to do, Nuno. That part is actually quite interesting. That the judgment itself will be exercised much more often and hopefully on the base of much more in-depth analysis for a lot of things. We will work very differently.Nuno Gonçalves Pedro We will go in-depth, faster and more fact-based, more data-based along the way. The question some of you might have right now is, is there some judgment that’s going to go away? Is there some judgment? We seem to be defining that there’s this organization, we’ll talk about it later, that goes from doers more into deciders. I think there’s some nuances to that, so I’ll just hit pause on that. In terms of judgment, obviously, there’s judgment that has been hidden over the years under the pretense of being wisdom, but it’s actually not wisdom. It’s just repetitive tasking, and it’s rules-based for the most. There’s a lot of judgment done, in particular in the white-collar space, that you could say it’s just reps. People have been doing it all along like that, and so therefore to say, “I’ve done it before like this, so I’ll do it the same way.” There’s actually no best in class, no analysis, no nothing. It’s just, “I’ve done it like that before.” I think that type of judgment will disappear because, again, algorithms will be as good, if not much better at that. They’ll be better at figuring out, actually, this would be the better way to do this. That’s how you play it forward. Then the question is, if there are fundamental, wise people in the organization, people that can really take that more complex elements of judgment, how do you go from the world we have today, which is a world of apprenticeship, where people come out of college, they go and work, and they learn their way, and therefore, hopefully over time, some of them, not all of them, we know that, but some of them will develop that wisdom to be great decision makers 15, 20 years down the road? How do we do that in a world that now is saying, “I don’t need people out of college because I can do it myself, and I can do individual contributor, and I can have agents doing the work that would require some manifestation of management in the middle.” Basically, “I don’t need this stuff. I don’t need you.” It’s a little bit the story we’re in. How do you create then this apprenticeship? How do we create then wisdom? My two cents on that is that wisdom, because of what we were just discussing and what, for example, myself and Bertrand was just saying, because of more often interactions with more data-stressed information and insights, what will happen is people will get better through their own reps in whatever form they’re doing, in day-to-day life, in internships, et cetera. In some ways, that will create the accelerated growth. It’s a little bit the interactions with agents and the interactions with our beloved AI algorithms that will create that growth over time and maybe not as much with other people. That still leaves the question around social interactions, but that’s probably the way this gets sorted. Apprenticeship gets sorted through the machine and the human having more interactions in effect.Bertrand Schmitt I agree with you because when we talk about apprenticeship, in some ways a lot of time was wasted on stuff that were not that important. But in a way, that was the price you had to pay in order to be there when people make the big decision to try to get some wisdom from that one hour of interactions that’s really useful and make a difference out of your full week. But the rest of your full week was just basic stuff that you had to do like a machine in a way. Why not let a machine do that? That, for me, is a big question. You could argue there is a transition period where it could be hard. For instance, if you can work hand in hand with AI smartly while you are doing your 4, 5 years of universities, you could graduate with a very different knowledge, perspective, judgment, skill set than anyone who graduated 5 years ago. I think that part will require a question around, “How do you change education?” You see what I mean? If you keep education the same way, expecting that the output is someone that should go now into 5 years of apprenticeship, that’s not going to work because companies will be, “No apprenticeship anymore.” On the contrary, you have to come much more knowledgeable and ready to use the tools. The tools are so efficient that the bar pretty high. You need to come already very well-grounded. If the education is not doing their job, that will be trouble. That part for me, I think is often forgotten. In some ways, the new-found importance of universities as a place to, and not just universities, the trade to really deliver people who are ready for the workforce. If on the business side, the expectation can change, of course, you have to change the education on the other side. My worry probably right now is that it doesn’t look like universities are in touch with what businesses are looking for, businesses are working on. Of course, that’s very worrisome because the cost of university has increased very significantly. It’s not clear quality of education has improved at all. If anything, it could be the opposite. It’s pretty scary. Of course, it’s going to raise a lot of questions. How much is education worth in that type of situation? Maybe another point because we talk a lot about apprenticeship, how this stuff was useful, but at the same time, if we go back in time, not long ago in the ’50s, if you wanted to be a developer, for instance, ’50s, ’60s, the job was very different. There was barely any programmation language out there. You had to use punch cards. Your time truly spent doing the coding was very limited. Once you had your stuff working, then, the debugging was a total nightmare. My point is that no one is looking back to that time saying, “You know what? It was great. It was a great way to learn and to do an apprenticeship for 5 years. To do that crappy job of punching cards for the boss.” There was little value in this. Guess what? Everyone is happy it’s not being done anymore by anyone. I think we also have to see what AI is bringing in a similar way is that everyone’s job is going to become quite different. There are a lot of big parts of the job who are not going to look back with fondness. Just looking back as, “Wow, that was very machine-like type of job. I’m glad I’m done with it.” People will want to jump directly to the next step. You don’t need to go to the punch card phase to be able to be a good developer for the past 40 years. I guess it will be the same with AI.Nuno Gonçalves Pedro I think so. The difficulty we have as humans is to also visualize dramatically different scenarios and landscapes, professionally. It’s difficult for us to anticipate what are the jobs of the future. Jobs have changed a lot in the last few decades, not even the last century. What people do, the migration initially from the agricultural society to then the industrial society to then the services society, and in some ways, the shift within the services industry, and now we’re seeing another shift, so we can’t really anticipate what those jobs look like. Back to your point on education, because I think that’s a very important point. If you’re right now an undergraduate student or a postgraduate student, for that matter, and you’re not figuring out your own mechanisms of learning outside of your syllabus, outside of what your professors are telling you, et cetera, you’re going to face very difficult times. If you’re not right now using all these AI tools proficiently, all these cycles of vibe coding, co-working, et cetera, with agents in the mix, you’re going to have a really tough time. If you’re not at this point in time as proficient as someone like myself or Bertrand, and given that we’re nerds, we’re relatively proficient with a lot of these tools that are out there. On top of it, some of us have our own platforms in-house. If you’re not as proficient as we are with those tools, you’re going to have a very difficult time because then people like us won’t need you. I think that’s the sad truth. It’s like at some point, if you’re not needed, you’re not needed. Then again, you may find something else that’s more interesting for you to do. Start your own company, go join a new exciting job doing whatever it is that you need to do next, et cetera. But again, I think the bar is very high. If you’re in college right now, again, undergrad, postgraduate, this is the time of transition. This is the worst time. It’s not the best time, it’s the worst time. Because education and all these institutions haven’t adapted to it yet. You need to adapt. You need to adapt. You need to adapt. If you don’t, you’re going to pay for it, not just in the loans you need to repay, but also in terms of actually having difficulty finding your career path in those first few critical years.Bertrand Schmitt You need to be especially proactive when you’re facing this type of period where businesses are adapting as fast as they can because they all know it’s going to be survival of the fittest very quickly. Universities typically are working on a very different pace, and it’s pretty guaranteed they are not going to have adapted as fast as businesses. In time of big dramatic change, it will be trouble. It will be trouble. Yes, you will have not fun. Not saying it was part of the deal when you sign up for that loan and decided to go for university. But that’s life. There has been issues before. It’s not the first time. You have to do something about it. You talk about your perspective about, “Hey, why do we need you if you are not already fluent and very efficient with these tools and stuff?” The truth, in some ways, it’s even worse than that. Each time we spend with someone who is not efficient with all of this is less time we spend with the tools that are already providing magic for us.Nuno Gonçalves Pedro Exactly.Bertrand Schmitt It’s a very big choice of, “Hey, do I spend more time training this person?” Do I just… there is an opportunity cost. Or, do I spend more time staying at light speed? Why do I slow down to do something else in the hope that maybe I will get to return versus the light speed I’m already on? It’s a lot of tension. Again, it’s certainly new. But if we want to look back, I think you talk about the switch from agriculture and society, industrial society, and now the service industry. The reality is that, yes, we have made dramatic changes in the past before. 140 years ago, we were 90% agricultural society in Europe, in the US, 90% of us. Today, it’s what? 2%. So my point is that that’s a normal evolution. There is no progress without change. Sometimes the rate of change is soft, and sometimes you have a step function. Now it’s a step function, and it’s also a pretty fast step function. Before, it could take decades to get new stuff being put in place, to have electricity come up, this or that. Now we see that the rate of investment in AI is insane, way beyond anything we have seen before. Two, in a way, a lot of the architecture behind the scene was already there to support an even faster transition. What’s new might be the pace of the transition, how unnatural it might look. But at the same time, if you put yourself in the shoes of someone who lived 150 years ago, I mean, this was also a dramatic change for them. From horses to cars to planes to rockets, pretty big change, maybe even bigger change.Nuno Gonçalves Pedro Maybe the silver lining, just to bookend this section, is one, there will be new roles. There are a lot of things we can’t anticipate. There will be new roles, there will be new jobs being created, and new things that we can’t really quite grasp yet. The second part is that the rules are changing, and they’re changing, I would say, in general, for the better. If you are a decision-maker or an organization, and you still have your job, you’re probably making more important decisions with more data, with more tooling around you, with less red tape, hopefully over time. I know that will not hold true for all the big corporations out there that are listening to us, but it is starting to happen. Things are making an impact on how decision-making is made. There’s less and less red tape along the way in certain organizations. There are more and more fact-based discussions happening as we move along. The silver lining is better jobs, more jobs, different jobs in the future, hopefully as well. Secondly, the second part of the silver line is that the jobs that exist today, hopefully, will be more interesting, certainly on the knowledge space and on this judgment space that we’re now introducing as part of this episode. The AI-Native Company: Org, Hiring, Culture Switching gears, maybe to how does that shift? How does the company of the future look like? How does an AI native company look like? I feel there are a lot of discussions on, “Oh, you only need one person to run everything.” Let’s not go to that level. We’ve had a couple of episodes where we focused on AI as your co-founder and a couple of other elements that you guys can go back to. Let’s focus on a more evolutionary view of what’s happening to organizations, and maybe start with the org structure. In general, we should see more flat organizations where mid-level managers have to justify their pay in some ways because middle management are routers. They are normally routing tasks. It’s sometimes aggregating it, synthesizing it, and pulling it back up. Guess what? AI and agents in general are very good at that. The synthesis piece, et cetera, is not as well needed. One could say there are several elements of middle management that are valuable, like the coaching of people, the creation of apprentices, and the accountability that comes with some of middle management. But lo and behold, most of middle management is seen as a little bit of a thin line that doesn’t need to necessarily exist. I feel we’re moving into a world of smaller teams, more senior teams, where there’s more judgment at the top, where you’ll have people that both do a mix of what we used to call management in its new form, but also a lot of individual contribution. If you’re not used to that, if you’re not used anymore to be an individual in the future, again, and if you’re a very senior in an organization, maybe this is the right time to either reinvent yourself, find some other job that doesn’t require as much of that, which we’ll have plenty of those jobs for the next few decades, or maybe retire. I’ve actually, shockingly enough, seen people who have said, “You know what? This thing is changing too fast, too dramatically. My industry is changing quite aggressively right now. I’m about to retire in a couple of years. I’m just going to retire now.” I’ve literally met two people who have done that. Again, there’s nothing wrong about it. I think we’re, again, going through a step function and a huge shift, but figuring out where you fit in this new model of organizations, more senior at the top, smaller teams, more of a mix of individual contribution with management than ever was done before.Bertrand Schmitt I agree with you. In some ways, I’m not surprised that some people might say, “You know what? It’s now time to retire.” I feel a bit sad, maybe because it means you don’t like to keep reinventing yourself and changing your habits and thinking about new stuff. You were a creature of habits, I would say, if that’s your conclusion. But everyone is entitled to their own opinion, obviously, and a way of life. I guess that’s what happened, again, at regular times in the past in terms of big change. What I can see is that the rise of, you can call it the full-stack individual, someone who will have multiple roles inside the team. Before, you had to really separate the role. Especially in the US, there is such a clear separation between every role you can have in a company. Let’s take a tech company. You will have people doing design, people doing different types of designs, people doing front-end development, back-end development, and operations. You see step-by-step hyper-specialization. I have seen that, and it’s true that the level of complexity you had to deal with at some point requires some level of hyper-specialization because it will take you 6, 12 months in order to be really, really strong on a specific topic, a specific language. God forbid, trying to go deep into something that you had no real experience into. But I feel with AI, it’s a big change, actually. It’s the opportunity to go beyond that. It’s the opportunity to do more, to touch more. You can combine designing and shipping code, product managing and shipping code, being an analyst and deploying. Of course, we have to think how it works because putting a marketer shipping code to production, maybe that will get you into trouble. But I think that there must be some change. We see it changing dramatically, how fast we can get into something, something different from what we are used to. I think it would be crazy not to take that opportunity to dramatically change the scope of many positions and put an end to that hyper-specialization. I think for me, in some ways, hyper-specialization was bad. There is only so much you want to be a specialist in because a lot of things, a lot of opportunities are actually coming from the mixing of many different ideas, many different perspectives, and you lose if you go to hyper-specialization.Nuno Gonçalves Pedro I don’t think the age that is coming is the age of the generalist. I think it’s going to be the age of the multispecialist. We’re going to go into an age of multispecialization, which is a little bit, we’ve mentioned it as well in the past, what Amazon defines as an athlete or T-shaped or pie-shaped people, people that have on top an amazing ability to do general management, strategy, managing teams, et cetera, then have spikes. Spikes into business development, corporate development, product management, whatever it is. With AI and with agents, the development of those spikes, as we’ve been discussing in this episode, will actually be easier. It’s almost like a given. If you want to go deeper and deeper into a certain area, you can go much faster. I think that level of multispecialization is going to be really cool to observe. I’m not sure we’ve had an age of multispecialization over the years. Maybe people would point out, well, the Da Vinci example, people that are great across very different areas. Maybe that’s an example of multispecialization. But honestly, from my perspective, this is going to be an exciting time because of that, because you’ll have people who, instead of being just focused on this area of sales, and I only do that, they can actually and should actually do a lot of other things. So the work, as we were talking before, can be more interesting. More demanding as well, because the judgments you need to make are more complex. The context you need to actually gain needs to be gained much faster. At a level of magnitude, you haven’t been able to do it before. Talk about information overload. But actually, ultimately, the roles can be a lot more interesting, a lot more exciting, because I can jump around. If I’m an investor, in this case, we have two investors on this conversation. But if I’m an investor, one of the things that we start looking at is actually not just looking at a startup as, is this startup doing something in AI or not? Is it AI-enabled or not? Is it an AI platform or not? But actually, more fundamentally, is this an AI native startup? Meaning, organizationally, culturally, is this the company that’s already in the AI age? How is the team working? How are they defining things? It’s not just that they only have two or three people. It’s like, what are those two or three people doing? How are they doing it? What cadence are they doing it on? What tools are they using? How are they making decisions? I feel we’re still actually relatively early on that track. It’s very interesting because we’ve had all these companies raising mega rounds. First round out, we invested in one of them, but there have been many frontier labs out there raising a ton of money. But a lot of them don’t have a fundamentally different way of doing business. Of organizing themselves, of how they do the day-to-day. Although they’re working on cutting-edge stuff, with very notable exceptions, they’re actually not using it themselves. They’re not actually shifting how they do stuff themselves.Bertrand Schmitt For me, that’s very interesting because in the past, I used to be quite conservative on how you manage and run a company in the sense that if you’re already in tech, if you are already on the cutting edge of what technology can deliver, and this and that, don’t waste time trying to invent a new org structure. Just focus on delivering something great, amazing, and be great at technologies. That’s already your huge differentiator. At the time, there was no real reason to innovate on the team organization. I have seen so many teams that tried to innovate, and it was just catastrophic because there was not much to innovate on, because we had decades of optimization that we could leverage. There was no reason to invent. But here it’s very different. There is a dramatic shift in how you can organize differently a company. I don’t think there are any blueprints yet on what’s the best way to do it because it’s too new. But at the same time, I would feel very bad to invest or support a company that first is not focused on AI or AI-enabled, but at the same time is not trying to innovate on the team itself. Because if you don’t do that, you’re going to get killed by someone who is going to innovate better than you on not just the product, but on the org as well.Nuno Gonçalves Pedro Indeed. The shifts are pretty substantial. If you look, for example, just at hiring, what do you hire for? Certainly, there’s this element of the multispecialized orchestrator, which normally will be someone with quite a lot of wisdom and expertise. It doesn’t necessarily mean someone who’s old, but someone who has the ability to work with all the AI tooling and platforms out there and be an orchestrator of agents. Why do they make judgments, make decisions, move stuff forward really, really, really quickly? Again, those jobs are going to be the best jobs. The second part, I think that is very interesting, around hiring, is you’re going to skew towards the elements that are potentially either very aligned with the use of AI tooling and platform, AI expertise, or being AI native, or someone who’s used to using AI. That’s one side of the fence. On the other side, you’re going to actually be optimizing to hire people that have the characteristics that will be difficult for AI to replace immediately, like taste and the notion of fundamental accountability and notion of implications, the notion of how you affect change in organizations, how you affect change in individuals, the elements of coaching, and beyond coaching. You’ll be optimizing for those kinds of hires as well. Then, last but not least, for me, I feel that there is a momentum already happening. I think it will happen even more, which is the tendency to under-hire rather than over-hire. The moment of the good old days of blitz scaling, “Oh, let me go and hire 300 people to scale my go-to-market and just land grab market.” Now, that’s not how it’s going to work. People are going to try and first get the efficiencies in-house with top talent and see if there’s, at the end, the need to hire more people or not, rather than the other way around. I think the issue here is a little bit of what we alluded to before in this episode. There is a tax on individuals. If you hire more people, you’ll have to manage people, you’ll have to work with them, et cetera. If I don’t need to, I might as well work with the agents that the tools and platforms that I use give me access to. Because that’s a world that’s much more efficient, right?Bertrand Schmitt I’m in total agreement with you on this. It’s definitely raising way more questions than before because, again, on one side, you have the product, the technology used to build products that are completely different. At the same time, all of this is also enabling new ways to design organizations and to scale differently, especially in a world where, as we have seen in 3, 6, and 12 months, stuff that you thought were impossible are suddenly becoming possible. So you’re, “Hey, I’m going to scale and burn a shitload of money for 6 months before I know if there is any return.” Versus, “You know what? Maybe I just wait 6 months. The AI has improved enough so that we don’t need this new team. We don’t need these people to do stuff.” Because actually, if you just wait 6 months, we will have stuff coming for free from either new AI models or new AI tools or this or that. If you remember, we used to say that in mobile, things were going three times as fast as on the web in terms of pace of innovation and speed of development and stuff. I mean, with AI, it’s 5X mobile.Nuno Gonçalves Pedro Maybe even more. Yes, well.Bertrand Schmitt Maybe even more, maybe 10X. Every assumption around blitz scaling or scaling in general was based on past assumptions. It’s not based on how is the industry evolving today. Might make more sense for you to really grow your agents and spend more money on more tokens. I remember, of course, Jensen is selling his business interest, but he was saying, “Hey, for each one of my 450K engineers, he better spend 250K in tokens a year.” I’m not saying it’s the right way to say it, but I think there is some truth in it, and that would be something to think about. Have we maxed out the token usage per employee? I’m not talking in a stupid way because token maxing and wasting money has no value and is as stupid as it gets. But if you are truly getting a return on these tokens, can you use more? Can you generate more? Can you create more loops so that one engineer manages not just 10 agents, but 50 agents, but 200 agents? I think that’s the big question. We’re trying to add more people. More people means more management, more issues, more this, more that. That would be a fair question. Another piece of the puzzle is how do you build in a way your… I don’t know if it’s a digital twin, but more like the digital version of your companies represented by agents. How do you make sure that everything you do as a business is truly captured, is truly leveraged so that your agents are getting better and better? Not just because the model gets better, but because you are putting more data into it, because it has more opportunity to learn, and as a result, gets better at your specific business.Nuno Gonçalves Pedro The next big thing is culture. How does culture change? I think the biggest shift that I see is, why would you do meetings all the time?Bertrand Schmitt Yes.Nuno Gonçalves Pedro At least at Chamaeleon, we have a very small team, just by the way. We have a very small team at Chamaeleon. We’ve reduced by way more than 50% the time we spend on meetings between each other across the board, one-on-ones, partner meetings, et cetera. I think we’re really pushing to be more and more asynchronous. There’s stuff you can process via message. I was just asking one of my colleagues, “Can you just send me that prompt for that so I can just do that on CoWork?” Or “Can I just go on Mantis and do this? Can you tell me the cycle?” Or vice versa. Basically, it’s a little bit like you’re just going to do it. I don’t need to meet. I don’t need to meet all the time. There are some things where we still need to meet and interact, and we need to brainstorm at times, and we need to go to a different level of abstraction on the top end. Then on the lower end, there might be things that are a little bit more specific and governance-related and operational-related that we need to agree on that are more sticky. But otherwise, the culture is going to be biased towards build. “Go and do it,” rather than, “Let’s do a meeting.”Bertrand Schmitt Yes.Nuno Gonçalves Pedro Async is the thing. I’m more and more like we have a couple of interns this summer. “Can we async this?” They’re like, “What does that mean?” “Can we make this interaction asynchronous?” Because synchronous interactions for me are very expensive. Can you send me something that I can process, and then I can send it back to you? We don’t waste time on you giving me context and whatever. Then I’m not ready quite yet because I need to process it. Maybe I’m in between two meetings that I’m actually thinking about other things in my mind.” Again, I feel that shifts how stuff is done. One, build rather than meeting. Two, asynchronous versus synchronous. In some way, millennials had it right when they shifted a lot to messaging and stuff like that. Let’s do more asynchronous rather than synchronous, those two elements from just an operating model of the company are significant. Maybe this is a good time for me just to put one parenthesis because there’s this thing that’s bugging me as we’re talking here. Everyone who is listening to us at this point in time might be saying, “Cool, but I work for this large organization. We’re just now…” Everything we’re saying here is contextualized by time. We’re giving you extreme situations. We’re looking into the future. Some companies that we’re talking about might be doing this already as we speak. Some of them might be in the process of doing this and might in the next couple of months be doing it like we are describing it here. Some of them might take years to get there. Then again, some of the companies that might take years might actually be destroyed in between or meanwhile, and be disrupted. Some of them might not because they’re in very legacy businesses, and it’s fine, and it’s okay. Again, don’t take everything that Bertrand and I are saying today as this is gospel, and it’s going to happen tomorrow, and why the hell are we not doing it? We think that aspirationally, this is where you should be moving to as an organization, whatever size you’re at. Speed will matter, as we discussed before, but not everyone, obviously, is going to move as fast as we’re describing it here.Bertrand Schmitt Yes. Me, for instance, take inspiration often with what some of the AI labs, frontier AI labs, are doing, the way they are working, especially in OpenAI and Anthropic. They are clearly at the top of the spear in terms of what is it that you can do because they have access to models we don’t have access to, because they have unlimited tokens they can use for tasks. They hire people who are, of course, 100% on AI. They are the best example of what is achievable if you have the top minds, if you have the latest models, if you have unlimited tokens. From there, you can take that for our needs and for our situation, and others in industries that are not as advanced. Definitely, you have some time. But as you say, things are moving fast, things are changing. Wall Street is going to expect better returns because when we discuss all of this, the conclusion is that you should be able to do more with less. That’s as real as it gets at some point. By the way, that’s what you see. You see better performance, a better business performance right now. So even if you might not get disrupted, you’d better start there. For some, it might take more time, and they might still be fine.Nuno Gonçalves Pedro Maybe to bookend this section, clearly what we’re saying is organizations are going to change. Their MOs are going to change, the structures are going to change. There are elements of what we discussed before in terms of judgment that are fundamental to this. The ability that in some ways, one would say a lot of the technique of getting solutions out there, even in brainstorming or problem-solving, is going to get democratized. The algorithms are able to do that. On the other hand, having points of view and having wisdom is not necessarily democratized, necessarily by the machines. It can be facilitated, it can be more productive in achieving that level of wisdom, but wisdom still will matter at the end of the day. We’re not saying that’s out of the question. Actually, that’s going to be the asset. People who have fundamental wisdom that can come to the table and frame things. We see this even today in prompt engineering, on just creating prompts. The better your prompt is, the better the outcome is going to be, the result that you get from the algorithms. That’s not going to change, in my opinion, anytime soon. That UI interaction piece is not going to change anytime soon. Again, if you’re an organization thinking through organizational structure, culture, if you’re thinking through hiring, these are some of the elements that we think will give you an opportunity, but I would actually go one step further. On the positive side, I would say, they give you arbitrage. If you’re able to move faster than your competitors and really adapt your org faster, you’ll reap the benefits faster as well. That’s what many still say and relate to as the word innovation. That’s how innovation gets accelerated. I think there’s a huge opportunity right now for arbitrage. If you move fast, experiment, experiment on new org structures, experiment with talent, you’ll know that some of them will work well, some of them will fail miserably, so you can’t experiment on literally everything. On the other side, I think the doomsday scenario is if you don’t, if you’re on the other side and your competitor is outpacing you on trying these different organizational models, structure, hiring models, and operating models, they’ll potentially just disrupt you. They’ll do stuff that you thought you had the moat on, and lo and behold, you don’t anymore. Sometimes it comes just from org, just from injection of people with a different MRO, different operating model.Bertrand Schmitt The Human Element: Are We Underestimating It? Maybe we can move to our next section about the human elements. Are we underestimating it or are we overestimating it? The three things that are a big part of the human elements, emotion, creativity, and synthesis. Is it just soft skills, replaceable part? On the contrary, is it the durable part now that we have automated intelligence?Nuno Gonçalves Pedro I’ll start with emotion first because I think it’s probably the easiest of all the ones you’ve mentioned. Emotion is key. Many of you listening to us will know this. The way you deliver a certain message, the emotion that you have when you deliver it, just in and of itself, this could be a sentence, it’s something verbal, et cetera. Makes a difference between the person or the people on the other side actually adopting it or actually just resisting it. Emotion is critical. It’s what runs the world. Everyone talks about a bunch of things, but emotion is a currency that is still naturally human. It will be, I feel, difficult for these AI tools and platforms to recreate it fully until there’s some literally very high-definition manifestation of them as avatars or some physical manifestation of them as robots and all that stuff. It will take a while for that emotion to be manifested. Emotion, I think, is still something that we as humans have as a moat, and it’s critical. As you mentioned before, I was a strategy management consultant at McKinsey, and getting people to action is actually 80% about the delivery, communication, the emotion that you surround the project itself, more than sometimes the truth. It’s great to have the truth and to have something that is similar to the truth in terms of analysis, but in some ways, that’s not what really moves change. Change is moved by, I would argue, a significant amount of emotion and alignment on emotions.Bertrand Schmitt You could argue that’s something that most politicians have perfectly understood. If you look at most campaigns these days, everything on emotions, maybe the tagline might be one word. It’s interesting when you see from that perspective that actually it’s very little on facts, very little on all of this, but more about emotion. You could argue it’s the same for businesses in the future? That’s a fair question. I think creativity is another one that’s quite important. At the same time, it’s not so easy because I must say I’m quite amazed when I’m looking for creativity from AI, either to generate the image, to generate video, to generate audio, or to generate text. AI can be pretty creative. I still think you need to control its creativity; you need to understand what’s good, what’s bad, what’s quality, but at the same time, I can see even in creative tasks, AI can be a very strong partner. I’m talking about any creative task, like invent a name for a product, let’s brainstorm the mission for the company. AI can actually be doing a pretty impressive job. That’s the type of job where you will hire experts, where you will use some of the best people in your team to help you for days. We say, “You can do quite a lot.” It’s an interesting one because I think there is some unique human creativity, and at the same time, AI can be pretty strong at creative task as well.Nuno Gonçalves Pedro I agree. In particular, if it represents benchmarking, if it represents repetition, if it represents seeing the world and then coming up with something that presents itself as creative, to be honest, it can actually outpace humans. If it’s like genuine light bulb moments of creativity, angles that haven’t been tried before, certainly not in the same way, I think humans still have the advantage. To your point, I agree. This is not a humans-win situation. On the previous one, on emotion, still, part of it is because, also on emotion, there are exchanges. You and I might be looking at each other, and from the facial expressions and the reactions, where you judge that for AI to get there, it’s going to take a long time. There’s going to be a lot of very complex algorithmic stuff put into that for AI to be able to create synthetic emotional behaviors, but creativity, I agree with you. There are a lot more nuances to it today, where AI does have significant advantages at the end of the day. Synthesis depends. Synthesis, I feel, if we’re talking about holding a bunch of messy assumptions, contextualized inputs with different layers of data adjacent to them and then trying to create and form one coherent, fully accountable point of view that you stake something on, like a decision, a company, a business unit, whatever, I think humans have the advantage. Part of it is the complexity of what we have today with generative, pre-trained transformers, today with GPTs, where the hallucination comes through, where it’s really more statistical analysis. Over time, maybe synthesis will be a forte for AI. Right now, I think we still have that ability to really be the ultimate decision-makers and judge-makers and have that wisdom put at the table to make those decisions. Honestly, models are very good on balancing both sides, so ended up, as we say in Portuguese, neither fish nor meat. It’s to balance both sides’ answers. That’s not helpful in most cases. When you’re in a difficult position where, for example, the future of a company, company is almost dying, what do you do? I’m not sure your AI algorithms that are going to give you a great solution. Because it will give you a median or average solution, which likely will lead you to a median or average outcome, which in this case would be failure. Again, on synthesis, there are some areas of advantage for human beings. If you are looking for clearly synthesized perspectives on certain elements that are maybe less edge-focused, they’re more than the normal part of the normal distribution, then probably AI agents are brilliant at that. All the tools we have today are pretty good at that, and I think they’ll just get better over time. That’s how I see synthesis.Bertrand Schmitt I think a lot of improvements will come with a better fine-tuning of agents to what’s special about your company. Because if you just take a general agent, there is only so much. It can understand your industry, your company, and your way of working. I think that part of making sure your agents are finely trained, finely tuned on your own business, so that they can give you a really well-calibrated feedback, will have a lot of importance.Nuno Gonçalves Pedro I think that’s absolutely spot on. Maybe to end it, what is definitely different about humanity? Definitely, emotion, as we discussed, some pieces of synthesis. Creativity, maybe the light bulb creativity, not the more repeatable creativity, the one that you can put and encapsulate into processes in some ways. There are elements of us being physical, which robots can’t still recreate. That’s definitely an advantage. The embodied, we’re embodied. That’s obviously a huge advantage. With that also comes advantages because we have to interpret each other, and we have to see the complexities in physicality that land to it. Is human and the human element categorical difference? If we’re having a more philosophical discussion around this, I think it is. I think it will be for at least the foreseeable future and maybe decades to come, even in whatever scenarios we’ll discuss, which is our next section, scenarios.Bertrand Schmitt I would say projecting beyond 10 years is always pretty hard on this because, again, some of the improvements we are talking about we can imagine based on how it has evolved, but at the same time, there will be disruptions in AI. Stuff that we take for granted in terms of weakness, especially, might not be there in a few years from now. Either because it has been solved through brute force or because the field will have made significant change and improvements and discoveries, making some of our points moot. If we talk about embodiment, obviously, robots are coming. How fast, how cheap? That will be a big question. Right now, they’re not very smart. They’re usually very specialized. The more we move to a more general form factor, humanoid form factor, the more I think it will change. Also, another piece of the puzzle is that we have the assumption of agents having trouble to convince humans and stuff. At some point, we keep assuming that humans in the loop. If we’re talking about agents convincing another agent, not having embodiment might be even more efficient. That will be another perspective. Going forward, we will have not just agents we control who are doing a job and scanning the job, but agents truly interacting with other agents. You have agents controlled by one person, one team in your company, working either together or maybe not confrontationally, but trying to think and having different perspectives with another agent, controlled by other teams. I don’t think we have seen much of that now. We have seen mostly agents that are controlled by one team doing one job in one direction. Not multiple teams agents working together, or against or in parallel with another team agent. I think we will see some interesting things coming out of that.Nuno Gonçalves Pedro Scenarios Switching to scenarios, we love our two-by-twos. We haven’t done one in a while. This time it’s a two by two. We have four scenarios. I think on one axis, we would have potentially the capabilities of AI. One side would be more incremental. The other side would be the extreme full AGI. I’ll define it in a bit so that we can at least have a little bit of a definitional view on what the AGI is. Then the other axis would be how gains are distributed, concentrated versus broad. Obviously, if they’re very concentrated, it’s more unequal. It only goes to a few companies, a few people, a few individuals. If it’s broad, it’s much more dispersed through society, et cetera. AGI, just to try to define it, the formal definition of it is that it’s a hypothetical AI that matches or exceeds human capabilities across virtually all cognitive and practical tasks. In some ways, AGI can learn, reason, and adapt to novel situations across any domain. Then there are several mutations on this, but there’s one notion, or rather, there are three notions that normally are across a lot of these definitions. One is generalization, ability to seamlessly transfer knowledge from one domain to another without needing retraining, which is a very impressive skill that we humans still seemingly have. Autonomy in agency, the capacity to operate independently, set goals, plan and execute complex tasks. I think AI is their issue with agents to a lot of that extent. Then, last but not least, human parity, performing economically valuable work at or above the level of a typical human knowledge worker. If you listen to one of our last episodes, you’ll realize that Bertrand and I have slightly different views on AGI, and if it’s already here or not. I think, definitionally, maybe we have slightly different views on what the definition actually is. For me, maybe AGI is a little bit more what some would call superintelligence and generalized superintelligence. Strict to census, Bertrand is more connecting to AGI as in its prime definition. It behaves as well or better than a human thing. Maybe that’s what’s leading us to differences on whether AGI has arrived or not.Bertrand Schmitt Personally, I will have a different scale where I will put AGI, as you just said, in some ways, relatively similar in performance to your average human being. On top of it, it’s able to touch different domains that most humans are not able to do. Usually, there is some level of specializations where in AI, it can be more generic. I will put ASI, Artificial Superintelligence, as clearly the step beyond. Something that, on any dimension you pick, it’s able to beat a human expert. From my perspective, I think we already discussed that, but we are at AGI already. We have AI that can do way better, not just way better, but at least as well as humans on many topics, sometimes better. Yes, there are some topics that are not for AI yet. Embodiment, for instance, to flock with your humanoid robot in 2026. For me, we are partially there or fully there in AGI. If we take the stricter definition, ASI, we are definitely not there, but my guess is that it’s moving quite fast. We might be there in a few years from now. I don’t think we are talking about multi-decades. It’s 5 years, maybe 10. Of course, there are questions because people will say, for instance, “Hey, how do you become truly super-intelligent when all your training is based on human data?” That’s not an easy one because how do you train on that? To be way better, not just a bit better, but way better. Maybe I’m going on a tangent, but some are looking at AI learning from AI, AI being taught from AI, AI fighting with AI, AI challenging AI. The same way we saw this AlphaGo moment where AI was not trained anymore, like in chess with human moves, but has been trained to play against itself. That’s when it reached superintelligence in Go. It reached superintelligence by playing against itself and basically letting go of that human baggage, if you want, and going to the next level. What I found interesting in that, actually, first, that’s what happened, but two, there was some analysis that the average level of Go players and the top players went up after AlphaGo because AlphaGo, in a way, opened doors that humans didn’t believe were open in front of them, or they didn’t see them. They didn’t see these doors, so they didn’t bother to open them. AI opened new doors, but interestingly enough, humans improved after that, thanks to AI. You see what I mean? It was an interesting, okay, that self-learning from AI was the way to go beyond the current level of human knowledge and human expertise, but at the same time, humans were able to follow up. It was not like suddenly humans are totally useless crap. They improved. Did they still beat AI? Maybe not, but it was definitely also helpful.Nuno Gonçalves Pedro Back to our scenarios. We’re going to take the definitional extreme just for argument’s sake for scenarios. We’re going to talk about maybe what you were saying, ASI rather than full AGI, but like ASI. Again, artificial superintelligence as the extreme on the one hand. Let me talk about maybe the first scenario that would come to mind. Maybe we can call it the plateau scenario. All of this was great, but it was all smoke and mirrors. They were great at some cognition stuff. They’re a great tool. At some point, they’re going to hit a wall. Hallucinations are never going to be a thing of the past. We can’t fully trust them on really hardcore stuff. We’ll gain productivity enhancements. We’ll keep gaining those productivity enhancements, but at some point in time, we really won’t reach ASI. We really will be stuck with what we have. It’s a little bit like we get the next big thing, the next big spreadsheet, the next big internet, but it’s not going to change the whole world beyond just productivity, enhancements, and amazing tools that we have available to us that makes us much better. In that scenario, the winners will continue being fast adopters, probably small and medium businesses, because there won’t be a push for maximum speed either, so they’ll catch up at some point. Then AI native companies will be better companies than other companies, but not necessarily overall disruptors across the board. It’s not necessarily a new species of companies. It’s just companies that are a little bit better at doing stuff, which we also saw during the internet phenomenon and that first big push forward and then bubble, where we had some companies that were fundamentally different on how they operated. It took us another couple of decades for companies to be more and more digitally native along the way. Basically interesting, but it’s boring. It’s like, cool, we got tools, we got promised the world. What are the implications? All these companies that are worth trillions and trillions of dollars are not worth trillions and trillions of dollars. Because at some point we’ll face competition, commoditization. It will just be tools and platforms. They will not unlock that next stage. Therefore, this will have been a bubble, and likely it would be a hard landing to that bubble. That’s the implication.Bertrand Schmitt I would just say that, yes, I agree with you, but I would just say overall, even if it stopped today in terms of quality improvement, speed or stuff, or it barely improves, I still think we will have 10 years of madness just to leverage everything that we have today.Nuno Gonçalves Pedro Understood, Bertrand. This is a scenario. I understand, but maybe we’re going to hit a wall, and we’re going to hit that wall next year, or we’re going to hit that wall in 2 years or whatever.Bertrand Schmitt Possibly. I’m just saying we still have 10 years of goodness from that big push in AI we experienced the past few years.Nuno Gonçalves Pedro Absolutely. Agreed, but it’s boring.Bertrand Schmitt It’s boring. It’s a plateau.Nuno Gonçalves Pedro It’s a plateau. The second one is more of something that we have AI, but humans in the loop are going to be critical along the way. The judgment work that we described earlier in the episode is going to be critical to everything that happens. It’s, I would call it the augmentation scenario. The AI will be a great augmentation tool for humans, but humans will never really quite stop being in the loop. Some of the gains that AI has are broadly distributed in society and in the startup, big corporation and small medium business world. Everyone will have access to them. We humans, are still very important. We have all these augmentation things, and AI is mostly benign. There will be a couple of issues, but honestly, at the end of the day, we’re just better. We’re better, faster, more data-driven, more factually current. We’re doing stuff faster, but humans are very much at the center of everything that gets done.Bertrand Schmitt I think that’s definitely a possible scenario. I would say more likely than the plateau scenario. I don’t believe in the plateau scenario at this stage. I think we can move there. I certainly believe that everyone will benefit, the same way that everyone benefited from the agricultural revolution, the industrial revolution. Everyone ultimately benefited. You might have some individuals who really, really have trouble to adjust. Overall, the products they will still buy, the services they will still use, their kids, things will get better because there will be new opportunity created. Again, let’s not forget, it’s always easier to see what’s going to get lost than to imagine what’s going to replace. It’s always that paradox. That’s why some politicians try to take advantage of this, trying to just show the bad stuff that happened. That’s what might get them elected. That’s not the good stuff that’s coming down the road.Nuno Gonçalves Pedro The third scenario, maybe at its extreme, would lead to the doomsday that some politicians do talk about, which is a bifurcation scenario, a scenario where the world gets to some types of ASI, but it gets unevenly distributed. Some players that own either platforms or infrastructure or energy or all of the above will control that. Because they control it, they will have massive productivity enhancements. Labor as a force and as a global force will lose a lot of its leverage. In some ways, the social contracts will just get strained. It’s like the big guys that have made a lot of money, they won’t necessarily share that with the rest of the world. The people that are struggling in the middle class that might have been evaporated is having difficulty making ends meet, and there will be a huge social constraint, et cetera. In and of itself, as a scenario, it doesn’t need to necessarily mean that it is a doomsday scenario. At its extreme, it could be a doomsday scenario. Where very few companies control the world, where the social constructs are destroyed in many parts of the world, where wars just start getting massified, either through civil wars in many places or through actual wars between different countries. That might lead to a doomsday scenario. But the scenario itself of bifurcation doesn’t necessarily mean doomsday. It’s just added as extreme could be a doomsday scenario.Bertrand Schmitt Yes, I think it’s difficult to dismiss that scenario. I just put a very low likelihood given again, we now have centuries of economic revolution, scientific revolution to look at in the past, and it never happened. The only thing that happened is more wealth, more health for countries that pick democracy, that pick science, that pick capitalism. I’m personally quite hopeful this will not happen. However, I could say that bad regulations will create that. I’m personally very worried about what’s happening in Europe. Very bad decisions in terms of energy choice, very bad AI regulations that can create part of Europe as a permanent underclass. If you don’t have energy to run data center, if you cannot use AI, if you cannot run AI, that will be trouble because US and China are not going to wait. I think some of this could happen.Nuno Gonçalves Pedro Honestly, it could happen. My biggest concern is not so much regulation. I think my biggest concern is the unchecked companies, that there’s a couple of unchecked companies that decide to just create monopolies around whatever they’re doing, and it will be difficult to take them out of place, in particular in political environments that are a little bit more appeasing to such companies. Actually, the whole Skynet scenario for me is not totally impossible. Probably not quite in the way that Skynet happened, but it’s not totally impossible. We should be on our toes on this stuff because, honestly, if we don’t think through a lot of the implications of what we’re doing, we might well end up there. Last scenario is a scenario of full abundance. We are at ASI, Artificial Superintelligence, and everything’s broadly distributed. Everyone has access to it. All the gains are deliberately distributed. Either through policy or through the great companies of the world that decide to lead the way and share their profits, not only with their employees, but with humans at large. In some ways, we either pivot to doing other signs of activities or we work less days a week, or there’s other elements of this, like universal basic income or other things that come to fruition that might appease the masses, so to speak, and everyone’s happy in a genuine bunch of companies that, albeit our overlords, they are very good at basically distributing that wealth that gets created over time.Bertrand Schmitt I don’t like this scenario, personally. It might happen, but I don’t think it’s the right way to go. I think that, again, I have that belief that capitalism and science will create opportunities for everyone. I don’t think there is a need for companies to share their profits beyond their employees and shareholders. I think, ultimately, if companies provide a good product, it will benefit the people who are using their product. That’s how you work as a business. But I can imagine definitely a world where even better AI, stronger AI, can be broadly distributed and have a lot of benefit. But I think it’s good if human beings still work, do something meaningful. We don’t create a class of people who are just entertaining themselves through the fruit of others. I don’t think it ever ends well.Nuno Gonçalves Pedro The Catholic in me, just to be clear, thinks the full abundance is heaven, and that will become after.Bertrand Schmitt It’s a different story, yes.Nuno Gonçalves Pedro Maybe it doesn’t need to happen here. Here we need to toil and work, but it would be a good scenario, I guess. I agree with you. It’s probably the most unlikely of all the four scenarios. If I had to put some probabilities to each of them, I would say second, probably least probable scenario, and we’re talking about the next 10–20 years, which is what we can have some visibility on, not the next century, would probably be the scenario we just described around bifurcation that could end up in that doomsday. It is higher than the probability of full abundance, I think. Actually, quite higher, but I don’t think we’ll be as high as other scenarios that we have at the table. I would put the first scenario I discussed, plateau, as the second most likely scenario. It’s a little bit like an inflection point. We hit an inflection point, we’ll get productivity gains, we’ll hit a wall, we’ll get through, to your point, the use of that productivity over the next decade or so, but then it’s another inflection point to get to the next level and next layer that will take us finally to ASI. Last but not the least, I think the most probable scenario, if I had to, again, look 10, 20 down the road is augmentation, where human loop will continue being critical and where these AI agents and platforms will be fundamentally shifting how we do things. Again, optimistic. Both those scenarios are relatively optimistic, to be honest. Augmentation would be probably, I would allege, the most optimistic for human beings, probably the most positive for humanity in the broad sense, where we all have roles, and we all have importance in whatever we’re doing. Obviously, with new jobs and new job descriptions and new things that we’re doing. That, I think, would be my probability adjusted answer.Bertrand Schmitt Yes, I agree with you. The full abundance is not so believable because there is always some limited resources. There is always a want for more. I’m not super sure it’s ever possible. The plateau, I think, is really unlikely. There are still so many ways to improve. We might plateau in 10 years. That’s a different story. But I can see that acceleration and slope we’re on would take many years before slowing down. I’m like you. I certainly believe, and especially the optimist in me, the historian in me, believe that strong AI, broadly distributed benefit is a likely scenario with a possible risk through some more bifurcation between have and have not. But again, I think this situation would happen more if we have too much government control and mistakes in term of how to let the best companies win and let the market be efficient.Nuno Gonçalves Pedro Our Take Key takeaways from today, and before we move to conclusion, obviously, intelligence is getting cheaper and cheaper or perceived intelligence. Maybe we’re just talking about analytical capabilities or other things. But as it gets cheaper, some elements of judgment, taste, and even accountability are obviously getting more expensive. I think we have a very positive long perspective on the human element, that the human element will be distinctive, will be able to defend itself, and cultivate its role in all sorts of processes of decision-making, obviously, including in the professional and work environment. It’s not safe by default that we are to be in the loop, the humans, but we feel that there’s a high chance that we’ll be in the loop, and we’ll have something to give to these processes and to these judgments and these decisions that we’re making. We feel that it’s a time for you to take some qualified risks. It is important to see that there are a lot of productivity enhancements in the market right now. If you are not acting more and more as an AI native company and evolving your org structure, your culture, your hiring practices, et cetera, you may be left behind. That might be one of the first angles of disintermediation or disruption by new entrants. We feel it’s a no-regrets move in some ways. AI native matters. Being AI native as an org or a company. Then last but not least, if you’re not using these tools, if you’re not playing around, if you’re not using platforms and using these systems, get ready to be disrupted yourself. Unless you have some of these core skills that we just discussed in our episode that don’t require any use of AI tools, you’re going to be facing a difficult uphill battle along the way. Again, if you’re in the midst of the AI transformation, and you’re not using it yourself, it’s going to be difficult to justify a paycheck a couple of years down the road.Bertrand Schmitt I think at the end of the day, AI is here, whether you like it or not. AI is going to keep getting better and better. What happened the past 4 years was nothing short of extraordinary in term of AI improvements, CapEx investment in AI. I would be shocked if it’s not growing even faster from here. Of course, there will be jobs, little impacted with AI, but definitely, if you are a knowledge worker, your job will be impacted by AI. I would guess, nearly anything you do in 5–10 years from now, will be totally unrecognizable if you were a knowledge worker. The job will have changed completely dramatically. If you are a business, you will have to adjust and adapt because there is simply no other choice. It’s a capitalist system. People will find the best tools, will learn the best tools, will use them, and will try to beat you and will try to be there. You have to be part of it, you have to make it work. I think overall for society, this would be very incredible improvements to what we can build, what we can deliver in every industry. Personally, I’m very excited by that new cognitive age in front of us, assisted by AI or expanded with AI. I don’t think AI will supplant us, but definitely it will be a big chunk of our future workforce. If you think about it, there is nearly no limit to how much we can scale AI. Conclusion It was good to talk basically from knowledge workers to judgment workers. Talk a bit more about what would look like the native AI company. Talk about the human element that humans can uniquely bring to the table. Finally, we went around four scenarios about where AI will bring us. Thank you, Nuno.Nuno Gonçalves Pedro Thank you, Bertrand.

Dead On Arrival: What was just Hype and what was just wrong Timing? Some technologies and products get over-hyped, and never seem to come to fruition? Some just come to fruition, but years or even decades later? In this episode of Tech Deciphered, what is Dead On Arrival versus just wrong timing Navigation: Intro The Fork Cold Open General Magic The Metaverse Dead on Arrival The soon to be Resurrected… 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 Subscribe To Our Podcast Bertrand SchmittIntroduction Welcome to Tech Deciphered episode 78, Dead on Arrival. Was it just hype or just wrong timing? In this episode, we are going to discuss two different types of businesses that as an investor, as an entrepreneur, you want to think carefully about. Looking back, you want to understand better what happened. If we take dead on arrival, we’re talking about businesses, technologies that maybe the tech work fine, but actually no one cared about it, no one wanted it. It’s really a mismatch in terms of what consumer want versus what you are trying to deliver. It’s a classic example of a solution finding for a problem. On the other hand, will it happen but not like that, not now? It’s a type of business where we were too early. We tried to make it work, but actually the technology is not ready now, but it might become ready in the future. As an entrepreneur, as an investor, obviously, you want to make sure you are not in one of these two technologies, one of these two categories. But it’s really a useful lesson to learn which situation you might be in because it will help you make better decision and pick better industries going forward. Nuno, what’s your take on this tough analysis?Nuno Goncalves PedroYeah, in hindsight, everything looks like, “Oh, of course, this wasn’t meant to work,” etc. But here we’re going to take a stab, as you mentioned, at things that are just wrong timing. They might have failed miserably in the past, but they might work in the future. The Fork To have this stake on the ground approach to it, as we’ve had in previous episodes, of defining exactly what we think will happen, but just not like that, versus the dead-on-arrival, which is a little bit more of a hardcore view on it. To your point, we want to really split between those two things because in some ways people are like, “Well, are we ever going to go and have different ways of interacting, for example, in terms of input and output, like with glasses or things like that, that really scale to become pretty pervasive?” We probably would agree that, “Yes, that will happen”. Maybe not in the way that we’ve anticipated until now, and certainly it’s going to take longer than we’ve expected. In some ways, the “will happen, not like that” is a little bit like Amara’s law or Nuno’s law, as referred to in the past. We tend to overestimate the speed at which we get to a revolution, underestimate impact. The “will happen, not like that” will probably fit into that. They will have probably bigger impact than we thought they would, but they will just take longer. Therefore, the solutions we’ve had until now are not great solutions. Whereas the dead-on-arrival, we’re saying, “Hey, we don’t think actually this works.” It’s to your point, not solving a problem that actually needs to be solved, or it’s solving it in the wrong way. Yeah, it’s basically an attempt to really frame, if you’re an entrepreneur, if you’re a venture capitalist, if you’re someone who is an angel investor and is looking at the market right now, what things should you put some real money and real resources, real time behind versus not, and really share that with you guys: our audience.Bertrand SchmittCold Open I always like to go back to a company called General Magic, a company that was legendary in Silicon Valley, spun out of Apple in the 1990s. There was even a movie made about General Magic. It’s a company that tried to basically build the first modern smartphone with touchscreens, app ecosystem. The only issue was it was years before the technology existed to support it. But Nokia at the time was less ambitious and more practical with what the technology was able to do at the time. But what’s interesting with this company is that obviously the smartphone was coming, just took 10 more years, 15 more years. Interestingly enough, some of the people in the team ended up being very successful in that exact space. Tony Fadell, for instance, who ended up creating the iPhone, co-create at least, and Andy Rubin, who end up building up Android, selling that to Google and leading the charge with Google Android.Nuno Goncalves PedroYeah, a very successful team. Tony Fadell, obviously, later on did Nest as well. Megan Smith, who was later the Chief Technology Officer of the US. A lot of people that came out of it that did a lot of important things. To be honest, I think a lot of the technology that was developed that was in some way a capacity or that are reused later on by some of these team members. I’m not saying they were infringing on any IP, but definitely there was a lot of reuse of tech. But it was too soon, right? They were doing something that was truly ambitious too soon. But a lot of these principles, a lot of these things ended up manifesting themselves, and particularly in the iPhone later on and in that deployment. Another such example is actually the metaverse. We did two episodes back in the day, a long time ago, on the metaverse. We debunked it a little bit. Back then, I think it was a very nuanced debunking, if I recall it correctly, Bertrand, because we were saying, “Hey, it’s going to happen in some ways, but it’s an evolution, not a revolution,” not in the way that we saw definitionally. We were huge fans of Matthew Ball and his analysis around media, but somehow we disagreed, I remember, with his definition of what the metaverse is and how it will look like. There’s no doubt that there’s going to be a metaverse in the future, probably metaverses in the future before there’s any given unification. In those metaverses, we do believe. But this whole hype cycle around metaverse and what’s happening clearly didn’t work out well, as proven also by all the write-offs done by Meta on their metaverse stuff. That much must have hurt. It’s related to AR and VR as well and to the enriched reality positioning of a lot of these technologies, which we’ll talk about later. But, again, it was probably something that’s going to happen. It’s going to happen likely in a different product manifestation as the one that was anticipated by a lot of the pundits that opined on what’s happening around metaverse in the future. But it’s going to happen. It’s just going to take longer. It’s going to probably come from angles of entry that are likely not what people had anticipated earlier on. Maybe it’s from gaming, maybe from something else. But definitely it’s going to happen.Bertrand SchmittYes, and you could argue that Apple did a similar mistake with the Vision Pro. I think the Vision Pro is the worst launch of an Apple product. When we say launch, it’s been three years maybe?Nuno Goncalves PedroSince the Newton, maybe?Bertrand SchmittYes, that’s my point. You have to go back a really long time to have such a disastrous launch. I think for me, it’s very interesting because it’s really a category where on one side there is a metaverse of some sort. You should argue if you are just using Twitter, or Facebook, these are some parallel universe in parallel to your real life. But the full on metaverse where you need some extra super heavy glasses to make it work, that simply has not worked. Don’t get me wrong, there are some super small, narrow cases where your heavy VR glasses makes sense for some training, for some simulation, for some light gaming. But given the weight, the disconnection from the real world, it has really never taken fire. Even at cheaper price like Meta was able to do, at more expensive price, much higher quality like the Vision Pro did. It looks like people have an issue with putting heavy glasses on top of them. We’ll talk later about the other side: AR glasses. But the traditional metaverse, heavy glasses, VR glasses, yes, it’s not feeling right, and I don’t think it will ever be right. It needs a different form factor to go at scale.Nuno Goncalves PedroDefinitely fundamental shifts on the metaverse. Just a quick reminder, Meta actually changed their name because of metaverse.Bertrand SchmittYes. Nuno Goncalves PedroIt’s not just that they’re writing off the investments, it’s their name is apparently wrong. It didn’t really happen in that way. You are saying that this persistent embodied virtual world, which was the early definitions of what a metaverse was, didn’t really happen until now. It might happen at some point, but not in that way. But, obviously, a lot of the enablement layers are still work in progress, right? Real-time 3D, presence, avatars, all of these things are moving on. A lot of these enablers will be ready once there is a time where these technologies and businesses that are fundamentally anchored around these technologies will emerge. It’s, again, right components, wrong product alignment, but at the same time, it will happen, just not yet.Bertrand SchmittAgain, I think we’re going to face a split of a virtual reality light that you can call AR with very light glasses that are not a pain to wear, that are more limited, especially today or the next 5 years. The VR glasses that will stay a niche product that are useful for some use cases. Do you want to do a flight simulation? You want to do military training? There will be use for that. But beyond that, it’s more limited. We forgot to talk about the Google Glass. This one was an early, early AR glasses. But, again, here we go back to the capabilities. Simply, we were not there at the time.Nuno Goncalves PedroDead on Arrival We’re moving to Dead on Arrival. What things do we think are relatively dead on arrival? We’ll be nuanced on a couple of these aspects. Not everything is totally dead on arrival. But maybe let’s start with a good one, which is some of the crypto summer promises, particularly around NFTs, non-fungible tokens, and the decentralization of everything, the tokenization of everything. That didn’t quite work the way people thought it would. A lot of people were very happy for a period of time that they had some NFT that was worth a ton of money. Good for them. I hope they sold it back then. Some did actually, fortunately for them, but most of them did not. As an asset and the tokenization element, we’re not questioning that tokenization itself doesn’t make any sense. But from my perspective, a lot of the elements of tokenization plus the tokenization of everything don’t make necessarily imminent sense. I think we’re going to have a world that not everything is going to be tokenized, and a world where, to be honest, having the latest ape token as an NFT is maybe not something I really need. It’s dead on arrival in some ways. What do you think, Bertrand?Bertrand SchmittIt feels like it’s a tale of two worlds. On one side, there was clearly exuberance and bullshit. All these cryptocurrencies that make no sense, have no values. The NFTs are the same: no values, no sense, no logic in them. At the same time, we can see that Bitcoin, Ethereum, and few others were significant products, invention, that have a current total market value that is significant. I would say we can see that step by step, little by little, there is some tokenization happening, but it has been much more narrow than what was initially thought, expected. But it’s happening step by step. I think there is value in tokenization, but definitely not as much value as people expected. I think for one simple reason: it’s very expensive to set up in the sense that it doesn’t work so well, actually. It requires a lot of computing power for stuff that might not justify it as simple as that. Why do you want to replace a very efficient, superfast database by something slow, expensive to maintain? Why? You need to have real reason for that. I think in most situations, there was not a real justification to make that switch. I think, again, there is a niche for tokenization. It’s getting used. Obviously, there is stablecoin as well that are working and provide value. But definitely, the use cases have narrowed. The success stories have been few and far between. It’s definitely a space, but I don’t think it has lived up to the expectations. The expectations were simply quite insane in terms of what to expect, and it failed to achieve that. I don’t think it qualifies as a true revolution. It has been successful again in our situation: in Bitcoin, in Ethereum, in some tokenization. But beyond that, it was not the dramatic change that people were picturing.Nuno Goncalves PedroYeah, it’s been successful and there is a security, in this case, a currency of types, that links to the value of that specific network and the utility of that specific network. But on this case, in particular, the NFT stuff, I think there were two core premises that were very valuable about it. One was the premise of digital collectibles, the element itself being collectible and the fact that I have a unique one was only minted one. It’s a unique thing out there. I think at some point people forgot that actually digital collectibles are not as valuable as people think they are. Physical collectibles are more valuable. The reason for that is just human nature. I want to have something in physicality. I want to have something that I can show people, etc, that has a physicality to it. Digital collectibles, I think there was a problem fundamentally in part of the articulation of NFTs that reside in the value of digitization of these collectibles in and of themselves. I think that was part of the problem. The second problem was really the notion of provenance, the notion of certification, the notion of “this is what it says it is, and nobody can say this is something else.” This notion of provenance. That, I think, fits more into the point you were making, which is the point around use cases. This doesn’t fit all use cases. The provenance piece and the certification piece doesn’t fit for all use cases. Probably it might fit actually even more for actual physical assets where you want to have a certificate, that thing is what it says it is, but it’s actually maybe a physical asset rather than a digital asset. Again, lo and behold, it doesn’t apply to all the use cases that relate to provenance. I don’t think we need to tokenize all the provenance ledgers in the world for this to be working well. Again, it was a little bit of an overreach. In some ways, all these players were very happy. There was a lot of bullshit. To be honest, this is an area that I do think there was actual active fraud. All due respect to a lot of the players in the market, but there was active fraud. Honestly, there was bullshit.Bertrand SchmittI agree with you. I was going to say that it’s one of the rare sector in technology where I think frauds, scams were prevalent. Yes, you might have some shitty startups in general and stuff, and there might be fraud. I think true fraud is rare. True scam is rare. But here for NFTs, for cryptocurrencies, that was the majority you could argue. That’s the part that I never really liked in all that industry. If you look at NFT, personally, I never understood the concept. For me, it made simply no sense because, yes, you can say, “Oh, I have created this rare digital token.” But sure, so what? Who cares? Who cares? You can have hundreds, thousands, millions of unique digital tokens. How does it matter? What’s the use case? What’s the connection? You can show it on your screen, but then how is it unique anymore? It’s not like people have to come to your house and check stuff on site or something like physical art. No, not at all. I don’t know. I think it was surprisingly true bullshit. Again, I’m still a believer in Bitcoin. I think there is true logic to have a separate virtual digital currency. But you don’t need hundreds of them. You just need one, maybe two for some variation. The same for tokenization, it doesn’t need to happen everywhere. Just need to happen where there is really strong real logical value. Beyond that, there is no point.Nuno Goncalves PedroYeah, makes sense. Maybe moving to our next one. I think we discussed this in a previous episode, which was the whole 3D TV stuff. We just don’t think that’s the product, right? It’s not going to be a 3D TV. I believe when we discussed this in the episode—I don’t want to lie too much—but I believe that’s what we came up with… It looks a bit more holographic or the manifestation comes through other mechanisms like glasses, etc. But we thought it was just dead on arrival. Nobody wanted to have glasses on the couch to watch the 3D TV, but also the 3D TVs themselves they tried to develop were very holographic, were super clunky and very heavy. In some ways, I think TV manifestation somehow is not a great manifestation for this. I put it on the dead-on-arrival pile. I have one, just to be clear. I still have one.Bertrand SchmittYeah, but it’s a weird one because if you remember, it suddenly happened. I remember being shocked as a consumer. Suddenly everyone talks about 3D TV. In a few months, 3D TVs are all out everywhere. Then after a few years, no one bothered to keep adding that because consumers didn’t care. I think one issue was, I think it has only worked with Blu-rays. I don’t think any streaming service supported that. With the rise of streaming, that was certainly a pretty big issue in the first place. Interestingly, in the movie theaters, do we still have movies being shown in 3D? I think we still have a few, but it’s really few and far between the movie theater.Nuno Goncalves PedroYeah, IMAX won on that format, the high-end format, IMAX won, not the 3D thing.Bertrand SchmittBut, yeah, if you’re on the TV at home, you don’t want to bother. Maybe if you’re in the movie theater, more high-end experience, you are willing to wear special glasses. I think it makes sense. I think, I guess at home, we are just too busy doing multiple things at once. Rarely sitting all around 2 hours for a movie, so you watch your phone, you check on something else. You don’t want to have these glasses on top that block you from the rest of what’s happening at home.Nuno Goncalves PedroYeah, it just didn’t work. I’m not sure it will work in any case, so we’ll see. But definitely, I don’t think that’s the right form factor.Bertrand SchmittIt technically worked, but practically, it was not accepted by consumers.Nuno Goncalves PedroLet me rephrase. I think it was a solution to a problem nobody thought they had. The execution of the product was the wrong one. It’s like that’s not what people wanted. Maybe we do want some 3D immersive experience, but that’s not the 3D immersive experience that we want, not manifested like that in effect, with its limitations, etc.Bertrand SchmittI want to say that we are not denigrating some of these experiments. Me, I still remember putting a Vision Pro and watching some content that is natively created by Apple for the Vision Pro. It’s an amazing magical experience, truly. But at the same time, I’m always worrying to have to think I’m going to spend 30 minutes putting my Vision Pro on my head. It’s heavy, it’s painful. Again, we go back to, I’m disconnected from everything else, and I don’t like that.Nuno Goncalves PedroWhen there was real technological development, like the case of 3D TVs, that technology development may have served other purposes. Again, we applaud those that put the money where their mouth was, the companies, the individuals that wanted to move forward some of these technology stacks, maybe less so the people that just decided to create NFTs for the sake of it with apes. No attack on those guys specifically, but just to create a specific view on that. But there’s a lot of stuff we’re talking about today which is actually great technological development. There’s stuff that came out of it that is very, very valuable technological development. Maybe to our next one on mobility, physical mobility. The Segway. Everyone’s like, “Oh, this is going to change how we move around the world, in particular for shorter distances, etc.” Well, apparently no. Apparently, it’s not super intuitive. There are still Segways out there for use by police forces, tours, and all that stuff. People say, “Oh, it’s…” No, well, it never scaled. It wasn’t changed. It didn’t change how relatively short local mobility was going to be done. I think part of it is actually the problem with the product. The product is not as intuitive as people thought it would be, and it has other issues around that in terms of security and safety. If you’re going to have a device or something that moves you around, what’s the minimum-accepted level of security that you would have. The fact that you have to incline to move it is actually not super as initially some probably people thought it’s actually not as intuitive as some might have thought it was. I think it’s a dead-on-arrival play. The vehicles of the future, I’m not sure, look like that at all. Happy to eat my words down the road, but I don’t think so.Bertrand SchmittYes, and I remember the massive hype at the start of this product. They were hiding it, but still telling you, We have seen it. That’s true. It’s going to totally change how cities are planned. I mean, the level of hype and bullshit was insane before the launch of the product and before anyone outside of a few knew what it looked like. Then we saw what it looked like, and it was on one side, an engineering marvel, the self-stabilization system was new. I mean, very few people had seen something like this before. At the same time, as you said, the issue was what happens if it loses battery? What happens if you fall from it? Quite frankly, if you look at today’s modern electric scooter, you have 95% of the value of a Segway without any of the downsides. You don’t need to learn a new way to do things. If you lose battery, it still works. I guess you can still push it. It’s not too expensive. You don’t have massive computers to just make it work. You don’t have massive robotics. It’s clearly an impressive engineering solution. But the exact example of a solution to a problem people didn’t have, when ultimately a much more simple and elegant solution was there for people who care. To be clear, you still could use a regular bike. The alternative was still your regular bike. But now you have electric scooters that are a clear, closer alternative, I guess, in spirit to what was supposed to be the Segway. Sometimes, let’s be careful. Overengineering might not be the answer.Nuno Goncalves PedroEven scooters, which are, to be honest, I would argue a much easier philosophical view of how mobility should be done and a much easier form factor, so to speak, in terms of mobility, even those won’t have wide adoption to everyone. It’s not like everyone’s going to use a scooter. The bar for a scooter is much less than a bar for a Segway.Bertrand SchmittYes. I think in a way, the electric scooter is showing us in some ways that the limit of the dream is that even well-executed, even cheap, even easy to use, even low-risk in a way, there is still only so much that people are willing to use it because it’s a pain to bring with you everywhere. Actually, in some ways, you could argue it has only worked with this distributed platform, like lime and others that let you take one and drop it when you are done using it. But that was not a model that was workable for the Segway. I totally agree. You could argue that bikes are still the gold standard or now electric bikes are still the gold standard for who want that level of mobility.Nuno Goncalves PedroWell, the next one is to be a favorite of, I guess, everyone that didn’t invest in them, which is Juicero, which was the machine that basically created Juices out of squeezing a bag. I’m going to be nice here to… There were a bunch of well-known investors. They raised, I think, 120 million or something like that.Bertrand SchmittThat’s insane.Nuno Goncalves PedroIt is insane. But maybe the vision was not that vision. It was something grandiose and the complexity around dealing with liquids and whatever. I’m not really sure we didn’t pass or invest on the company.Bertrand SchmittBig old juice bags.Nuno Goncalves PedroMaybe. You’re being facetious. Anyway, I’m not trying to attack the guys who actually invested in this, the investors that put money into this. But it was basically one of these examples that we’re trying to solve a problem that didn’t exist. It’s like a solution for a problem that doesn’t exist. I can just squeeze a bag of concentrated thing and make a juice. I can do something around the juice. As I said, maybe the big vision was well beyond that, and I’m not sure many of us will ever know what the big vision actually was. But yes, it was a solution, a $400 machine to a problem that nobody really had. That didn’t work.Bertrand SchmittI think the most crazy part of the story is that the business exploded when there was this Bloomberg reporter that showed that you could squeeze the bag with your hands without a machine and get the same juice. That’s pretty insane. That’s just so unbelievable.Nuno Goncalves PedroThe funny part of the story is MSCHF, this company that does all their on-point, slightly artistic, whatever, one-off, drops, etc, etc. Shout out to Gabriel. Gabe Wally, who was the founder there. This is funny. They actually did a collectible series of figurines of that startup toys, of which Juicero was one of them. Jibo, which I don’t think you’d appreciate. Bertrand, and the Theranos minilab. So someone is also making money on that, which is funny. So well done, MSCHF.Bertrand SchmittWhy not? Why not? Maybe we can go quickly over Lytro. This one was, I would say, brilliant technology. It was a camera able to capture light in a different way. You could actually dynamically change focus after the picture was taken. So something quite impressive, and I still remember looking at their products and thinking, should I get one? At the same time where it didn’t work, it was too limited in terms of image quality versus shooting the real picture. It was very tough to sell as an independent device because either you’re in the phone or you are in a DSLR, but there was no spot in between. In some ways, phones solved the issue not directly, but they kept adding cameras. At some point, you had not one, but two, but three, but four, but five cameras in your phone. You had a specific mode for anything you needed, and that’s it. Phone manufacturers managed to convince people they should pay for all these cameras, or provide a low-end version if you don’t want to pay for all these cameras. But yes, very interesting technology that did not manage to find a go-to market.Nuno Goncalves PedroYes, it’s falling in love with a technology solution that, as you said, was incredible, and not falling in love with what problem you are actually trying to solve. Because a lot of the elements of the problem that you’re trying to solve, either you take another picture. All due respect, instead of me trying to change the field of view, etc, and the focus, post picture taken, I take another picture. To be honest, you can take thousands of pictures now with different setups. Also, ignoring the fact that this was pre this whole AI boom. So obviously, that one I will be kind on. But with the AI boom, you can do a lot of things to pictures and changes and stuff like that. All of that changes the game in and of itself. Obviously, Lytro or Lytro, not sure how you spell them, or how you say their name, but they failed before that. So again, this was super great tech, great investors, good investors on board, but just nobody wanted that device. Why would I want this thing? A total failure on arrival. I think one also other aspect of it that may have been misinterpreted and underestimated by some of the early investors, certainly in the company, is the value chain. There is a value chain for cameras, for SLRs, DSLRs, etc, etc. They know what they’re doing, and they’re doing their own level of innovation. In some ways, that fits squarely into that value chain, which I’m sure is a complex value chain to manage in and of itself. Maybe that’s created its own dynamics as well.Bertrand SchmittI think they try to insert themselves in the value chain, but I’m not sure first that they managed to get technology as small as it should have been. They simply didn’t convince anyone. The Sony or Nikon of the world, or the Apple or Google of the world, to use their technology in their phones, because no one really saw the value, per se. One thing to keep in mind, using their technology means you had a big trade-off in terms of megapixels. Actually, you will benefit from that great effect around the focus that can move anywhere after the fact. But in exchange, you had to lose dramatically the number of megapixels. At the time, all the rage was about how do I get more megapixels for my phone with good image quality. That was all that you were selling to consumers. Consumers would not have bought 10 times less megapixels for a weird benefit that at the time no one cared about. I think you are very right to introduce the fact that, of course, they could not have guessed at the time, but today you can get for free this refocusing effect with AI, actually.Nuno Goncalves PedroThat’s exactly the point I was making on the value chain. They went into a value chain that has a lot of players in it, and they got kicked in the butt anyway, because people were like, Why would I adopt it? They didn’t serve the purpose of the use case or the user flow. They didn’t anticipate competitive dynamics to it. Then they actually went straight up into a technology plus IP logic on a value chain that would be like, “Hey, dudes, just get out of here.” What would be the incentive for people to bring them on board? It’s like in some ways, they did all the mistakes under the book in that sense. Again, I’m not trying to diss the company, the founders, the investors, but it feels that was the problem in the end.Bertrand SchmittYes.Nuno Goncalves PedroShall we do some rapid fire dead-on-arrivals?Bertrand SchmittYes. A fan favorite. Have you tried a keyboard projector on?Nuno Goncalves PedroYes. I think I mentioned that in a previous episode, I did have one of the early ones and whatever. Yes, somehow we forgot that there’s other best, better ways of input, maybe voice would be a better way of input if that’s the problem, but anyway.Bertrand SchmittThis one is interesting because you just use it for one minute, and you discover it’s horrible.Nuno Goncalves PedroIt’s a horrible experience.Bertrand SchmittYou have to type on it. You don’t see exactly where you type. Each time you type, you are hurting your fingers because it’s not a smooth keyboard feeling, but you are tapping a solid surface. That’s amazing that it went to manufacturing, and basically no one gave feedback. There is no way it’s working. No way technically working, but practically, no one would want to use that.Nuno Goncalves PedroIt’s bad in all aspects. The finger’s touching. It needs to be a very over-engineered experience for it to actually detect the key stroking and all that stuff. It’s an over-engineered solution by default. It’s not private because once you have the keyboard projector, you’re like, “Where am I keyboarding projecting on?” It’s something that others can see. There are other alternatives that are better. The keyboards on our phones are pretty good these days, with autocorrection in most cases, I wouldn’t say all cases. Voice can also be an interesting replacement to that. If that’s what you’re going for, voice recognition has improved dramatically over the last few years. Again, it’s one of these, “Yeah, cool.”Bertrand SchmittIt’s clear that, first, touch has replaced a physical keyboard where you need one. And two, now voice recognition is getting better for sure.Nuno Goncalves PedroThe opposite side is that voice assistants were going to take over everything, that everything was going to be voice assistant-led. Alexa is going to run your life. You’re going to have games for voice. I actually have a good friend of mine who did a startup in that space. Actually, the company got acquired, and everything’s going to be voice, which, as we know, is also not true. We need to visualize sometimes. Sometimes we still want to write because we want either the added value of privacy or of expression at some standpoint. There are a lot of things that are happening around voice that are exciting. We just mentioned voice recognition, but not everything is going to be voice. Certainly not for the foreseeable future, and so that doesn’t work. Also, as the ultimate platform, we also want some visuals. We also want to have other kinds of interactions. There are limitations to voice assistants, for example. Voice assistants were not quite the next platform that people said they were going to be. I would say they’re a channel, but they’re definitely not a platform. That’s how, at least I see them.Bertrand SchmittYes, a channel versus a platform. I would agree with you. I must say I start to feel that we could be close to the future we have seen in Her. This movie, Her, I guess you saw it as well, where these guy keep talking to his personal assistants, and it’s becoming his friend, maybe even his love. I start to feel we are getting close enough with AI that this becomes a possibility. But again, it’s not your only way to interact. You want to type, you want to see stuff. There are many situations where you don’t want to be seen talking with someone. It’s more of a channel versus a platform. Yes, Alexa, it’s quite amazing how it went to the roof and crashed and burned. It moved up very quickly. Amazon invested billions, hired thousands of people, which was the right move. I mean, you have something that seems to work well enough and could be game changer, why not? But it was quite impressive as a crash and burn. It’s pretty rare to move that fast up and down.Nuno Goncalves PedroI agree. A lot of money is put into this stuff. I mean, Google went after it as well. I think Google probably executed better. Their tools and their hub tools, etc, were better in their devices. But to be honest, it was the beginning of something, it wasn’t really there. It’s shocking because a lot of people have Alexa at home, and Google Hubs at home, and whatever at home. But it’s really not that powerful. I have a bunch of Google stuff at home, and I still use it for very basic information. It’s not really doing much for me. It’s not like magically now with AI, it’s going to be much better. It’s not. It’s a legacy device now. Maybe in the future, we’ll have some stuff that will be cool, but definitely not the voice assistant manifestation that we saw in the past. I know the next is exciting to you, so I’ll let you go for it, Bertrand.Bertrand SchmittNetbooks. If you remember Netbooks, this was a horribly underpowered PC device. I kept buying one after the other, hoping that the next one would be fast enough. Trying to be a small, lightweight portable PC, they were called netbooks. Usually, they also had a small screen, like 10, 12-inch, 9-inch, and each time it was horrible. Very poor battery life, 2-3 hours, super, super, super slow. They were equipped typically with a full Windows OS, and they were killed overnight by the iPad. After 2 years of the iPad, no more netbooks. Oh, yes, and they had this… Typically, they would be equipped with… What was this name of the CPU? It was an Intel Atom CPU, I believe, or Celeron. Again, the root cause why, it was so slow. It was horribly slow.Nuno Goncalves PedroSo netbooks didn’t work. We didn’t want to go back to that. The iPad won and all [inaudible 00:34:05].Bertrand SchmittI think it has been proven at this stage. There are some small mini PCs these days. You have, for instance, the ROG Ally for gaming. There has been some revival with some Chinese manufacturers making some small PCs. I have to admit, I bought some, so I kept trying. It’s much more powerful, no question. Better battery life also. But we go back to the fact that if you have a very limited screen size, 7, 8, 10 inch, it’s just tough to put a full desktop operating system to good use. You need something more simplified, more touch friendly for it to be really practical. Yes, you can run the full desktop Excel on it, but will you do it on an 8-inch screen? Probably not.Nuno Goncalves PedroNetbooks, and maybe we’ll end with Google Glass. I mean, obviously, we’re going to talk about AR and VR in just a bit. I think it’s a good segue to our next section, and we’re not necessarily saying AR, VR is dead on arrival. We actually think they’re going to be out there for us in the future. But Google Glass, in the way that a lot of the first wave wearables were developed, was cool, but not enough. I think even the recent ones, the Meta Ray-Bans. I see a lot of friends of mine now, you’re wearing Meta Ray-Bans, and they’re like, “Oh, this is so cool”. It’s like, “How is that different from the Google Glass, but now a little bit nicer?” It still feels to me that’s the wrong way to approach it. Either we go with a more comprehensive solution for glasses or a solution for glasses that’s a little bit more easily integrated into existing frames, etc, for those of us, like the two of us, who have actual eyeglasses, or I don’t see it quite happening this way. I think just as a formality in how it was deployed, it seems to me it’s been the wrong angle a couple of times, even, to be honest, beyond the first wave of wearables. It’s been a little bit the wrong way to approach this, the wrong paradigm.Bertrand SchmittIf you remember the Google Glass, initially, they were launched in… Again, overhyped. You couldn’t even buy them, but still, it was overhyped. You could see a marketing department going crazy when they were showcasing models wearing Google Glass, that sort of stuff, fashion shows. That was insane. How is it connected to the value proposition of the Google Glass? Absolutely not. But you remember what killed the Google Glass?Nuno Goncalves PedroThis is the Robert Scoble in the shower thing. The whole lack of privacy thing.Bertrand SchmittYou tried to have this vision of the Google Glass that models are wearing and stuff in fashion shows. You have this guy, Robert Scoble, taking his picture with his Google Glass in the show, half-naked. Oh, wow, that quickly dropped. In the interest into Google Glass.Nuno Goncalves PedroRobert’s a good guy for the most part, so we’ll let him get away with it. But yes, it was not a good moment for the use of Google Glass. But to your point, it was overhyped. I don’t even recall that I had to do so many things to actually get access to one. I still have it. Then in the end, it was just totally underwhelming. I do think the meta Ray-Ban solutions, etc, etc, now they’re doing it with other brands as well, are more elegant because it’s around voice activation and stuff like that. But still, it’s not this. The soon to be Resurrected… I think these kinds of solutions are dead on arrival, which may be a good segue to the resurrection pile, so to speak, that will happen, just not like that pile that we have to share today.Bertrand SchmittYes. That’s the question. Are we in resurrection mode with AR glasses? The Ray-Ban, Oakley glasses, are the way to go? There are also some other brands like XREAL, for instance, that are a different approach. It’s more fun to watch movies that I personally like a lot and use a lot. I know quite a few fans for this. There is a market for either the XREAL for movies, meta, or Ray-Ban, for light information on top of your glasses. There are niches. I don’t know if it’s full resurrection mode yet, but I can see again, with AI, that there is the ability to do more and more. Will it be connected to your phone, will be independent from a phone? That’s also stuff to see. I guess at this stage, connection to a phone has some value. It’s making a comeback.Nuno Goncalves PedroI think it’s suffering from being overhyped. It makes sense that the category comes back. The use of glasses, a lot of people actually have eyeglasses. The use of different mechanisms that really expand your view. We’ve seen that with the advent of foldables in mobile phones. People want bigger screens. They want to get as close as they can to the tablet experience without necessarily having to go to laptops, etc. Definitely, I think the use cases make sense. It’s just how do you deploy it, and who’s going to deploy it best? I don’t think we’ve seen anyone that’s been particularly enlightened about doing it. All the great developments with Android XR from Google, Samsung doing a bunch of things in terms of deployment out there as well at the same time. I mean, are these guys going to redefine this category and create the first ever wearable, at least AR great experience or VR category of experience, or are we going to have much of the same? In the same way, it took several years for the smartphone category to be recategorized as a smartphone category under the iPhone. That was the category-defining moment. It was the vision of a bunch of people, obviously led by Steve, but a bunch of people that went to market and said, This is how we view the market to be, and they just nailed it. We haven’t seen the guys who’ve nailed it, I think, is the issue thus far, either on the VR side or the AR side. We just haven’t seen it.Bertrand SchmittDefinitely, we have not seen that. There are, of course, rumors that Apple is ending their Vision Pro program, and at the same time, is full-on on AR glasses, an alternative to the Meta Ray-Ban. We will see. I start to think I have trouble to see Apple pull this off because it starts to feel that, yes, they are great at making more efficient supply chain these days, but I feel after 10 years plus of Tim Cook leading the business, that’s all there is to Apple these days: thinner phones, pink colors for your latest device.Nuno Goncalves PedroVariations.Bertrand SchmittMore efficient chips, for sure. They have great chips. But beyond that, they canceled their car program, the Vision Pro was not successful in the marketplace. They have trouble to find the next story and to execute on the next story, quite frankly. You could argue that their most successful recent launch has been the AirPods.Nuno Goncalves PedroI think that’s absolutely spot on. We’ve discussed it in previous episodes how much… It’s taken much longer than I thought it would. I always said after Steve’s passing, that it would take maybe 5 to 10 years for the beginning of the demise of Apple, and it is taking longer. There was definitely some gravity created. Steve passed away in 2011, right? They’ve been hanging on to their time, so it’s now 15 years. It seems that only now Apple is really suffering in terms of product lines. Probably they started 1 or 2 years ago. They have a new CEO coming in September, so we’ll see if John will do a better job, if he’s really a product guy, and that’s how he’s going to go for it. He’s going to go for a few products really nicely done that can have great experiences, which is Steve’s hallmark, instead of what you said was the milking of the cow, so to speak, under Tim Cook. There’s nothing wrong with it created in a hugely valuable company with a huge amount of still innovations around the edges, but it’s like now they need real product innovation, a new category definition, play, and is John going to be the guy for that or not?Bertrand SchmittYes. Positively, Tim increased market cap of Apple. He didn’t destroy the business. We are not trying to tell that Tim Cook was a failure, but definitely it was not Steve Jobs. It was more a caretaker, optimizer type of CEO. But to go to the next level, you need another type of CEO. Quite frankly, it’s hard to find when it’s not a founder CEO.Nuno Goncalves PedroYeah, I think it will be difficult to find, but we’ll give John a chance once his time comes in September 2026, as one would. Moving to another topic that we’ve discussed in the past, self-driving. It’s going to happen. We all are waiting for it to happen. Self-driving cars, self-driving vehicles that we don’t need to drive in this mess of traffic, in particular spending a lot of my time in Southern California where traffic is incessant. The driving is… How can I put it in a nice way? Awful. People don’t seem to know what they’re doing. I think we all want to have self-driving cars. It’s taking longer than we thought it would, but I do think it’s going to happen. I wouldn’t put a mark on the sand on how long to get this world of self-driving cars. It’s going to coexist with non-self-driving cars for sure for a period of time. But I, for one, know deeply that it will happen, and I look forward to it. I love driving, but not in horrible traffic with horrible drivers.Bertrand SchmittWe are for sure very close. I mean, now, Tesla self-driving is extremely good. I have taken Waymo many times with great experience. It’s not going too fast, it’s not going on the highway, so there are some limits. But I would say really impressive all in all. I think we are pretty close. I don’t know if you know, but Waymo is working on expanding to many, many more cities, actually. I think we might be at a tipping point there. Quite frankly, I expect that teenagers in 10 years from now are not going to bother to learn driving. I mean, we’ll see, but I think many won’t.Nuno Goncalves PedroI mean, Waymo is now doing also stuff on freeways, certainly in the Bay Area. I had a friend of mine who took one recently, and he was scared. He was scared shitless—I think that would be the right way to put it—because the car wasn’t going that fast, people are aggressive on the freeway around your car. But to your point, I’ve used it in city. In the city, it’s great, and it’s aggressive enough. That’s one of the things I was a bit afraid about Waymo, that it wasn’t going to be aggressive enough in city driving, it is pretty aggressive. Yeah, maybe we’re closer than we think. Maybe it’s a couple of years rather than a decade, which is normally where we put the stake on the ground. But it’s definitely going to happen. I think there was an overhype too soon. There were great movements around level 3 and level 4 autonomy that in some ways were misconstrued early on as full autonomy. But now we will likely get what we ask for. Then at some point someone’s saying, “Hey, but why don’t we just have the flying objects instead?” We’ll get back to that. The flying car stuff, the eVTOLs and all that stuff, we’ll see.Bertrand Schmitt10 years ago, I remember the overhyping was very, very strong with self-driving. I nearly believed the bullshit. It was so strong in 2015, 2016 that nearly everyone thought it’s here in the next 12 months, basically. I think that was a lesson for quite a lot of people. Don’t trust the Silicon Valley bullshit machine, hype machine. It can go way too strong, way too fast. You absolutely need to spend time to understand realistically where we truly are. You cannot just buy the premise.Nuno Goncalves PedroMoving maybe to robotics and humanoids. Again, it’s going to happen both for consumer and for industrial. The humanoid form, I think, at some point will be important. Just not yet. I think we’re behind now the big buzz sentence is embodied AI, where you have physical AI manifestations. AI manifested through robots and other kinds of devices. It’s going to start happening in certain beachheads. But, hey, we’ve had this offer for a long time, and I know you still have your frustrations, Bertrand, with the Sony AIBO. I won’t traumatize you more than that, but definitely it will happen. We will have humanoids at some point. We’ll have different specialty devices that will help us in activities that we do both as consumers and also in the B2B and enterprise space, even in the industrial space. The writing’s on the wall that definitely is going to happen.Bertrand SchmittYes. I think the question, as always, is how do you get there? I think the intermediate steps of your optimized robot, a physically optimized robot, like a Roomba to clean your home or some other robots to mow your grass, a good example, I think initially you have to start a small, practical, not too technology advanced and progress your way. Truly humanoid robots are very disruptive because technically, if they work, they can do everything a human could do. But practically, I don’t think it’s that true because a lot of constraints. You have to have enough weight, you have to have enough force, you have to have enough vision, you have to have enough AI to just understand commands and move around. But, again, with all the progress in AI, the progress in electric motors, I am optimistic that there is a chance for the humanoid robot, but it’s not 3 years. It’s probably not even 5. It’s probably more like 10. Let’s not forget that a lot of demos with humanoid robots today are fake. It’s a remote operator, remotely controlling a robot. It’s not a robot working by himself in many, many, many situations. That, I think, is another thing hurting the reputation of some of these companies because these fake demos, they look great, but once you dig a bit, you realize it was a fake demo because it certainly didn’t come with a warning that it’s remotely operated.Nuno Goncalves PedroMoving maybe to the next one that it will happen, but not exactly like that. Quantum computing, I think for the most, it’s been in many cases a solution looking for problems. It’s beautiful, but it’s like, “What’s the problems we’re trying to solve?” I think we’re going to start having beachheads into problem solution and apps. I’m sure a lot of people out there would say, “Well, there’s already killer apps for this, a lot of the scientific modulation, cryptography, breaking, all that stuff.” But I’m like, “Yeah, cool.” It still feels very much like a bunch of pieces and hardware in effect that is trying to solve a problem that needs to be very much defined into several problems, several areas of problem solution going forward. Will it happen? For sure. I’ve been hearing about quantum computing since I was in college, since I was 17 when I got into college. I’m sure it will happen. It will have manifestations. There’s a lot of stuff probably already residing on some of these instances. But a full mainstream view of what quantum computing can do for us is still quite ways out.Bertrand SchmittYes, I mean, there has been some reports that some key steps in the technology starts to be working and that potentially the technology could start to deliver results in the coming 2-3 years. What I mean by results, results that will dramatically change how you need to encrypt because a lot about quantum computing is actually trying to decrypt the current technologies that are used to protect your information online. This one is big. If we manage to have a limited use of quantum computing things that work in a few years, that will have a dramatic impact on how we encrypt data. That’s the one piece I’m looking for: do we really manage to solve encryption with computing? If yes, then we need to make a lot of changes how we encrypt things.Nuno Goncalves PedroFusion energy, the gift that keeps on giving, but this somehow doesn’t fully happen. I know you’re a big fan.Bertrand SchmittI would say, practically, I’m a big fan of nuclear fusion energy because in a way, it’s working. It’s solved in terms of safety. Latest Gen5 reactors are ultra-safe. They cannot go out of control anymore. China has a working reactor. In some ways, part of me would say, “Why bother with fusion when we have fission that is working extremely well, and we know how to make?” If we are efficient about the process, we could make for really cheap. Having a better source of energy today will already be great for the world. I would like to see scale with fission. It’s great to research fusion. Fusion is near a limitless form of energy. This is exciting. I think what’s interesting with fusion these days, it’s not just the big governments working on spending billions before seeing any potential returns, but there is a lot of startups that are working on it. The bar went lower in terms of researching fusion. That part gets me excited. But again, I think we should go fission first and parallel with some fission investment, fusion research, and hopefully, fusion comes at some point, but we should not wait for fusion would be my big take.Nuno Goncalves PedroGood point. Last but not the least, we’ve dedicated episodes on this, so maybe today we’ll just do the little teaser. If you guys haven’t heard our episodes on AI and the bubble and all those things. The last big one that’s just not like that, it will happen is AI itself, and in particular, AGI, so generalized AI that will be just like a human. Obviously, it’s happening. We’ve discussed in previous episodes, there’s a lot of breakthroughs in terms of methodological approach beyond the GPT curse of actual hallucinations that doesn’t seem to be solvable. There’s a lot of things happening around reinforcement learning, evolutionary computation, and other methodological approaches to AI that we think will create tremendous breakthroughs. There’s definitely a lot of funding going into it. We quantified it recently. I think 63, the number probably has changed in the last couple of weeks, but 63 new AI labs that have raised significant rounds upfront, just getting into the market, some of them as high as hundreds of millions or even over a billion dollars for the first round of funding. Obviously, there’s a lot of dramatic things happening in that space. There’s a lot of capital going to that space. It’s going to happen. It’s going to take much longer than, I think, we think it’s going to take. I just saw, I think, Marc Andreessen recently saying, AGI is already upon us. Maybe it is. Maybe he knows something we don’t know. But I suspect we’re still ways to go in a lot of the developments on AI. For now, it will continue its complications and its limitations. But definitely it will untap a lot of great productivity enhancements, technological enhancements, even in the short term that at least I’m very excited about. Then the AGI story, I think, will be a story that will be told later.Bertrand SchmittI might actually disagree on this one. I actually believe, like Marc Andreessen, that we are at AGI. We reached AGI a few months ago with the latest ChatGPT 5.5 with Claude Anthropic, Opus 4.7, 4.6 even. For me, in some specific space, let’s say coding, for instance, I truly believe we have reached AGI. It is totally replacing people for development, testing, writing, specifications, doing design. Yes, there are some use cases where it’s not working as well. But for at least the coding side, I think AGI is truly there. Is it better than the best human experts at every piece of the puzzle? No. I think if you go to some very specialized development stuff like a CUDA development, for instance, or some kernel development, it might not be at the level of the top human experts. But as we can hear about stories around security to the new versions that are unreleased yet of Anthropic and others seem to be at the level of the best human experts at cybersecurity. I think we are actually there. I think that’s why there is an acceleration the past six months in terms of investments in data centers. There was a big question in 2023, 2024, 2025, “Are we investing too much? Is it a bubble?” And so on. That was true because revenues were increasing, but not that fast. The increase in the growth in revenues for Anthropic is insane. No one has ever seen that in the whole history of technology, what happened to them the past six months. Growing so fast at such a scale, no one has seen. I think that’s truly because they have stumbled upon AGI for coding. Coding is such a huge, large market that even if we are just solving coding, even if we never solve more than that, I think it’s already one of the biggest markets in the world, full stop.Nuno Goncalves PedroBut that, for me, I think maybe it’s a definitional thing. That, for me, is still narrow AI. AGI, as defined, is a type of AI that can match or surpass human capabilities across virtually all cognitive and intellectual tasks. Coding is just one of them. I think there’s a lot of narrow AI right there, to your point, that can replace humans maybe today. Coding may be a great example of that. But I don’t think we are at the AGI. I haven’t seen any agents out there that can replace fully human beings, where I would not understand that they’re actually AI. Anyway, again, maybe you guys have seen stuff that I haven’t seen. I just feel there’s a lot of overhype on what the AGI actually is. But the ability to surpass us as human beings, I haven’t seen it yet across the board, not on a specific domain.Bertrand SchmittYes, I think my point is that I have seen it on a few domains. If you look at mathematics, for instance, and there are more and more examples of people who are using AI to solve math problems that only the very top people in the world were able to solve that are now being solved by AI. I start to feel that we are getting a few examples in different fields where AI is matching the absolute best experts in the world. I would just go back in terms of market size. Already what we got today, and today is not the limit, but what we got today, and especially AI combined with all these agents, harness agents, that’s also that specific combo that makes a difference. This is, for me at this stage, huge market. Does it solve everything? Does it replace a human for everything? No, you still need the human in the loop. You don’t let your AI go wild for weeks and just check once in a while. But you could argue very few humans are able to do that, quite frankly, to run by themselves for weeks without control.Nuno Goncalves PedroI feel there’s still a great deal of confusion because there’s dramatic impact on narrow AI domains where things are being done that weren’t done before, where there’s these great mathematical proofing, coding stuff is being done very easily, etc, etc. But still that, for me, is not the definition of AGI. AGI is a human being. It’s like someone who can really be a human being. Ideally, become top end of what a human being will look intellectually across domains. I don’t think that’s where we are. Again, maybe definitional, maybe that’s what Marc means, but I mean-Bertrand SchmittYeah, the question is, what does it mean? I would argue it’s beating 80% of humanity today pretty easily. Most of humanity doesn’t know how to code. It will be unable to do coding at the level AI is doing. It will be unable to do math at the level AI is doing. Use ChatGPT to check for medical issues and stuff. It’s not perfect for sure, but, again, it still beats most humans. I don’t know. I feel that we are reaching a level where it’s truly beating most of humans, many experts in many fields. I feel the definition of, “Hey, it has reached the level of an average human being.” I would say it passed that one. Is it the same as a human being? No. But reaching the level of your average human being, I think we are there in a lot of fields.Nuno Goncalves PedroConclusion Well, in conclusion, in episode 78 of Tech Deciphered, we went into two piles: the pile of dead-on-arrival products, technologies, businesses, and the pile of “it will happen, but not like that” or “not yet” pile of technologies, business out there as well. We went into a bunch of topics today that were of extreme importance back in the past where we thought the world was going to change, anywhere from self-driving to fusion in the nuclear space. We also went into some dramatic, dramatic mistakes like Juicero and other deployments like Segway that seem to be really very much dead on arrival. With that, I would ask you if you’re excited, and you want to share with us some of your agreements or disagreements on today’s episode, as well as your own dead-on-arrival versus merely-early examples, feel free to do so on LinkedIn, X, or via email. Thank you, Bertrand.Bertrand SchmittThank you, Nuno.

The Great Talent Redistribution: Where is Talent Actually Going in 2026 and beyond?  Is the start-up compensation model broken? How about big Big Tech? How about non-tech small & medium businesses? What is happening to talent, going forward? This and many other topics in this episode of Tech Deciphered. Navigation: Intro The Broken Contract? The Great Unbundling The Three (?) Destinations Alternative Cap Tables, Alternative Compensation Models Investor Landscape Fragmentation Operator Playbook and Predictions 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 Subscribe To Our Podcast Nuno Goncalves Pedro Introduction Welcome to episode 77 of Tech Deciphered. This episode will focus on the great talent redistribution. Where’s talent actually going in 2026 and beyond? The Silicon Valley deal of the last 30 years, very low salary, stock options, you will either sell for a ton of money or IPO, and everyone gets rich, is seemingly broken. Or is it really? The dominant narrative says the tech middle class is dying. We disagree. There is obviously a lot of stuff going on whereby big tech is partially barbelling. There’s a superstar concentration on the top. There’s a bit of a seemingly allowing of the belly. We’ll come back to that. We don’t quite believe that is totally true. There’s a collapse at entry level. The belly is migrating into three, potentially even more, very different destinations: AI native startups, human-verified premium businesses, and the read the industrialized middle of the S&P 500 and SMB world. Each has its own cap table, each will have its own compensation model, and each will have its own investor profile. In some ways, this is the third episode in our Reset trilogy. We started with episode 75 on the SaaS-apocalypse. We talked about the great private capital reset in episode 76, and now we talk about talent redistributions. Bertrand, exciting times, not always positive times.   Bertrand Schmitt Yeah, it’s exciting times because it’s a time of change. Of course, we have the doomsayers. If you listen to Dario Amodei of Anthropic, every white-collar job on Earth is going to disappear. I think I strongly disagree, and I suppose you too as well, we strongly disagree. It’s going to be more of a redistribution. If you look at the history of technology, this is what always happened. We forget how many jobs have disappeared over the past 150 years. We move from a time of 150 years ago. People were mostly in agriculture. Then you had a lot of weird jobs that disappeared from people transporting water to people bringing ice from the pools to people doing the job of computers. People forget that computer was a title given to human beings. We’re doing calculations. Then, of course, secretory jobs in the ’80s, ’90s, where suddenly anyone can type using a word processor, the rise of Excel, that sort of stuff. Many things have changed. Some jobs have indeed disappeared. Some jobs have totally transformed. Where you do these jobs have changed. I think we are at a similar stage where, thanks to AI, and I would say for now, or at least the rise of AI coding, there is a dramatic change happening. I don’t think it means that people will be without a job. It just means, from my perspective, that jobs are changing. You are not just doing a lowly coding level task that actually indeed could be replaced, but you are going to have more of builder type of mindset, a product manager type of mindset going forward. We also expect that the distribution of jobs, depending on the type of business, will be quite different.   Nuno Goncalves Pedro The Broken Contract? Maybe let’s reset a little bit to the broken contract, or if it’s really a broken contract. There’s been this image in technology and tech that basically you get paid very little to work in tech. You get a bunch of stock options. The earlier you are in the company, the higher the level of stock option grants you get. Then you make a ton of money at some point because the company will either sell or IPO, and that’s heard of it. Obviously, there’s a lot of movements happening right now that are changing how these dynamics work. The first part is obviously AI, and in some ways, AI is shrinking companies. It’s not unheard of that companies with as little as four or five people reach 50 million in ARR. There’s companies with one person that have gotten bought for hundreds of millions of dollars or billion of dollars. Obviously, things are moving very, very fast, and therefore, there isn’t a large employee cap table. How would you share the upside? Would you actually give a couple of percentage points to an early employee rather than your 0.2-0.5% kind of thing for early employees? The second part is a little bit the other side of the table, which is the IPO market is seemingly in a drought. There’s not much happening in IPOs. Maybe 2026, at some point, there will be an unlock, but right now, it’s seemingly difficult to get your upside. Even if you’re an employee, you have to wait a long time. The median time of IPO has climbed over 10, 11 years, the longest in over a decade. Basically, not only you have to wait a long time as if there is an IPO drought, like we might be going through right now, when do I actually get my cash back? Unless the company gets bought, maybe there are secondary transactions along the way, maybe there’s something else. But obviously there’s a little bit of a reduction and lowering of the upside seemingly for this contract and for this place. The easy conclusion that I think many are taking is, because of all of this and all the layoffs that are happening, even in big tech, that serve the tech middle class is dying, that basically AI screwing the workers, et cetera, there’s also a lot of discussion that even it might be affecting the entry-level jobs as well. Everyone coming out of undergrad right now can’t get a job, et cetera. There’s this doomsday scenario that you’re alluding to that everything is changing. We have a slightly different perspective. We think there’s a realignment of market. In layoffs, there was a lot of layoffs that were warranted. Big tech, in particular, had actually hoarded a lot of engineering capacity over the last decade or so. There’s a little bit of a realignment that needed to happen in any case. When everyone’s saying, “Well, AI is compressing everything,” well, it’s compressing right now, but we don’t think actually it’s going to compress over time. You’ll still need engineering and science talent to come on board for you to be able to scale up. It’s not like AI is going to take care of everything and teams are going to be five people for companies that are worth a trillion dollars. That’s not happening. Today’s thesis, I think a little bit of this doomsday scenario needs to be seen with a more nuanced lens. I think that’s how we’re framing today’s episode, that there’s a bit of a nuance, there are some extremes happening. We’re going to talk about those extremes, but ultimately, it’s not quite as simple as saying that the tech middle class is disappearing in early jobs are going to be a thing of the past.   Bertrand Schmitt At the same time, what you started with is true. I mean, that 50 million ARR company, just five people. At a bigger scale, that’s exactly the matrix for Anthropic. They have reached a stage where they are at a range of 12 million ARR per staff per employee. It’s metrics that are definitely never seen before. I don’t think any company raised to this level. Best in class, best run companies, one, two million per employees. I mean, that was your target if you can make it. We are definitely in a different game. But I think what matters at the end of the day, and that’s what we’re arguing, is that you have to see the big pictures. Yes, some positions might disappear inside some companies, but some other positions will be created in other companies. Usually, what people do is keep talking about the jobs who disappear and not looking at the bigger picture of jobs that are being created as well. What is true, and I think you alluded to that, is that the big tech the past 10, 15 years had some strategy of hoarding talent in a war where having the best talented people will make the difference in numbers, will make the difference between winning or losing. The Google of the world, the Microsoft of the world, the Amazon of the world, they were hoarding talent. They would try to make sure that they might not have such needs in talented number of people. But if they have the talent, it means their competitors didn’t have the talent. It means that the startup trying to reach scale couldn’t pay the giant salaries that the Google of the world were paying. There was definitely some hoarding. But it went so far in the 2020, 2021, that I think since then there has been a coming back to normal. There is also now in 2026, the recognition that it’s not true anymore. Yes, talent can be very valuable, but there is now a bigger and bigger gap between the extremely talented versus the rest that are merely talented because of AI. AI is able to replace at scale your software engineers, your software managers. I would say it’s quite new. I don’t think it was true a year ago. We’re really talking about a recent dramatic change in what can be achieved thanks to AI. We can see most of the big AI companies are moving to coding. It was started by Anthropic as a trend, OpenAI has followed through. Obviously, the Cursor of the world existed before, but they were not as successful. All the Chinese open-source models are moving very fast to coding optimization the past few weeks. It’s quite an incredible change. I think there is that dramatic change, recognition that coding can be done differently. As a result, we are going to see change in the distribution of jobs. I think it will start from the top because we see the news of the big Google, Microsoft, Amazon, and others who used to hold talented software developers to a change in realization that no, we actually need to invest in AI. We need to invest in compute because compute is going to do the job of most of these people. Therefore, we can’t pay for both at the same time, even us with all our money, we cannot. Wall Street is not going to let us do that. They start by removing a lot of position. I think we see that accelerating, quite frankly. We have only seen the beginning, but in the next 2 years, we see a dramatic shift. But I think my position, I guess yours, and you know as well, is that there will be a lot more opportunities created as well, probably by also entities.   Nuno Goncalves Pedro The Great Unbundling Yeah, there will be more opportunities created. The hoarding is just taken also a little bit of a different view. To your point, there’s hoarding of resources, compute, et cetera. But there’s also hoarding of top talent. We are seeing people getting paid, packages all in that could run up to 100 million, in some cases even over 100 million over several years. This is unheard of. I mean, an officer of Meta would make, I don’t know, maybe 20, 25 million a year. It’s like now there are people that are on the top end of AI researchers that are getting paid around that amount just to join some of these companies. There’s a little bit of a different hoarding. It’s very selective hoarding of certain talent. We’ve seen some acqui-hires. We’ve talked about it in previous episodes that are just literally about getting one or two people specifically to come on board. Alexander Wang, again, going to Meta to lead their intelligence labs there. I feel, I don’t know what you feel, but I feel this is a transition moment where there is overpaying for certain talent on the top of the market. At some point, this will stabilize. You can’t keep paying people 100 million over 4 years or something like that across the board. To your point, a lot of this is actually going to scale up quickly also on the AI side. There’s a little bit of a different hoarding happening on the top end, not just the resources, but also of people, which seems to give further this notion of barbell, that there’s two extremes, the haves and have-nots, the super-duper talented people that get paid a ton of money, tens of millions of dollars a year at the very least. Then the emptying of the middle where there’s a ton of tech layoffs going on in some ways, the belly, as they would call it, is being expelled. The middle market, the managers are being fired because there’s nothing to manage. There’s a lot of positions going away. In some cases, you might keep some of the more junior talent, but with a little bit of experience. But even the talent coming out of colleges is not getting hired either. It’s a little bit of a weird thing where there’s hoarding at the top, there’s an emptying of the belly, the middle, and then the early, early, early is also not getting recruited. It’s like what gives? How is this going to look in the future? I agree fully with you, Bertrand, that there’s a migration of this talent, not only to other companies, but also to other jobs. There will be new jobs that will emerge out of this. The DevOps, dev tools market didn’t exist until maybe 20 years ago at scale, and it got created. In some ways, we’re seeing there will be new markets, there will be new roles and new jobs that will be created around engineering teams going forward. We can’t anticipate all of them. But basically, the emptying of the belly is true as it’s happening right now. The low hiring on the early and the top end, getting tons of money. We think this is a transition to something else. There’s the hoarding of engineering in general is coming to an end at momentum. Now it’s time to rightsize teams, to get the right at the table, et cetera, and start figuring out what works and what doesn’t work. We’ve already had some horror stories coming out even from Amazon where they were breaking systems with their use of AI tools, and I’m sure it’s happening across the board. I’m on a board of a company and been tremendously affected by Meta and its algorithms, where basically because of advertising, there have been people served with ads for this specific company where the ad doesn’t match the company, so basic stuff like that. It’s been actually very, very difficult because in some ways, the company goes back to Meta. It’s like, “Hey, dudes, you guys are serving ads that are not even our ads with our copyright and stuff. How does this work?” They’re like, “Oh, it’s AI.” It’s like, “Well, it’s AI but can you give me my money back?” They’re like, “No, we won’t give you money back.” This creates huge issues for companies, for example, that are very dependent on advertising, which obviously there’s a lot of industries that are. They’re actually in production systems at scale. Meta is, I think now, the largest digital advertising in the world. I think they outgrew Google in one of the last quarters. Basically, this has a tremendous effect that systems that are in production at scale are getting inputs and changes driven by AI tooling, and somehow nobody can say what the hell is happening. Again, there will be a reckoning, there will be a redistribution, there will be a rightsizing of teams and an adequacy of teams going forward. I personally think this is a transition period.   Bertrand Schmitt I think we are moving from hoarding or software engineering to hoarding the top of the top scientists in AI and hoarding of GPUs, GPUs/data center. For me, it was quite interesting to see the deal of Cursor with xAI, where basically they couldn’t get access to computing resources to run their model. But xAI had, I forgot the exact numbers, but close to half a million GPUs that no one, I mean, “no one was using” because their services are not so successful yet in terms of AI chatbot and the like. Basically, suddenly they are like, “You know what? We control access to resource.” But the new resource is, again, a mix of extremely talented AI engineering or AI scientists versus GPUs/data center. There is this race of controlling boss and everything else is going to be collateral damage. Some examples, I think, are quite interesting. You talk about some example of Amazon, even some production issues. I remember reading a quick post-mortem of one of the issues, and the conclusion was it was AI, definitely part of the issue. But the other part of the issue was AI used by junior engineers. For me, it’s interesting. It shows that actually junior plus AI is actually a danger zone. That’s why many companies are going to be way more careful. “Why do we need the junior people if they are just playing with fire?” I think we go back to that situation of barbell, as you call it. The top talents are extremely valuable because they know how a production system works. They are here to develop better AI systems. But the junior guys playing with fires, yeah, maybe it’s cute in startups, but in a big time production environment, a different story.   Nuno Goncalves Pedro There will be a barbell with top-end talent super-mega paid and then mid-level talent that is individual contributors still doing a lot of great work, et cetera. Along the way, a lot of emptying of entry, a lot of emptying of the middle. Where does the talent go? The Three (?) Destinations I think we could say there’s three destinations for this talent. Maybe there’s four, maybe there’s more. Three that we can immediately identify. One is the AI native startup piece, where we have smaller teams that potentially get to a lot of revenue or top line over time, and where the Series Seed is the primary round, where we’re seeing Series Seed being raised of tens of millions of dollars, actually even hundreds of millions of dollars in Series Seed. In some ways, the stars there can get incredible compensations in terms of stock. They will stay for private and selling in secondaries later down the road because there’s so much capital at the table. Actually, in some ways, salaries are very high as well in some of these companies. It’s not like you’re trading off anything. You can get paid a lot of money. If your company at Series Seed for 10 or 15 employees has raised 50-$100 million, you can pay great salaries. In some ways, this is the extreme destination. The AI native startups that can make it is the extreme destination. Now, there aren’t a ton of AI native startups that can raise 50-100 million to 400 million in Series Seed, just to be clear. There’s a handful of hot deals in that space, but that’s one clear destination for top-end talent going through that. In that market, I think that’s one of the destinations. The second one is more what we would call the human-verified premium. It’s more of a play of companies that has still the need of human in the loop, either in terms of development, also in terms of activity, either because go-to markets are very intensive, and so therefore you need to have sales forces, partnership teams, et cetera. Or on the engineering side, it needs to have a lot of customization, integration. Companies are not just going to the, “Oh, you can come in and just apply your AI tooling and somehow magically the systems all work.” there needs to be quite a lot of and work and high touch work in getting stuff done. A significant part of that market, I’m not sure, is super VC investible. Maybe it’s a hybrid of private equity in VC, more PE style in many cases. It’s a PE-hold, sell to someone else market. As we’ve discussed in a previous episode on the SaaS-apocalypse, that hasn’t quite worked out for PEs. Question marks on how that human-verified premium market is going to evolve. But obviously, there’s a lot of work still to be done there, even on the engineering and science side. That’s the second potential destination. Then the third more aggressive destination is the reindustrialized middle companies that have a lot of specificity in going after small and medium businesses, local or regional affectations like ERPs or CRMs for specific markets, et cetera. Those are the three natural destinations. I would add the fourth, which is big tech. I mean, big tech doesn’t magically disappear, and I don’t think it fits neatly into any of these three markets. In some ways, big tech is now looking at the extreme for top talent a little bit like the AI native startup because they can pay. They can pay the 100 million every four years, et cetera. I do think it will typify taxonomically into a fourth type emerging, where, as we discussed, you’ll have top-end individual contributor talent. You’ll have the absolute top-end of the market because they can get paid. Then you’ll start having the emergence of earlier talent that is highly capable, et cetera. That will go back to a bit of a normal distribution in terms of talent on big tech. For me, those are the four destinations that I would put at the table.   Bertrand Schmitt For me, big tech moving to big tech, I’m not sure if it’s really a destination. I mean, yes, in some ways it’s a reshuffle between the big tech companies. They are definitely all fighting in some ways for some of the same people. I can see that dramatic shift where big tech has to remove a lot of positions in order to replace by AI. Again, I think at this stage, it’s mostly driven by AI coding. We are still at the beginning because this is brand-new phenomenon that AI coding is so successful at its task. I don’t think it was true even 6 months ago. Some companies, take Anthropic, take OpenAI, are definitely there or close to be there in terms of no more writing of a single line of code by a human, zero. This is, again, 6, 12 months ago. Not true. But now it’s true in a few top companies. Take OpenClaw as well, most successful GitHub project of all time, not a single line written by its author. It would have been impossible. We’re talking about hundreds of thousands of line of code in a few months. It’s impossible to achieve that manually. If you look at the other big tech companies, the Google of the world, the Meta of the world, the Microsoft of the world, they are absolutely not there yet. They are going to be there because they have no choice. It’s you either go fast there or you die. You are not going to be able to survive competitors that are shipping 10, 50, 100 times faster than you are shipping. It’s a life and death situation. All the big tech companies are going to move, and mark my word, in the next 2 years from 10, 20% of AI-written code to 100%. During that transition, the next 2 years max, if you don’t do it in 2 years, you are going to die. Your stock price is going to crash. Then, of course, you will have to make changes. You will have to invest more in GPUs. You will have to invest less in your standard typical software engineer employees. Like you, I’m very optimistic that there are new buckets. AI-native startups definitely will be there. It will be transformational. Human-verified premium, very interesting category. In a way, it will be businesses that are inevitably less scalable through AI, and there is definitely a spot from there. I think the biggest would be the reindustrialized middle SMBs. Most of S&P 500 type of business are going to dramatically offer new software opportunities, new opportunity story to talented software employees because they will need to implement AI in everything they do. They will do it. They will need people who have software engineering knowledge in order to implement these systems. For them, what’s changing dramatically really is that thanks to much cheaper cost as thanks to AI coding, a lot of software projects that they couldn’t afford to do, that they couldn’t imagine doing by themselves, they are able to do it. They will invest in a lot more software capabilities than ever before. That will be a big game changer. And software, very tuned to their business model. There might be less buying of your traditional off-the-shelf SAF software and a lot more investment in a highly custom software by their own team, assisted with AI. I think that would be the part that is most transformed by all of this in a positive way.   Nuno Goncalves Pedro Alternative Cap Tables, Alternative Compensation Models This will lead to a very fundamental shift, right back to the broken contract. What does the new contract look like? It looks like alternative cap tables depending on which bucket are you transitioning into. If you’re going into your AI-native bucket, and you’re a top-end talent, you’re like, “Dude, I’m worth 100 million over 4 years, so just compensate me accordingly with a mix of options in the company plus my salary.” If you’re top 1%, you can probably get away with salaries that you’d get anyway at mid-level from 300K, 400K and above, and you can get actually a lot of options already in the company. A lot of this is happening right now. There’s a premium for AI, we know that. There’s a premium for AI at the top end of AI researching, in particular on companies that are doing hardcore research on staff AI engineers, so companies that require actual AI engineering. There is a premium that is significant. It could be as high as 18% over non-AI peers, and it widens actually with seniority, shockingly enough. This is more of an average than anything else. Now, for me, and it’s for debate, but the perspective is this extreme comp will need to compress at some point. There will still be the haves and have-nots paid much better than the have-nots, so to speak, but there will be a compression. The variance can’t be the variance we’re seeing today for absolute top-end talent. That said, there will be variants. We know that big tech for over a decade, decade and a half, for example, in the Bay Area, has been paying a lot of money for director and above levels that used to be the VPs, so a million, a million and a half a year, all in compensations. It’s not unheard of that this will actually increase after this stage. That said, I do think that the compensation extreme that we’re in will get diluted down the middle. It will actually come down at some point. It’s part of where we are today. As we know, it is still a bubble.   Bertrand Schmitt Yeah, it’s an interesting point. I think it’s possible. At the same time, that compression coming 2, 3, 5 years. At the same time, we have examples where there is no such compression. Take the top sports players in the world, golfing, basketball, NBA players. There has not really been any compression at all. For me, it’s interesting. If you look at the big tech companies, each being one of this top NBA team, why would such compression happen? As long as they are competing against each other and generating plenty of cash, I think there will be some fair question. We will see. I don’t have a strong opinion, but for me, it’s not a total given.   Nuno Goncalves Pedro For me, the shocking thing is the faster AI becomes better, the more that compression will happen, because at some point, it’s like, why do you need the top talent as well? I don’t know. It feels like you’re trying to evolve a system that’s there to replace you. It’s like, “Okay, I’m getting paid 100 million over the next 4 years”, and then you develop something that’s so good that replaces you. Thank you. That’s cool.   Bertrand Schmitt That’s a total possibility, yes, because we are in that very unusual market where the game is to only replace yourself and people like yourself. At some point, it is a possibility, I guess this one. Right now, we’re talking about replacing your “average software talent”. In 2 years, could we absolutely replace the absolute best top experts in the world? Probably. I think it’s just that at some point we’ll be reaching the stage where we strictly have no control anymore on our AI systems because no human is able to challenge and understand what’s produced. It’s not just a question of scale anymore. We’re talking about a gap in IQ, basically.   Nuno Goncalves Pedro Exactly. It will happen at some point in history. We don’t know exactly when. For the second bucket, the human-verified premium bucket, it’s difficult to see how an HVAC company or an HVAC roll-up of scale or a regional health care platform or high touch go-to-market, B2B, SaaS play, et cetera, for a vertical will compete. At the same end, they have to compete and they will compete. There will be more and more jobs, we believe, for engineering talent in these companies. They’ll have to be more and more AI-enabled themselves. The cash salaries will have to be competitive within the local markets, not necessarily with Silicon Valley. There will be potentially profit sharing and revenue sharing and actual dividends played at the table. The model there on the cap table needs to change a little bit, needs to be probably propped up more on salary and on some way of doing profit sharing or actually having dividends paid to employees and figuring out employee to equity in a more aggressive manner. This is the market that probably was already very attacked, so to speak, or let’s say, occupied by private equity firms. There are still obviously part of that model that would work well. There needs to be a fundamental shift, certainly on the quantum of salary compensation, dividend compensation, profit sharing, and all of that. Then last but not the least, obviously, we had the bucket around basically the reindustrialization of the middle, so everything else, which will take most of the belly that we were talking about. This is probably a poor analogy, the belly fat. It’s not belly fat, it’s people that were doing their jobs that now are getting disrupted. In some ways, that bucket will absorb a lot of that belly, will absorb a lot of talent. The small and medium businesses that Bertrand was saying will need to crucially become more AI, software-enabled by themselves, even with some core stuff and underpinnings that actually might not even require AI in terms of infrastructure platforms. There, you need to get properly paid. Again, how many people do you need in your engineering team if you’re a small business? Probably not a lot. It’s maybe you need one or two people and that’s it. They’ll need to be very nicely paid because they’re running the stuff in the rails. This is probably a market that over time, as AI gets more and more competent, will also be disrupted, but let’s not talk about the disruption to the disruption because otherwise, we’ll stay here the whole day, but certainly a market that has a lot of potential to shift and to absorb a lot of the moments that we’re seeing in terms of layoffs happening in the US in particular.   Bertrand Schmitt This category was a category that historically could not compete with Silicon Valley salaries, could not attract the most talented engineers. It’s not a category that didn’t want to bring these people on board. It’s a category that just couldn’t afford to bring this talent on board, typically. I think it would be a dramatic shift for them when suddenly there are opportunities to hire these people. There is an opportunity to hire them at maybe more reasonable prices from this company’s perspective. You talk about small companies, the great thing is that there are millions of small companies at some point. I think things could be truly transformational. Of course, some of these engineers, software engineers, might decide to become entrepreneurs on their own. Solo entrepreneurs, small businesses, build their own, easier to build their own product to market so to serve other companies. I think there will be quite dramatic changes because not all companies will be disrupted by AI as much, but not every company will benefit from improving processes, improving software through AI. At least early on, you will need this human touch to make it work inside a business. Interestingly enough, I was hearing that some companies like IBM were hiring more younger people to do the work of going to the client, understand their needs, propose implementation plans. That forward deployed engineer, those positions, I think there will be more and more available.   Nuno Goncalves Pedro Investor Landscape Fragmentation What happens to investor into the landscape? We already had an episode, the previous one, Episode 76, where we talked quite a lot about the big capital reset on the private equity and private reset, including venture capital. Just maybe to summarize, how does it align with the buckets that we’ve just been discussing? I think the AI-native bucket clearly is going to be the key bucket. There, we’re going to see two movements. One movement, which is the mega funds, as we discussed in the last episode, are no longer just VC funds. They’re really mostly multi-asset private equity funds, maybe even private equity hedge funds in some cases. Those funds will be all over the high-growth AI-native companies and will be pouring money into companies that are scaling really, really quickly. The early stage, so to speak, VCs, the actual VCs that will stay in the market will be the guys probably identifying the next big wave of AI-native companies. We’ve discussed that as well in the last episode, some research that we did at Chamaeleon that I shared in episode 76. We’ll see that as emerging. What happens to the second bucket, the bucket around human premium, human in the loop? Likely we’ll have more and more private equity capital going into it and the large-scale VC guys, the Thrives of the world, they’ve just announced Thrive Holdings, and others going after those markets as well. It’s trying to converge into the private equity market, which aligns with the point we made in the previous episode that the VC mega funds are no longer VC, that they are private equity, multi-asset class. They’re going after a bunch of things. There’s a conversion happening from VC into private equity. It was going to happen anyway because the private equity guys were coming into VC as well and the hedge funds were coming to VC as well. There’s a convergence in the middle of very, very large funds and large assets under management happening to go after some of these opportunities, certainly in Bucket B. Then this Bucket C, so to speak, the bucket of reindustrialization, as Bertrand was saying, very well, likely will be self-funded for a significant period of time. Will self-fund with their own cash flow. Doesn’t need to have a ton of capital intensity. Maybe you need one or two engineers to do stuff, but that’s it. You don’t need tons of capital. You didn’t need in the past, you won’t need it today. Not sure there’s going to be a fundamental shift to that market.   Bertrand Schmitt Yes, I certainly, overall, agree with you. That last pocket, probably little change to the capital and capital structure. Again, I see that as the biggest opportunity for a lot of people who might be less needed by big tech and also top tech companies. What is sure for the first category, the high native startups? I would say more overall in the VC ecosystem, there is no space left for SaaS anymore. I think SaaS, as we used to know it, is dead in some ways in the sense that new pure SaaS software startup are definitely out. Existing ones that are critical to run your infrastructure, the Salesforce of the world, I think they’re in a decent spot. Actually, interestingly, they changed their pricing model to now sell to AI agents, not just per seat. There is a change in pricing there. But this day and age of funding a pure SaaS software startup through VC money, no way. VC money going to AI-native startups, AI-focused startups, to biotech, to deep tech, to defense tech, yes. SaaS as a fundable category early on, I think it’s over.   Nuno Goncalves Pedro I’m a bit more nuanced as we shared in The SaaS Apocalypse episode. We can call it whatever we call. It’s applied AI is the new SaaS thing. Horizontal applied AI is the new horizontal SaaS or vertical applied AI is the new vertical SaaS. I agree in common with your point that very specific point solutions around SaaS will be disrupted by nature with all the easy stuff you can do today with AI. It will take a while. This is not something that’s going to happen this year. It’s going to happen over the next years. Maybe interesting to also talk about the exit markets. I think the IPO market, as we’ve also discussed in the past, there is, in my view, going to be a reopening of the IPO market, I think this year, probably later in the year, third or fourth quarter. The median time to IPO actually is going to be really weird because there’s going to be potentially some companies in the current landscape, bubble or no bubble, that are going to IPO, the OpenAIs of the world, Anthropics of the world, et cetera. There will be more and more aggression, I think, on M&A. Big tech has already shown it, that they want to buy into markets. Large non-tech companies have also started doing acquisitions in space. To prop up their IT teams, their engineering teams with this world that we’ve also discussed in previous episodes that I’m going to own my own engineering stack for now. As we see, that normally doesn’t withstand the test of time. At some point it will get unbundled and served by someone else. Then finally, the secondary market is very hot right now. Obviously, there’s heavy discounting on some areas, high premiums on others. The exit market, strangely enough, is going to be propped up, in my opinion, over the next year to 2 years, dramatically. Then we’ll see if there’s a big reckoning around the bubble that we are clearly in or not, if it’s a soft landing or hard landing. Definitely, there’s going to be a lot of exit paths over the next year to 2 years.   Bertrand Schmitt Concerning the “bubble”, I have two perspectives on this. One is it’s a bubble in the sense that money is going to a lot of players and some players are going to blow it up. There will be a concentration of players at the end, like it usually happens. If you look at, for instance, long time ago, the railway revolution, there was that intense influx of capital. At the end of the day, there was a dramatic change in transportation in the US and a complete railway system put in place. Yes, some investors lost money, some companies went bankrupt, but the transformation was fully real. There were a lot of top leaders at the end of this revolution. The change after that only happened, we guess, post-World War II, with the construction of the highway system and the rise of airlines and plane transportation overall. Here I feel it’s similar in the sense that, yes, there is a lot of money going in. Some players are going to blow it. They will misuse the money in different ways, but that’s part of dynamic allocation of capital. Of course, you make mistakes. That’s what happens. At the same time, I feel it’s a similar level in the sense of this is a dramatic change in the US infrastructure. This buildup of AI data centers filled with GPUs, integrated at scale with some of the best software in the world and running it, supported by a dramatic shift in energy infrastructure. This is for me similar to the Railroad Revolution. Some players might not own the data center they build because they didn’t manage well their debt, they didn’t manage to run proper software. You know what? They will get acquired by somebody else. I think we are at this level of fundamental transformation. The fact that in a matter of maybe 2 years, the move from 0% of code written by AI to 100 % written by AI is an insane dramatic shift. Just to be clear, when you move from manually coded to AI coded, we’re talking about a 100X difference in terms of speed at similar, if not better level of quality. The shift is dramatic, and on top of it, you don’t pay salaries anymore to achieve that. You pay CapEx, and with GPUs and OpEx with electricity. It’s a very big shift, positive shift in business model. New unions, no management over it, AI working 24/7. Personally, I think for me, bubble has a bad connotation in the sense of it was all for a waste. I don’t think it’s all for a waste. I think we are witnessing a dramatic revolution of our lifetimes, quite frankly, bigger than SaaS, bigger than mobile. From my perspective, it’s exciting times.   Nuno Goncalves Pedro Operator Playbook and Predictions Let’s move to if you are this person, what would you do in the future? Let’s start with two extremes and go from there. One is you’re non-tech, so you’re not an engineer, et cetera. You’re trying to figure out, how do I scale my activity? Maybe physical labor is where I want to go. It’s not, “Go west” anymore. Definitely not necessarily go west. You should go to, I guess, the states that have no sales tax with very cheap energy because that’s where the data centers are being built if you want to be in that market. Obviously, there’s a lot of stuff that needs to be done: HVAC, electricity work, et cetera. Don’t go west. Go low sales taxes, low cost of energy. That’s likely where the data centers are being built. You probably can just follow. There’s, I’m sure, some way for you to follow where the data centers are being built, but that’s next, I think on that extreme of the table. The other extreme of the table, let’s say you are super ambitious, maybe you’re no longer an engineer, but you’re a product manager in your prompt engineering. You could do prompt engineering all day long. You’re 28, 29-year-old superstar. What do you go and do? Likely either you start your own thing, start your own company because you’re so good at prompt engineering, you probably can do a lot of the code yourself, particularly if you have an engineering background, or you go and join very early an AI-native startup that you think has the chance of going through the roof, and you take a pretty good salary early on, a ton of upside on the company because guess what? Companies like that need product managers. They need people to figure out UX, UI. It’s not going to be, at least for now, yet AI figuring that out for you. Those are two extremes, just to give two of the extremes, like engineering, product management persona, and physical labor at the other extreme, non-tech, et cetera.   Bertrand Schmitt In some ways, every software engineering job is going to become the equivalent of a software engineering manager or a product manager, because suddenly you don’t have to do the coding anymore. You’re managing AI that is coding for you. Either you start to have some manager hat, but we saw the humans, so it’s a very different type of manager, obviously, or you are going to be really an empowered product manager. You’re skipping the middleman. You’re skipping the traditional engineering organization because your engineering organization is AI running and doing the work for you. I still believe that it requires some serious skills. I don’t believe in the vibe coder type of value proposition. I don’t believe in the prompt engineer becoming suddenly super incredible, able to manage that. I still think it requires some serious chops to do the best from all of this and to do it in a safe and sane way. It’s very easy to have poor taste, make mistakes. I don’t know you, but keep reading these stories on the heads of companies who lost everything because of the AI agents. That deleted stuff in production, and they had no backups or the backups weren’t deleted as well. Crazy situation. You cannot run companies like this if you let your agents running wild. You could argue it’s the early days. I would argue it that that issues would be there for a while. You need to have some engineering discipline at core in the company running the business to make sure things don’t go sideways because it would be easy for things to go sideways.   Nuno Goncalves Pedro I totally agree. If you’re thinking, Oh, should my kid go into science and engineering and computer science, et cetera? Absolutely, still, because of everything that Bertrand just said. You need to understand actually what code does and what technology does and what all of that does. That’s still a skill of the future. It’s not a skill of the past. In some ways, it’s still a skill of the future very much. Maybe let’s try two more extremes. Around the same level, the person that decided to do an AI native company bootstrapped initially, having difficulty raising a mega round, but could probably get away with raising a 2-3 million seed round, et cetera. Is that still viable? The answer is yes. There’s tremendous capital efficiency right now happening in the market still, 10 plus higher than if you were doing a SaaS company, and you were a founder in 2019 or something like that. That capital efficiency is going to reverberate. You can run a tighter team, smaller team. Actually, you don’t need that many salaries. If you’re a decent engineer as a founder or if you understand enough as a product manager to just generate that code, you can do a lot of stuff yourself, can bring in maybe one or two technical elements to the team early on as you would have done if you were bootstrapped anyway. There’s obviously a path for that. The other extreme is you’re in big tech, you’re level five, individual contributor, making a ton of money, or you were a manager, and you’re now out of a job, where do you go? You can go to a big company that is non-tech, S&P 500 company that’s non-tech, something like that. You join the company, you’ll probably get paid pretty well, maybe not as high as you were paid in big tech. There’s some stock at the table, but guess what? You’ll have probably more work-life balance than you ever did. That’s the trade-off. You’ll have a better job. On the upside, you can transform the company. You can help and be part of transforming a company from non-AI to AI-first or AI-enabled in the future, whatever BS that will look like in terms of the argumentation to the board. You can actually create tremendous productivity enhancements in a big non-tech company if you come with that background. Again, you’ll have certainly a better work-life balance, so not a bad deal, to be honest.   Bertrand Schmitt Also, to be clear, I talk a lot about AI coding because it’s truly transformational. You could argue that it’s going to be self-improving. We are in the situation of a self-improving AI that keeps improving itself thanks to automated coding. It’s a dramatic, virtuous loop. Obviously, AI is also going to improve everything else. It’s going to improve your marketing, it’s going to improve your search process, it’s going to improve your DNA. Improvements will be everywhere. It’s just that right now we are at a point in the quote-unquote revolution where there is one clear piece of the puzzle that is moving faster than the rest.   Nuno Goncalves Pedro Bertrand, the senior executives at non-tech don’t know anything about that. It could be just a great prompt engineer. That’s the only job you do. “I’m the chief marketing officer. I have someone below me that’s doing the whole work.” Nobody knows. Nobody’s the wiser, I guess. I’m being facetious, but not fully.   Bertrand Schmitt Yeah. There would be a transition period where what you described happen. I want to say, going back to AI coding, I think that the part of AI that as of today has reached a stage of limited AGI. We have reached, from my perspective, a limited type of AGI for coding. If you take coding as a discipline today, I think we reach AGI. If you go beyond coding, that’s true. If we are talking about coding, leveraging the latest LLMs: OPUS 4.7, ChatGPT 5.5, combined with Claude Code, Codex, and OpenCode for harness, I think we’ve reached AGI in the context of coding. I’m not sure everyone fully realize that and the consequence of that. I think the rest is going to come as well. We are going to see that category by category, usually categories that are more scientific in nature, where you can replicate, where you can test easily, where you can create clear success. Metrics will be the “easiest” to follow in that direction of self-improvement. I just want to highlight that this part is truly transformational, the root cause of everything we’re talking about today. At the same time, it’s coming beyond coding.   Nuno Goncalves Pedro I think it is true. There are a couple of markets where that might not hold true, which is maybe the final path. If you’re thinking of starting your own business in plumbing and in HVAC maintenance and installation, this is a pretty good time for the reasons we already said before. There’s a lot of buildup of data centers and all that stuff, but also for other reasons, because it’s an activity that won’t be disrupted by AI yet. You need them embodied AI. You need physicality to AI to do stuff like actually fixing pipes.   Bertrand Schmitt Until Optimus replace you.   Nuno Goncalves Pedro Yeah, but if we’re 3, 4 years out in terms of a lot of these optimizations that we’re talking about at the software layer, we’re 10 years plus out on embodied AI, right?   Bertrand Schmitt Oh, yeah, it’s 10 years.   Nuno Goncalves Pedro We’ll probably be optimistic as we speak. That’s a nice business. I’m thinking of starting to go into that market. If you guys are interested in listening to this, just reach out to me. What’s the angle? I think there’s a lot of stuff you can do in the buildup of some of these businesses, plumbing, HVAC, all sorts of maintenance. There are markets that are just totally messed up. Handyman market in the US is totally messed up. There’s a bunch of companies out there that try to go after it with marketplaces and stuff. I honestly just start something from scratch, a small business, and go from there.   Bertrand Schmitt Yes. They’re an interesting middle. Think about accounting firms, consulting firms. I think they are not as easy to replace, but at the same time, there is no way on what they do is not going to be dramatically changed with AI. I don’t know if it’s 50, 80, 90% of the job, but this is changing quite dramatically, would be my expectation in the coming few years. Conclusion Thanks for listening episode 77 of Tech Deciphered about that great talent redistribution. As you heard it from us, we believe there is a dramatic change in play, enabled by AI coding, and that ultimately a lot of the big tech companies are changing their employee distribution, way more focused on the top talents and bringing more GPUs. As a result, we will see a change in their staffing. Some of this change will benefit AI-focused startups, but probably more likely will benefit the bigger SMBs, the S&P 500 companies of the world that will finally be able to bring inside and afford some of the talent that were in some ways trapped by the top 5, 10, 20 software companies of the world. Thank you, Nuno.   Nuno Goncalves Pedro Thank you, Bertrand

The Great private Capital Reset is upon us. Markets are volatile and driving new economic imperatives. Are VC funds still VC funds, even if they raise billions per fund? What happened to the rest of the market? What is driving VC investments? What do Limited Partners think? What is on their minds? This and more, in episode 76 of Tech Deciphered. Navigation: Intro The State of the Reset: The Hangover from the Party? LP Fatigue and VC Differentiation What Really Matters: Performance.. Returns The Mega Fund Question The Case for Smaller… Rightsized Funds What Comes Next? 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 Subscribe To Our Podcast Bertrand Introduction Welcome to episode 76 of Tech Deciphered. This episode will be about the great private capital reset. As you know, or you have probably heard, there is significant structural transformation in the world of venture capital, and we are probably witnessing a fundamental reset of the private capital stack. We got a huge bubble in 2020, 2021. Fueled by near-zero interest rates. We got inflated fund size, compressed due diligence, and now a generation of zombie funds and zombie startups. Now that rates have normalized, exits have not been as much as expected. LP patience is a warning sign, and I guess the industry is being forced to confront an uncomfortable truth: most VC funds raised since 2017 might not return what their LPs expected. You know, how do we start?   Nuno This is going to be a relatively nuanced episode. Obviously, there is going to be a lot of haves and have-nots, both in terms of VC funds, also in terms of startups. And so I want to start with that. This is going to be more nuanced than all transformational and disruptive.   Bertrand It’s not the end. It’s not the end.   Nuno State of the Reset: The Hangover from the Party? It’s not the end. There’s still huge mega funds that are raising more and more. It’s clear that the music has stopped, right? So if we’re playing the game of chairs, the music has stopped. Around ’22, ’23, we started seeing the first signals that funds had raised way too much money. Firms collectively raised around $669 billion globally in 2021 alone. If we fast forward now to last year, 2025, depending on the sources, we did some internal analysis at Chameleon. We came up with $75.6 billion was raised last year by 493 funds, right? So That’s a significant drop, right, in terms of fundraising. Other sources would say a little bit more. There’s a little bit of a discussion around how much did the top 30 funds capture. If you believe some of the stats out there, they would say that actually top 30 funds captured 75% of all capital raised last year. We did again some internal analysis at Chameleon, and the conclusion we came to, it was closer to 50 to 55%. So not as dramatic as some of the sources out there, but still pretty dramatic. There’s a lot of capital concentration on the top funds. Again, the top 30 funds would’ve raised 50 to 55% of capital or up to 75% according to other sources. So definitely a tremendous amount of concentration. There was a lot more fragmentation in terms of capital raised if we’re looking at the years from 2010, 2011, all the way through 2021. So 2021 would’ve been sort of the peak of non-concentration if you look at that. And that again, now we are getting more and more concentration. There’s more and more of this arbitrage around, I’ll give money to the top funds, I will not give money to the smaller funds, or I’ll give less money to the smaller funds. There’s a little bit of a movement around concentration. We’ll talk about it later and what that means. Are mega funds really better? Are the small funds still the way to go? We’ll talk a lot about that later in today’s episode. There seems to be a little bit of a bifurcation. We could say it’s either bifurcation around top-tier VCs or larger VC funds versus smaller VC funds. My perspective is the bifurcation that we’re seeing right now is more of a bifurcation between funds that are no longer just stepped into the VC space, but they’re actually becoming more and more private equity firms with full asset management range from early stage all the way to late stage. Think of it almost like a private equity hedge fund, quasi, versus classic VC funds. And I think what we’re seeing is the Andreessen Horowitzes, the a16zs of the world, the NEAs, the Sequoia Capitals, just to name a few, becoming more and more broad asset class managers across private equity, whereas you have more classic VC happening in earlier stages. And so that’s the real bifurcation that I think is actually happening.   Bertrand And maybe not really hedge fund, because they are always still long-only funds. So there is no hedging happening, at least as far as I know.   Nuno Well, some of these guys have become RIAs, like A16z has become an RIA, so they can do secondaries.   Bertrand That’s true. Yeah.   Nuno And they can also sell stuff, etc. So I don’t know how aggressive they’re going to be in terms of secondaries and selling and actually doing other kinds of services you can do if you’re an RIA. But it’s not, I think, out of the realm of possibility that they would sort of acquire and sell stock more rapidly. In that way, to your point, Bertrand, maybe they actually become beyond just long guys, right?   Bertrand Yes. Another trend I have seen is some of the larger VC funds seems to have no problem investing in multiple competitors. This was not possible before. I mean, if you’re a VC fund, you had some sort of duty not to invest in the competitors, but now some invest OpenAI, Anthropic at the same time. Do you see that as part of this evolution?   Nuno For sure. And I think there’s a lot of people like the ostrich putting their heads below the ground and it’s like, “Eh, no, no, nothing to see here.” But that does constitute a conflict of interest. And if I’m a startup raising, this assumption that you will not invest in one of my competitors is no longer there, certainly for the mega funds, because of that notion of deployment of capital. Now, some funds will still hide under the notion, actually formally from a fund perspective, we’re not investing in competitors. It just happens that different types of our funds are investing in competitors. Like maybe my growth fund is investing in a competitor to my early stage fund, right? But our funds are relatively independent. So I think there’s a little bit of hide and seek that will go on if you talk to some of the fund managers. Well, they say, well, we’re not investing out of the same fund into these competitors. But between you and I, as we know, a lot of these partnerships actually do a lot of stuff together at the general partnership level. So are there really actual Chinese walls between the funds? Well, it really depends on the partnership. And to be honest, most of the partnerships don’t have very significant Chinese walls between the funds, right? The managing general partners sometimes actually occupy investment committee roles across different funds. So I think the conflict of interest is there. So that’s why I say there’s a little bit of ostrich behavior. Put your head behind the ground or below the ground and just pretend nothing is happening. Just sharing maybe a couple of interesting stats. Global fund closings for 2025, according to our numbers at Chameleon, 1,098 closed. In 2025. Closed is when you start deploying capital, right? Whereas— so it’s not closed down, it’s closed like we start deploying capital. And that number, 1,098, is dramatically down from 1,600 in 2024. And it’s actually the lowest number of closings that we saw since 2014. So again, this is bad, right? It means there’s less funds doing fund closings and deploying capital in the market than since 2014 and dramatically below the 2024 numbers, right? Where we already saw some market readjustments. The number of active VC firms in the US that did 2+ deals, which is not a huge bar, has dropped 38% back to numbers in 2023. So we don’t have numbers that are a little bit more up to date, but basically in 2023, those numbers are already dramatically dropped. So there’s less and less active funds. So there’s funds that might be in the market, but they’re not actually deploying that much capital, not doing that many investment. They’re sort of either zombie funds or relatively passive funds that have passed their investment period. For those listening to us, the investment period for a VC fund is normally between the first 3 to 5 years of the fund, which is when you build your portfolio, when you can invest in new companies. After that time period, everything that you do up to normally what would be year 10 is follow-ons. You put more money into the companies that you’re already invested in, that you already constructed portfolio with during those 3 to 5 years.   Bertrand Yeah, that’s a pretty scary change. And obviously, I guess we’ll come to it, but the time it takes to fully liquidate investments is getting longer and longer. In the old days, we used to talk about VC funds having a 10-year life, maybe a +1/+1 in terms of extension of the fund life. But it looks like it’s taking 16 to 18 years actually to get full liquidity from a fund investment.   Nuno LP Fatigue and VC Differentiation And I think that’s the scariest piece. I mean, just to share some numbers, we in venture capital talk about vintages, right? Which year did your fund start in? Normally when you did your first close onto the fund, as we were saying before, close is when you get all your investors at that moment in time to come in and you do your first close so the next fund starts running. 2018 vintage funds, right? This is now almost 7 years ago. So you should start having— actually 8 years ago almost at this point in time. You should start already getting distributions or you start getting cash back if you’re a limited partner and investor in those funds, you should start getting cash back. Half of all 2018 vintage funds have returned $0 to their LPs. So they’ve had no distributions to their LPs. 2020 vintage, which was a very hot vintage, only 42% have begun any distribution. So 58% have distributed $0, right? 2021, only 25% have done any distributions. Now, I happen to have a 2018 vintage fund and a 2021 fund. My 2018 fund has already distributed over 3x net of fees in distributions, and my 2021 fund’s already over 10% distributed back in distribution. So we’re very proud of that. But in general, the numbers are awful. There’s no liquidity back to LPs. And to your point, that’s kind of a big deal because some of these funds have been going on for 7, 8 years, and where’s the liquidity going to come from? On the other hand, if you look at TVPI, so DPI is distributions to paid-ins cash on cash. But if you look at TVPI, which is total value to paid-in, which also includes the book value or the value that you’re marking it on your books, basically the paper value as we call it for the company, even on that, the median 2017 fund, so 2017 vintage fund has a TVPI, total value to paid-in, of only around 1.76x, which is well below what should be, which is sort of the 2 to 3x benchmark of a really good performing fund. So the median funds are doing very, very poorly overall. So if you add that to the fact of what’s happening and distributions are taking a long time, back to your point, Bertrand, it’s taking like— this should be a 10-year asset class, maybe 11, 12 years, and now it’s looking a little bit like a 15, to 18-year asset class, which is not what most limited partners sign up for. Part of this dynamic, I think, is that we’ve had tremendously overvalued private companies over the last few years, right? Secondly, these companies have just stayed private longer. And I was having a discussion recently with a friend of mine, it’s like, hey, what’s this thing about companies are staying private much longer? Is there some dynamic around secondaries? And the reality is there is a dynamic around secondaries, right? Because if I’m a very large fund and I can get away with doing secondaries on my portfolio, I will get liquidity at some point, right? But someone else is stuck with private stock, which hopefully will IPO, but who knows, right? And so there’s this funny dynamic right now of because of secondaries, because of a couple of other things that are happening in the market, actually a lot of these startups are staying private for tremendous amounts of times, and some of them will IPO and they’ll be huge deals. Some of them might not and might not warrant the latest private valuations that they’ve exercised. And so there’s this tremendous noise that we’re seeing in the mid to late funnel of privately held companies where some are just waiting to be public. Some of them might not be able to go public at anything that is an up round versus private valuations that they’ve had in previous moments and in previous rounds.   Bertrand And obviously the 2 to 3x returns that funds are targeting, and obviously more 3x than 2x, I mean, that was good and nice if it’s a 10-year fund, but if it’s the same 3x for 15 to 18 years, it’s not at all the same rate of return annualized. So it’s a really, really, really big issue if you keep the return the same, but you extend the duration of the fund. Concerning going IPO, there is a lot of complexity going public, the IPO process itself, but also after that when you’re a public company. It changed how you can run the business. Some would argue that we have had an issue with more companies delisting than companies listing on the public market. So I think there might be also separate issues about the efficiency of the public market and maybe a need for change. We went very strongly in one direction for the public market, have post and run, but was it really ultimately the right thing to do? I’m actually not so sure.   Nuno Yeah, I mean, just to be clear, this is anecdotal, but when we tell prospective LPs at Chameleon about our returns, the last few funds, 2018, 2021, the first reaction is, “You must be lying, right? Surely you can’t have distributions already for 2021,” et cetera, et cetera. So clearly there’s almost a state of disbelief right now from limited partners. And liquidity does matter. So clearly you have to move forward. So how did we get to this point where we had this bubble 2021 all around that time space and now things don’t look so good. Well, the macro conditions have changed dramatically. I mean, rates when they were near zero, safer assets yield nothing or yield nothing. So basically you had to push capital into longer duration risk assets like venture capital. And so you had to push it. So the opportunity cost of capital also has fundamentally shifted. Obviously a 3x VC return in 15 years over 10 actually competes very poorly against 5% annual credit returns over several years. So there’s been a readjustment of stuff. And then the public equities in particular, the tech public equities have had a lot of volatility, but some of them have done extremely well, right? Chipsets, things like NVIDIA, the Amazons of the world, Alphabets, et cetera, et cetera. They’ve done very, very well. So why would I invest in a long-term illiquid asset that takes now longer to give me money back, and in some case doesn’t give me back, if I can invest just in public equities, and a variety of other things. The venture debt costs have increased dramatically. The burn rates that were sustainable back in the day with sort of the addition of venture debt, private credit, et cetera, now are overblown at this moment in time. At the end of the day, there’s been a lot of movements also overall in the pipeline in terms of valuations, et cetera, et cetera. Now, I would put a grain of salt into all the numbers I just told you. There still is a little bit of the haves and have-nots in startup land. Certainly in early stage where if you’re a hot AI company, you can get away with raising a Series C or $480 million. This is actually a true story. Series C, right? Not Series C, a $480 million at $4 billion pre-money valuation. Whereas if you are maybe in a space that’s less hot, you’ll have more difficulty in raising money at this point in time, might not be able to even raise a Series C, right? So there’s a little bit of the haves and have-nots happening on the VC side in early stage that has been really amplified by the macro regime and where we’re at, which is actively zero-rate era is done and now the new regime is quite different. And so I can get better returns by doing something else.   Bertrand Kind of makes sense. I mean, if you have some ways the SaaSpocalypse in the public market because there is that fear that AI is going to completely change the game for especially for the more typical software companies. Good luck raising private money to quote unquote just build traditional software companies. You cannot expect a warm embrace from the private market if the public markets are completely destroying that category. I’m not saying that this is there forever, uh, things might change over time, but for sure what’s happening on the public markets always have a very strong impact on the private market.   Nuno Indeed. So what’s happening in this relationship between limited partners and VCs, the general partners? Again, limited partners are the people that give venture capital firms and venture capital funds their capital to actually deploy. And they are a variety of different players, right? Could be endowments, like university endowments, pension funds, family offices, very high net worth individuals, fund of funds, et cetera, et cetera. I mean, in particular, if you look at the institutional investors, the endowments, the pension funds, the fund of funds, they have allocations that they do to different asset classes typically. And the feedback that we’ve received from the market is they are increasingly frustrated with what’s happening in terms of distributions. They’re not getting capital back. It’s like, I gave you capital 8 years ago, 9 years ago, 2017, 2018 vintages, and I’m not getting any capital back. So what the hell’s happening? On paper, it looks maybe the fund’s doing okay or it’s doing great in some cases, but where’s my money? And so that creates a little bit of wait-and-see kind of game on portfolio allocation. As we’re thinking through their re-ups, putting more capital into funds that they’re already actually put capital or putting in capital into new slots, into new fund managers that they want to put money into. They’re like, well, let’s wait and see. I want to get my money back or get some money back first before I redeploy it. Again, this is a little bit the haves and have-nots because we’ve seen, for example, a couple of top-end LPs in terms of returns that have a little bit the opposite problem, right? Because they are into funds that are performing extremely well. They actually are over that period and they want to actually redeploy. But to be honest, the average in the industry right now is a wait-and-see game. It’s like, I want to wait and see, which leads to what can only be characterized— I was hearing someone the other day, one of the top advisors in the LP community, saying this is the worst fundraising environment ever for venture capital. Not the last 20 years, 30 years, like ever, right? Since this became an asset class more institutionally in the late ’60s, early ’70s, Pulse Robo 2 as it was created, this is the worst fundraising environment ever. Oh, wow.   Bertrand And concerning TVPI, let’s not forget that typically it’s not mark-to-market. So the metrics in terms of TVPI, correct me if I’m wrong, you know, but the metrics in TVPI are based on typically the last fundraise. So if the valuation went down but there was no additional fundraise, we wouldn’t know by looking at the TVPI metrics. It will only be updated if there is a new Financing, equity financing, or an exit.   Nuno Yeah, normally most funds act like that. Some funds are a little bit more aggressive and do do mark-to-market, but normally funds would be conservative and say, hey, I’m being conservative, it’s whatever is the last known valuation of the company. And if there wasn’t a priced round, it’s a little bit more obscure than that, right, Bertrand? Because it might actually be the company has raised money on a note, or either convertible note or a SAFE note, and that wouldn’t count as a priced round. So I would say actually, even if it was a cap that’s below with a significant discount, I won’t recognize the assets as a down round. I won’t recognize the asset with a lower valuation because formally it wasn’t a price round. So it’s on the one hand conservative, on the other hand, it’s only relating to price rounds or exits to your point. So it’s sort of, you can be like, hmm, well, we opt to do that because we think it’s actually the most conservative route. Mark-to-market is extremely difficult to do. And who would do the mark-to-market for you, right? It’s like it’s some valuation firm, et cetera.   Bertrand I’m not saying a mark-to-market is easy, but I’m not sure I would call using the last valuation something conservative in the context that most startups will fail. So it’s not clear.   Nuno Well, in some cases it is, some cases it’s not, right? Depends on the startup situation, to be honest. Yeah, yeah.   Bertrand But yeah, at least that’s how it’s done. So for instance, to evaluate the impact of the SaaS apocalypse, it’s tough to know. We will have on the private market. I mean, we will see that in a few quarters. Because if companies still exist in that environment, if they still do additional truly price rounds after that, that’s when I will start to know.   Nuno I mean, just to share a little bit more data, like VC fund close time stretched to 15 months. Basically, it’s just taking a long time to raise money. It’s taking a long time to do your first close, get your fund running. When entrepreneurs complain to me that their fundraising is difficult, I always say, you have no clue how difficult it is compared to ours. First-time funds have collapsed. We had some numbers that only 77 first-time funds actually closed. I assume this is in 2025 versus 215 in 2023. So that’s a huge number. We did some internal analysis on our side and we did some analysis that emerging fund managers, emerging fund managers are normally people that are in their first one or two funds. Basically emerging fund managers gained some ground until 2017. Reaching by then a slice that was 63.7% of all capital raised in 2017. But since then, the capital deployed to emerging managers has been largely reduced to actually 24.2%, right? So it’s gone from 63.7% in 2017 to 24.2%. So this has been a culling of sorts on emerging managers and almost like a slaughterhouse of emerging managers. Compared to previous situations, which is obviously incredibly concerning if you’re an emerging manager starting your VC firm, et cetera, et cetera. So really tremendously problematic for those. We think capital’s not leaving VC. I think we see a lot of the institutionals saying— there’s some numbers as high as 33% of institutional investors plan to invest more in venture in the next 12 months. So I don’t think capital’s leaving VC. I think it’s really concentrating. We’ll come back to the concentration issue later in the episode. And part of that concentration comes from a topic that has been widely spoken in venture capital recently, which is differentiation. How do you differentiate in venture capital if you’re talking to a limited partner, right? How does my firm differentiate versus the firm next to mine? And that’s incredibly, incredibly challenging. Bertrand, what are your thoughts on that?   Bertrand Differentiation is always a question. I mean, if you’re an entrepreneur, Typically, you think fully about the best possible partner for your stage and for your type of business model. You want a VC who understands fully your business model, because if they don’t, then it’s going to be troubled down the line. But that’s true that another piece of the puzzle is that the best VCs help you get more visibility in terms of achieving potential customer deals, in terms of attracting the best talent. And that’s where VCs’ brand names can help. If you can say you have backing by some of the top, most visible names in the industry, and usually these are the mega funds because others have trouble to be as visible, then they have some sort of unfair advantage compared to others. So I can see that there is some level of concentration happening naturally, especially in the later stage from Series B onwards.   Nuno What Really Matters: Performance… Returns Yeah, I mean, we did some analysis internally about What are the top funds that invested in the top performing companies in early stage, Series C, Series A? And we looked at it by size of fund and the top performing normally are funds below $100 million, but in some cases very closely followed by funds between $100 and $500 million. And actually funds above $500 million, so $500 million to $1 billion and then $1 billion and above are actually tremendously underperforming. So this notion of the industry that says, well, the mega funds still see The top investments early on, because they still deploy in Series C and Series A opportunistically, in some cases even spray and pray if they have their own incubation and acceleration programs, is not true. Actually, we verified that over the last 12 to 13 years. It is not 12 to 13 years in vintage, right? So up to a 2021 vintage fund. So we went basically 12, 13 years back from there. And it’s not true. Actually, the most performing are 0 to 100 and then 100 to 500. And as I said, there’s 100 to 500 in a couple of years actually are a little bit better. Than the $0 to $100 million ones. So that’s the first thing that’s a conclusion. And actually, that’s not shocking. If we remember back in the day, Kleiner Perkins used to raise funds up to $600 million, Benchmark raised their $425 million funds. It seems like the sweet spot for a VC fund would be around $500 million at the top end, like maximum. And now somehow people are saying, well, I’m raising a $3 billion VC fund. It’s like, well, it can’t be a VC fund. The return profile is totally different, right? You can’t deploy that capital just based on early stage investing. And by the way, you’re not seeing the guys at early stage, all that you’re seeing, you’re going to make your returns in mid to late stage, right? Back to what we said at the beginning of the episode. So there’s a little bit of the haves and have-nots there. The big guys are raising more and more money, but they’re no longer venture capital. And I think limited partners that are a little bit more evolved, that are a little bit more conscious of this, that have been in the market longer, are realizing that shift. So it’s like if they want to have the alpha of venture capital, they need to deploy to the sub-$100 million funds or the sub-$500 million funds, right? That’s where they need to actually focus their VC capital. They can still deploy to mega funds, but they’re deploying to a different asset class. They’re deploying to a private equity, mid to late stage asset class, which looks maybe a little bit more like a growth fund or something like that. The second part of differentiation is the honest truth is most VC funds are like, I have proprietary network access, right? I’m ex-Stripe or I’m ex-Google or I’m ex-Facebook or whatever, and I have access to that. I mean, we know proprietary networks from that standpoint are no longer true. The whole thing that created Silicon Valley back in the ’70s of what I used to call the country club deals where there were a few people coming out of the big companies, the Fairchilds of the world, later on the Intels of the world, et cetera, et cetera, that made some money along the way that sort of bootstrapped their next companies, were well-known quantity to the existing VCs and raised money relatively easy on ideas, that doesn’t work anymore. Someone was telling me the other day one interesting thing that I wasn’t quite aware of, a lot of it had to do with the NDAs. I don’t know if you knew this, Bertrand, but like the fact that in California, it was sort of the Silicon Valley community sort of imposed this, we don’t sign NDAs thing and Boston continued signing it. And this whole NDA enforcement issue and non-compete, actually not the NDA thing, but more strongly that California did not enforce non-competes. I could leave Fairchild and start a company that magically was doing something that could be considered competitive to Fairchild. And that was sort of part of the acceleration actually of venture capital in California versus, for example, Boston, which was sort of hand in hand at the beginning.   Bertrand Yeah, I mean, I’m a big, big believer in California success coming from not enforcing or banning non-compete agreements. I think it’s a key part of the game. If you lock people into not doing something similar in the next 6 months to 24 months. And the industry has always been moving fast. So this is a significant time where you are blocked to do something very similar. I think it was really an issue. So I think it’s a key part of the game and it has been there. I don’t know how it started, but I think that non-enforcement of non-compete has been a key part of the success of California. I’m actually pleased to say that Washington State is going in the same direction. They are just signing a non-compete ban. And you might remember that at the federal level, I think in 2024, there was also a ban that was put in place to ban non-compete, but this has been reversed by the courts. So this is not there anymore. So that’s why we see a state like Washington State putting their own ban, and we might see more state by state moving in that direction. I think it was not helping at all, this non-compete. I mean, there is obviously stuff that needs to be done, like you cannot steal secrets, you cannot steal IP.   Nuno Yeah.   Bertrand Even stealing employees, there should be some restraints. We need to find the right balance, but you have to be careful there. That was key for the success of California, and I’m glad to see that this is a trend that’s going to go beyond California. And I hope most states will have a ban on non-compete.   Nuno Maybe just to close on the differentiation process, two things. One, I think there’s this notion When you talk to some LPs, that seems to be a little bit ingrained, some LPs that prefer specialized funds. We’ve also done some significant analysis internally and have talked to a couple of datasets other than our own, or people that own datasets other than our own, and the feedback has actually been not so fast. Actually, generalist funds over time cannot perform specialist funds. There seems to be a little bit of a sweet spot around generalist funds. We like to call ourselves multi-specialized at Chameleon, but ultimately from the perspective of specialized versus Generalist funds, the picture’s not as clear as specialized funds outperform generalists or generalists outperform specialized. We’ve seen there are pockets where actually generalists outperform specialized, in other pockets where specialized of a certain size can outperform generalists. So that’s one topic on differentiation that is a little bit broader. And then the final topic on differentiation, it’s really an industry that hasn’t innovated dramatically on where it creates the most value, which is really the picking stage, right? So it’s having great deal flow, very optimal, productive, efficient due diligence with very few resources and the ability to then get into those deals. That’s where most of the value is created. And then hopefully liquidating the asset if there’s an opportunity to do so at the right time, either through secondary trade sales or an IPO or something else. And what we’ve seen is the industry has innovated very little. I mean, the only thing I could point out in terms of core innovation at the top of the funnel has been the creation of the mega funds, the well-known funds, right? Like a16z, Union Square Ventures, et cetera, et cetera. But there needs to be more innovation on that cycle. And that’s why we certainly at Chameleon believe that the future is to have quant and AI-native VC firms that develop their own tooling, their own platforms. We have Mantis in our case that allow you to have this unfair advantage in how you source deals and how you do due diligence, how you get into the deals, et cetera, and how you take it to the next level. And we think that’s the beginning of the next stage is that the industry becomes more tech-enabled, shockingly enough, an industry that has made all its returns on tech or almost all of its returns on tech. That we need to be more tech-enabled ourselves. But I think the writing is on the wall there, and that will be a source of differentiation certainly over the next 3 to 5 years.   Bertrand One thing the industry has innovated somewhat and maybe could innovate even more is providing liquidity beyond trade sale and an IPO, because it’s clear that if VCs want more liquidity without waiting 18 years, you need that liquidity at different stage, not just when it’s time to do an exit, a full exit for the business. And for employees as well. I mean, it’s one thing to stay for a company for 4 years, which is your typical vesting. Maybe you extend that to 6 years, to 8 years, you have a great time at the company. But to think that maybe you have to stick around for 15 to 20 years in order to get liquidity on your stock options. I mean, that’s too much to ask for most people. I mean, people have a life, they have other things to do, other plans, they might want to move, they come at a different stage of life. So you need to provide them liquidity. The new game is we are not going to exit until 15 to 20 years, else it’s truly unfair. It’s not just unfair, but people will say, you know what, I’m going to go across the street, go work for Amazon or Google. I will have RSUs at best regularly that are liquid, and why bother? I mean, we need to find pathways to liquidity for both investors but also employees. There has been a change in that direction, but I think we need more of this change, and maybe not just reserved for the absolute biggest, most successful companies like OpenAI or SpaceX, but also us as well. Hopefully we can find a way.   Nuno Well, now we have these AI companies that actually grow so fast that they will IPO in one year. Now, isn’t that what’s going to happen? They raise They raised $500 million in Series C or $1.4 billion in Series C, and they’re going to IPO in 2 years. No? Is that not the new reality? I’m being facetious.   Bertrand At the same time, I mean, there are rumors that some of them are going to IPO this year. I mean, we talk about OpenAI, about Anthropic. I mean, OpenAI is quite old, but Anthropic is a relatively new business, quote unquote. So I think it’s a good time.   Nuno The Mega Fund Question So maybe it will be true after all. Moving to the next section, are mega funds still venture capital, Bertrand? Are they still venture capital funds?   Bertrand Yeah, I guess venture capital is a term that can encompass from small to very big funds. I truly don’t know. I mean, once you reach a growth stage, are you truly a VC fund? I don’t know. I think some of these definitions are kind of arbitrary from my perspective. What is clear is that you as a business need different providers of capital. And as we just discussed, you as a business, probably need to keep going and stay private for longer. One reason being, again, there is a tremendous cost to being a public company. There are some true strategic disadvantages. And at the same time, just practically, I mean, you need to get bigger and bigger in order to have a chance of a successful IPO. So you cannot just go IPO at a $500 million valuation. I mean, that’s like committing suicide, at least in the US market on NASDAQ. So my point is, you truly have no choice. You need to extend and If you need to extend, then you need to have capital providers that are there at later stage and therefore have more money. Is it still true venture capital? Is it true venture? I don’t know. At some point, it makes sense that from the startups to the capital providers, everyone adjusts to a reality where the life cycle is getting longer.   Nuno We don’t think it is. We don’t think mega funds are venture capital. We have actually some data that shows that they’re not in terms of actual returns. The alphas you can generate, the IRR that you can generate is actually not comparable. We did some analysis again with some of our datasets and from 2012 to 2022, so that’s the datasets that we used so that we had actual distributions and stuff we could take into account and so on and so forth. And looking at IRR, just to share some numbers in terms of IRR over those 10 years on sub-$100 million funds versus above $1 billion funds, the differences are incredibly stark. And this is true for global and US IRR, right? So just to quote some numbers in terms of average, sub-$100 million funds, global IRR of 22.9%, US IRR of 21.6% versus above $1 billion, 9.1% and 9.0%. Median IRR, if we just looked at median, 7.3% and 16.6% for sub-$100 million funds, 7.5% and 8.1% above $1 billion. Top quartile IRR, sub-$100 million, 31% versus 30.4% US IRR. And then above $1 billion funds, 14.7%, 15.5%. So it’s very clear if you sort of cut this in different ways, averages, medians, top quartiles, et cetera, over all these years that sub-$100 million funds are in a very different asset class than above $1 billion funds. They’re in different alpha that you can generate and so on and so forth. Now to the point you made, Bertrand, I don’t fully disagree with the point you made of the bigger funds should become bigger. I just think they’re becoming different things. Now, again, some of these funds will hide under the facts like, well, wait a second, we have all these assets under management, but they’re over different funds. Sequoia, we’re still raising small early-stage funds, $500, $600 million funds. And then we have larger funds for growth, et cetera, et cetera. Andreessen Horowitz, a little bit less clear what they’re actually doing. We heard that they’ve raised $15 billion across funds. I’m not sure if that’s the exact number at the end of the day. But the point is, if I’m a multi-asset class manager, like early growth, et cetera, et cetera, then it still applies what Nunu is saying. I’m still going after the $500 million, $600 million early-stage funds. Well, not so fast, right? Because you still have all this capital with managing general partners that are maybe across funds for which their incentives in particular, both carry and management fees are coming from the larger funds. Et cetera, et cetera. So there’s necessarily conflicts of interest. In many cases, the funds are just straight up big, right? And so they are above a billion. And so I don’t think a lot of these guys are in early-stage investing anymore, right? It may appear that they are, but I don’t think that’s where the returns necessarily are going to come from. And so if you are a limited partner, if you’re looking at your asset class allocation, again, you’re absolutely free to put money into mega funds because that’s the kind of asset class you want to play in. In terms of a blended private equity asset class that has a little bit of growth, a little bit of whatever, or actually a lot of growth, a lot of late stage, and maybe a little bit of early stage. And I want something that’s a little bit more blended, right? But if I still want the alpha venture capital, I need to deploy to funds that are early stage, right? And that’s like up to $100 million, up to $500 million. I think that’s my two cents on that topic. We see crossover things coming around, like guys who do both public and private markets. Again, that starts feeling a bit like a hedge fund. A lot of these funds have also become RAs, as we discussed earlier. So I feel the writing’s on the wall. The mega funds are going more and more after either some mechanism of edging or a mechanism that’s a little bit more blended in terms of private equity than classic venture capital.   Bertrand Yes, I think a few things. One, if you’re an LP, I can imagine that dealing with multiple $100 million funds might be more difficult. You, you need to know the partners, you need to have some background, uh, visibility. You need potentially to change regularly of VC investments. So I can see some level of simplicity if you just focus on the bigger ones, especially if you have a lot of assets you have to put to work. Another piece of the puzzle, I would guess that the bigger funds are able to return money faster because they are at later stage of the cycle. So instead of that 15 to 18 years, maybe they are more in a 5 to 10 year range, while the smaller funds being there more early might be the one who are taking longer to deliver. So I can see that Yes, there is an IRR picture, but there is also time to liquidity that is not the same. So that can probably also influence. And in terms of crossover PE hybrid model, I mean, for sure we have seen some of the public equity investors doing crossover, meaning going into private equity firms like Coatue, like Tiger Global and others. And for companies that are preparing for IPO, there is a lot of value to work with these firms because they have very good visibility and understanding of the public markets. And their presence in the cap table is also a sign of quality, typically for public market investors. So there is a lot of value and logic for them to be there on both sides of the puzzle. But again, the fact that firms keep delaying IPOs, that the market is not so much startup-friendly, makes this model a bit more difficult. But personally, I think there is value there.   Nuno Yeah, I think on the mega fund, just so that I’m not boo-booing everything, I mean, but there’s definitely angles in terms of the asset class that make a lot of sense. And there’s the scalability of the model. The ability to go after Series B, Series C, as well as mid-stage, as well as late-stage, even secondaries over time, to your point, in some cases even public equities. And that level of skill I think matters. We’ve also seen, as we’ve known, we won’t mention any brands, but people will know who they are, that late-stage hedge funds and investors, even if they’ve done okay-ish in growth in private equity, don’t necessarily do well in venture. So it’s clearly a very different asset class, right? So once you start getting venture teams together, The returns are not quite the same. Actually, sometimes they’re not even quite the same as the growth investments. So clearly they’re very good at the growth side, but not so good in early stage. But definitely there is a case for it. The Case for Smaller…Rightsized Funds But if we switch gears maybe to the small, or I would call right-sized funds, maybe just to quote a couple of numbers and then open up the discussion. Small funds do seem to outperform larger funds. There’s a lot of data in the market that shows some of that dynamic outperformance frequency. All the Very historical numbers from Cambridge Associates from 1981 to 2010. 19 out of 30 vintages were won by sub-$150 million funds. We did our own analysis as I was sharing before. Funds between $0 and $100 won most years between around 2010 and 2021. And the years that they didn’t outperform in terms of investing in the top-performing companies in early-stage Series C, Series A, they were outperformed by the $100 to $500 million funds. The $500 to $1 billion funds and $1 billion or above were never even in the same league in terms of performance, of having identified those top performers in terms of quantity over those early-stage investments. Top 10 funds by vintage, 2004 to 2006, 2016 numbers. Top 10 funds, 73% were sub-$100 million. 2004 to 2016, top 10 funds by vintage, 73% of those were sub-$100 million. So there seems to be a little bit of a case that actually smaller funds, sub-$100 million, sub-$500 million in some cases, are outperforming the larger funds over time. Now, these funds are complex in and of itself. The positive of it is small fund GPs like myself, we are deeply invested in our own funds. We’re not there to just make management fee monies. I mean, we’re not making $1 million, $2 million a year in management fees of salary ourselves, like some of the larger funds. So we are there to really get the carry and be less focused on management fees. And so I think there’s a little bit of alignment around that and really taking that kind of perspective on portfolio construction and liquidation, being also more aggressive on the individual time that we spend with our startups. On the negative side, obviously a lot of these smaller funds, not the case of Chameleon, but others out there are single GPs, very little teams or very small teams. And so it’s sometimes difficult to actually do a lot for portfolio companies as well. And this is where the mega funds, for example, a16z notably would say, hey, we have 600+ people that can support you, right? On market development, business development, communications, talent recruiting, all this stuff. Question mark whether that’s the right way to do it in terms of operating model, if technology is not a better way of supplying that value back to your portfolio companies, or if there’s no better way of doing it. But still, that’s one of the appeals of actually dealing with a larger mega fund if you’re a startup, right? That they will have the resources, also the financial resources to put more capital in you. But also, again, if there’s entrepreneurs listening to this right now, and hopefully there are, it’s a two-edged sword, right? Because if you have Andreessen Horowitz putting money in you, or NEA, or General Catalyst, or whatever, putting money in you on a Series C and then not doubling down on the Series A or the Series B, there will be questions, right? Because like they have the capital, they have other funds, so why the hell are they not putting more money in? Um, so, so it’s a little bit of a two-edged sword.   Bertrand Yeah, I think that one is a pretty big one. And on top of it, as we discussed, some of these big firms have multiple funds managed technically by different teams. So you might have convinced the early-stage teams, they have investors, they’re happy, but you don’t convince the growth-stage firm. As you say, it might raise questions because people might think that there is some communication between the early-stage team and the growth-stage team. So why the heck are they not deciding to invest? And as we also discussed, even worse possible situation, what happens if the growth-stage team has invested in your competitor? It’s even more trouble. So I think trying to understand how firms behave, what’s the reputation of the firm, what’s the reputation of the partner you are working with, I mean, can have tremendous importance and impact. When it’s time for you to work with a firm.   Nuno Indeed. I mean, at the end of the day, we still believe that the smaller fund— we at Chameleon discuss the notion that our limit should be $500 million per fund, right? And that’s the logic of it. We think that model is the model that works well in venture capital. We do recognize, as I said before, why mega funds keep raising more and more money, right? It becomes a harm’s race at that end of the market. As I said, probably a slightly different asset class, or if not a significantly different asset class as well. So seeing a little bit both sides of the market, I mean, we often compete with the mega funds, but honestly, a lot of the mega funds are kind to us and they let us in. And this whole notion of elbows out, we haven’t felt it that much in the market. And people see our value at the table. And in many cases, I, I do see the larger funds more and more seeing the value of smaller funds coming in on the same rounds and even in some cases co-leading early stage rounds like Series C. So it’s not like elbows are out everywhere across the board. So I don’t mean to say this is like an all-out war between small funds and big funds and the small funds need to win or the big funds need to win. I think actually there’s a lot of potential for coexistence. My point is more that the asset classes and the returns are quite different over time, and that’s how I would think through it. And if you’re an entrepreneur, you should think about that as well, right? What are the implications of taking money from certain funds versus others in terms of the expected returns, expected time allocated to you? For example, if you’re not doing very well as a as a company, right? Will the big funds spend the same amount of energy on you if you’re not doing great and all of that? So it’s a little bit sort of a beware, open your eyes, both for limited partners and for startups. What do you actually want, right? What do you want from your VC firm if you’re a startup? And what do you want from your VC firm if you’re an LP?   Bertrand I must say, as an entrepreneur, uh, a board member, I have seen some situations where the bigger funds are actually trying sometimes to elbow out the existing investors. Like, uh, we have that much money to put to work, we cannot do less. And you’re like, yeah, but I don’t need that much money. And then they’re like, okay, just don’t let your existing investors do their pro rata. I don’t think it’s great because an entrepreneur, if your investors, your VCs, trusted you earlier stage when it’s more risky, and when it’s becoming less risky, you don’t give them the right to their pro rata because you have to let this big guy come in. That’s not great. Or even if there is not this pro rata issue, when an investor tries to put more money to work than it’s really necessary, it’s also not a good idea as an entrepreneur to take more capital than you could use. It will dilute you more, it will set higher expectations in terms of valuation, it will push you to use that capital faster than maybe would be reasonable. So I think that’s something you want to be careful with the bigger funds. So don’t talk to funds that are in some ways beyond your stage and try to make it work in that context. Or don’t accept to have your strategy change dramatically for no good reason by funds that just want to put too much money to work in your business. And that for me is surprising because it should also be in their best interest not to invest in businesses that are not ready to accept that much capital. But as we have seen, there were in the past some funds that believe that capital is a moat. Was a good idea. So hopefully, I guess we’re a bit behind that. But yeah, I would say entrepreneurs, be careful, find partners that are the right partners for you at your current stage. Sometimes some big names look great, but at the same time, if it comes with a lot of issues, from too much capital to also taking the risk that these partners don’t understand the stage of the business you are in or your industry, Just be careful. There is a lot of value to have firms that are very focused on your stage, on your industry, are finely attuned to that situation.   Nuno What Comes Next? Maybe to end in terms of sections, what comes next? And maybe we can come up with some predictions that are a little bit provocative on what’s going to happen to the market. You, if you’re listening to us, feel free to interact with us on LinkedIn, on X. If you have our email address, shoot us an email as well. We’d love to hear from you if you think these are the right predictions or if we’re totally off. Maybe I’ll throw in the first one, Bertrand, and we’ll go one by one. So we’ll each put one at the table and see where we head. My first one is that we’ll have a huge culling of VC investors. We had this rapid expansion of the VC asset class with arguably at least tens of thousands of firms globally, maybe even over 10,000 in the US. I think we’ll have a culling and the culling will continue and we’ll have several firms sort of getting eliminated over the next couple of years that will have either because they’re having tremendous difficulty doing their first close in their next fund, or the returns are not there, or it’s a firm that has done 3, 4 funds, but for some reason the returns have just gone out of whack in the last few years during the bull years. And so therefore, actually they can’t justify to raise more funds out there. So I predict there will be a significant elimination of active firms in the next at least 2 to 3 years. So maybe by 2028, and we’ll be below, I don’t know, 30% of number of active firms that we are today. The other side of it is I do think if we look beyond that, 2029, 2030, and so on, we’ll have the reemergence of not micro funds, but nano funds where people will start deploying capital very, very early and writing small angel checks, but doing it in a way that it’s sort of not this cottage industry that we’ve had of angel investors. So I think angel investment will be disrupted by people that will use more and more of the AI toolification out there to actually manage their portfolios of 10, 15, 5K investments in a way that is a lot more professional, creating sort of an advent of nano funds.   Bertrand Yeah, makes sense. On my side, in terms of prediction, I think there is a possibility that the mega fund model keeps expanding and looks more similar over time to some PE models. So do we have the top 10 VC firms that look more like a Blackstone than a Kleiner Perkins or Sequoia used to be? That for me will be an interesting question and development. I think that there is some possibility that it keeps going in that direction. A lot of incentives are pushing things that way.   Nuno My next prediction is that DPI, distributions to paid-in cash on cash, just cash back, will become essential for limited partners. I think TVPI, total value to paid-in, that also has in there, as we just said, paper valuations. There’s a lot of disbelief now around the TVPI metric if there isn’t distributions going alongside it. For those who, again, don’t know what TVPI is, it’s total value paid in, but it also includes DPI. So it’s cash on cash component plus a remaining valuation to paid in, an RVPI. And the problem is the RVPI really, in reality, it’s that kind of on-paper valuation that never gets attributed. I think LPs, they’ve seen the writing on the wall and they’re like, dude, just show me your DPI numbers. I don’t care about TVPI. Some LPs will still ask about TVPI just to make sure that the rest is sort of looking in order. Like, show me the money, show me the cash. Actually, it’s not money, show me the cash, right? I want money back.   Bertrand But that’s an issue. I mean, if you’re supposed to raise financing every 3 or 4 years, good luck getting DPI to show for that. So you need to be at least on your third fund in order to be able to show DPI, I guess.   Nuno I mean, my corollary to that, Bertrand, is if you allow me just to have a corollary kind of prediction, is that we’ll see certainly for funds like $50 million and above, $100 million, $200 million, et cetera, even increased concentration, right? I really need to have anchors that believe in me over time. And we might start having, again, the advent— we had it some decades ago, the advent of cap table kind of VCs, right? Like Sutter Hill Ventures, right? Where they’re not really raising funds anymore. And so we might have the advent of that, that we’ll have structures that are created that have more permanent capital allocated to them, or at the very least more concentrated capital by very few players.   Bertrand Interesting. Me on my side, as I shared before, I believe secondaries are, are important and here to stay. Um, in the past, some could argue, is it a distress signal or something? I, I don’t think it’s true anymore. In a world where your average startup might take 15 to 18 years to exit through M&A or IPO, we need to have other options. For funds, for employees, they cannot be expected to stick around for so long and have no liquidity. I mean, it’s just pure madness. It’s just bad alignment at some point to do that. So I think secondaries are becoming the third liquidity pathway for VCs, for employees, and it should be more and more a key part of the game, a key infrastructure in the VC/startups tech industry.   Nuno I mean, on specialized versus generalist funds, I believe we’ll continue seeing the coexistence of those two models where the specialized funds will in many pockets actually outperform generalist funds, but where we’ll continue seeing that the large franchises, the tier one franchises will likely be generalist funds. I mean, we just saw it in the cycle. The AI cycle went upon us. We had a 2021 fund. We could easily adapt and go into AI and figure out that AI was growing very fast. I mean, if you have an ultra-specialized fund and that’s your remit and that’s the only thing you can invest on, very difficult to change even during our investment period. I will put a caveat on that. We don’t call, for example, ourselves at Chameleon generalist. We call ourselves multi-specialized because our scoring models for the verticals that we track are specialized within Mantis. Because the partnership is specialized, we all focus on different areas. And because we have the Kin network that allows us to tap into that level of expertise, Again, I think the world will be specialized coexistence. Some pockets specialized will do very well, certainly on the smaller fund size, but the big franchises will likely look a little bit more generalist. And as I said, multi-specialized from our perspective is the future. We’ll start seeing more and more funds that are multi-specialized like ourselves. Do you want to talk about AI and how it’ll distort the metrics? No.   Bertrand Yes. I think AI is an exciting moment in the tech industry. It feels in some ways that the same way we had a big distortion coming with COVID and work from home in 2020, 2021. 2021, where suddenly everyone and their mother will build a SaaS company or invest in a SaaS company. AI feels a bit of the same. I mean, to be clear, I truly believe it’s deserved. I mean, we are facing a dramatic shift in how computing is being done in terms of value you can get from software. So at the same time, AI will probably distort this matrix for a long time. We clearly see a split where investments are going, in what startups are being created. So I think, yeah, we will see some distortion. And we know that maybe 50% of all deal value is going to AI in 2025. We have seen single rounds reaching 40 billion, like to OpenAI. We have seen, as you discussed, some seed stage investment of 400 million. So AI investing and AI startups are definitely a beast on their own. And will distort VC metrics for a long time. And we might need two sets of metrics in parallel, you know, AI versus everything else. So that would be an interesting bifurcation in the industry in some ways. I would say it’s fair to separate AI versus non-AI. We reach a point where it’s two different beasts.   Nuno Conclusion So in conclusion, AI has changed the world and it’s changing VC as well, as we discussed earlier in the episode. We have a tremendous momentous occasion for the asset class where venture capital is really bifurcating into very large funds, which no longer are in venture capital or seemingly may be distributed between different asset classes, and the smaller funds, sub-$500 million and sub-$100 million, that keep having the better returns, but also with much smaller scale. We’re seeing a culling of the industry where the industry is definitely getting smaller and smaller and more concentrated at both ends, number of VC firms, as well as a number of limited partners per fund and the interest that some of these limited partners have of being more and more concentrated in their own portfolio allocations. And last but not the least, the discussion around specialized versus generalist, where it seems like there’s some clear winners on some asset classes, on some sizes, in some industries, but on others, there’s other kinds of winners. And so maybe the future is multi-specialized, as I framed at the end. Thank you so much for listening. If you want to check us out and if you want to comment, feel free to send us messages on X, LinkedIn, to both myself and Bertrand, as well as send us an email. Thank you so much, Bertrand.   Bertrand Thank you, Nuno.

The SaaS multiples run was long, but it had to come to an end. Or Had it? Navigation: Intro Setting The Scene The Roots — This Didn’t Happen Overnight The Structural Thesis — Why This Isn’t Just A Sell-Off The Private Market Fallout The Bull Case — Is The Market Wrong? Separating The Wheat From The Chaff — Who Survives? Wrap-Up & Key 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 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 Introduction Nuno Goncalves PedroWelcome to Episode 75 of Tech DECIPHERED, the SaaS Apocalypse: Why AI Breaks or has Broken or Broke the Software Business Model. In today’s episode, we will talk about what’s been going on in SaaS. SaaS, also known as Software as a Service, as a sector, has just had its worst month since the 2008 financial crisis. Give or take, around 1 trillion in software stock market cap has evaporated this year, and it was triggered in many ways by the rise of a lot of the things we’re seeing, in particular, agentic AI. We’ll talk about it later.One of the key triggers seems to have been the launch of Claude or Claude Cowork. There’s a lot of fears that the model that is taken as SaaS to be the darling of investors, both VCs, private equity funds, and also retail investors, has now evaporated. The sweetheart industry no longer works. Bertrand, what happened to SaaS? What’s happening? Bertrand SchmittSetting The SceneWe are in the middle of what some are calling the SaaSpocalypse. I think that was a coined term early this year. It’s pretty bad. We are recording that March 13th. Definitely January, February of this year, 2026, were really terrible. There is no question about it. Strangely enough, since the start of the war with Iran, there has been a small rebound, so we will see how it goes. But also to give some context, we are still not worse than what happened in 2022. We are still in a better place so far. I would say the difference, there is clearly a focus in terms of SaaS versus tech in general for that down term. Nuno Goncalves PedroWe’ve seen obviously a lot of things happening, right? A lot of announcements. The iShares expanded Tech-Software ETF down 25% year-to-date. Everyone seems to be running into panic, JPMorgan, Goldman Sachs. Basically, Jefferies, I think, as you said, originally termed this the SaaSpocalypse. But definitely, it seems like everyone’s trying to sell stock and saying, “Hey, SaaS is going to die.” We’ve seen a lot of interesting elements to this, we’ll talk about it later, around AI eats software. Software eats the world. AI now eats software. I guess AI eats the world.But the reality is, we’ll discuss it later in the episode, it might be just a lot of stuff that’s reacting to what’s actually happening in the market, that there was a couple of misses in terms of numbers, that the growth of some of the key SaaS players that are driving a lot of the public stock wasn’t that great recently. That adding to some launches like we mentioned, the Claude Cowork launch, et cetera, has led people to say, “Hey, maybe some entire spaces of SaaS don’t make much sense going forward.” Bertrand SchmittActually, I don’t know if you noticed, but I think it was yesterday, it was announced that the CEO of Adobe just resigned. I was shocked how bad they managed the transition to AI. I guess it’s one of the first victims of what has been happening. From my perspective, and I will go deeper, but there is a bit of an overreaction. Claude is amazing as a tool, but the launch of Claude Cowork, a few plugins decimating the market, I think that’s an overreaction in the sense that many of these SaaS companies will be able to actually benefit from AI as well. Or some of the new AI tools really, really depend on the existence of an underlying SaaS layer that’s controlling some processes, some data. So I think we have to be careful about the extremes.At the same time, what is true, the growth rate has been going down for SaaS. If you look in the 2021 to these days, we move maybe from 30-11%, 12% average growth rate. It’s a dramatic difference in growth rate, and you cannot keep the same valuation when your growth rate has been divided by three. I mean, that’s just not possible.I think that there might be some overreaction about what company like Claude can truly achieve. At the same time, the reality is there that while SaaS companies are usually relatively strong companies, the growth rate has diminished, and as a result, so should the valuation.The Roots — This Didn’t Happen OvernightBut maybe we can move deeper about what happened the past 2 years about SaaS. Nuno Goncalves PedroIndeed. Some things going back as much as 2024 when Salesforce had its worst trading day. By then, in 2 decades, and went down by 20% on a rare revenue miss. So some early people, a lot of analysts, see this as an early warning of what was to come. Late last year, a huge shift as the different labs of a bunch of different players started launching agentic solutions, which in some ways started eating into a lot of the functionality, not just of vertical SaaS, but also of horizontal SaaS. As a distinction for some of our listeners who are not familiar with that distinction, vertical SaaS is normally SaaS that’s very specific to a specific industry or sub-industry or specific arena, whereas horizontal SaaS is normally SaaS that doesn’t require much adaptation to work across industries. A good example of that might be HR management systems.But basically, because of some of the early developments in those labs and a lot of the solutions that we started seeing around agentic tools, the market started being less positive on SaaS players and trying to readjust it. Those are the historic moments, 2024, 2025. Then all of a sudden, we see the growth rates of SaaS companies coming down, because obviously this doesn’t only have manifestations in the public equity markets. This has manifestations in clients.People, at this moment in time, we’ll talk about it later, are reconsidering their options. They’re like, “Why should I have a SaaS tool? Should I buy it from another player? Should I have a more holistic solution or an integration with Claude, for example? Should I develop in-house?” We’ll talk at length on what’s in customers’ minds, but customers started changing their views and stop buying some solutions that were out there from the large players that are public equities today. Bertrand SchmittYeah, it’s clear that there has been also just overall industry-wide tendency to try to cut on the SaaS subscriptions. Maybe there was too much interest buying too many software solutions, not rationalizing enough, not being careful about the spend. It makes sense that this has hurt overall SaaS growth rate. At the same time, there has been a transfer from IT spending from SaaS tools to AI, so we create a smaller budget for buying SaaS software.But going back, when you look at the change in revenue multiples, it’s crazy. In 2021, we were close to 20X EV, enterprise value to revenues. Now we are talking about 6-7X entering 2026, and we will see later on it does crunch even more. Right now, we are at 4X revenues. So from 20 to 6 to 4, and that’s the lowest in terms of multiples since 2016. That’s 10 years ago. P/E multiple for what multiples also comprise from close to 40 to close to 20.Talking about Adobe, Adobe trades at 5-year average of 30X, now at 12X. No wonder the CEO resigned. I don’t want to be mean, but I think it’s clear some CEO were very strong leading their companies into a SaaS paradigm, but were not as strong leading their company to a new AI paradigm. I think the markets are going to be brutal. If you are good at showing that you can transition to AI, you’re an important piece of the puzzle for AI, that’s one thing. But if the markets believe your products have not kept up, then it’s truly big trouble.I mean, they are not the only one. Intuit 34% decline in a month. Atlassian, minus 35 in a week. ServiceNow also down a third. They are not the only one, but definitely companies have to show some proof of either the lack of vulnerability in an AI world or their capacity to really move strong to a brand-new AI world. Nuno Goncalves PedroThe Structural Thesis — Why This Isn’t Just A Sell-OffWhat are the structural issues? Why wasn’t this just a sell-off? Why is this structurally a problem? The first thing is really around monetization and business model. SaaS 1.0 or 2.0, however we want to call it, was based on seat-based licensing. Seat-based licensing was the notion that with more employees and more users on the platform, there would be more revenue for the SaaS company. Very simple, very clear, very lucrative.Now, obviously, AI agents don’t occupy seats. An agent can do the work of 10 people, can do the work of 20 people, 30 people, 100 people, whatever it is. Therefore, if I’m a company, and I’m using agents, and not necessarily a human user, I’m not going to buy 10 licenses for the work of 10. I have one license, and it’s used by an agent that basically has access to that tool. That’s the first issue. The first issue is that the seat-based pricing, assuming humans, assuming a certain degree of productivity, et cetera, all of a sudden is under stress. Bertrand SchmittMaybe to highlight some point, not every SaaS company was focused on per-seat pricing. Me, when I led App Annie, we didn’t have a per-seat licensing or pricing at all, so we were focused on value-based pricing. But that’s true that around us, we have seen that quite a lot of your typical SaaS business was run on a per-seat pricing. Anytime there is a market downturn, you pay a dear price for your per-seat pricing. On top of it, these days, as you said, we have AI. In an AI world, the per-seat pricing model breaks down. Nuno Goncalves PedroIndeed. Now people are asking for other kinds of pricing schema, right? Either flat pricing based on certain usage patterns or, for example, outcome-based pricing. So depending on the outcome of what I’m trying to achieve, is it a booking of a sales call, is it something else? Whatever it is, I pay for that. But I do not pay for seats because that doesn’t work anymore.There have been a lot of movements around these licensing agreements and these basic elements. Some have actually now tried to create agentic licensing agreements. It’s like, “Okay, I have licensing agreements now for your agents, not for your end users.” It used to be end user licensing agreements. It’s now agentic licensing agreements. Obviously, there’s a shift.Part of the shift is, I believe people want to be in a measurement scale that is different. They don’t want just to pay for a seat. They want to pay for either specific outcomes that are very clearly measurable or have flat fees across the board on a variety of things. I think we’ll see the emergence of a couple of these business models and these monetization models more significantly. I do think we’re still to see some innovation around some of these monetization models, which will occur over the next probably few years as people are getting used to it. Okay, now it makes more sense for me to pay by this rather than by that.Again, because it’s a disruption, we’re still getting and nailing down what effectively the new monetization models and business models will look like for some of these players, but it still will be served as a service. We’ll come back to that later as well. Agents can do a lot of stuff and whatever, but it’s like agents and AI are software. AI is software, whatever you want to call it. AI is software at its base and its profound meaning and what it does, et cetera. Bertrand SchmittSeat-based pricing, usage-based pricing, yes, it’s too simple. Yes, it has its flaw. But at the same time, when the industry started, it made a lot of sense. That’s easy to manage, easy to control, at least from the SaaS company perspective. But definitely now that the industry is maturing, I can see that rise and the benefit and value of moving to an outcome-based pricing or to a value-based pricing. What I like with that also, it’s more truly win-win for both sides, for the SaaS companies as well as for the customer of the SaaS company. If you are more win-win, more aligned, I think it’s a better situation, more frictionless. I think it would be a big change.Another interesting piece of the puzzle, obviously, of all the changes we’re seeing is that one of the best assumptions in SaaS was you have 80% to 90% gross margin. If you are below 80%, there were serious questions coming your way in terms of what’s wrong with your business model as a SaaS business. Below 80% was blinking yellow light, below 70, blinking red lights. But now, it’s very different because AI-native companies, you’re expecting more a 50-60% gross margin.Obviously, if you’re SaaS companies, you better move fast to more AI-native tools and services. That will impact your margin. When you decrease so much your margins, of course, it will impact your valuation. There is no other way around that. You cannot value the same way a 90% gross margin business and a 50% gross margin business. That’s simply not reasonable. I think that one is part of the change and part of a different way to value companies. It’s very reasonable. Nuno Goncalves PedroThe first two structural issues is, one, obviously the per-seat pricing piece is potentially dying or at least becoming less pervasive in the market, added to these emerging pricing and monetization models that we just discussed, value-based, outcome-based, some usage-based pricing, some hybrid models that are also out there with some base subscriptions and then other kinds of things and tiers on top of it, either usage or outcome-based.The third big structural shift that we are seeing is, and I already alluded to it earlier, this notion of build-versus-buy. In the past, I think the market went fully into buy. In some ways, even beyond the, “I will buy one” solution that solves all the problems, we went into best in class. We went to unbundled buying: I’ll buy the best solutions for what I need in my corporation and enterprise needs.Now we’re getting a shift back into building: I’ll build my own stuff. I think a lot of it is relating to two things. One, there’s coding agents out there like Claude Code, Codex from OpenAI, and a bunch of other coding agents that have emerged. There’s a lot of solutions out there, like we mentioned already, Claude Cowork, that really managed to have agentic solutions into workflows that are deeply embedded into some of the enterprises.At the end of the day, I think there’s a lot more of this notion of, I have all my data in-house. I want to really leverage all the data I have. I don’t want to just use a third-party solution that has generic data. I want to use my data set, I want to use my stuff, and I want to basically fit that into ongoing improvements in terms of workflow.The other piece, I think, what’s happening with IT departments in some large corporations that’s leading to this build mindset rather than this buy mindset is also the notion of maybe we have too many people. How do we really express our productivity if we don’t have solutions that are at the core of our processes? If we have solutions at the core of the processes that we develop ourselves or that we develop in partnership with integrators, et cetera, but using some of these new AI platforms, we also have more visibility on the people that we can let go.Now, I know this is quite negative, but I think this has also been leading to all the layoffs that we’ve been seeing across industries recently, where people are like, “Well, I can just extract productivity.” We’ve seen some of those very visible ones. We were talking about Amazon and what’s happening at Amazon with the layoffs recently. A significant amount of layoffs recently announced.Then some other issues on the other side where apparently the junior engineers that were still working on stuff using Claude and other tools that they were using internally started breaking platforms and breaking systems. Anyway, definitely there’s a lot of that going into this build mindset. I want to have control. I want to make sure I understand where the productivity enhancements are, and that will give me more visibility on the people that I need to keep and the people that I need to let go. Bertrand SchmittI’m not so convinced about this part of the puzzle. I think that for many, AI is a convenient demand, but I’m more thinking that some companies, Amazon included, Microsoft, truly, truly over-hired in 2020, 2021. Yes, they scaled back a bit, 2022, 2023. But I don’t think they ever scaled back to what was reasonable given their needs. So it’s quite convenient to say, “No, it’s not management mistake of efficiency, it’s something new AI, and we have to adjust to that.”What I believe is true, however, is that you cannot fund both at the same time in the sense of you cannot finance an over-bloated workforce, and two, significant extremely large AI investment. At some point, these companies were faced with a choice, and they took a reasonable decision on this to be more efficient with their workforce.But personally, I think that actually the ability to do so much more with AI will make more companies think more about their teams and building things because when suddenly your engineers can be way more efficient, can build way more, the value increases. So you could argue that there is an opportunity for companies to deliver more, and as a result, I can see if you’re a good engineer, then there will be opportunities to build more value, potentially across more companies.So we might see a shift where you have more growth in software-related jobs outside the core top 10 bigger software companies, but growing more widely across your typical S&P 500 and even SMBs who could never afford to really deliver value with typical software engineering. But now suddenly, software engineering equipped with AI can be more dramatic in terms of value for them. Nuno Goncalves PedroI agree this is a scapegoat. I agreed that there’s a lot of posturing as well. If someone can lay off a significant percentage of their… It’s almost like the percentage of people you can lay off becomes your new pattern as a CEO, your new, “Basically, I’m saying right now to the market, I can cut…” I mean, Block, I think, cut off 40% of their workforce.At this point in time, seems a bit dehumanized. I think the tech companies are the worst cases, in particular because AI also does disrupt them a lot in their own processes internally. But it feels to me right now, it’s a little bit this one-upmanship of, “Okay, I can lay off more people than you can, kind of thing.” It’s precisely all the fears that a lot of people have around AI. It’s like you’re dehumanizing work. It’s like at the end of the day, people are still needed to work, et cetera. Bertrand SchmittBut I think Block might be one of these companies that completely over-hired over the past few years and never took the pill to reoptimize the business. Nuno Goncalves PedroI think we mentioned it at a previous episode that there was an estimate at some point in time that… For example, even Google had more than double the number of engineers they needed at any given point in time. So obviously, they did hoard engineering resources in other capacities. But at this point in time, it feels a little bit like up to you since being a software engineer right now is a kiss of death kind of thing. Which is weird because at the same time, we are seeing tremendous reallocation of capital overall in the industry towards infrastructure and platforms, where hyperscalers are at 660-690 billion in infrastructure CapEx for this year alone, and 75% of that being AI, where we are seeing a lot of movements around how do I budget accordingly if I’m a corporation.To your point, I think you made that point earlier, Bertrand, how if I’m the CIO of a company, do I allocate my resources more clearly, in particular, if I’m taking into account that I need to spend more money on AI and AI tooling and AI platforms. Obviously, at the end of the day, the CFOs are still there, and the CFOs are basically saying, “Hey, guys, we went into an unbundled world. We had all these agreements with all these people. I want more concentration.” At the same time, the CEO is telling me we need AI, “So whatever it is, you guys tell me what it is, but we can’t increase our budget for this stuff. We need to decrease it, and there needs to be AI in it.” Obviously, there’s a lot of reallocation also at a micro level within the corporate world. Bertrand SchmittYes, you cannot say it will be more built versus buy. At the same time, we are going to need less engineers to do the build. You see what I mean? Even with AI helping you, building which still cost you more, require more software engineering than just a buy decision. For me, what’s interesting is that not so many of these stories can be true at the same time. You require a next workforce, but at the same time, you’re going to rebuild your whole software stack from zero just because of the AI God that you just brought in from cloud. This is not reasonable, simply not reasonable. Nuno Goncalves PedroI think the thesis is that your top engineer is I think, in particular, the more senior engineers, can now do the job of 10. Therefore, what I am switching in terms of cost, I’m not saying I’m agreeing with the thesis, but the thesis is that. What I’m reallocating in terms of budget is, I’m reallocating towards spend at infrastructure platform level, on tokens, et cetera. That’s basically, I think, the thesis of what we’re seeing happening right now. Bertrand SchmittYes, but if you were just, quote, unquote, buying software, you’re not building software. You didn’t need software engineering to just buy software. Your software engineer that becomes as valuable as 10, yeah, but you had zero if you were just buying software. You see what I mean? Nuno Goncalves PedroNo, IT departments have always had engineers, the larger corporations. Yeah, for sure. Bertrand SchmittIt’s a very different game if you are moving from buying to building. It’s my point, I guess. Nuno Goncalves PedroIt is. Just to be clear, Bertrand, this whole build-versus-buy, the build is going to be done with a lot of use of outsourcing and a lot of use of service providers and a lot of use of integrators, et cetera. This whole bullshit of build-versus-buy, in effect, it’s a misnomer because at the same time, you’re going to have to hire, to your point, you’re going to have to hire companies, et cetera, to help you do this. It’s not magically that you can do it off the existing IT departments that you have. Bertrand SchmittExactly. The question will also be, is your first priority of business to rebuild Salesforce from scratch so that it better fits your internal need as a corporation because you have rebuilt from scratch with AI? I don’t think so. That for me is total overhyped bullshit. Klarna was big on that, this is total BS, quite frankly. Not only it didn’t work, but it makes zero business sense. Zero business sense. You’re not going to rebuild a CRM just for the fun of it while your software engineering could be focused on your core value proposition as a business. If you’re a company just starting, you have processes from scratch, you still don’t have solution, yeah, maybe you could consider that.But even then, is it really your priority versus building your core value proposition? For me, that’s a big question. But what I would expect, however, is that this overall trend mindset and stuff is going to keep the pressure on two software companies in terms of reducing tiers of cost, in terms of delivering more value, in terms of being more aligned to the business, and in terms of overall growth rates that are simply not the same as they used to be. Nuno Goncalves PedroBefore maybe we move to another topic, I think it’s clear, we’ll come back to that later, that there are a lot of overblown elements in this. You can never disregard a couple of very, very core elements. A lot of these software companies have very deep tooling into significant enterprise customers. You can’t just rebuild it from scratch yourself to your point. Not only does it make sense, but you can’t. It would take you years to do it. Good luck to you.Secondly, they have also distribution. They are pervasive in the market. They have sales forces. They have people that are selling out there. They have go-to-market teams. Again, we’ll talk about that in maybe one of our penultimate sections today. But maybe to move forward, we talked a lot about the public equity markets and how there’s been a reckoning by institutional and retail investors, et cetera.The Private Market FalloutBut also there’s been a private market fallout. The first one is very obvious to understand. Private equity firms loaded themselves with SaaS. Some even went after roll-up strategies in SaaS, like bringing a bunch of companies together and trying to attack a market and really getting a significant part of that. Software accounts for roughly 25% of the private credit market, which is incredible. Just that’s private credit alone, significant again. They’re loaded with a bunch of companies that have nowhere to go. They can’t IPO, nobody else is interested in buying them unless it’s for a huge write-off or write-down. That’s the first problem right now that we’re seeing in this fallout, which is the private equity market itself. Not only the buyout market, but also we saw a lot of growth funds loading themselves with private equity stock, with a rather SaaS stock, private SaaS stock.Right now, there’s nowhere for that to go. They’re stuck between rock and a hard place with a lot of solutions that are not growing at the rates they were growing before, with a public market that’s not really interesting right now to IPO in, because as we were mentioning earlier, the multiples have gone downhill dramatically, so it’s not interesting. Basically, it’s a chicken-and-egg issue. I would love to sell this now, but I can’t because I have awful market. I can’t IPO it either, so what do I do with all these assets? That’s the first issue here. Bertrand SchmittIt’s clear that you have to be pretty delusional to think that what’s happening in the software public markets is not impacting the private markets. We don’t know why it will be in six months. In six months, it could keep getting worse in the public markets. Six months, at some point, maybe there is a recognition it went too far in terms of adjustment. It’s always tough. But at the same time, you have to be prudent. For sure, what it means is that if I’m a private equity investor in a SaaS business, you have to be a very, very, very special SaaS company to get more financing these days at good terms.Sometimes it’s a very simple math. If you fundraise at 20X, even 10X, how do you go to get to another round of financing if now your multiples are at 4X? That simply makes absolutely no sense whatsoever. Or you need to have grown into your valuation enough that it’s not crazy anymore. If you raise at 20X, and now you’re in 4X multiple, then you need to have grown 5X in your revenues so that you simply stay at the same valuation, or maybe you have to accept a different valuation. But again, quite frankly, the tough part would be convincing investors that it make any sense to put money in a SaaS business. Nuno Goncalves PedroJust to rub it in, just to make it even worse, the secondary market, which was a great market for exits or partial liquidations, et cetera, is demanding now huge discounts. There’s no way I’m going to buy into a stock if it’s not growing at the same pace. I’m like, “I’m sorry.” I will buy your stock at a significant discount. In some cases, it might be what would be a lesser price per share than your last round or your last two rounds. Not just, I want a discount on what you think you’re worth, but it’s like, I want a discount on your last round.Because there’s liquidity issues also in some parts of the market, we were talking just about the private equity firms, some of these deals will go through. If all of this wasn’t quite enough, we have what’s happening in venture capital, which is very close to my heart, of course, because that’s where I play. If you come to me, it’s like I’m a SaaS player immediately off the game. I’m like, “Really? You’re a SaaS, tell me more.” I was just talking to a player recently, SaaS play, there was nothing around AI in their pitch.It’s not just because you have AI in your pitch that I’m going to give you money, clear, but if you’re doing a SaaS play and there’s no AI in your pitch, I’m like, “Am I missing something?” If it looks very classic, I’m like, “Oh.” There’s been a huge, huge reduction in confidence in the VC space in investing in SaaS. There’s a tremendous hyper focus on AI, and in AI investing, AI apps, platforms, infrastructure by most VC firms at this moment in time. And so at this point in time, if you’re a non-AI SaaS player trying to raise money, where’s your AI play? I think that’s the question you’re going to get. It’s going to be very difficult to raise, very difficult to raise. Bertrand SchmittI agree with you. Myself, I saw that SaaS startups with absolutely no AI in their deck, and I was so shocked. I was like, “Guys, where are you living? Are you living in a parallel universe? Are you living under a rock? What’s going on?” Then they are like, “Yeah, but we’re preparing something like that, I come back and prepare.”But even then, as you say, it’s not just leaving AI in your deck. It’s what are your proof points? What have you delivered? How do you make sure that it’s truly differentiator? And how does it make sense versus a pure AI native companies? How are you going to find the new cloud tools that are going to get out in a few weeks and more or ChatGPT or whatever? You have to have a very different proof point. There is nothing new in the past. It’s how are you going to survive against Google? How are you going to survive against Salesforce? How are you going to survive against Microsoft? So nothing is new.Software universe is changing. There’s always that big guys that can destroy you in a matter of weeks. So the question is more, how are you going to be smart enough not to be killed too easily and to find your way in a space that’s probably moving faster than ever? That is probably the difference is that it’s weeks after weeks, you have big change. I’m pretty sure it didn’t happen in that space before because I’ve seen there, I’ve seen that, and it’s moving faster than ever. But it’s nothing new that there is this big company potentially destroying your business. You have to be smart.I feel in some ways, maybe it’s the 2020s, but people stopped being smart, quite frankly. They just raised easy at very large valuation and think that you just do something sometimes pretty basic in terms of software development and that’s good enough. Your GTM is traditional, and you think you made it, and you deserve some investment. I think you must have seen some of this. I have seen a lot of this. In some ways, it’s good. The market is becoming more discerning. Nuno Goncalves PedroThe Bull Case — Is The Market Wrong?But is the market wrong? Maybe shifting to that, at least my perspective is it’s wrong. It’s not fully wrong, but it’s wrong. There’s a right sizing of multiples, but maybe 4X is not the right multiple either. This whole 20X on actuals and 40X on forward stuff didn’t make any sense. There is an argumentation to say that the market is oversold. All the banks have come forward. Goldman Sachs, JPMorgan, Jeffries, Morgan Stanley. Everyone’s come forward and said there’s been definitely, Bank of America, whatever, there’s been an overselling of stock, a dramatic overselling of stock. There’s been a panic that wasn’t warranted. The price has gone down too dramatically for some of these key players.I think part of it, in some ways, is what we were alluding to earlier, the fact that some of these players have built really important stacks that are fitting their customers in a significant on core processes. You can’t just rip it off and put something new. Magically, it will work. It will be around building things around it rather than building things that replace it. Will there be over the long term potential disruption of some of these players around CRM and other solutions? For sure, we’ll see it.But definitely, some of the existing players, public companies that are large, are here to stay, and they themselves will buy into these markets. They’ll acquire positions into other service providers into toolmakers, into other platforms that allow them to be fully AI-enabled and to make their platforms more AI-enabled. I do think there was a huge amount of overselling. The second thing we already alluded to as well as go-to-market. If I’m selling something to someone, there’s a salesperson involved or there are a couple of salespeople involved, they’re not going anywhere. So in some ways, that relationship building with CIOs, with their teams, with procurement teams, all of that is still there.And a lot of the large SaaS players have been doing this for decades. So they have the surface of attack and go-to-market that will take a long time to build for even some of these startups that are disrupting, so to speak, the market. My view is there has been too much panic and the modes of the large players that are already public, in some cases, haven’t been considered at all. Bertrand SchmittThere’s definitely some truth in that. Another piece of the puzzle is that if SaaS is not growing as fast as it used to be, it’s still growing. Many companies are still very good cash generation machines. Many of these companies are moving to AI full speed, improving their tools, changing how you can search their data, how you can leverage their data. They are very close to the data, so they know best how to deliver value on this data. They can integrate existing AI tools. There are a lot of ways for them to capture part of the value that native AI companies are claiming they will get. I think it’s definitely going to, and we’ll talk more later on. I think there will be a question around how do you differentiate the best SaaS companies from the worst SaaS companies in that context.But maybe I just felt we moved a bit quickly on one big event that’s shaping the software industry, it’s the current crash in private credit. Do you have some thoughts about that? Because what’s happening there is pretty crazy, to be frank. Nuno Goncalves PedroYeah, we’ve seen a lot of these players like KKR and Apollo getting slaughtered. Basically, Blue Owl, TPG, Ares, KKR all fell double this in one day on private credit exposure fears. Overall, Apollo has fell 7% as the date of as we were recording BlackRock, 5%. These guys were walking on water and all of a sudden, there was like, “What happened?” And what happened was private credit exposure. A lot of the concerns in the market is private credit is super sexy, and for those who don’t understand what it means is I’m giving credit to a private company in exchange for something, either warrants in the company or revenue sharing in the future, or I’ll get your revenues in advance from you, or I’ll take, whatever it is. There’s over exposure.There’s this potential logic that all these guys are scaling, all the companies that they give private credit to are scaling. And now there are concerns that there might be some dramatic credit in the market, that some of these companies are actually going to die, they’re going to implode, or they’re not going to really fulfill their covenants in their private credit agreements. Bertrand SchmittIt was hidden in plain sight, but that some of these private credit funds at 25, 35% exposure to software, IT, and SaaS, so a huge chunk in an industry where you bet on the long term revenues and cash flow to pay back your loans, while at the same time there is a discovery that this business may be at risk in the next three, five years or even one year because of AI.I think that was the first big chink in the armor that suddenly the creditworthiness of these companies might not have been evaluated properly. But two, it looks like there is also fraud that has been happening. I was reading stories how three, four people, accounting companies, were valuing and estimating loans for hundreds of SaaS business. Good luck, this is crazy. It looks like there is another layer to that story. Nuno Goncalves PedroWhen there are industries building a lot of wealth or apparent wealth that’s coming a little bit from out of nowhere, the likelihood that there’s fraud and things that were not properly done is, it sadly increases dramatically or exponentially. I think we’re seeing just maybe the first effects of that. Bertrand SchmittI was reading, for instance, that one of these big funds was no haircut across the portfolio, ever seen value that was 100%, whatever. One quarter after that, one of their clients going out of business and they lost everything. In three months, you move from no haircut to 100% haircut, decent enough part of your portfolio. This is crazy for a credit business. Nuno Goncalves PedroIt’s ostrich syndrome. You just put your head under the ground, and you’re like, “Hey, whatever.” I don’t know. Bertrand SchmittYeah, it’s zero mark-to-market in an industry that should be relatively conservative. This is private credit. This is not VC, this is not startup, this is not equity, this is credit, so pretty scary. Another piece was like, some of them were supposedly senior on the debt, but they were not so senior after all, this is insane. You claim seniority, but you don’t have it.My point, I think what’s happening in private credit is maybe it all started with that what’s going on, a lot of software exposure. It’s risky because of AI, but the more investor dig into it, that’s when they started to realize that maybe there is more than just that software issue. I guess, all of this is going to be an issue for software business because if suddenly you cannot get loans anymore or the loans you add, you have to pay them back or when it’s time to pay them off, you cannot renew the loan. There is nobody else to turn yourself to get another loan to replace it. That’s not going to be fun and that’s going to impact your growth rates. That could potentially also even be worse than that, be dramatic for your own business survival. Nuno Goncalves PedroMaybe now switching back to the positive part for the bull case. We think the market’s wrong, not fully, but wrong. The other side is still things move on. We’ve also had the same issues in credits in several industries in the past when markets imploded and credit came back. In some cases, it took a while. In other cases, it came back relatively quickly. One great analogy on making a bull case on why all of this stock that was sold was oversold, there’s too much stock being sold on SaaS and at prices that don’t make any sense is an analogy, precisely, for example, with retail. Amazon was going to destroy everyone their mother in 2010, and it did not. It was going to destroy Walmart. Walmart passed the $1 trillion market cap. Bertrand SchmittNot too bad. Nuno Goncalves PedroSo what happened? They adapted. They had huge advantages. They had huge advantages in terms of their customer base, presence, relationship with their suppliers, with the offerings they had, et cetera. They had huge advantages of economies of scale, and they leverage those advantages. And those advantages ultimately materialized in tremendous increase in revenue, tremendous increase in market capital as well.Amazon has done really well as well. It’s not like Amazon didn’t do well. Again, I think this notion, people sometimes have this difficulty in separating the notion of disruption from the notion of replacement. Disruption doesn’t mean necessarily full replacement. You can disrupt industries, disrupt players in that industry, and still those players will exist 10, 20 years later, and they’ll be much bigger because they adapted. The ones that don’t adapt may be killed.But the disruption doesn’t necessarily mean replacement or killing. It means just that effectively the rules of the game, the business model, which we already talked about, monetization models, the way that capital flows in that industry, et cetera, all of that shifts. It doesn’t mean that necessarily the existing players are not going to exist tomorrow. In some cases, they will exist and they’ll be even stronger tomorrow. Bertrand SchmittI think what’s happening is truly a disruption of the SaaS business model, of the SaaS valuations, of the SaaS analysis, because now you need a new prism to analyze it. What are the markets doing in the meantime? They are just dumping it, waiting for, “Okay, how do we look at it in a different way? Who are going to be the winners and the losers?” For now, we don’t care, they’re all losers. But I think that the next piece of the puzzle for us in this episode, but for the market is, how are we going to separate the wheat from the chaff? Who is going to survive? Who is going to more than just survive? Who is going to thrive in that new industry. Nuno Goncalves PedroThere I feel the ones that survive, there’s a couple of obvious ones we can go into. Two that immediately come to my mind are data infrastructure, the Snowflakes, Databricks of the world, because this is the underpinning of everything that’s happening around AI. I don’t see the data infrastructure fundamentally shifting right now. It might in the future, but right now I don’t see it fundamentally shift. Those guys have, if anything, tailwinds rather than headwinds.Then the other one that’s very obvious to me is cybersecurity, where I think AI is very additive to it rather than just necessarily replacing everything that exists. In some ways, that already been used for a while, certainly by the top players. Definitely, those are two immediate categories and areas that come to mind that have maybe more headwinds and tailwinds where really AI is adding rather than subtracting to it. Bertrand SchmittNo, I totally agree with you concerning data infrastructure, cybersecurity. You could argue if you take cybersecurity, that with the rise of AI attacks, with AI making it easier than ever to generate attacks, you better build up your security. Nuno Goncalves PedroWith AI? No, but you have to have AI on your side defending as well. The only way to defend AI is AI. Bertrand SchmittThat’s my point. Your cybersecurity vendors will become AI-enabled, will leverage AI at scale in order to defend you, else they won’t be able to defend you, just quite frankly. Nuno Goncalves PedroCorrect. Bertrand SchmittThat’s part of the game. Data infrastructure, no questions. Again, I don’t think you want to redo your infrastructure with brand-new tools, brand-new stuff is the current tools are working great and doing the job. Maybe another piece of the puzzle is that vertical SaaS, domain-specific tools, healthcare, manufacturing, if you have proprietary data, regulatory modes, it will be much harder for AI to disrupt quickly. If you are not disrupted quickly, you have more time to readjust your business model, to adjust your business model, to leverage AI to improve your business model.Again, of course, some companies, we have seen with Adobe, for instance, have not proven great skills at adjusting to AI. Not everyone is going to get out as a winner. I think some categories have better chance to actually not just survive, but potentially thrive. Another piece are systems of record. If you are holding proprietary non-scrapable data that AI needs to function, that you have deep switching costs protecting you, you are not going to disappear right away. I think you will probably survive. If you are smart enough, you might be able to even adjust and leverage AI.But I can see some might just stick to their revenues and hold companies hostage and might not innovate a lot. I guess we’ll do well on the short run, but on the medium to long I would definitely more worried. Nuno Goncalves PedroOne point I would like to make is at the end of the day, there’s more than that. The algorithmic methodologies you should use for specific industries, for specific verticals, for specific use cases could vary. We’re still very early in a lot of the application of some of these AI methodologies. We’re not early in the development of the research around them. They’ve been around for decades, but the application of them is still relatively early. I think that’s one of the advantages why vertical SaaS companies and vertical SaaS solutions right now might have an advantage, because the domain in which you’re operating, even algorithmically, is actually different, and you need to really right purpose it for those environments and for those domains.For me, that’s an important point to make. It’s not just any vertical SaaS. I think vertical SaaS, where there’s algorithmic distinctiveness, definitely has a shot at it. Other might not. We just saw a lot of discussions around legal tech and how legal tech got slaughtered with the launch of Claude Cowork, for example. Definitely, it will depend a little bit on the verticals. Bertrand SchmittTake the legal side. There has been some interesting decision recently where basically, if you use AI for legal advice, then this data, this discussion is not privileged. You are at big risk of discovery. There is a lot of issues that if you are working with real lawyers, will not be there. Your data is not discoverable, your discussion stay private, so it cannot be used against you. I think companies have to be very careful and very worried about how some of these tools are being used because it’s creating new risk. Some of these tools are not going to get privileged in the coming few months, I don’t think so.You could argue most of these companies in the first place claim a right to access your data and leverage it. I think that even in legal, it would be interesting to see how it evolved. AI will be able to claim some privilege at some point? Maybe, I don’t know. But on the short run, I can imagine how the legal profession, for instance, will not let it happen too quickly, and how you have to be very careful. It’s great to move fast, but you have to be careful with what is it that you are getting into. Nuno Goncalves PedroLet me guess, the last company you’re going to say or the last type of companies that you’re going to say are like the survive, thrive are AI-first or AI-native companies. Is that correct? Bertrand SchmittYeah, I guess. Yes. They are going to be less disrupted by AI, given that they’re already AI native. Nuno Goncalves PedroThey are AI. Bertrand SchmittWe are going into another territory. Even if you are AI-native, are you going to still get killed by Claude because you don’t have enough technology or ChatGPT because you don’t have enough technology? You are just that basic rapper around another AI tools. Here my perspective and what I share more and more with some entrepreneurs is you have to be careful if you are just an AI native company, but ultimately you are a very AI light in the sense that, yes, you are a native, but you are just reusing other LLMs and stuff, and you have not built any proprietary tech or moat with your data or in your industry. That’s going to be trouble. That’s going to be trouble.I’m not sure the market discriminated well enough at this stage, but I think there will be quickly some premium around, have you built a real technology mode? Are you really in such a situation that you are not going to get killed by a Claude or ChatGPT in a few weeks? I think there will be some discrimination that’s going to happen. Ai native won’t be enough to save you, basically. Nuno Goncalves PedroI think there’s one thing. One is what you’re saying. Is there fundamental technology differentiation and/or product differentiation that will sustain itself as a moat? The second thing is, even if it’s an AI app at a higher level, the reality is the guys that are in the market today, the OpenAIs, the Googles, the Anthropics, etc., they’re not going to address all use cases. There are places where some use cases will still exist. We saw that in the mobile app economy.In some of these use cases, you’d be like, why hasn’t, for example, Apple addressed the need for this kind of solution, whatever, and maybe it took them a decade to do it. Then, when they did it, they almost killed the market. But you have some of these AI apps that I think will still be in the market that will emerge and will address use cases that for some time, for some reason, OpenAI, Anthropic, etc., won’t go after. To Bertrand’s point, and I think importantly, if you’re an entrepreneur, if you’re writing on a very specific use case, and there’s seemingly a high likelihood that any of these players are going to address at some point, you’re not in a sustainable place. You’re not going to be around very long. Bertrand SchmittOr you have to take that initial leadership position and transform it into a deeper technology mode, a business mode. You have to leverage that first mover advantage, maybe, to something deeper than that, something more defensible. Maybe you pivot also in term of industry. You started in industry A, but you realize industry B is really the good one. You have to really optimize your way and not take anything for granted. Nuno Goncalves PedroBertrand, do you remember when it’s like every release of iOS and whatever, we were like, what industry is Apple going to kill now? What are they integrating? There was a period of time where it was literally like every big release, every major release, the yearly one, you’d be like, what industry are they going to kill now? Bertrand SchmittTotally. Totally. I think the same is happening. Definitely, we say AI, but I think some players have been smart enough to zigzag around that onslaught from Apple, from Google. But some will stay put. We think it’s not going to happen to them. Yes, they got into trouble pretty quickly. I think also what we have seen is that a lot of value could be from players who are simply more neutral and independent vis-à-vis a platform. If you need someone in the middle, your three or four mobile platform, or now your three or four LLMs or AI platforms, there might be value you can extract because companies are not… That’s another piece of the puzzle.You don’t want to just depend on Claude. You don’t know in three months, ChatGPT has a better model. You will want to make sure that whatever you are running can adjust to a change of LLM providers, for instance, or tool providers. I think, for instance, one position could be that mutual player, the one gives you the ability to adjust quickly to different technical AI development. We will see. But I think there are different strategies you can go through to make sure you end up not being killed, and that will require smart entrepreneurs. Nuno Goncalves PedroSeparating The Wheat From The Chaff — Who Survives?We talked about who survives, who doesn’t survive. Let me start with one. Or where I think will be categories that will be incredibly under attack, so a lot of players, I think, will disappear or will become very, very small. One obvious for me is anything that relates to the small, medium business markets, so very SMB-focused SaaS, a lot of regional SaaS stuff that has emerged, copycatting in certain markets because the larger players didn’t want to expand in some of those markets.I think a lot of that stuff gets just replaced because a lot of the SMB markets are price sensitive. A lot of these markets are also best effort-driven. It’s like it doesn’t need to be perfect, it just needs to do the basic stuff. Therefore, I see that market as a market that’s going to get, in all honesty, over the next 3-5 years, slaughtered. It’s not going to be rapid death, but some of them are just going to be totally replaced. Bertrand SchmittI agree with you. If you don’t have a big enough moat, if it’s very shallow, if your clients are moving quickly, you can easily switch based on a small price difference. That’s definitely trouble. Nuno Goncalves PedroI’ll let an anecdote just so people I don’t understand. Because people say, but these regional SaaS solutions normally because of their specificities to the markets and stuff like that, whatever. I literally drafted the other day an agreement, a semi-agreement relating to Portuguese law on Claude in Portuguese, from Portugal, not Brazil and Portuguese. It drafted an agreement from scratch based on my prompting, and it took into account specificities of the Portuguese legal system and taxation. Guys, it’s like, this is a freaking consumer tool. Localization of what? The tax regime and whatever? Who gives a shit? It’s like, again, I think that’s the market that definitely will get a pretty significant beating. Bertrand SchmittAnother market for me, we talk about Adobe, but content creation tools. Here, I think there is a dramatic shift in how you use them. Before you use another Photoshop to replace something in a picture, change a slightly picture stuff. Now, you just say, hey, remove this guy from the picture. Hey, replace. Hey, create that picture from scratch. I have five photo IDs, put these guys in context, put them in your meeting room, and go for it. This is such transformational versus how you used to work before that I think some of this industry is getting destroyed.There will be simply no point of using these tools anymore because something else is just 10X better. That is not even a question. You could argue there is still a niche of professionals doing stuff in an always because it guarantees a bit more higher quality or this or that. Sure. But overall, this is getting disrupted big time and the much bigger business might be totally new and totally AI native. Nuno Goncalves PedroI will do a parochial comment. We have two investments in the content creation space, one more on the marketing side and the other one more on the hardcore content creation side. They’re both AI from inception, so they’re both AI native. One of them is called LetsEnhance, the other one is called blaze.ai. I feel it’s true that there’s going to be a lot of replacement of some of the content creation tools in certain markets like consumer and prosumer, driven by the Nano Bananas of the world and all that stuff.But on the top end and in enterprise and all that stuff, we feel that AI native content creation tools are there to be. It’s actually one of the areas of what I would call use cases or AI apps/platforms where I feel being AI native will give you an advantage. Just being a cross-cut play around the market being Anthropic or OpenAI, whatever, actually won’t solve the problem for some of the markets that need to be served in. Bertrand SchmittMakes sense. I agree with you. Maybe more quickly, some point solutions, relatively high risk. If you have a single function tool, then could be easily replaced potentially by an AI agent. We already talk about it. If you are too SMB-focused, that’s not the best segment of the market, typically. Maybe you can have a single test to check if that company is at risk. If you were to replace that tool, can a $20 a month AI agent do this task? If switch it cost are low, then maybe that’s not a good business opportunity. Maybe you should not invest, or you should sell the stock.Again, maybe you have to focus more on regulated niches, hardware dependent, critical private data, solutions where there is already outcome or value-based pricing in place. You have to put some rules and analysis to help you understand, is this business at risk of significant disruption or not? Not all business are the same. As an investor, that might mean that there would be some good opportunities. SaaS businesses that are going to emerge even stronger right now are at a cheap discount. Nuno Goncalves PedroAbsolutely. I think at the end of the day, certain basic workflow tools that are out there to simplify CRM, some very basic ERP modules, anything that’s very, very simple in terms of if this then that, all those tools are also going to be slaughtered relatively soon, sadly. If you’re in that space, maybe time, as Bertrand was saying earlier, to pivot, to go after some fundamental differentiation, or to do something else. You want to conclude, Bertrand? Bertrand SchmittConclusionSure. I guess we could see that from a trade perspective, from an investor perspective. I think it’s creating quite genuinely some opportunities. Some stocks are in the bargain, some of those are value traps, so you better get your investment skills in order. PE, private credit, definitely a lot of risk, not just from AI, I think from basic fraud as well.Secondary market, as you just say, it’s not an easy one. It’s a canary in the coal mine. I think you will agree, but this is before getting between AI native versus everything else these days, especially if you are more early stage. A more established business, it’s a different thing. But right now, just starting a regular SaaS company, that’s a tough one. From an investor perspective, you need to pivot as fast as you can from seed-based pricing, hybrid, outcome-based, value-based pricing. You have to do the move quickly. You don’t want to be pushed when it’s too late.Build-versus-buy is real, and that will only accelerate as coding agents mature. Vertical specialization, proprietary data are strong moat. They were before as well, so it’s nothing new. But I think the importance of having a true moat is more critical than ever. Lots of companies have received investment with not enough moat, and that’s the one getting destroyed in the private and public market. If you have strong matrix, there is a question of when is a good time to exit? I don’t know if the relations will ever come back. I think it truly depends as well on your business, a strategic fit with acquisition opportunities.Anecdotally, I have seen some businesses who look at exit opportunities and now are finding attractive options. It’s not all that dark, I would say. Maybe to answer to the question, do we have a SaaS apocalypse? Yes and no. Some companies are going to end badly, some companies are going to emerge stronger. I think that’s it for today. Thank you, Nino. Nuno Goncalves PedroThank you, Bertrand.

Who dares to make predictions in the current landscape? We do!  Our Predictions are back. Will our track-record continue on a high or will we be fundamentally wrong? Listen in to our Predictions for 2026 Navigation: Intro What will 2026 be all about? AI, AI and … more AI The big Hardware movements Of Start-ups and VCs Regulatory & Geopolitical Headwinds… and the Wars Fintech, Crypto and Frontier Tech 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 Subscribe To Our Podcast Bertrand Schmitt Introduction Welcome to Tech Deciphered Episode 74. That would be an episode about some predictions about 2026. What will be 2026 all about? I guess this year is probably starting with a bang. We saw the acquisition of xAI by SpaceX. We saw an acquisition from Grok by NVIDIA. What’s your take about what would be the big themes in 2026? I guess it would be for sure about AI and space. Nuno Goncalves Pedro What will 2026 be all about? Yeah. I predict a year that will be a little bit more of a year of reckoning in some way. There will be a lot of things that I think we’ll start seeing through. The fact that we are in the midst of an amazing transformational era for technology, the use of AI, but at the same time, obviously, a ridiculous bubble that is going alongside it as we’ve discussed in previous episodes. I think that we’ll start seeing some early reckonings of that, companies that might start failing, floundering, maybe a couple of frauds along the way, etc. I’ll tell you what I will not make many predictions about today, which is geopolitics. Geopolitics, I will not make predictions at all. Who the hell knows what’s going to happen to the world this year in 2026? I don’t dare making any predictions on that. Back to things where I would make predictions. I think on AI, we’ll have a little bit of reckoning. We’ll talk about it a little bit more in detail during this episode. Interesting elements around the hardware and physical space. Physical space, we just dedicated a full episode to it. We won’t go into a lot of details on that, but definitely on the hardware side, we’ll talk a little bit more about it. The VC landscape is going through an incredible transformation. We’ll talk about it today as well and some of our predictions for this year. What will happen to the asset class? It seems to be transforming itself dramatically. Obviously, that has a very direct impact on startups, so we’ll talk about that as well. And then to close a little bit the chapter on this, we will address some regulatory and geopolitical, let’s call it, headwinds without making maybe too many complex predictions. We shall see. Maybe by that time of the episode, we will be making some predictions. You guys should stay and listen to us, and maybe we will actually make some predictions about the geopolitical transformations that we will see this year in the world. Then last but not the least, we’ll talk about fintech, crypto, frontier tech, and a couple of other areas before concluding the episode. A classic predictions’ episode. We normally have a pretty good track record on some of these, but right now, the world is going a bit interesting, not to say insane. Bertrand Schmitt Yes, and going back to some news, Groq technically was not acquired, but, practically, it’s as if it got acquired. I’m talking about Groq, G-R-O-Q. The AI semiconductor company focused on inference AI, and it was late December. It was a way to end the year. This year, we started again with an acquisition of xAI by its sister company, SpaceX. I guess that’s where we are starting. AI, AI and … more AI We are going to start on AI. That’s definitely the big stuff. Everything these days, I guess, is about AI or has to have some connection with AI, or it doesn’t matter. I think every company in the world has seen that. You have to have the absolute minimum on AI strategy. You better execute on this strategy and show results, I would say. For the companies that were not AI native, you truly have to have a way to transform yourself. I guess at some point, the stretch might be too much, and it’s not really reasonable. Then you maybe better stay on what you are doing, especially if you’re in tech, you better be moving faster to AI. Nuno Goncalves Pedro Just to highlight, and I think throughout the episode, you’ll see that there’re obviously a lot of implications that would manifest themselves into capital markets. I mean, we’ll specifically talk about VCs and startups later on. But the fact that everything needs to be AI, the fact that there’s so much innovation happening right now, in my opinion, and this is maybe the first pre-topic to AI, is we’ll see a tremendous increase in M&A activity this year across the board. I mean, we’ve seen already some big acquihires we mentioned in some of our previous episodes, but we’ll see a lot more activity on M&A this year. Normally, that’s a precursor to the opening of capital markets. I predict also that there will be a reopening of the IPO market that never really reopened last year, to be honest. M&A, a lot more, reopening of the IPO market. Normally, it happens in the second or third quarter of the year. That’s what my M&A friends tell me. First quarter of year, everyone’s figuring out stuff. Then last quarter of the year, things should be more or less closed. Maybe the third quarter is the big quarter. We shall see. But definitely, as a precursor to our conversation today, I think we’ll see a lot of M&A, and we’ll see reopening of the IPO mark. Bertrand Schmitt I guess last year was not as big as you could expect on M&A given the tariff situation announced in April and May. I mean, it became quite tough to do IPO in such market conditions. Definitely, we can hope for something dramatically different in 2026. I guess talking about public markets and IPO, I guess the big one everyone is waiting for is SpaceX. SpaceX getting even more interesting with its xAI acquisition. Nuno Goncalves Pedro Do you think that because of the acquisition, it’s more likely that it will happen this year, or because of the acquisition, it’s less likely that it will happen this year? Bertrand Schmitt That’s a good question. My guess is the acquisition of xAI is all about xAI needing more financing and cheaper financing. This acquisition is a pathway to that. SpaceX being a much bigger company, a company that is also making much more revenues. I could bet that there is higher probability that, actually, SpaceX will go public in order to finance itself. At the same time, will it have enough time to prepare itself for the IPO given this acquisition just happened? Can they do that in 6 months? I mean, if anyone can do it, I guess it’s Elon Musk. It’s a strategy to present an even more attractive company with an even more interesting story, a story of vertical integration from AI to space. I guess the story as it’s presented itself right now, it’s one about having your AI data centers in space. Because in space, you have much better solar energy production with solar panels. You have a perfect cooling situation because you are in space. Thanks to Starlink, you have the mean to communicate between the satellites and with Earth itself. I think if someone can pull up a story like AI data center in space, I guess Elon Musk can. There is, of course, a lot of questions about is it practical? Is it economical? Yes. I certainly agree. I’m not clear on the mass, and can you make it work? Again, I mean, Elon Musk single-handedly, with SpaceX, managed to transform the space market on its head. I mean, they are the biggest satellite launching company in the world. They have the most satellites in the world. I mean, I’m not sure I would bet against him, and I guess I would probably believe that he could pull up something. Time frames, different story. The 2-3 years data center in space for AI as cheap as on Earth, I have more trouble with that one. I mean, it’s a usual suspect with Elon Musk. You promise something unachievable in a few years, but, ultimately, you still manage to reach it in 5 or 10. Again, I would not bet against the strategy. Nuno Goncalves Pedro Yeah. I’ve talked to a couple of space experts, people that have launched rockets, and have worked JPL, NASA, and a couple of other places, etc. For what it’s worth, their feedback is, “No way in hell, and we’re decades away.” We’ll see. I mean, to your point, Elon has pulled very dramatic stuff. Not as fast as he normally says he’s going to pull it, but within a time span that we all see it. Difficult to bet against him. In terms of actually the prediction, maybe to respond to the prediction as well, will SpaceX IPO? I’m going to make a prediction that has a very high likelihood of missing the mark, but I think Tesla’s going to buy and merge them both into it. It’s going to become a public company through Tesla. That’s my hypothesis. Bertrand Schmitt No. That’s supposed to be it. That’s how you solve that. Nuno Goncalves Pedro And Elon controls the whole universe. X, xAI, Tesla, SpaceX, all under one umbrella beautifully run. And SolarCity is well in there, of course, so wonderful. Bertrand Schmitt That’s possible. Certainly, you are not the only one thinking Tesla will acquire or merge with SpaceX. To remind everyone, Tesla is around 1.3, 1.5 trillion market cap. Depending on the day, SpaceX seems to be valued at similar range, 1.2, 1.3 trillion. It looks like it’s the most valued private company at this stage. These are companies of similar size, so that’s one piece of the puzzle. When you think about the combined company, we could be talking about a 3 trillion entity. Playing right here with the biggest companies in the marketplace today. Nuno Goncalves Pedro With a couple of tweets from Elon, it will rapidly get to 4 to 5 trillion. Bertrand Schmitt That’s so tricky. Nuno Goncalves Pedro Yes. On AI and back to AI, one thing I think that we’re about to see is this will probably be the year of agentic AI. Obviously, we predict a lot of growth on that side of the fence, in particular on the enterprise B2B side. We see a lot of opportunities coming through. From our perspective, at least at Chamaeleon, we generally believe that there’s going to be a lot of movements on agentic AI. It’s also going to be probably the year of the first big fails of agentic AI that will be newsworthy. There will be some elements about that loop and how it gets closed that will happen. I think we might see some scandals already. We’re already seeing the social network of bots talking to bots. We will see other scandals going on this year even in the consumer space and in the bot to bot space, which we now can talk about or in the AI agent to AI agent space. My prediction is we will see some move forwards. There’ll be some dramatic funding rounds along the way. We’ll see a couple of really cool things out of the gates coming out that are really impressive, but we’ll also see the first big misses of the technology stack. I don’t think we’ll go fully mainstream yet this year, so it’s probably maybe something more for 2027 along the way. That would be my prediction again. I think enterprise will lead the way. We’ll definitely see a lot of stuff on consumer as well that is cool. Then we’ll all have our own personal assistance in our hands, basically, literally in our phones. Bertrand Schmitt Going back to agentic AI, we also started the year with some pretty dramatic move. I mean, the launch of Clawdbot, renamed OpenClaw. I mean, this stuff took fire in like a week or 2. It was coded by just one person who actually didn’t even code the product but used AI to build the product, 100% used AI, proposing some new ways also to leverage AI to do coding. He has a pretty unique approach. It’s not vibe coding. I would say it’s a better way to do that. Then the surprising evolution with the launch of a social network for AI agents, Moltbook. I mean, this stuff, probably there is some fake in it. But at the same time, I think it’s quite impressive because it’s the first time we see truly 100,000 plus agents communicating directly to each other. Yeah. I mean, that’s the first time we see surfacing the possibility of some sort of hive mind on the Internet. It’s pretty surprising. Right now, all of this is a hack done in a few days. By end of year, by 2 years, 3 years, we might discover that, actually, the best approach to AI might not be the AI assistant like we are doing today, but a combination of hundreds of thousands of AI working closely together. We might be witnessing the first sign of new intelligence in a way. Nuno Goncalves Pedro Things like this social network might either be Skynet, the beginning of Skynet. They might be the beginning of Her, or they might just be a fad and nothing really happens. It’s just interesting to see what these agents are doing. Bertrand Schmitt Totally. Nuno Goncalves Pedro Obviously, there are real and clear and present dangers of some of the integrations of AI we’re seeing in the market. Interesting enough, and I’ll ask you for your prediction a bit, Bertrand. I think we’ll probably see the first big mishap of AI being used in some infrastructural decision in the age of AI. I mean, we’ve seen AI issues in the past and software issues in the past. We talked in previous episodes about that as well. Mishaps of software that have led to people dying. But I think probably the first big mishap will happen this year as well. Very public mishap of the use of AI and serve its interactions with infrastructure or something that’s very platform related, etc, that will have big impact that everyone will notice. That’s my prediction for the year as well. We’ll have the first big oops moment, as I would call it, for AI in this new age of full on AI. Bertrand Schmitt I would say first some perspective. I think today, people are not using AI directly for life and death decision, at least not that I’m aware. We’re not going to let AI fly a plane, for instance, tomorrow so you can be, reassured. At the same time, given there is such a race to AI, there definitely might be some mistakes. We were talking about the social network for AI agents, Moltbook. Apparently, all the keys used to secure the AI were shared by mistake because it was not properly locked down. We can see that indirectly, mistakes will be made for sure. Two, it’s highly probable that some people will trust AI too much to do some stuff, and this stuff might not work and might have some grave consequence. Hopefully, there is not so much of this. Hopefully, it’s mostly AI used for the good. But you’re right. I mean, at some point, the more we use the technology, the more there would be issue. I mean, it’s highly probable. Nuno Goncalves Pedro That will lead me to another prediction, which is, and we’ll talk about more of it later, but it probably will lead to the first significant movement in terms of regulatory environment certainly in the US at some point if it happens in the US in particular, where there will be some movement that will be like, “Hey, you guys can’t do this anymore.” Because this will probably emerge from mismanaged interfaces. From systems having access to stuff that they shouldn’t have access to in the first place. Talking a little bit more about what’s happening in AI. You’ve already mentioned some of the issues that relate actually to security and cybersecurity. We keep talking about AI. We keep talking about all these infrastructure pieces and platforms that are being built. I think we’ll have a lot more incidents like the one you just mentioned where things will be shared that shouldn’t have been shared, where people will break systems and get into it, etc. Let’s see where that takes us, which is a little bit ironic because, obviously, with AI, the promise is that cybersecurity becomes more robust as well because there’re agents working on our behalf on the cybersecurity side. There’s also agents working on the other side. Bertrand Schmitt It’s a constant race. It’s the attackers, defenders. Each time you have new technology, you have a new race to who is going to attack or defend the best. Each new wave of technology, it’s an opportunity to challenge the status quo. Nuno Goncalves Pedro The attackers have been winning, and I feel they’ll continue winning in 2026. I think it’s going to still be a year of attack. We’ll see more and more breaches, more and more stuff that will happen. Bertrand Schmitt I don’t know if they will win. I mean, it’s normal that they win once in a while. For sure, some infrastructure is not updated as it should. Some stuff are not managed as it should, so there will always be breaches. I don’t know if things are dramatically going to change because, again, everyone who cares who is going to update his infrastructure with AI for defense. There is no question that you have no choice. We will see. That I don’t know. For sure, AI will be used to attack directly with AI. Maybe you’re able to do bigger, larger scale attack. Or thanks to AI, you are simply able to create new type of attacks more easily. AI can be used behind the scene as a way to prepare and organise new type of attacks, even if it’s not used directly live in the battle. Nuno Goncalves Pedro One topic that we’ll come back to later is the geopolitics of everything, but maybe more broadly. On the geopolitics of AI, it’s very clear that we have an arms race going on. Obviously, the US on the one hand, China on the other hand is the two extremes, putting tremendous amount of capital into data centers just at the base of that infrastructure. Chipset development, chipset access, a huge theme in terms of the export restrictions, etc, that are being forced by the US. I think it will continue. From a European standpoint, obviously, they’re stuck between a rock and a hard place, to be very honest. Let’s see what happens on that side of the fence. My view of the world is that certainly from a US and China perspective, we’re going to see a lot more movements in 2026, like big movements. The Chinese movements we always see in delay.  It takes us a couple of months, sometimes even more than that to understand exactly what’s going on. I think we’re going to see some huge moves this year in terms of the States, the United States of America, and China really pouring capital into the creation of the next big winners around AI. I think the US is obviously more visible. We see a lot of these companies. We’ve just discussed xAI and its acquisition by SpaceX or merger. I don’t know what they’re calling it exactly. Effectively, on the China side, the movements I think are already very big. As I said, it will take a while to figure out exactly what those moves are. One thing that I propose is that at some point, China will have very little dependency on chipsets from the US. I’m not sure it’s going to happen this year, but I think the writing is on the wall. Irrespective of any other geopolitical issues that is coming to the fore at this moment in time. That’s one of the key areas or in arenas of fight. Bertrand Schmitt It makes sense. If you are China, you will look at what happened. You would think that you cannot just depend on the largest of one country. It makes rational sense, the same way it makes rational sense for the US to limit exports to China because there is value to delay some peer pressure that could use these technologies for good but also for bad. If you were an ally of the US, that would be one thing. But when you are not an ally of the US, that certainly should be a different perspective. Maybe one last point concerning agents, I think there will be a lot that will revolve around coding. We can see OpenAI with Codex. We can see Cloud with code. There was, of course, [inaudible 00:18:28] that was trying to be big on agentic coding. I think agentic coding was one of the big transformation in 2025 and is going to get bigger in 2026. I think for a lot of people who do coding, there was a radical transformation in terms of what you can achieve, what you can do, how much you can trust AI to help you code. I start to think we might see this year, the replacement of not just one AI replace one coder, but one AI replace a full team because of the new ability to manage that at scale. Coding might be a common activity where you are going to think about outcomes, think about objective, think about how you organise, but not really coding by itself anymore. A big change, like you used to code, directly your hand on the stuff, but step by step, everyone is going to become a manager of agent. I think in one year, we saw enough transformation to think that in the coming year, the transformation can be even more dramatic. Nuno Goncalves Pedro The big Hardware movements Now switching gears to hardware. Obviously, a lot of movements in 2025 and over the last few years. One piece of thesis that we’ve had long-standing at Chamaeleon is that we will see the emergence of AI devices. Some of them have been tremendous failures as we discussed in the past. I predict that we’ll have a couple of really interesting full stack AI devices in the market this year. Why does that matter? Because, as many of you know, obviously, there’s compute that can happen in data centers and cloud infrastructure all over the world, but also there’s compute that can happen at the edges. The more you can move to the edges and the more you can create devices that actually allow you to have user experiences that are very distinctive at the edge, the more powerful some of these devices might become. I predict Apple will not be the first to launch anything on this. I predict probably OpenAI, after the acquisition of IO, will maybe not launch something this year, but will announce something this year. I’ll step back on that prediction. They’ll announce something this year, but maybe not launch. But we’ll start seeing some devices that have some interesting value in the market, probably devices that are AI devices, but they are very focused on very specific user flows, and so very much adequate to specific activities. I won’t make a prediction on that, but I think areas that would make sense for that to happen would be obviously around fitness, health, et cetera, et cetera, where we already have the ascendancy of products like Oura Ring and others out there. Definitely, that’s one area that might have quite a lot of developments. I think AI-first devices, devices that are very focused on compute at the edges, providing user flows that are AI-enabled to end users, we’ll see a lot more of that and a lot more activity this year. Again, I don’t think Apple will be necessarily ahead of the game. Again, maybe OpenAI will give us something to at least think about and look forward to. Bertrand Schmitt First, I’m not sure it will be that transformational because if it’s not in your phone, in your pocket, there is only so much you can do with it, and there is only so much computing power you will have. I’m doubtful it would be really impactful this year. Nuno Goncalves Pedro I feel we’ve been discussing this shift of paradigm in input and output. For me, some of these devices could lead to that shift. Because, again, a mobile phone is not a great long-term paradigm for the usage that we have because it’s really constrained by the screen. The screen is really what takes most of the battery life away. If we didn’t have that screen, what could we do? If we have the block that is as big as a mobile phone, and it didn’t have a screen, it was just compute, that’s a mini computer, a microcomputer. Bertrand Schmitt That’s a fair point, but I don’t see that transformation this year. That’s really more my point. I can see that you can have AI-enabled smart glasses, and it’s clear there is a race to AI-enabled smart glasses. My point is more to go beyond the gadget, it would take quite a while. It would need to have cameras. It would need to analyse what you see. It would need to hear what you hear. Again, it might come, but then at some point, it would be okay, what do you do with it? We have the example of the movie Her. That’s showing Her what it could be. There are definitely possibilities. It’s clear that if you take the big VR headset like the Apple Vision Pro, there is a failure from that perspective in the sense that I think it’s a great, amazing device. The big problem is that it’s doing way more that makes sense. I think there will be a clearer separation between your smart AR glasses that has to be light, that has to be always unconnected, and that’s primarily there to help you make sense of the world around you. The true VR headset that doesn’t really require much in terms of AI, and it’s just there to immerse you in a different world. For this, we know, unfortunately, in some ways, that there is not a lot of demand for it. Maybe there is little demand because you are too hidden in your own world. The technology is not working well enough yet. There are a lot of reasons. But I think Apple trying to do both at the same time, AR and VR, with the Vision Pro, was a pretty grave structural mistake. I think we would see a clearer line of separation between the two. There is bigger market opportunity for AR glasses. That, I certainly agree. There is opportunity to connect that to a computing device. As you talk about, your glasses are your screen, your phone becomes something in your pocket connected to your glasses. Nuno Goncalves Pedro For me, Apple has their way of doing things. From the perspective of what you said, they normally really plan their devices. Even if it’s a big shift in terms of a new area, like they tried with the Vision Pro, and we criticised them for launching it as a device that should have been more of a dev device that they really launched as a full-on device, but that’s their playbook, classically. I think Apple needs to change how they put products out and how they experiment with those products, et cetera. I think they have enough money to be doing everything all the time and figuring it out. If they don’t want to put it out, then they need to do a lot more hell of testing internally with their silos, but they should be playing across all these arenas, VR, AR, everything. They just should put devices out that are either ready for prime time, or they should call it something else. They should call it like this is a dev device or whatever it is. Bertrand Schmitt I agree with you. My complaint is more that it was marketed as a consumer device when it was not. It was a true developer device. Two, they tried to mix the two at once, and it made no sense. No one is going to walk in their home or in the street with their Vision Pro on their head. You have to be deranged, quite frankly, to have use cases like this. I think that for me is a crazy mistake from a company like Apple that prides itself in pure UI, pure user interface, very well-designed device for one specific use case, not mixing the two use cases. We still don’t have Macs with a touchscreen, you know?  We still don’t have an iPad with a good OS that makes use of this great hardware. For some strange reason, they decided to mix everything in the Vision Pro with a device that weighs a ton on your head and is so uncomfortable. That’s why, for me, I’m like, “Guys, what is wrong? Why did you let this team run crazy?” I hope at some point, Apple will go back to the drawing board. My understanding is that that’s what they are doing. They are going to have two devices, one smart glasses, an evolution of the Vision Pro, just focus on VR. They might actually abandon the concept of the pure VR-oriented headset. Because, from a market size perspective, it might not be big enough for Apple, quite frankly. Nuno Goncalves Pedro I read on all of the above, and people at this point was like, “Why are then players like Samsung and others not doing it. LG, et cetera?” Because those players historically have not invented new categories. They’re amazing at catching up once the category is invented, and then they scale the hell out of it, and that’s what these companies have been exceptional at. I wouldn’t see a dramatic innovation, I think, in terms of devices coming from any of the big ones on that side of the fence. Not to disrespect them in any way, but I think that’s not been their playbook ever. Again, if the origination doesn’t come from a start-up or from an Apple, I don’t see those guys going after it. My bet is that we’ll see some start-up activity and, again, hopefully, some announcement from IO now within the OpenAI world. Bertrand Schmitt I would slightly disagree with you. I see where you are coming from. But take the Samsung Galaxy Note, that sudden much bigger headphone that no one was doing that was launched by Samsung, at some point, it forced Apple to launch an iPhone Max. Let’s look at the Z Fold that Samsung launched 7 years ago, copied by everyone. Now Samsung launching a trifold. Apple has still not launched their foldable phone. I think there is a mix, actually, of sometimes- Nuno Goncalves Pedro For me, that’s not a proper new category. It’s still a mobile phone. It just happens to have a screen that folds in half. Bertrand Schmitt The iPhone was still a mobile phone, you could argue.  Nuno Goncalves Pedro No. I think the iPhone was…  I could actually agree with you on that point. Maybe Apple is not as innovative in that case. I think what Steve Jobs was exceptionally good at in terms of his ability as this master product manager was to be an exceptional curator of user flows and user experiences, and creating incredible experiences from devices based on that. That was his secret sauce. Could you say, “Wasn’t all of this stuff already around?” It was. You just put it all together very neatly and very nicely. But if you’re talking about significant shifts in how a category is done, the iPhone was a significant shift in how the category was done. The Fold is still an interesting device. I actually have a Fold right now in front of me. The 7 that you highly recommended to me that we both got, the Z Fold 7. I think they do amazing devices. I don’t think they normally are the most innovative players. Then, when they come to innovation, it comes from technology edges. Obviously, they have Samsung Display, there’s a bunch of other things. They had the ability to do foldable screens in-house themselves. Bertrand Schmitt I don’t disagree with you. I think there is an interesting situation where some companies have some strengths, another one has some strengths. My worry with Apple is that this was not demonstrated with the Vision Pro. The Vision Pro was a hot pot of technologies barely integrated together, with use cases absolutely not well-defined and certainly not something that makes sense for most of us. There is a question of has Apple lost it? While Samsung actually keeps doing their own stuff, that, yes, might be more minor improvements, but at least they are doing it. Because it looks like Apple is missing the train on even the minor improvements. By the way, you might not be aware, but Samsung launched its Vision Pro competitor. Interestingly enough, it might be a better product in some ways, being much lighter and much more comfortable. Nuno Goncalves Pedro We should play around with that and report back to our listeners. Of Start-ups and VCs Moving to venture capital and the startup ecosystem and what’s happening there, I think it is very much a bifurcated environment, and it’s bifurcated for both VCs and for startups. If you’re a startup in the AI space, and you have the hottest team since sliced bread, and you can create FOMO at the speed of light, you can raise ridiculous rounds. Five hundred million at the $3 billion, or $4 billion, or $5 billion valuation, and you still haven’t really even started. First round, you can raise 500 million. That’s back to the whole discussion on Bubble and where are we, et cetera. Some of these companies might actually become huge, some of them might not. But definitely, we are seeing really the haves and have-nots on the startup ecosystem with incredible teams raising a lot of money very, very early on or mid-stage if they’ve already existed for a while, and then the rest not being able to raise. We see a lot of non-necessarily AI sectors, some of the areas of SaaS that don’t necessarily have AI in it, or fintech, or the consumer space that are really, really struggling. If you don’t have an AI story for your startup right now, it’s extremely difficult to raise money unless your numbers are just the best numbers ever. That’s, I think, the first part of the element of bifurcation that we’re seeing today. The second element of bifurcation that we’re seeing today in terms of fundraising is for VCs themselves, and really propelled by the large VC firms raising more and more capital in recent orbits, announcing 15 billion across funds raised. Lightspeed, I think, had made an announcement a couple of weeks ago as well. They’ve raised a bunch of money as well. The big guys are all raising a lot of money. At some point in time, the question some of you might ask is, “These VCs are redeploying more and more money if they have a couple of billion for a VC fund. How does that look like? Is that still VC?” My perspective, I’ve shared before in some of our previous episodes, is that that’s no longer venture capital. At that point in time, we’re talking about something else. Private equity hedge funds, if you want to call them, maybe funds that are really driven by growth investment or late-stage investment. If you have a couple of billion under management, you’re not going to make your returns by writing a $3 million check in a series seed and leading that round.  That has implications for everyone in the ecosystem. It has implications for smaller funds that obviously have a lot more difficulty in raising capital. It’s difficult to differentiate. Last but not least, also for startups that really continue searching for that capital that is out there. Andreessen Horowitz, for example, runs Speedrun, which is a great program for companies around consumer in particular. Initially, it was a lot for gaming. But at some point in time, Andreessen Horowitz could decide that they don’t want to invest more in you. They just put money from Speedrun, which is obviously a very small check compared to the very large checks they could write mid to late stage and that will have an effect on you as a startup. What happens at that point in time if Andreessen Horowitz is not backing you up in later stages? More than that, what happens if I can’t get these big funds interested in me? Are the small funds still valuable to me? Punchline, my view is yes. Obviously, we’re a smaller fund, so there’s parochial interest in what I’m saying. Small funds can still create a ton of value for you, also in terms of credibility, ability to accompany you in those first stages of investment, and the ability to bring other larger investors later down the road as well. There’s definitely a big movement happening in terms of the fundraising for VC funds, which we shouldn’t neglect, which is the big guys are raising a lot more capital and are therefore emptying the market to smaller funds that are having more and more difficult raising at this point in time. We had discussed that there would be a need for concentration in the industry, that micro funds would need to concentrate, and we didn’t have the space for so many micro funds as we had around. But the way it’s happening is extremely dramatic at this moment in time. I think it will continue through 2026. Bertrand Schmitt Remember a few years ago, with the rise of AI, there was more and more of the question about, “What’s the point of SaaS at this stage?” Because SaaS was around for 15 years. Basically, how do you come up with something new that was not already tested, validated by the market? How do you bring something new? We say this was reinforced to the power of 10. If your product is not clearly built from the ground up for a new use case enabled by AI, anyone could then might have built your product 5, 10 years ago, and therefore, why now has no clear answer, and it’s a big problem. I’m still surprised myself to still see some entrepreneurs where you talk to them about AI because you don’t see them in the deck, and they explain to you, “It’s not yet there,” and you’re like, “What’s wrong with you guys?” Fine. Do whatever you want. Do a small business and whatever, but don’t think you can come up pitch and raise without an AI story. The second category is people who come with an AI story, but you can feel very quickly, I guess you saw that many times, Nuno, where just a story layered on top with little credibility. It’s not better. It’s not enough to just have a story. Your business needs to be radically built differently or radically proposing some brand-new use cases that were impossible to solve 5 years ago. Nuno Goncalves Pedro To stack up on that, absolutely in agreement. If you’re just adding to the story, and it’s an afterthought, and you’re just trying to make the story somehow gel, once you go into one or two layers of due diligence, your investors will very quickly realise that you’re not really AI-first or dramatically AI-enabled or whatever. It’s just you’re sort of stacking something on top of another thesis. It needs to make sense from the product onwards. It’s not just, let’s just put it together with chewing gum, and magically, people will give you money. It was true also if we remember the good old crypto blockchain days, where everyone’s investing in crypto. A lot of stories that didn’t make much sense. In that sense, it’s not very different. I would go one step further. I think in the world of the VC winter that we’re a little bit in, where it’s more and more difficult if you’re a smaller fund to raise your fund at this moment in time, there’s a lot of sources of distinctiveness still talked about, like proprietary networks, access to deal flow, fast track record, all that stuff that really, really matters. But our bet continues at Chamaeleon continues being that you need to be AI-first as a VC fund yourself. You need to have core advantages in using not only readily-available AI tools or third-party available AI tools, data sources, technology stacks, but actually building your own stack over time, which is what we did with Mantis at Chamaeleon. Again, just to reinforce that, I think we’re at the beginning of that stage. We, Chamaeleon, are ahead of the game, but we think that the rest of the market will have to move towards that as well. Still, to be honest, very surprising to me to see that many significant large players are doing very little still around some of these spaces. They have data scientists. They’re running some tools. They’re running some analysis and all that stuff, but it’s still, again, back to the point I was making for startups, all glued up with chewing gum. It doesn’t all come together nicely, which it does need to from a platform standpoint. Bertrand Schmitt It’s quite surprising. I agree with you that some VC funds might think that they can do business as usual in that brand-new world. It’s difficult to believe. Nuno Goncalves Pedro Maybe moving a little bit toward the capital formation piece. We already discussed the M&A space really accelerating. We’ve also discussed the IPO market and some predictions on that. Secondaries, there’s obviously a lot of liquidity coming from secondaries from mid to late stage. I think it will continue throughout the rest of 2026. A lot of activity in buying, selling in secondaries as some asset managers are becoming more distressed, as some very high net worth individuals and family offices are becoming more distressed as well, at the same time, where there’s a lot of opportunities to potentially arbitrage around some investments. I believe a lot of money will be made and lost this year by decisions made this year, just to be very, very clear in terms of equity, purchases, et cetera. Exciting year ahead of us. Definitely a very, very interesting market ahead of us. Secondaries, M&A, growth, and late-stage investing, also, early-stage investing will continue just for those that were wondering. Last but not least, the public markets, the IPO market as well. Bertrand Schmitt One of the big questions for the IPO market would be, will SpaceX go public? Would it be good for the startup ecosystem? Because suddenly that they go public, it would be to raise money. If they raise money, will there be any money left for anybody else? That would be an interesting test of the market. For sure, it would be proof that market are risk on financing a new IPO like this one. Or as you said, maybe there is no IPO, and it’s a merger with Tesla. Time will tell. Nuno Goncalves Pedro Regulatory & Geopolitical Headwinds… and the Wars Moving maybe to our topic of regulation and geopolitical headwinds, as we’re seeing … definitely not tailwinds. The Google antitrust verdict and, obviously, the remedies are expected to come forward now, and a lot of people are saying, “There are some risks of structural separation.” What do you think? Is it cool, but nothing will happen in the end dramatically? Alphabet or Google? I’m not sure, actually. It’s Google LLC. I think that’s the case. It’s The United States versus Google LLC. Bertrand Schmitt I’m not sure. Personally, I’m not a big fan. I think there needs to be a better way to manage some anticompetitive behavior. I’m not a big fan. There was this temptation to do that for Microsoft 25 years ago. Look at what happened. No one needed to buy Microsoft to leave space for others. I see the same with Google, and I guess they are happy to not be the number 1 in AI today, but to have an open AI in front of them. Even if they are doing a great job, by the way, to move forward and go faster and faster. Personally, quite impressed now with some of what they have released. Gemini 3 is doing great from my perspective. I’m not a big fan of this. I think to be clear, it’s important that bigger companies don’t behave anticompetitively, but at the same time, we need to find the right approach where it’s not about breaking these companies, and it’s also not about forbidding them to do acquisitions. Because then you end up with what NVIDIA just did with a $20 billion acquihire IP licensing type of acquisition, because they didn’t want to have the uncertainties. They didn’t want to wait 1–2 years in order to acquire the people and the technology, so they organised it in a different way. But I don’t like that. I think they should be able to acquire companies without facing so much uncertainty. To be clear, it’s not new. Uncertainty when you are Google, NVIDIA, or others, it happens. It has happened for a decade plus, 2 decades. I think there needs to be, for sure, some safety valves. At the same time, we want an efficient capital market. An efficient capital market need companies that can acquire other companies. If you don’t do that efficiently, it will be worse for the entrepreneurs, it will be worse for the investors, it will be worse for everybody. I think we have not reached a good equilibrium from my perspective. We need more efficient acquisition process. And at the same time, we need to also enforce faster anticompetitive behavior. Because what you talk about concerning Google, this is a case that was what? That is 10 years old. You see what I mean? This is way too long. If you’re a startup, you are dead by then. It’s like the story of Netscape facing Microsoft. They were dead long after the fact. I think we need a different approach. I’m not sure the best answer. I’m not sure we’ll get a better approach. There are probably too many vested interest. My hope is that it will get better with this current administration because, certainly, the past administration was very anti acquisition and efficient markets. Nuno Goncalves Pedro We’ve talked about the European Union AI Act a bunch of times, so I don’t want to spend too many cycles on that. The only effect that I would say is we are seeing in very slow motion the splitting of the Internet. I once had Tim Berners-Lee, by the way, shouting at me that we were going to break the Internet when we were applying for the .mobi top-level domain. I was part of that consortium that eventually did get the .mobi top-level domain, and I had him shouting at us. But, apparently, this is going to split the Internet, Tim. So in case you’re listening. Because it will create all these different rules. If your data is relating to consumers there, then it’s treated in a different way, and The US is… Well, obviously, we have the case of California with its own rules and laws. I don’t know. I feel we’re having a moment of siloing that goes beyond economic and geopolitical siloing. It will also apply to the digital world, and we’ll start having different landscapes around it. We’ll see how this affects global expansion of services, for example, around AI, particularly for consumer, but I don’t foresee anything dramatically positive. Recently, we had the whole deal around TikTok finally having a solution for their US problem where there’s now a US conglomerate magically that owns it. The conglomerate doesn’t magically own it, they just straight up own it for the US. But it was driven by many of these concerns around data ownership. Where’s the data? Where is it based? I think a lot of other concerns that have to do with the geopolitics of China, obviously, being the basis of ByteDance, the owner of TikTok, that still is a significant owner, by the way, in TikTok in US. Then also the interest in the economics of making money out of something as powerful as TikTok, to be honest, in The US. Just to be clear, I don’t think this was all about the best interests of consumers. It was also about money. Just follow the money. Bertrand Schmitt There are for sure, some powerful interest at play. But let’s be clear. I think one is data, as you rightfully said, but the other one is algorithm. It’s not as if China is authorising any competitor on its territory. They have blocked access to most of the Internet platforms from the US, either finding new rules or just trade blocking them. So I don’t think it’s fair competition. You don’t want some of that data in China about the US or European consumer. Three, it’s about the algorithm. If suddenly, you are a foreign power, and you can as we know in China, you better follow what’s required of you from the Chinese Communist Party. You cannot take a chance with influencing other stuff like elections in other countries. It’s fair from the US perspective. One could even argue it’s fair from a Chinese perspective to want that. I think the only one in the middle who doesn’t really know what they want is Europe because on one side, they want to benefit from American platforms, on the other end, they want to have some controls. On the other end, they don’t create the environment for startups to flourish. So in that weird situation where they have to accept some control by the big US providers and either provider of underlying infrastructure or provider of consumer business facing services. Then they try to regulate them. But I think they are misunderstanding the power relationship, and I think some of this regulation would get some blowback, at least by the current administration. Just, I believe, this morning, there was some news around X being under a criminal investigation in France. This is not going to end well for the French startup and VC ecosystem. This is not going to end well for France and Europe when you depend so much from your American friends. Nuno Goncalves Pedro Regulation will be weaponised. Regulation constraints around exports, all of this will be weaponised geopolitically, and the bigger guys will normally win. I think that’s normally what we’ve seen. Just on TikTok just to… And you guys, if you’re listening to us, just see if you see a pattern here, but obviously, 19.9% still owned by ByteDance of the TikTok entity in the US. It was initially said that 80% of the TikTok entity is owned by non-Chinese investors. Initially, people were saying US investors, and then they changed it to non-Chinese because MGX, I think, has 15% of it. MGX is based in the UAE, connected obviously to Mubadala, the Abu Dhabi sovereign wealth fund. Silver Lake is in there, I think, with 15% as well. Oracle as well with 15%. Those three are the big bucket owners together, 45%. Silver Lake having collaborated with MGX before, and I’m sure a lot of connectivity there. Then you still see a pattern in this in terms of shareholders. If you don’t, then just Google it. Dell Family Office, Vastmir Strategic Investments, which is owned by billionaire Jeff Yass, Alpha Wave Partners, obviously involved with a bunch of things like SpaceX and Klarna, Virgoli, Revolution, which is Steve Case’s, a former founder of AOL, is also in there. Meritway, which is managed by partners, I think, of Dragonair. Vinova from General Atlantic, an affiliate of General Atlantic. Also, NJJ Capital, which I believe is Xavier Nil, the French billionaire that founded Iliad. Mostly American, I think, if the math is correct. 80% non-Chinese, which was what mattered, I think, in many cases. But do see if you saw a pattern in most of those investors. I won’t say anything more than that. Maybe moving to other topics, maybe just to finalise on regulation and geopolitics. In geopolitics, we should talk about wars if we predict anything. Not that we are nasty and one want to be negative, but what the hell is going on? Will we have ending to the wars we already have ongoing or not? But before that, the struggles on the App Stores, I think, will continue both for Apple and for Google Play Store. The writing’s on the wall, the EU keeps pushing it dramatically and Apple keeps just doing stuff. I’m on the board of an App Store company. Apple just creates all these things that basically make you not really… It doesn’t work. You can’t provision then an App Store on Apple devices. On iPhones, et cetera. We’ll see how that will continue going, but I feel the writing’s on the wall. Both Apple and Google will have to open up a bit more of their platforms. I’m not sure it will have a huge impact in the medium to long term, but definitely we need to see more openness in access to apps as given by the two big platform owners, Apple and Google, out there. Bertrand Schmitt Let’s be clear. Google is way more open than Apple. We both have Android devices. You can install alternative app stores. It’s a different ballgame by very far. Nuno Goncalves Pedro Google does other nasty stuff. It’s public. You can check which board I’m a part of. You can see what that company has done towards Google over time. But to your point, yes. It is true that Google has been more open than Apple, but Google has done their own things. Just to be very clear, so I’ll just leave that caveat bracketed there for people to think about it and maybe read a little bit about it as well. Bertrand Schmitt I can say that, me, from my perspective, that path of total control that Apple has been going through on all their devices, that includes macOS, pushed me to, over the past 2, 3 years, to completely live and abandon the Apple ecosystem. I just couldn’t accept that level of control, that golden handcuff approach of the Apple ecosystem, each their own obviously, they are golden, their handcuffs, but they are still handcuffs. Personally, that pushed me way more to Linux, Android, Windows, back to Windows after all these years. I just couldn’t stand it anymore. I want to pick my devices. I want to pick what I install on them, and I don’t want to be controlled like this by just one entity for all my tech devices. For me, at some point, it was just not acceptable anymore. It’s still very warm, very golden handcuffs, but for me, they were just handcuffs at this stage. Yes, what they are doing with the App Store is very typical of that mindset. I think it’s quite sad because I think it started with good intention in some ways. “We need a new computing paradigm, we need to make things smoother and safer,” but it has really become a way to control your clients. For me, it has reached a point where it’s just way too much. Nuno Goncalves Pedro There’s obviously the great power comes great responsibility that uncle Ben told Spider-Man or Peter Parker. But there’s also with great power comes shitload of money, and control. So it’s like, “Yeah. Should we open the server? Do we want to delay opening it up?” “Yeah.” Anyway, it is what it is. Maybe let’s end on the more difficult note of the episode, which is going to be around wars. What’s our prediction? Will we have an end to the Gaza situation with Israel? Will we have an end to Ukraine and, obviously, Russia? What will happen in Iran? Those are the three big, big conflicts right now. Then, obviously, if we want to add just bonus points, what’s going to happen to Greenland, and what’s going to happen to Taiwan, and what’s going to happen to Venezuela? Let’s throw the whole basket in there. We’ve never had like… Let’s talk about all these territories and all these countries. At some point in time, I’m saying this in a light manner, but it’s obviously more tragic than it should be light, and people are dying, and there’s a lot of implications of all of that that is happening right now. Do you have any predictions, Bertrand, for this year? Bertrand Schmitt No. It’s tough to predict on an individual basis. I think on a more bigger picture basis is on one side, obviously, the rise of China on one side. You have also the rise of other countries like India, while very indirectly connected to some of these conflicts are still part of the game, buying oil from Russia, for instance. At the same time, I think overall, the US is more clear about with the sheriff in town. I think it’s good because in some ways, you cannot pay for the goods, you cannot have such a massive advantage versus nearly every other country on earth and just not be clear about who is the boss in some ways. As a result, what are the rules of the game and how it should be played? The US is not alone, obviously, you have China, you have Russia, you have India, you have Europe. You have different other countries. But at some point, it’s not good when countries are not rational and are not clear. I think I prefer the current situation where things are more clear and where you have to assume responsibilities about what you are doing. It’s time to be rational again about how the world behave. Yes, the concept of power and balance of power. I think there has been that dream, maybe mostly coming from Europe, about the end of history. I think that’s simply not the case. It’s not the end of history. It’s still about the balance of power. It has always been about the balance of power. If you are dumb enough to think it was not about that anymore, I just have a bridge to nowhere to sell you. I don’t have specific prediction, but I think it’s clear there is a new sheriff in town. There is a new doctrine about the Western Hemisphere that has been in some ways resurrected on the [inaudible 00:51:35] train, and I think we’ll see more of it. I think at this point, the biggest question is for the Europeans. What do they want to do? Because right now, their position of being a dwarf militarily while being a pretty big giant economically, I don’t think it works. Nuno Goncalves Pedro I agreed on everything that you said. I do have predictions. I’ll stick a flag on the ground just with my predictions. Bertrand Schmitt Good luck. Nuno Goncalves Pedro They are mostly positive. I do think we’ll see an end or, for the most, end to the two big conflicts, the one in Gaza and the one in Ukraine. I think Ukraine will end up in readjustment of territory and splitting between Russia and the Ukraine, but the end of hostilities, I think that we will see an end to the conflict in Gaza also with a readjustment on what that will mean for the Palestinian territories and the Palestinians in general. That I’m not sure, but I feel that there will be an end to those two big conflicts. Iran, I have no clue. I will not put a stick on the ground that I have no clue. There are so many things that could go wrong there. I’ve been reading some really interesting thoughts about even some aggressive thoughts that this might be the time to really change regimes in Iran and for the US to have a bit more of an aggressive stance. I really don’t have a perspective. Obviously, there’s a lot at stake there. Then, if we talk about the other parts, Greenland, I will not opine too much on. Maybe we’re done for now. Maybe there’ll be some other concessions to the US that weren’t already there in the ’50s. Taiwan, I won’t bet either. I’m sad to say I think it might happen at some point in time, but I’m not sure when and what would drive it. Last but not the least, Venezuela is my only really negative prediction. I feel it will continue to be a significant dictatorship as it was before managed enough by other people with the difference now that it has a tax to be paid to the US in the form of oil of some sort, etcetera, and maybe gas, maybe other things as well that it didn’t have before. That’s probably my most negative prediction for the coming year on the geopolitical side. Bertrand Schmitt Without going into detail, I would mostly agree with what you shared. At least that makes sense. But as we know, it’s not always what makes sense, but what might happen. I can tell you 100% I would not have guessed this operation against Maduro. This was so well done, well executed, and shocking at the same time that it’s… I think it shows that it’s hard to guess some of this stuff because there are certainly some new ways to wage limited war, for instance. So it’s certainly interesting, and we certainly need to get used to pretty bombastic statements. But for Venezuela, I don’t think it can be worse than what it was before. I’m probably more optimistic that gradually it can get better. Nuno Goncalves Pedro Just to put perspective on why we’re not making predictions on some of these elements, I think this is a funny story, but I was in Madeira. Actually, first time I was in Madeira, although I’m originally from Portugal. I’ve never been to the islands. Obviously, as you guys know, or some of you might know, there’s a lot of connection between Madeira and Venezuela. There’s a lot of immigration from Madeira Islands to Venezuela. One of my Uber or Bolt drivers there in Madeira was Venezuelan. Was born in Venezuela, but Portuguese descent, et cetera. He was telling me this was still last year. Late last year. Because I told him I lived in US, et cetera, and he was like, “Oh, hopefully, Trump will get Maduro out of there.” In my mind, I was like, “Dude.” No disrespect to the gentleman, but it’s like, “Okay. Mike, your perspective on geopolitics is maybe a little bit exaggerated.” And a couple of days later, we know what happened. When geopolitical decisions are better predicted by some probably very astute Uber drivers, you’re like, “Maybe I shouldn’t make a bet. I have no clue what’s going to happen, no clue what’s going to happen in Greenland, et cetera.” Anyway, a couple of predictions on that element. Bertrand Schmitt That’s why it’s so right. You have to be careful with the prediction, but it doesn’t remove the fact that I think nations and companies that have to play a global game have to understand in some ways what is the game, what are the powers in place, what could happen potentially, but also be realistic. Not be about wish and dreams, but more about, what’s the power relationship? Who has the money? Who has the means? Who has the capacity to do this or that? Because if you start that way, at least the scope of what’s possible, what’s reasonable is more and more clear more quickly. Some stuff like happened with Maduro, I would never have predicted, but for sure, if there’s one country that can do this sort of stuff, it’s the US. I’m not sure anyone has a technology and the means in terms of support infrastructure to do something like this. It’s tough to predict what will happen a year from now for any specific country, but I think that even trying to get a better understanding about the forces in play and their capacity and understanding and accepting that at some point, it’s all about real politic and relationship of power, the more your eyes would be wide open about what’s possible versus simple, wishful thinking. Nuno Goncalves Pedro Fintech, Crypto and Frontier Tech Moving maybe to our last section around fintech, crypto, and frontier tech. For me, just two very quick predictions, views of the world. I think on the frontier tech side, I won’t make a prediction. I will just tell you all to go and listen to our episodes, the one on infrastructure, which is immediately prior to this one, and the episodes that we’ve had around a couple of other topics including AI, what’s the future of your children, because I think they illustrate a lot of the points that we’re seeing and manifesting themselves over the next year and over the next 2 or 3 years as well beyond that. I feel those tomes are complete in and out of themselves, so you can just go and listen to them. Then my second comment is on crypto. I feel crypto has become of the essence, particularly under the current administration in the US, very favored. Obviously, we are now in a world where crypto is just part of the economic system, and I think we’ll see more and more of that emerging, and in some ways, crypto is becoming mainstream. Question is what blockchains will be the blockchains of the future? Obviously, there’s a bunch of bets put out there. We, ourselves, as Chamaeleon, have one investment in one of the significant bets in the space. But besides that, who’s going to win or not, we feel that we’re past the crypto winter. It’s now mainstream days, and we’ll see a lot more activity in there. Bertrand Schmitt I must say with crypto, I’m a bit confused. As you say, we are past the crypto winter. There is much less uncertainty in regulations and stuff. I guess how crypto and Bitcoin in specific have evolved over the past 12 months has been a bit weird to me, I must say. It’s not clear from my perspective what’s happening right now. I guess, who knows? But we are at the price point at the lowest since November 2024, so since Trump become president, basically. It’s pretty surprising given that it should have removed the uncertainty in the market a lot. Provided clear regulations, let’s risk for the players in the market. I’m not clear personally about what’s happening. It seems that there has been probably way too much leverage and some players lost a lot. But it will be interesting to follow. In terms of tokenisation of assets, we will see what’s going. I’m I’m quite hopeful things are opening up from a regulatory perspective. But there is also the question with crypto about which part is too much. Do we need these thousands of crypto projects? Do we need hundreds of them? Do we need a dozen? Or do we even just need Bitcoin? For me, that one is a big question, and I don’t think I have a clear answer personally, except that I’m relatively a big believer in Bitcoin. Nuno Goncalves Pedro Indeed. Conclusion So it’s time to conclude today’s episode. In summary, we’re predicting a very positive 2026 with tremendous and continuous innovation around AI, albeit in this really very, very frothy bubble. Tremendous amount of new applications and tools out there driven a lot by agentic AI. We see a movement more and more to sovereign AI and global computational and infrastructure races. So no change there, but, obviously, this will drive a lot of innovation. It will drive a lot of capital moving into these ecosystems. Some interesting changes on hardware, couple of points of disagreement between Bertrand and I on how much we will see this year or not. Maybe less excitement from Bertrand, more excitement for me on AI driven devices and their advent in 2026. Maybe I’m ahead of schedule in some ways. Around venture capital and startup ecosystem, the haves and the have-nots will continue throughout the year. Very difficult markets for both VC fundraising and startup fundraising. On the startup side, either you’re AI or, well, tough luck. Even if you’re AI, you might not raise, and on the VC side, either you’re a mega fund or it’s tough. The silver lining is we do see that there’s some movement around, actually, AI enabled VCs that now is becoming du jour and will move forward accordingly. A lot of positive movements around the IPO market and M&A, and then on the regulatory and geopolitical side, just go and listen to the episode. A lot of thoughts around it and a lot of dramatic nuances that are worthwhile listening to. Thank you so much for listening to us. Thank you, Bertrand. Bertrand Schmitt Thank you, Nuno.

Infrastructure was passé…uncool. Difficult to get dollars from Private Equity and Growth funds, and almost impossible to get a VC fund interested. Now?! Now, it’s cool. Infrastructure seems to be having a Renaissance, a full on Rebirth, not just fueled by commercial interests (e.g. advent of AI), but also by industrial policy and geopolitical considerations. In this episode of Tech Deciphered, we explore what’s cool in the infrastructure spaces, including mega trends in semiconductors, energy, networking & connectivity, manufacturing Navigation: Intro We’re back to building things Why now: the 5 forces behind the renaissance Semiconductors: compute is the new oil Networking & connectivity: digital highways get rebuilt Energy: rebuilding the power stack (not just renewables) Manufacturing: the return of “atoms + bits” Wrap: what it means for startups, incumbents, and investors 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 Subscribe To Our Podcast Nuno Gonçalves Pedro Introduction Welcome to episode 73 of Tech Deciphered, Infrastructure, the Rebirth or Renaissance. Infrastructure was passé, it wasn’t cool, but all of a sudden now everyone’s talking about network, talking about compute and semiconductors, talking about logistics, talking about energy. What gives? What’s happened? It was impossible in the past to get any funds, venture capital, even, to be honest, some private equity funds or growth funds interested in some of these areas, but now all of a sudden everyone thinks it’s cool. The infrastructure seems to be having a renaissance, a full-on rebirth. In this episode, we will explore in which cool ways the infrastructure spaces are moving and what’s leading to it. We will deep dive into the forces that are leading us to this. We will deep dive into semiconductors, networking and connectivity, energy, manufacturing, and then we’ll wrap up. Bertrand, so infrastructure is cool now. Bertrand Schmitt We’re back to building things Yes. I thought software was going to eat the world. I cannot believe it was then, maybe even 15 years ago, from Andreessen, that quote about software eating the world. I guess it’s an eternal balance. Sometimes you go ahead of yourself, you build a lot of software stack, and at some point, you need the hardware to run this software stack, and there is only so much the bits can do in a world of atoms. Nuno Gonçalves Pedro Obviously, we’ve gone through some of this before. I think what we’re going through right now is AI is eating the world, and because AI is eating the world, it’s driving a lot of this infrastructure building that we need. We don’t have enough energy to be consumed by all these big data centers and hyperscalers. We need to be innovative around network as well because of the consumption in terms of network bandwidth that is linked to that consumption as well. In some ways, it’s not software eating the world, AI is eating the world. Because AI is eating the world, we need to rethink everything around infrastructure and infrastructure becoming cool again. Bertrand Schmitt There is something deeper in this. It’s that the past 10, even 15 years were all about SaaS before AI. SaaS, interestingly enough, was very energy-efficient. When I say SaaS, I mean cloud computing at large. What I mean by energy-efficient is that actually cloud computing help make energy use more efficient because instead of companies having their own separate data centers in many locations, sometimes poorly run from an industrial perspective, replace their own privately run data center with data center run by the super scalers, the hyperscalers of the world. These data centers were run much better in terms of how you manage the coolings, the energy efficiency, the rack density, all of this stuff. Actually, the cloud revolution didn’t increase the use of electricity. The cloud revolution was actually a replacement from your private data center to the hyperscaler data center, which was energy efficient. That’s why we didn’t, even if we are always talking about that growth of cloud computing, we were never feeling the pinch in term of electricity. As you say, we say it all changed because with AI, it was not a simple “Replacement” of locally run infrastructure to a hyperscaler run infrastructure. It was truly adding on top of an existing infrastructure, a new computing infrastructure in a way out of nowhere. Not just any computing infrastructure, an energy infrastructure that was really, really voracious in term of energy use. Nuno Gonçalves Pedro There was one other effect. Obviously, we’ve discussed before, we are in a bubble. We won’t go too much into that today. But the previous big bubble in tech, which is in the late ’90s, there was a lot of infrastructure built. We thought the internet was going to take over back then. It didn’t take over immediately, but there was a lot of network connectivity, bandwidth built back in the day. Companies imploded because of that as well, or had to restructure and go in their chapter 11. A lot of the big telco companies had their own issues back then, etc., but a lot of infrastructure was built back then for this advent of the internet, which would then take a long time to come. In some ways, to your point, there was a lot of latent supply that was built that was around that for a while wasn’t used, but then it was. Now it’s been used, and now we need new stuff. That’s why I feel now we’re having the new moment of infrastructure, new moment of moving forward, aligned a little bit with what you just said around cloud computing and the advent of SaaS, but also around the fact that we had a lot of buildup back in the late ’90s, early ’90s, which we’re now still reaping the benefits on in today’s world. Bertrand Schmitt Yeah, that’s actually a great point because what was built in the late ’90s, there was a lot of fibre that was built. Laying out the fibre either across countries, inside countries. This fibre, interestingly enough, you could just change the computing on both sides of the fibre, the routing, the modems, and upgrade the capacity of the fibre. But the fibre was the same in between. The big investment, CapEx investment, was really lying down that fibre, but then you could really upgrade easily. Even if both ends of the fibre were either using very old infrastructure from the ’90s or were actually dark and not being put to use, step by step, it was being put to use, equipment was replaced, and step by step, you could keep using more and more of this fibre. It was a very interesting development, as you say, because it could be expanded over the years, where if we talk about GPUs, use for AI, GPUs, the interesting part is actually it’s totally the opposite. After a few years, it’s useless. Some like Google, will argue that they can depreciate over 5, 6 years, even some GPUs. But at the end of the day, the difference in perf and energy efficiency of the GPUs means that if you are energy constrained, you just want to replace the old one even as young as three-year-old. You have to look at Nvidia increasing spec, generation after generation. It’s pretty insane. It’s usually at least 3X year over year in term of performance. Nuno Gonçalves Pedro At this moment in time, it’s very clear that it’s happening. Why now: the 5 forces behind the renaissance Maybe let’s deep dive into why it’s happening now. What are the key forces around this? We’ve identified, I think, five forces that are particularly vital that lead to the world we’re in right now. One we’ve already talked about, which is AI, the demand shock and everything that’s happened because of AI. Data centers drive power demand, drive grid upgrades, drive innovative ways of getting energy, drive chips, drive networking, drive cooling, drive manufacturing, drive all the things that we’re going to talk in just a bit. One second element that we could probably highlight in terms of the forces that are behind this is obviously where we are in terms of cost curves around technology. Obviously, a lot of things are becoming much cheaper. The simulation of physical behaviours has become a lot more cheap, which in itself, this becomes almost a vicious cycle in of itself, then drives the adoption of more and more AI and stuff. But anyway, the simulation is becoming more and more accessible, so you can do a lot of simulation with digital twins and other things off the real world before you go into the real world. Robotics itself is becoming, obviously, cheaper. Hardware, a lot of the hardware is becoming cheaper. Computer has become cheaper as well. Obviously, there’s a lot of cost curves that have aligned that, and that’s maybe the second force that I would highlight. Obviously, funds are catching up. We’ll leave that a little bit to the end. We’ll do a wrap-up and talk a little bit about the implications to investors. But there’s a lot of capital out there, some capital related to industrial policy, other capital related to private initiative, private equity, growth funds, even venture capital, to be honest, and a few other elements on that. That would be a third force that I would highlight. Bertrand Schmitt Yes. Interestingly enough, in terms of capital use, and we’ll talk more about this, but some firms, if we are talking about energy investment, it was very difficult to invest if you are not investing in green energy. Now I think more and more firms and banks are willing to invest or support different type of energy infrastructure, not just, “Green energy.” That’s an interesting development because at some point it became near impossible to invest more in gas development, in oil development in the US or in most Western countries. At least in the US, this is dramatically changing the framework. Nuno Gonçalves Pedro Maybe to add the two last forces that I think we see behind the renaissance of what’s happening in infrastructure. They go hand in hand. One is the geopolitics of the world right now. Obviously, the world was global flat, and now it’s becoming increasingly siloed, so people are playing it to their own interests. There’s a lot of replication of infrastructure as well because people want to be autonomous, and they want to drive their own ability to serve end consumers, businesses, etc., in terms of data centers and everything else. That ability has led to things like, for example, chips shortage. The fact that there are semiconductors, there are shortages across the board, like memory shortages, where everything is packed up until 2027 of 2028. A lot of the memory that was being produced is already spoken for, which is shocking. There’s obviously generation of supply chain fragilities, obviously, some of it because of policies, for example, in the US with tariffs, etc, security of energy, etc. Then the last force directly linked to the geopolitics is the opposite of it, which is the policy as an accelerant, so to speak, as something that is accelerating development, where because of those silos, individual countries, as part their industrial policy, then want to put capital behind their local ecosystems, their local companies, so that their local companies and their local systems are for sure the winners, or at least, at the very least, serve their own local markets. I think that’s true of a lot of the things we’re seeing, for example, in the US with the Chips Act, for semiconductors, with IGA, IRA, and other elements of what we’ve seen in terms of practices, policies that have been implemented even in Europe, China, and other parts of the world. Bertrand Schmitt Talking about chips shortages, it’s pretty insane what has been happening with memory. Just the past few weeks, I have seen a close to 3X increase in price in memory prices in a matter of weeks. Apparently, it started with a huge order from OpenAI. Apparently, they have tried to corner the memory market. Interestingly enough, it has flat-footed the entire industry, and that includes Google, that includes Microsoft. There are rumours of their teams now having moved to South Korea, so they are closer to the action in terms of memory factories and memory decision-making. There are rumours of execs who got fired because they didn’t prepare for this type of eventuality or didn’t lock in some of the supply chain because that memory was initially for AI, but obviously, it impacts everything because factories making memories, you have to plan years in advance to build memories. You cannot open new lines of manufacturing like this. All factories that are going to open, we know when they are going to open because they’ve been built up for years. There is no extra capacity suddenly. At the very best, you can change a bit your line of production from one type of memory to another type. But that’s probably about it. Nuno Gonçalves Pedro Just to be clear, all these transformations we’re seeing isn’t to say just hardware is back, right? It’s not just hardware. There’s physicality. The buildings are coming back, right? It’s full stack. Software is here. That’s why everything is happening. Policy is here. Finance is here. It’s a little bit like the name of the movie, right? Everything everywhere all at once. Everything’s happening. It was in some ways driven by the upper stacks, by the app layers, by the platform layers. But now we need new infrastructure. We need more infrastructure. We need it very, very quickly. We need it today. We’re already lacking in it. Semiconductors: compute is the new oil Maybe that’s a good segue into the first piece of the whole infrastructure thing that’s driving now the most valuable company in the world, NVIDIA, which is semiconductors. Semiconductors are driving compute. Semis are the foundation of infrastructure as a compute. Everyone needs it for every thing, for every activity, not just for compute, but even for sensors, for actuators, everything else. That’s the beginning of it all. Semiconductor is one of the key pieces around the infrastructure stack that’s being built at scale at this moment in time. Bertrand Schmitt Yes. What’s interesting is that if we look at the market gap of Semis versus software as a service, cloud companies, there has been a widening gap the past year. I forgot the exact numbers, but we were talking about plus 20, 25% for Semis in term of market gap and minus 5, minus 10 for SaaS companies. That’s another trend that’s happening. Why is this happening? One, because semiconductors are core to the AI build-up, you cannot go around without them. But two, it’s also raising a lot of questions about the durability of the SaaS, a software-as-a-service business model. Because if suddenly we have better AI, and that’s all everyone is talking about to justify the investment in AI, that it keeps getting better, and it keeps improving, and it’s going to replace your engineers, your software engineers. Then maybe all of this moat that software companies built up over the years or decades, sometimes, might unravel under the pressure of newly coded, newly built, cheaper alternatives built from the ground up with AI support. It’s not just that, yes, semiconductors are doing great. It’s also as a result of that AI underlying trend that software is doing worse right now. Nuno Gonçalves Pedro At the end of the day, this foundational piece of infrastructure, semiconductor, is obviously getting manifest to many things, fabrication, manufacturing, packaging, materials, equipment. Everything’s being driven, ASML, etc. There are all these different players around the world that are having skyrocket valuations now, it’s because they’re all part of the value chain. Just to be very, very clear, there’s two elements of this that I think are very important for us to remember at this point in time. One, it’s the entire value chains are being shifted. It’s not just the chips that basically lead to computing in the strict sense of it. It’s like chips, for example, that drive, for example, network switching. We’re going to talk about networking a bit, but you need chips to drive better network switching. That’s getting revolutionised as well. For example, we have an investment in that space, a company called the eridu.ai, and they’re revolutionising one of the pieces around that stack. Second part of the puzzle, so obviously, besides the holistic view of the world that’s changing in terms of value change, the second piece of the puzzle is, as we discussed before, there’s industrial policy. We already mentioned the CHIPS Act, which is something, for example, that has been done in the US, which I think is 52 billion in incentives across a variety of things, grants, loans, and other mechanisms to incentivise players to scale capacity quick and to scale capacity locally in the US. One of the effects of that now is obviously we had the TSMC, US expansion with a factory here in the US. We have other levels of expansion going on with Intel, Samsung, and others that are happening as we speak. Again, it’s this two by two. It’s market forces that drive the need for fundamental shifts in the value chain. On the other industrial policy and actual money put forward by states, by governments, by entities that want to revolutionise their own local markets. Bertrand Schmitt Yes. When you talk about networking, it makes me think about what NVIDIA did more than six years ago when they acquired Mellanox. At the time, it was largest acquisition for NVIDIA in 2019, and it was networking for the data center. Not networking across data center, but inside the data center, and basically making sure that your GPUs, the different computers, can talk as fast as possible between each of them. I think that’s one piece of the puzzle that a lot of companies are missing, by the way, about NVIDIA is that they are truly providing full systems. They are not just providing a GPU. Some of their competitors are just providing GPUs. But NVIDIA can provide you the full rack. Now, they move to liquid-cool computing as well. They design their systems with liquid cooling in mind. They have a very different approach in the industry. It’s a systematic system-level approach to how do you optimize your data center. Quite frankly, that’s a bit hard to beat. Nuno Gonçalves Pedro For those listening, you’d be like, this is all very different. Semiconductors, networking, energy, manufacturing, this is all different. Then all of a sudden, as Bertrand is saying, well, there are some players that are acting across the stack. Then you see in the same sentence, you’re talking about nuclear power in Microsoft or nuclear power in Google, and you’re like, what happened? Why are these guys in the same sentence? It’s like they’re tech companies. Why are they talking about energy? It’s the nature of that. These ecosystems need to go hand in hand. The value chains are very deep. For you to actually reap the benefits of more and more, for example, semiconductor availability, you have to have better and better networking connectivity, and you have to have more and more energy at lower and lower costs, and all of that. All these things are intrinsically linked. That’s why you see all these big tech companies working across stack, NVIDIA being a great example of that in trying to create truly a systems approach to the world, as Bertrand was mentioning. Networking & connectivity: digital highways get rebuilt On the networking and connectivity side, as we said, we had a lot of fibre that was put down, etc, but there’s still more build-out needs to be done. 5G in terms of its densification is still happening. We’re now starting to talk, obviously, about 6G. I’m not sure most telcos are very happy about that because they just have been doing all this CapEx and all this deployment into 5G, and now people already started talking about 6G and what’s next. Obviously, data center interconnect is quite important, and all the hubbing that needs to happen around data centers is very, very important. We are seeing a lot movements around connectivity that are particularly important. Network gear and the emergence of players like Broadcom in terms of the semiconductor side of the fence, obviously, Cisco, Juniper, Arista, and others that are very much present in this space. As I said, we made an investment on the semiconductor side of networking as well, realizing that there’s still a lot of bottlenecks happening there. But obviously, the networking and connectivity stack still needs to be built at all levels within the data centers, outside of the data centers in terms of last mile, across the board in terms of fibre. We’re seeing a lot of movements still around the space. It’s what connects everything. At the end of the day, if there’s too much latency in these systems, if the bandwidths are not high enough, then we’re going to have huge bottlenecks that are going to be put at the table by a networking providers. Obviously, that doesn’t help anyone. If there’s a button like anywhere, it doesn’t work. All of this doesn’t work. Bertrand Schmitt Yes. Interestingly enough, I know we said for this episode, we not talk too much about space, but when you talk about 6G, it make me think about, of course, Starlink. That’s really your last mile delivery that’s being built as well. It’s a massive investment. We’re talking about thousands of satellites that are interconnected between each other through laser system. This is changing dramatically how companies can operate, how individuals can operate. For companies, you can have great connectivity from anywhere in the world. For military, it’s the same. For individuals, suddenly, you won’t have dead space, wide zones. This is also a part of changing how we could do things. It’s quite important even in the development of AI because, yes, you can have AI at the edge, but that interconnect to the rest of the system is quite critical. Having that availability of a network link, high-quality network link from anywhere is a great combo. Nuno Gonçalves Pedro Then you start seeing regions of the world that want to differentiate to attract digital nomads by saying, “We have submarine cables that come and hub through us, and therefore, our connectivity is amazing.” I was just in Madeira, and they were talking about that in Portugal. One of the islands of Portugal. We have some Marine cables. You have great connectivity. We’re getting into that discussion where people are like, I don’t care. I mean, I don’t know. I assume I have decent connectivity. People actually care about decent connectivity. This discussion is not just happening at corporate level, at enterprise level? Etc. Even consumers, even people that want to work remotely or be based somewhere else in the world. It’s like, This is important Where is there a great connectivity for me so that I can have access to the services I need? Etc. Everyone becomes aware of everything. We had a cloud flare mishap more recently that the CEO had to jump online and explain deeply, technically and deeply, what happened. Because we’re in their heads. If Cloudflare goes down, there’s a lot of websites that don’t work. All of this, I think, is now becoming du jour rather than just an afterthought. Maybe we’ll think about that in the future. Bertrand Schmitt Totally. I think your life is being changed for network connectivity, so life of individuals, companies. I mean, everything. Look at airlines and ships and cruise ships. Now is the advent of satellite connectivity. It’s dramatically changing our experience. Nuno Gonçalves Pedro Indeed. Energy: rebuilding the power stack (not just renewables) Moving maybe to energy. We’ve talked about energy quite a bit in the past. Maybe we start with the one that we didn’t talk as much, although we did mention it, which was, let’s call it the fossil infrastructure, what’s happening around there. Everyone was saying, it’s all going to be renewables and green. We’ve had a shift of power, geopolitics. Honestly, I the writing was on the wall that we needed a lot more energy creation. It wasn’t either or. We needed other sources to be as efficient as possible. Obviously, we see a lot of work happening around there that many would have thought, Well, all this infrastructure doesn’t matter anymore. Now we’re seeing LNG terminals, pipelines, petrochemical capacity being pushed up, a lot of stuff happening around markets in terms of export, and not only around export, but also around overall distribution and increases and improvements so that there’s less leakage, distribution of energy, etc. In some ways, people say, it’s controversial, but it’s like we don’t have enough energy to spare. We’re already behind, so we need as much as we can. We need to figure out the way to really extract as much as we can from even natural resources, which In many people’s mind, it’s almost like blasphemous to talk about, but it is where we are. Obviously, there’s a lot of renaissance also happening on the fossil infrastructure basis, so to speak. Bertrand Schmitt Personally, I’m ecstatic that there is a renaissance going regarding what is called fossil infrastructure. Oil and gas, it’s critical to humanity well-being. You never had growth of countries without energy growth and nothing else can come close. Nuclear could come close, but it takes decades to deploy. I think it’s great. It’s great for developed economies so that they do better, they can expand faster. It’s great for third-world countries who have no realistic other choice. I really don’t know what happened the past 10, 15 years and why this was suddenly blasphemous. But I’m glad that, strangely, thanks to AI, we are back to a more rational mindset about energy and making sure we get efficient energy where we can. Obviously, nuclear is getting a second act. Nuno Gonçalves Pedro I know you would be. We’ve been talking about for a long time, and you’ve been talking about it in particular for a very long time. Bertrand Schmitt Yes, definitely. It’s been one area of interest of mine for 25 years. I don’t know. I’ve been shocked about what happened in Europe, that willingness destruction of energy infrastructure, especially in Germany. Just a few months ago, they keep destroying on live TV some nuclear station in perfect working condition and replacing them with coal. I’m not sure there is a better definition of insanity at this stage. It looks like it’s only the Germans going that hardcore for some reason, but at least the French have stopped their program of decommissioning. America, it seems to be doing the same, so it’s great. On top of it, there are new generations that could be put to use. The Chinese are building up a very large nuclear reactor program, more than 100 reactors in construction for the next 10 years. I think everybody has to catch up because at some point, this is the most efficient energy solution. Especially if you don’t build crazy constraints around the construction of these nuclear reactors. If we are rational about permits, about energy, about safety, there are great things we could be doing with nuclear. That might be one of the only solution if we want to be competitive, because when energy prices go down like crazy, like in China, they will do once they have reach delivery of their significant build-up of nuclear reactors, we better be ready to have similar options from a cost perspective. Nuno Gonçalves Pedro From the outside, at the very least, nuclear seems to be probably in the energy one of the areas that’s more being innovated at this moment in time. You have startups in the space, you have a lot really money going into it, not just your classic industrial development. That’s very exciting. Moving maybe to the carbonization and what’s happening. The CCUS, and for those who don’t know what it is, carbon capture, utilization, and storage. There’s a lot of stuff happening around that space. That’s the area that deals with the ability to capture CO₂ emissions from industrial sources and/or the atmosphere and preventing their release. There’s a lot of things happening in that space. There’s also a lot of things happening around hydrogen and geothermal and really creating the ability to storage or to store, rather, energy that then can be put back into the grids at the right time. There’s a lot of interesting pieces happening around this. There’s some startup movement in the space. It’s been a long time coming, the reuse of a lot of these industrial sources. Not sure it’s as much on the news as nuclear, and oil and gas, but certainly there’s a lot of exciting things happening there. Bertrand Schmitt I’m a bit more dubious here, but I think geothermal makes sense if it’s available at reasonable price. I don’t think hydrogen technology has proven its value. Concerning carbon capture, I’m not sure how much it’s really going to provide in terms of energy needs, but why not? Nuno Gonçalves Pedro Fuels niche, again, from the outside, we’re not energy experts, but certainly, there are movements in the space. We’ll see what’s happening. One area where there’s definitely a lot of movement is this notion of grid and storage. On the one hand, that transmission needs to be built out. It needs to be better. We’ve had issues of blackouts in the US. We’ve had issues of blackouts all around the world, almost. Portugal as well, for a significant part of the time. The ability to work around transmission lines, transformers, substations, the modernization of some of this infrastructure, and the move forward of it is pretty critical. But at the other end, there’s the edge. Then, on the edge, you have the ability to store. We should have, better mechanisms to store energy that are less leaky in terms of energy storage. Obviously, there’s a lot of movement around that. Some of it driven just by commercial stuff, like Tesla a lot with their storage stuff, etc. Some of it really driven at scale by energy players that have the interest that, for example, some of the storage starts happening closer to the consumption as well. But there’s a lot of exciting things happening in that space, and that is a transformative space. In some ways, the bottleneck of energy is also around transmission and then ultimately the access to energy by homes, by businesses, by industries, etc. Bertrand Schmitt I would say some of the blackout are truly man-made. If I pick on California, for instance. That’s the logical conclusion of the regulatory system in place in California. On one side, you limit price that energy supplier can sell. The utility company can sell, too. On the other side, you force them to decommission the most energy-efficient and least expensive energy source. That means you cap the revenues, you make the cost increase. What is the result? The result is you cannot invest anymore to support a grid and to support transmission. That’s 100% obvious. That’s what happened, at least in many places. The solution is stop crazy regulations that makes no economic sense whatsoever. Then, strangely enough, you can invest again in transmission, in maintenance, and all I love this stuff. Maybe another piece, if we pick in California, if you authorize building construction in areas where fires are easy, that’s also a very costly to support from utility perspective, because then you are creating more risk. You are forced buy the state to connect these new constructions to the grid. You have more maintenance. If it fails, you can create fire. If you create fire, you have to pay billions of fees. I just want to highlight that some of this is not a technological issue, is not per se an investment issue, but it’s simply the result of very bad regulations. I hope that some will learn, and some change will be made so that utilities can do their job better. Nuno Gonçalves Pedro Then last, but not the least, on the energy side, energy is becoming more and more digitally defined in some ways. It’s like the analogy to networks that they’ve become more, and more software defined, where you have, at the edge is things like smart meters. There’s a lot of things you can do around the key elements of the business model, like dynamic pricing and other elements. Demand response, one of the areas that I invested in, I invest in a company called Omconnect that’s now merged with what used to be Google Nest. Where to deploy that ability to do demand response and also pass it to consumers so that consumers can reduce their consumption at times where is the least price effective or the less green or the less good for the energy companies to produce energy. We have other things that are happening, which are interesting. Obviously, we have a lot more electric vehicles in cars, etc. These are also elements of storage. They don’t look like elements of storage, but the car has electricity in it once you charge it. Once it’s charged, what do you do with it? Could you do something else? Like the whole reverse charging piece that we also see now today in mobile devices and other edge devices, so to speak. That also changes the architecture of what we’re seeing around the space. With AI, there’s a lot of elements that change around the value chain. The ability to do forecasting, the ability to have, for example, virtual power plans because of just designated storage out there, etc. Interesting times happening. Not sure all utilities around the world, all energy providers around the world are innovating at the same pace and in the same way. But certainly just looking at the industry and talking to a lot of players that are CEOs of some of these companies. That are leading innovation for some of these companies, there’s definitely a lot more happening now in the last few years than maybe over the last few decades. Very exciting times. Bertrand Schmitt I think there are two interesting points in what you say. Talking about EVs, for instance, a Cybertruck is able to send electricity back to your home if your home is able to receive electricity from that source. Usually, you have some changes to make to the meter system, to your panel. That’s one great way to potentially use your car battery. Another piece of the puzzle is that, strangely enough, most strangely enough, there has been a big push to EV, but at the same time, there has not been a push to provide more electricity. But if you replace cars that use gasoline by electric vehicles that use electricity, you need to deliver more electricity. It doesn’t require a PhD to get that. But, strangely enough, nothing was done. Nuno Gonçalves Pedro Apparently, it does. Bertrand Schmitt I remember that study in France where they say that, if people were all to switch to EV, we will need 10 more nuclear reactors just on the way from Paris to Nice to the Côte d’Azur, the French Rivière, in order to provide electricity to the cars going there during the summer vacation. But I mean, guess what? No nuclear plant is being built along the way. Good luck charging your vehicles. I think that’s another limit that has been happening to the grid is more electric vehicles that require charging when the related infrastructure has not been upgraded to support more. Actually, it has quite the opposite. In many cases, we had situation of nuclear reactors closing down, so other facilities closing down. Obviously, the end result is an increase in price of electricity, at least in some states and countries that have not sold that fully out. Nuno Gonçalves Pedro Manufacturing: the return of “atoms + bits” Moving to manufacturing and what’s happening around manufacturing, manufacturing technology. There’s maybe the case to be made that manufacturing is getting replatformed, right? It’s getting redefined. Some of it is very obvious, and it’s already been ongoing for a couple of decades, which is the advent of and more and more either robotic augmented factories or just fully roboticized factories, where there’s very little presence of human beings. There’s elements of that. There’s the element of software definition on top of it, like simulation. A lot of automation is going on. A lot of AI has been applied to some lines in terms of vision, safety. We have an investment in a company called Sauter Analytics that is very focused on that from the perspective of employees and when they’re still humans in the loop, so to speak, and the ability to really figure out when people are at risk and other elements of what’s happening occurring from that. But there’s more than that. There’s a little bit of a renaissance in and of itself. Factories are, initially, if we go back a couple of decades ago, factories were, and manufacturing was very much defined from the setup. Now it’s difficult to innovate, it’s difficult to shift the line, it’s difficult to change how things are done in the line. With the advent of new factories that have less legacy, that have more flexible systems, not only in terms of software, but also in terms of hardware and robotics, it allows us to, for example, change and shift lines much more easily to different functions, which will hopefully, over time, not only reduce dramatically the cost of production. But also increase dramatically the yield, it increases dramatically the production itself. A lot of cool stuff happening in that space. Bertrand Schmitt It’s exciting to see that. One thing this current administration in the US has been betting on is not just hoping for construction renaissance. Especially on the factory side, up of factories, but their mindset was two things. One, should I force more companies to build locally because it would be cheaper? Two, increase output and supply of energy so that running factories here in the US would be cheaper than anywhere else. Maybe not cheaper than China, but certainly we get is cheaper than Europe. But three, it’s also the belief that thanks to AI, we will be able to have more efficient factories. There is always that question, do Americans to still keep making clothes, for instance, in factories. That used to be the case maybe 50 years ago, but this move to China, this move to Bangladesh, this move to different places. That’s not the goal. But it can make sense that indeed there is ability, thanks to robots and AI, to have more automated factories, and these factories could be run more efficiently, and as a result, it would be priced-competitive, even if run in the US. When you want to think about it, that has been, for instance, the South Korean playbook. More automated factories, robotics, all of this, because that was the only way to compete against China, which has a near infinite or used to have a near infinite supply of cheaper labour. I think that all of this combined can make a lot of sense. In a way, it’s probably creating a perfect storm. Maybe another piece of the puzzle this administration has been working on pretty hard is simplifying all the permitting process. Because a big chunk of the problem is that if your permitting is very complex, very expensive, what take two years to build become four years, five years, 10 years. The investment mass is not the same in that situation. I think that’s a very important part of the puzzle. It’s use this opportunity to reduce regulatory state, make sure that things are more efficient. Also, things are less at risk of bribery and fraud because all these regulations, there might be ways around. I think it’s quite critical to really be careful about this. Maybe last piece of the puzzle is the way accounting works. There are new rules now in 2026 in the US where you can fully depreciate your CapEx much faster than before. That’s a big win for manufacturing in the US. Suddenly, you can depreciate much faster some of your CapEx investment in manufacturing. Nuno Gonçalves Pedro Just going back to a point you made and then moving it forward, even China, with being now probably the country in the world with the highest rate of innovation and take up of industrial robots. Because of demographic issues a little bit what led Japan the first place to be one of the real big innovators around robots in general. The fact that demographics, you’re having an aging population, less and less children. How are you going to replace all these people? Moving that into big winners, who becomes a big winner in a space where manufacturing is fundamentally changing? Obviously, there’s the big four of robots, which is ABB, FANUC, KUKA, and Yaskawa. Epson, I think, is now in there, although it’s not considered one of the big four. Kawasaki, Denso, Universal Robots. There’s a really big robotics, industrial robotic companies in the space from different origins, FANUC and Yaskawa, and Epson from Japan, KUKA from Germany, ABB from Switzerland, Sweden. A lot of now emerging companies from China, and what’s happening in that space is quite interesting. On the other hand, also, other winners will include players that will be integrators that will build some of the rest of the infrastructure that goes into manufacturing, the Siemens of the world, the Schneider’s, the Rockwell’s that will lead to fundamental industrial automation. Some big winners in there that whose names are well known, so probably not a huge amount of surprises there. There’s movements. As I said, we’re still going to see the big Chinese players emerging in the world. There are startups that are innovating around a lot of the edges that are significant in this space. We’ll see if this is a space that will just be continued to be dominated by the big foreign robotics and by a couple of others and by the big integrators or not. Bertrand Schmitt I think you are right to remind about China because China has been moving very fast in robotics. Some Chinese companies are world-class in their use of robotics. You have this strange mix of some older industries where robotics might not be so much put to use and typically state-owned, versus some private companies, typically some tech companies that are reconverting into hardware in some situation. That went all in terms of robotics use and their demonstrations, an example of what’s happening in China. Definitely, the Chinese are not resting. Everyone smart enough is playing that game from the Americans, the Chinese, Japanese, the South Koreans. Nuno Gonçalves Pedro Exciting things are manufacturing, and maybe to bring it all together, what does it mean for all the big players out there? If we talk with startups and talk about startups, we didn’t mention a ton of startups today, right? Maybe incumbent wind across the board. But on a more serious note, we did mention a few. For example, in nuclear energy, there’s a lot of startups that have been, some of them, incredibly well-funded at this moment in time. Wrap: what it means for startups, incumbents, and investors There might be some big disruptions that will come out of startups, for example, in that space. On the chipset side, we talked about the big gorillas, the NVIDIAs, AMDs, Intel, etc., of the world. But we didn’t quite talk about the fact that there’s a lot of innovation, again, happening on the edges with new players going after very large niches, be it in networking and switching. Be it in compute and other areas that will need different, more specialized solutions. Potentially in terms of compute or in terms of semiconductor deployments. I think there’s still some opportunities there, maybe not to be the winner takes all thing, but certainly around a lot of very significant niches that might grow very fast. Manufacturing, we mentioned the same. Some of the incumbents seem to be in the driving seat. We’ll see what happens if some startups will come in and take some of the momentum there, probably less likely. There are spaces where the value chains are very tightly built around the OEMs and then the suppliers overall, classically the tier one suppliers across value chains. Maybe there is some startup investment play. We certainly have played in the couple of the spaces. I mentioned already some of them today, but this is maybe where the incumbents have it all to lose. It’s more for them to lose rather than for the startups to win just because of the scale of what needs to be done and what needs to be deployed. Bertrand Schmitt I know. That’s interesting point. I think some players in energy production, for instance, are moving very fast and behaving not only like startups. Usually, it’s independent energy suppliers who are not kept by too much regulations that get moved faster. Utility companies, as we just discussed, have more constraints. I would like to say that if you take semiconductor space, there has been quite a lot of startup activities way more than usual, and there have been some incredible success. Just a few weeks ago, Rock got more or less acquired. Now, you have to play games. It’s not an outright acquisition, but $20 billion for an IP licensing agreement that’s close to an acquisition. That’s an incredible success for a company. Started maybe 10 years ago. You have another Cerebras, one of the competitor valued, I believe, quite a lot in similar range. I think there is definitely some activity. It’s definitely a different game compared to your software startup in terms of investment. But as we have seen with AI in general, the need for investment might be larger these days. Yes, it might be either traditional players if they can move fast enough, to be frank, because some of them, when you have decades of being run as a slow-moving company, it’s hard to change things. At the same time, it looks like VCs are getting bigger. Wall Street is getting more ready to finance some of these companies. I think there will be opportunities for startups, but definitely different types of startups in terms of profile. Nuno Gonçalves Pedro Exactly. From an investor standpoint, I think on the VC side, at least our core belief is that it’s more niche. It’s more around big niches that need to be fundamentally disrupted or solutions that require fundamental interoperability and integration where the incumbents have no motivation to do it. Things that are a little bit more either packaging on the semiconductor side or other elements of actual interoperability. Even at the software layer side that feeds into infrastructure. If you’re a growth investor, a private equity investor, there’s other plays that are available to you. A lot of these projects need to be funded and need to be scaled. Now we’re seeing projects being funded even for a very large, we mentioned it in one of the previous episodes, for a very large tech companies. When Meta, for example, is going to the market to get funding for data centers, etc. There’s projects to be funded there because just the quantum and scale of some of these projects, either because of financial interest for specifically the tech companies or for other reasons, but they need to be funded by the market. There’s other place right now, certainly if you’re a larger private equity growth investor, and you want to come into the market and do projects. Even public-private financing is now available for a lot of things. Definitely, there’s a lot of things emanating that require a lot of funding, even for large-scale projects. Which means the advent of some of these projects and where realization is hopefully more of a given than in other circumstances, because there’s actual commercial capital behind it and private capital behind it to fuel it as well, not just industrial policy and money from governments. Bertrand Schmitt There was this quite incredible stat. I guess everyone heard about that incredible growth in GDP in Q3 in the US at 4.4%. Apparently, half of that growth, so around 2.2% point, has been coming from AI and related infrastructure investment. That’s pretty massive. Half of your GDP growth coming from something that was not there three years ago or there, but not at this intensity of investment. That’s the numbers we are talking about. I’m hearing that there is a good chance that in 2026, we’re talking about five, even potentially 6% GDP growth. Again, half of it potentially coming from AI and all the related infrastructure growth that’s coming with AI. As a conclusion for this episode on infrastructure, as we just said, it’s not just AI, it’s a whole stack, and it’s manufacturing in general as well. Definitely in the US, in China, there is a lot going on. As we have seen, computing needs connectivity, networks, need power, energy and grid, and all of this needs production capacity and manufacturing. Manufacturing can benefit from AI as well. That way the loop is fully going back on itself. Infrastructure is the next big thing. It’s an opportunity, probably more for incumbents, but certainly, as usual, with such big growth opportunities for startups as well. Thank you, Nuno. Nuno Gonçalves Pedro Thank you, Bertrand.

IWhat is our children’s future? What skills should they be developing? How should schools be adapting? What will the fully functioning citizens and workers of the future look like? A look into the landscape of the next 15 years, the future of work with human and AI interactions, the transformation of education, the safety and privacy landscapes, and a parental playbook. Navigation: Intro The Landscape: 2026–2040 The Future of Work: Human + AI The Transformation of Education The Ethics, Safety, and Privacy Landscape The Parental Playbook: Actionable Strategies 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 Subscribe To Our Podcast Bertrand SchmittIntroduction Welcome to Episode 72 of Tech Deciphered, about our children’s future. What is our children’s future? What skills should they be developing? How should school be adapting to AI? What would be the functioning citizens and workers of the future look like, especially in the context of the AI revolution? Nuno, what’s your take? Maybe we start with the landscape. Nuno Goncalves PedroThe Landscape: 2026–2040 Let’s first frame it. What do people think is going to happen? Firstly, that there’s going to be a dramatic increase in productivity, and because of that dramatic increase in productivity, there are a lot of numbers that show that there’s going to be… AI will enable some labour productivity growth of 0.1 to 0.6% through 2040, which would be a figure that would be potentially rising even more depending on use of other technologies beyond generative AI, as much as 0.5 to 3.4% points annually, which would be ridiculous in terms of productivity enhancement. To be clear, we haven’t seen it yet. But if there are those dramatic increases in productivity expected by the market, then there will be job displacement. There will be people losing their jobs. There will be people that will need to be reskilled, and there will be a big shift that is similar to what happens when there’s a significant industrial revolution, like the Industrial Revolution of the late 19th century into the 20th century. Other numbers quoted would say that 30% of US jobs could be automated by 2030, which is a silly number, 30%, and that another 60% would see tremendously being altered. A lot of their tasks would be altered for those jobs. There’s also views that this is obviously fundamentally a global phenomenon, that as much as 9% of jobs could be lost to AI by 2030. I think question mark if this is a net number or a gross number, so it might be 9% our loss, but then maybe there’re other jobs that will emerge. It’s very clear that the landscape we have ahead of us is if there are any significant increases in productivity, there will be job displacement. There will be job shifting. There will be the need for reskilling. Therefore, I think on the downside, you would say there’s going to be job losses. We’ll have to reevaluate whether people should still work in general 5 days a week or not. Will we actually work in 10, 20, 30 years? I think that’s the doomsday scenario and what happens on that side of the fence. I think on the positive side, there’s also a discussion around there’ll be new jobs that emerge. There’ll be new jobs that maybe we don’t understand today, new job descriptions that actually don’t even exist yet that will emerge out this brave new world of AI. Bertrand SchmittYeah. I mean, let’s not forget how we get to a growing economy. I mean, there’s a measurement of a growing economy is GDP growth. Typically, you can simplify in two elements. One is the growth of the labour force, two, the rise of the productivity of that labour force, and that’s about it. Either you grow the economy by increasing the number of people, which in most of the Western world is not really happening, or you increase productivity. I think that we should not forget that growth of productivity is a backbone of growth for our economies, and that has been what has enabled the rise in prosperity across countries. I always take that as a win, personally. That growth in productivity has happened over the past decades through all the technological revolutions, from more efficient factories to oil and gas to computers, to network computers, to internet, to mobile and all the improvement in science, usually on the back of technological improvement. Personally, I welcome any rise in improvement we can get in productivity because there is at this stage simply no other choice for a growing world in terms of growing prosperity. In terms of change, we can already have a look at the past. There are so many jobs today you could not imagine they would exist 30 years ago. Take the rise of the influencer, for instance, who could have imagined that 30 years ago. Take the rise of the small mom-and-pop e-commerce owner, who could have imagined that. Of course, all the rise of IT as a profession. I mean, how few of us were there 30 years ago compared to today. I mean, this is what it was 30 years ago. I think there is a lot of change that already happened. I think as a society, we need to welcome that. If we go back even longer, 100 years ago, 150 years ago, let’s not forget, if I take a city like Paris, we used to have tens of thousands of people transporting water manually. Before we have running water in every home, we used to have boats going to the North Pole or to the northern region to bring back ice and basically pushing ice all the way to the Western world because we didn’t have fridges at the time. I think that when we look back in time about all the jobs that got displaced, I would say, Thank you. Thank you because these were not such easy jobs. Change is coming, but change is part of the human equation, at least. Industrial revolution, the past 250 years, it’s thanks to that that we have some improvement in living conditions everywhere. AI is changing stuff, but change is a constant, and we need to adapt and adjust. At least on my side, I’m glad that AI will be able to displace some jobs that were not so interesting to do in the first place in many situations. Maybe not dangerous like in the past because we are talking about replacing white job collars, but at least repetitive jobs are definitely going to be on the chopping block. Nuno Goncalves PedroWhat happens in terms of shift? We were talking about some numbers earlier. The World Economic Forum also has some numbers that predicts that there is a gross job creation rate of 14% from 2025 to 2030 and a displacement rate of 8%, so I guess they’re being optimistic, so a net growth in employment. I think that optimism relates to this thesis that, for example, efficiency, in particular in production and industrial environments, et cetera, might reduce labour there while increasing the demand for labour elsewhere because there is a natural lower cost base. If there’s more automation in production, therefore there’s more disposable income for people to do other things and to focus more on their side activities. Maybe, as I said before, not work 5 days a week, but maybe work four or three or whatever it is. What are the jobs of the future? What are the jobs that we see increasing in the future? Obviously, there’re a lot of jobs that relate to the technology side, that relate obviously to AI, that’s a little bit self-serving, and everything that relates to information technology, computer science, computer technology, computer engineering, et cetera. More broadly in electrical engineering, mechanical engineering, that might actually be more needed. Because there is a broadening of all of these elements of contact with digital, with AI over time also with robots and robotics, that those jobs will increase. There’s a thesis that actually other jobs that are a little bit more related to agriculture, education, et cetera, might not see a dramatic impact, that will still need for, I guess, teachers and the need for people working in farms, et cetera. I think this assumes that probably the AI revolution will come much before the fundamental evolution that will come from robotics afterwards. Then there’s obviously this discussion around declining roles. Anything that’s fundamentally routine, like data entry, clinical roles, paralegals, for example, routine manufacturing, anything that’s very repetitive in nature will be taken away. I have the personal thesis that there are jobs that are actually very blue-collar jobs, like HVAC installation, maintenance, et cetera, plumbing, that will be still done by humans for a very long time because there are actually, they appear to be repetitive, but they’re actually complex, and they require manual labour that cannot be easily, I think, right now done by robots and replacements of humans. Actually, I think there’re blue-collar roles that will be on the increase rather than on decrease that will demand a premium, because obviously, they are apprenticeship roles, certification roles, and that will demand a premium. Maybe we’re at the two ends. There’s an end that is very technologically driven of jobs that will need to necessarily increase, and there’s at the other end, jobs that are very menial but necessarily need to be done by humans, and therefore will also command a premium on the other end. Bertrand SchmittI think what you say make a lot of sense. If you think about AI as a stack, my guess is that for the foreseeable future, on the whole stack, and when I say stack, I mean from basic energy production because we need a lot of energy for AI, maybe to going up to all the computing infrastructure, to AI models, to AI training, to robotics. All this stack, we see an increase in expertise in workers and everything. Even if a lot of this work will benefit from AI improvement, the boom is so large that it will bring a lot of demand for anyone working on any part of the stack. Some of it is definitely blue-collar. When you have to build a data centre or energy power station, this requires a lot of blue-collar work. I would say, personally, I’m absolutely not a believer of the 3 or 4 days a week work week. I don’t believe a single second in that socialist paradise. If you want to call it that way. I think that’s not going to change. I would say today we can already see that breaking. I mean, if you take Europe, most European countries have a big issue with pension. The question is more to increase how long you are going to work because financially speaking, the equation is not there. Personally, I don’t think AI would change any of that. I agree with you in terms of some jobs from electricians to gas piping and stuff. There will still be demand and robots are not going to help soon on this job. There will be a big divergence between and all those that can be automated, done by AI and robots and becoming cheaper and cheaper and stuff that requires a lot of human work, manual work. I don’t know if it will become more expensive, but definitely, proportionally, in comparison, we look so expensive that you will have second thoughts about doing that investment to add this, to add that. I can see that when you have your own home, so many costs, some cost our product. You buy this new product, you add it to your home. It can be a water heater or something, built in a factory, relatively cheap. You see the installation cost, the maintenance cost. It’s many times the cost of the product itself. Nuno Goncalves PedroMaybe it’s a good time to put a caveat into our conversation. I mean, there’s a… Roy Amara was a futurist who came up with the Amara’s Law. We tend to overestimate the effect of a technology in the short run and overestimate the effect in the long run. I prefer my own law, which is, we tend to overestimate the speed at which we get to a technological revolution and underestimate its impact. I think it’s a little bit like that. I think everyone now is like, “Oh, my God, we’re going to be having the AI overlords taking over us, and AGI is going to happen pretty quickly,” and all of that. I mean, AGI will probably happen at some point. We’re not really sure when. I don’t think anyone can tell you. I mean, there’re obviously a lot of ranges going on. Back to your point, for example, on the shift of the work week and how we work. I mean, just to be very clear, we didn’t use to have 5 days a week and 2 days a weekend. If we go back to religions, there was definitely Sabbath back in the day, and there was one day off, the day of the Lord and the day of God. Then we went to 2 days of weekend. I remember going to Korea back in 2005, and I think Korea shifted officially to 5 days a week, working week and 2 days weekend for some of the larger business, et cetera, in 2004. Actually, it took another whatever years for it to be pervasive in society. This is South Korea, so this is a developed market. We might be at some point moving to 4 days a week. Maybe France was ahead of the game. I know Bertrand doesn’t like this, the 35-hour week. Maybe we will have another shift in what defines the working week versus not. What defines what people need to do in terms of efficiency and how they work and all of that. I think it’s probably just going to take longer than we think. I think there’re some countries already doing it. I was reading maybe Finland was already thinking about moving to 4 days a week. There’re a couple of countries already working on it. Certainly, there’re companies already doing it as well. Bertrand SchmittYeah, I don’t know. I’m just looking at the financial equation of most countries. The disaster is so big in Western Europe, in the US. So much debt is out that needs to get paid that I don’t think any country today, unless there is a complete reversal of the finance, will be able to make a big change. You could argue maybe if we are in such a situation, it might be because we went too far in benefits, in vacation, in work days versus weekends. I’m not saying we should roll back, but I feel that at this stage, the proof is in the pudding. The finance of most developed countries are broken, so I don’t see a change coming up. Potentially, the other way around, people leaving to work more, unfortunately. We will see. My point is that AI will have to be so transformational for the productivity for countries, and countries will have to go back to finding their ways in terms of financial discipline to reach a level where we can truly profit from that. I think from my perspective, we have time to think about it in 10, 20 years. Right now, it’s BS at this stage of this discussion. Nuno Goncalves PedroYeah, there’s a dependency, Bertrand, which is there needs to be dramatic increases in productivity that need to happen that create an expansion of economy. Once that expansion is captured by, let’s say, government or let’s say by the state, it needs to be willingly fed back into society, which is not a given. There’re some governments who are going to be like, “No, you need to work for a living.” Tough luck. There’re no handouts, there’s nothing. There’s going to be other governments that will be pressured as well. I mean, even in a more socialist Europe, so to speak. There’re now a lot of pressures from very far-right, even extreme positions on what people need to do for a living and how much should the state actually intervene in terms of minimum salaries, et cetera, and social security. To your point, the economies are not doing well in and of themselves. Anyway, there would need to be tremendous expansion of economy and willingness by the state to give back to its citizens, which is also not a given. Bertrand SchmittAnd good financial discipline as well. Before we reach all these three. Reaping the benefits in a tremendous way, way above trend line, good financial discipline, and then some willingness to send back. I mean, we can talk about a dream. I think that some of this discussion was, in some ways, to have a discussion so early about this. It’s like, let’s start to talk about the benefits of the aeroplane industries in 1915 or 1910, a few years after the Wright brothers flight, and let’s make a decision based on what the world will be in 30 years from now when we reap this benefit. This is just not reasonable. This is not reasonable thinking. I remember seeing companies from OpenAI and others trying to push this narrative. It was just political agenda. It was nothing else. It was, “Let’s try to make look like AI so nice and great in the future, so you don’t complain on the short term about what’s happening.” I don’t think this is a good discussion to have for now. Let’s be realistic. Nuno Goncalves PedroJust for the sake of sharing it with our listeners, apparently there’re a couple of countries that have moved towards something a bit lower than 5 days a week. Belgium, I think, has legislated the ability for you to compress your work week into 4 days, where you could do 10 hours for 4 days, so 40 hours. UAE has some policy for government workers, 4.5 days. Iceland has some stuff around 35 to 36 hours, which is France has had that 35 hour thing. Lithuania for parents. Then just trials, it’s all over the shop. United Kingdom, my own Portugal, of course, Germany, Brazil, and South Africa, and a bunch of other countries, so interesting. There’s stuff going on. Bertrand SchmittFor sure. I mean, France managed to bankrupt itself playing the 75 hours work week since what, 2000 or something. I mean, yeah, it’s a choice of financial suicide, I would say. Nuno Goncalves PedroWonderful. The Future of Work: Human + AI Maybe moving a little bit towards the future of work and the coexistence of work of human and AI, I think the thesis that exists a little bit in the market is that the more positive thesis that leads to net employment growth and net employment creation, as we were saying, there’s shifting of professions, they’re rescaling, and there’s the new professions that will emerge, is the notion that human will need to continue working alongside with machine. I’m talking about robots, I’m also talking about software. Basically software can’t just always run on its own, and therefore, software serves as a layer of augmentation, that humans become augmented by AI, and therefore, they can be a lot more productive, and we can be a lot more productive. All of that would actually lead to a world where the efficiencies and the economic creation are incredible. We’ll have an unparalleled industrial evolution in our hands through AI. That’s one way of looking at it. We certainly at Chameleon, that’s how we think through AI and the AI layers that we’re creating with Mantis, which is our in-house platform at Chameleon, is that it’s augmenting us. Obviously, the human is still running the show at the end, making the toughest decisions, the more significant impact with entrepreneurs that we back, et cetera. AI augments us, but we run the show. Bertrand SchmittI totally agree with that perspective that first AI will bring a new approach, a human plus AI. Here in that situation, you really have two situations. Are you a knowledgeable user? Do you know your field well? Are you an expert? Are you an IT expert? Are you a medical doctor? Do you find your best way to optimise your work with AI? Are you knowledgeable enough to understand and challenge AI when you see weird output? You have to be knowledgeable in your field, but also knowledgeable in how to handle AI, because even experts might say, “Whatever AI says.” My guess is that will be the users that will benefit most from AI. Novice, I think, are in a bit tougher situation because if you use AI without truly understanding it, it’s like laying foundations on sand. Your stuff might crumble down the way, and you will have no clue what’s happening. Hopefully, you don’t put anyone in physical danger, but that’s more worrisome to me. I think some people will talk about the rise of vibe coding, for instance. I’ve seen AI so useful to improve coding in so many ways, but personally, I don’t think vibe coding is helpful. I mean, beyond doing a quick prototype or some stuff, but to put some serious foundation, I think it’s near useless if you have a pure vibe coding approach, obviously to each their own. I think the other piece of the puzzle, it’s not just to look at human plus AI. I think definitely there will be the other side as well, which is pure AI. Pure AI replacement. I think we start to see that with autonomous cars. We are close to be there. Here we’ll be in situation of maybe there is some remote control by some humans, maybe there is local control. We are talking about a huge scale replacement of some human activities. I think in some situation, let’s talk about work farms, for instance. That’s quite a special term, but basically is to describe work that is very repetitive in nature, requires a lot of humans. Today, if you do a loan approval, if you do an insurance claim analysis, you have hundreds, thousands, millions of people who are doing this job in Europe, in the US, or remotely outsourced to other countries like India. I think some of these jobs are fully at risk to be replaced. Would it be 100% replacement? Probably not. But a 9:1, 10:1 replacement? I think it’s definitely possible because these jobs have been designed, by the way, to be repetitive, to follow some very clear set of rules, to improve the rules, to remove any doubt if you are not sure. I think some of these jobs will be transformed significantly. I think we see two sides. People will become more efficient controlling an AI, being able to do the job of two people at once. On the other side, we see people who have much less control about their life, basically, and whose job will simply disappear. Nuno Goncalves PedroTwo points I would like to make. The first point is we’re talking about a state of AI that we got here, and we mentioned this in previous episodes of Tech Deciphered, through brute force, dramatically increased data availability, a lot of compute, lower network latencies, and all of that that has led us to where we are today. But it’s brute force. The key thing here is brute force. Therefore, when AI acts really well, it acts well through brute force, through seeing a bunch of things that have happened before. For example, in the case of coding, it might still outperform many humans in coding in many different scenarios, but it might miss hedge cases. It might actually not be as perfect and as great as one of these developers that has been doing it for decades who has this intuition and is a 10X developer. In some ways, I think what got us here is not maybe what’s going to get us to the next level of productivity as well, which is the unsupervised learning piece, the actually no learning piece, where you go into the world and figure stuff out. That world is emerging now, but it’s still not there in terms of AI algorithms and what’s happening. Again, a lot of what we’re seeing today is the outcome of the brute force movement that we’ve had over the last decade, decade and a half. The second point I’d like to make is to your point, Bertrand, you were going really well through, okay, if you’re a super experienced subject-matter expert, the way you can use AI is like, wow! Right? I mean, you are much more efficient, right? I was asked to do a presentation recently. When I do things in public, I don’t like to do it. If it’s a keynote, because I like to use my package stuff, there’s like six, seven presentations that I have prepackaged, and I can adapt around that. But if it’s a totally new thing, I don’t like to do it as a keynote because it requires a lot of preparation. Therefore, I’m like, I prefer to do a fire set chat or a panel or whatever. I got asked to do something, a little bit what is taking us to this topic today around what’s happening to our children and all of that is like, “God! I need to develop this from scratch.” The honest truth is if you have domain expertise around many areas, you can do it very quickly with the aid of different tools in AI. Anything from Gemini, even with Nana Banana, to ChatGPT and other tools that are out there for you and framing, how would you do that? But the problem then exists with people that are just at the beginning of their careers, people that have very little expertise and experience, and people that are maybe coming out of college where their knowledge is mostly theoretical. What happens to those people? Even in computer engineering, even in computer science, even in software development, how do those people get to the next level? I think that’s one of the interesting conversations to be had. What happens to the recent graduate or the recent undergrad? How do those people get the expertise they need to go to the next level? Can they just be replaced by AI agents today? What’s their role in terms of the workforce, and how do they fit into that workforce? Bertrand SchmittNo, I mean, that’s definitely the biggest question. I think that a lot of positions, if you are really knowledgeable, good at your job, if you are that 10X developer, I don’t think your job is at risk. Overall, you always have some exceptions, some companies going through tough times, but I don’t think it’s an issue. On the other end, that’s for sure, the recent new graduates will face some more trouble to learn on their own, start their career, and go to that 10X productivity level. But at the same time, let’s also not kid ourselves. If we take software development, this is a profession that increase in number of graduates tremendously over the past 30 years. I don’t think everyone basically has the talent to really make it. Now that you have AI, for sure, the bar to justify why you should be there, why you should join this company is getting higher and higher. Being just okay won’t be enough to get you a career in IT. You will need to show that you are great or potential to be great. That might make things tough for some jobs. At the same time, I certainly believe there will be new opportunities that were not there before. People will have to definitely adjust to that new reality, learn and understand what’s going on, what are the options, and also try to be very early on, very confident at using AI as much as they can because for sure, companies are going to only hire workers that have shown their capacity to work well with AI. Nuno Goncalves PedroMy belief is that it generates new opportunities for recent undergrads, et cetera, of building their own microbusinesses or nano businesses. To your point, maybe getting jobs because they’ll be forced to move faster within their jobs and do less menial and repetitive activities and be more focused on actual dramatic intellectual activities immediately from the get go, which is not a bad thing. Their acceleration into knowledge will be even faster. I don’t know. It feels to me maybe there’s a positivity to it. Obviously, if you’ve stayed in a big school, et cetera, that there will be some positivity coming out of that. The Transformation of Education Maybe this is a good segue to education. How does education change to adapt to a new world where AI is a given? It’s not like I can check if you’re faking it on your homework or if you’re doing a remote examination or whatever, if you’re using or not tools, it’s like you’re going to use these tools. What happens in that case, and how does education need to shift in this brave new world of AI augmentation and AI enhancements to students? Bertrand SchmittYes, I agree with you. There will be new opportunities. I think people need to be adaptable. What used to be an absolute perfect career choice might not be anymore. You need to learn what changes are happening in the industry, and you need to adjust to that, especially if you’re a new graduate. Nuno Goncalves PedroMaybe we’ll talk a little bit about education, Bertrand, and how education would fundamentally shift. I think one of the things that’s been really discussed is what are the core skills that need to be developed? What are the core skills that will be important in the future? I think critical thinking is probably most important than ever. The ability to actually assimilate information and discern which information is correct or incorrect and which information can lead you to a conclusion or not, for example, I think is more important than ever. The ability to assimilate a bunch of pieces of information, make a decision or have an insight or foresight out of that information is very, very critical. The ability to be analytical around how you look at information and to really distinguish what’s fact from what’s opinion, I think is probably quite important. Maybe moving away more and more from memorisation from just cramming information into your brain like we used to do it in college, you have to know every single algorithm for whatever. It’s like, “Who gives a shit? I can just go and search it.” There’s these shifts that are not simple because I think education, in particular in the last century, has maybe been too focused on knowing more and more knowledge, on learning this knowledge. Now it’s more about learning how to process the knowledge rather than learning how to apprehend it. Because the apprehension doesn’t matter as much because you can have this information at any point in time. The information is available to you at the touch of a finger or voice or whatever. But the ability to then use the information to do something with it is not. That’s maybe where you start distinguishing the different level degrees of education and how things are taught. Bertrand SchmittHonestly, what you just say or describe could apply of the changes we went through the past 30 years. Just using internet search has for sure tremendously changed how you can do any knowledge worker job. Suddenly you have the internet at your fingertips. You can search about any topics. You have direct access to a Wikipedia or something equivalent in any field. I think some of this, we already went through it, and I hope we learned the consequence of these changes. I would say what is new is the way AI itself is working, because when you use AI, you realise that it can utter to you complete bullshit in a very self-assured way of explaining something. It’s a bit more scary than it used to be, because in the past, that algorithm trying to present you the most relevant stuff based on some algorithm was not trying to present you the truth. It’s a list of links. Maybe it was more the number one link versus number 100. But ultimately, it’s for you to make your own opinion. Now you have some chatbot that’s going to tell you that for sure this is the way you should do it. Then you check more, and you realise, no, it’s totally wrong. It’s definitely a slight change in how you have to apprehend this brave new world. Also, this AI tool, the big change, especially with generative AI, is the ability for them to give you the impression they can do the job at hand by themselves when usually they cannot. Nuno Goncalves PedroIndeed. There’s definitely a lot of things happening right now that need to fundamentally shift. Honestly, I think in the education system the problem is the education system is barely adapted to the digital world. Even today, if you studied at a top school like Stanford, et cetera, there’s stuff you can do online, there’s more and more tools online. But the teaching process has been very centred on syllabus, the teachers, later on the professors, and everything that’s around it. In class presence, there’s been minor adaptations. People sometimes allow to use their laptops in the classroom, et cetera, or their mobile phones. But it’s been done the other way around. It’s like the tools came later, and they got fed into the process. Now I think there needs to be readjustments. If we did this ground up from a digital first or a mobile first perspective and an AI first perspective, how would we do it? That changes how teachers and professors should interact with the classrooms, with the role of the classroom, the role of the class itself, the role of homework. A lot of people have been debating that. What do you want out of homework? It’s just that people cram information and whatever, or do you want people to show critical thinking in a specific different manner, or some people even go one step further. It’s like, there should be no homework. People should just show up in class and homework should move to the class in some ways. Then what happens outside of the class? What are people doing at home? Are they learning tools? Are they learning something else? Are they learning to be productive in responding to teachers? But obviously, AI augmented in doing so. I mean, still very unclear what this looks like. We’re still halfway through the revolution, as we said earlier. The revolution is still in motion. It’s not realised yet. Bertrand SchmittI would quite separate higher education, university and beyond, versus lower education, teenager, kids. Because I think the core up to the point you are a teenager or so, I think the school system should still be there to guide you, discovering and learning and being with your peers. I think what is new is that, again, at some point, AI could potentially do your job, do your homework. We faced similar situation in the past with the rise of Wikipedia, online encyclopedias and the stuff. But this is quite dramatically different. Then someone could write your essays, could answer your maths work. I can see some changes where you talk about homework, it’s going to be classwork instead. No work at home because no one can trust that you did it yourself anymore going forward, but you will have to do it in the classroom, maybe spend more time at school so that we can verify that you really did your job. I think there is real value to make sure that you can still think by yourself. The same way with the rise of calculators 40 years ago, I think it was the right thing to do to say, “You know what? You still need to learn the basics of doing calculations by hand.” Yes, I remember myself a kid thinking, “What the hell? I have a calculator. It’s working very well.” But it was still very useful because you can think in your head, you can solve complex problems in your head, you can check some output that it’s right or wrong if it’s coming from a calculator. There was a real value to still learn the basics. At the same point, it was also right to say, “You know what? Once you know the basics, yes, for sure, the calculator will take over because we’re at the point.” I think that was the right balance that was put in place with the rise of calculators. We need something similar with AI. You need to be able to write by yourself, to do stuff by yourself. At some point, you have to say, “Yeah, you know what? That long essays that we asked you to do for the sake of doing long essays? What’s the point?” At some point, yeah, that would be a true question. For higher education, I think personally, it’s totally ripe for full disruption. You talk about the traditional system trying to adapt. I think we start to be at the stage where “It should be the other way around.” It should be we should be restarted from the ground up because we simply have different tools, different ways. I think at this stage, many companies if you take, [inaudible 00:33:01] for instance, started to recruit people after high school. They say, “You know what? Don’t waste your time in universities. Don’t spend crazy shitload of money to pay for an education that’s more or less worthless.” Because it used to be a way to filter people. You go to good school, you have a stamp that say, “This guy is good enough, knows how to think.” But is it so true anymore? I mean, now that universities have increased the enrolment so many times over, and your university degree doesn’t prove much in terms of your intelligence or your capacity to work hard, quite frankly. If the universities are losing the value of their stamp and keep costing more and more and more, I think it’s a fair question to say, “Okay, maybe this is not needed anymore.” Maybe now companies can directly find the best talents out there, train them themselves, make sure that ultimately it’s a win-win situation. If kids don’t have to have big loans anymore, companies don’t have to pay them as much, and everyone is winning. I think we have reached a point of no return in terms of value of university degrees, quite frankly. Of course, there are some exceptions. Some universities have incredible programs, incredible degrees. But as a whole, I think we are reaching a point of no return. Too expensive, not enough value in the degree, not a filter anymore. Ultimately, I think there is a case to be made for companies to go back directly to the source and to high school. Nuno Goncalves PedroI’m still not ready to eliminate and just say higher education doesn’t have a role. I agree with the notion that it’s continuous education role that needs to be filled in a very different way. Going back to K-12, I think the learning of things is pretty vital that you learn, for example, how to write, that you learn cursive and all these things is important. I think the role of the teacher, and maybe actually even later on of the professors in higher education, is to teach people the critical information they need to know for the area they’re in. Basic math, advanced math, the big thinkers in philosophy, whatever is that you’re studying, and then actually teach the students how to use the tools that they need, in particular, K-12, so that they more rapidly apprehend knowledge, that they more rapidly can do exercises, that they more rapidly do things. I think we’ve had a static view on what you need to learn for a while. That’s, for example, in the US, where you have AP classes, like advanced placement classes, where you could be doing math and you could be doing AP math. You’re like, dude. In some ways, I think the role of the teacher and the interaction with the students needs to go beyond just the apprehension of knowledge. It also has to have apprehension of knowledge, but it needs to go to the apprehension of tools. Then the application of, as we discussed before, critical thinking, analytical thinking, creative thinking. We haven’t talked about creativity for all, but obviously the creativity that you need to have around certain problems and the induction of that into the process is critical. It’s particular in young kids and how they’re developing their learning skills and then actually accelerate learning. In that way, what I’m saying, I’m not sure I’m willing to say higher education is dead. I do think this mass production of higher education that we have, in particular in the US. That’s incredibly costly. A lot of people in Europe probably don’t see how costly higher education is because we’re educated in Europe, they paid some fee. A lot of the higher education in Europe is still, to a certain extent, subsidised or done by the state. There is high degree of subsidisation in it, so it’s not really as expensive as you’d see in the US. But someone spending 200-300K to go to a top school in the US to study for four years for an undergrad, that doesn’t make sense. For tuition alone, we’re talking about tuition alone. How does that work? Why is it so expensive? Even if I’m a Stanford or a Harvard or a University of Pennsylvania or whatever, whatever, Ivy League school, if I’m any of those, to command that premium, I don’t think makes much sense. To your point, maybe it is about thinking through higher education in a different way. Technical schools also make sense. Your ability to learn and learn and continue to education also makes sense. You can be certified. There are certifications all around that also makes sense. I do think there’s still a case for higher education, but it needs to be done in a different mould, and obviously the cost needs to be reassessed. Because it doesn’t make sense for you to be in debt that dramatically as you are today in the US. Bertrand SchmittI mean, for me, that’s where I’m starting when I’m saying it’s broken. You cannot justify this amount of money except in a very rare and stratified job opportunities. That means for a lot of people, the value of this equation will be negative. It’s like some new, indented class of people who owe a lot of money and have no way to get rid of this loan. Sorry. There are some ways, like join the government Task Force, work for the government, that at some point you will be forgiven your loans. Some people are going to just go after government jobs just for that reason, which is quite sad, frankly. I think we need a different approach. Education can be done, has to be done cheaper, should be done differently. Maybe it’s just regular on the job training, maybe it is on the side, long by night type of approach. I think there are different ways to think about. Also, it can be very practical. I don’t know you, but there are a lot of classes that are not really practical or not very tailored to the path you have chosen. Don’t get me wrong, there is always value to see all the stuff, to get a sense of the world around you. But this has a cost. If it was for free, different story. But nothing is free. I mean, your parents might think it’s free, but at the end of the day, it’s their taxes paying for all of this. The reality is that it’s not free. It’s costing a lot of money at the end of the day. I think we absolutely need to do a better job here. I think internet and now AI makes this a possibility. I don’t know you, but personally, I’ve learned so much through online classes, YouTube videos, and the like, that it never cease to amaze me how much you can learn, thanks to the internet, and keep up to date in so many ways on some topics. Quite frankly, there are some topics that there is not a single university that can teach you what’s going on because we’re talking about stuff that is so precise, so focused that no one is building a degree around that. There is no way. Nuno Goncalves PedroI think that makes sense. Maybe bring it back to core skills. We’ve talked about a couple of core skills, but maybe just to structure it a little bit for you, our listener. I think there’s a big belief that critical thinking will be more important than ever. We already talked a little bit about that. I think there’s a belief that analytical thinking, the ability to, again, distinguish fact from opinion, ability to distinguish elements from different data sources and make sure that you see what those elements actually are in a relatively analytical manner. Actually the ability to extract data in some ways. Active learning, proactive learning and learning strategies. I mean, the ability to proactively learn, proactively search, be curious and search for knowledge. Complex problem-solving, we also talked a little bit about it. That goes hand in hand normally with critical thinking and analysis. Creativity, we also talked about. I think originality, initiative, I think will be very important for a long time. I’m not saying AI at some point won’t be able to emulate genuine creativity. I wouldn’t go as far as saying that, but for the time being, it has tremendous difficulty doing so. Bertrand SchmittBut you can use AI in creative endeavours. Nuno Goncalves PedroOf course, no doubt. Bertrand SchmittYou can do stuff you will be unable to do, create music, create videos, create stuff that will be very difficult. I see that as an evolution of tools. It’s like now cameras are so cheap to create world-class quality videos, for instance. That if you’re a student, you want to learn cinema, you can do it truly on the cheap. But now that’s the next level. You don’t even need actors, you don’t even need the real camera. You can start to make movies. It’s amazing as a learning tool, as a creative tool. It’s for sure a new art form in a way that we have seen expanding on YouTube and other places, and the same for creating new images, new music. I think that AI can be actually a tool for expression and for creativity, even in its current form. Nuno Goncalves PedroAbsolutely. A couple of other skills that people would say maybe are soft skills, but I think are incredibly powerful and very distinctive from machines. Empathy, the ability to figure out how the other person’s feeling and why they’re feeling like that. Adaptability, openness, the flexibility, the ability to drop something and go a different route, to maybe be intellectually honest and recognise this is the wrong way and the wrong angle. Last but not the least, I think on the positive side, tech literacy. I mean, a lot of people are, oh, we don’t need to be tech literate. Actually, I think this is a moment in time where you need to be more tech literate than ever. It’s almost a given. It’s almost like table stakes, that you are at some tech literacy. What matters less? I think memorisation and just the cramming of information and using your brain as a library just for the sake of it, I think probably will matter less and less. If you are a subject or a class that’s just solely focused on cramming your information, I feel that’s probably the wrong way to go. I saw some analysis that the management of people is less and less important. I actually disagree with that. I think in the interim, because of what we were discussing earlier, that subject-matter experts at the top end can do a lot of stuff by themselves and therefore maybe need to less… They have less people working for them because they become a little bit more like superpowered individual contributors. But I feel that’s a blip rather than what’s going to happen over time. I think collaboration is going to be a key element of what needs to be done in the future. Still, I don’t see that changing, and therefore, management needs to be embedded in it. What other skills should disappear or what other skills are less important to be developed, I guess? Bertrand SchmittWorld learning, I’ve never, ever been a fan. I think that one for sure. But at the same time, I want to make sure that we still need to learn about history or geography. What we don’t want to learn is that stupid word learning. I still remember as a teenager having to learn the list of all the 100 French departments. I mean, who cared? I didn’t care about knowing the biggest cities of each French department. It was useless to me. But at the same time, geography in general, history in general, there is a lot to learn from the past from the current world. I think we need to find that right balance. The details, the long list might not be that necessary. At the same time, the long arc of history, our world where it is today, I think there is a lot of value. I think you talk about analysing data. I think this one is critical because the world is generating more and more data. We need to benefit from it. There is no way we can benefit from it if we don’t understand how data is produced, what data means. If we don’t understand the base of statistical analysis. I think some of this is definitely critical. But for stuff, we have to do less. It’s beyond world learning. I don’t know, honestly. I don’t think the core should change so much. But the tools we use to learn the core, yes, probably should definitely improve. Nuno Goncalves PedroOne final debate, maybe just to close, I think this chapter on education and skill building and all of that. There’s been a lot of discussion around specialisation versus generalisation, specialists versus generalists. I think for a very long time, the world has gone into a route that basically frames specialisation as a great thing. I think both of us have lived in Silicon Valley. I still do, but we both lived in Silicon Valley for a significant period of time. The centre of the universe in terms of specialisation, you get more and more specialised. I think we’re going into a world that becomes a little bit different. It becomes a little bit like what Amazon calls athletes, right? The T-Pi-shaped people get the most value, where you’re brought on top, you’re a very strong generalist on top, and you have a lot of great soft skills around management and empathy and all that stuff. Then you might have one or two subject matter expertise areas. Could be like business development and sales or corporate development and business development or product management and something else. I think those are the winners of the future. The young winners of the future are going to be more and more T-pi-shaped, if I had to make a guess. Specialisation matters, but maybe not as much as it matters today. It matters from the perspective that you still have to have spikes in certain areas of focus. But I’m not sure that you get more and more specialised in the area you’re in. I’m not sure that’s necessarily how humans create most value in their arena of deployment and development. Professionally, and therefore, I’m not sure education should be more and more specialised just for the sake of it. What do you think? Bertrand SchmittI think that that’s a great point. I would say I could see an argument for both. I think there is always some value in being truly an expert on a topic so that you can keep digging around, keep developing the field. You cannot develop a field without people focused on developing a field. I think that one is there to stay. At the same time, I can see how in many situations, combining knowledge of multiple fields can bring tremendous value. I think it’s very clear as well. I think it’s a balance. We still need some experts. At the same time, there is value to be quite horizontal in terms of knowledge. I think what is still very valuable is the ability to drill through whenever you need. I think that we say it’s actually much easier than before. That for me is a big difference. I can see how now you can drill through on topics that would have been very complex to go into. You will have to read a lot of books, watch a lot of videos, potentially do a new education before you grasp much about a topic. Well, now, thanks to AI, you can drill very quickly on topic of interest to you. I think that can be very valuable. Again, if you just do that blindly, that’s calling for trouble. But if you have some knowledge in the area, if you know how to deal with AI, at least today’s AI and its constraints, I think there is real value you can deliver thanks to an ability to drill through when you don’t. For me, personally, one thing I’ve seen is some people who are generalists have lost this ability. They have lost this ability to drill through on a topic, become expert on some topic very quickly. I think you need that. If you’re a VC, you need to analyse opportunity, you need to discover a new space very quickly. We say, I think some stuff can move much quicker than before. I’m always careful now when I see some pure generalists, because one thing I notice is that they don’t know how to do much anything any more. That’s a risk. We have example of very, very, very successful people. Take an Elon Musk, take a Steve Jobs. They have this ability to drill through to the very end of any topic, and that’s a real skill. Sometimes I see people, you should trust the people below. They know better on this and that, and you should not question experts and stuff. Hey, guys, how is it that they managed to build such successful companies? Is their ability to drill through and challenge hardcore experts. Yes, they will bring top people in the field, but they have an ability to learn quickly a new space and to drill through on some very technical topics and challenge people the right way. Challenge, don’t smart me. Not the, I don’t care, just do it in 10 days. No, going smartly, showing people those options, learning enough in the field to be dangerous. I think that’s a very, very important skill to have. Nuno Goncalves PedroMaybe switching to the dark side and talking a little bit about the bad stuff. I think a lot of people have these questions. There’s been a lot of debate around ChatGPT. I think there’s still a couple of court cases going on, a suicide case that I recently a bit privy to of a young man that killed himself, and OpenAI and ChatGPT as a tool currently really under the magnifying glass for, are people getting confused about AI and AI looks so similar to us, et cetera. The Ethics, Safety, and Privacy Landscape Maybe let’s talk about the ethics and safety and privacy landscape a little bit and what’s happening. Sadly, AI will also create the advent of a world that has still a lot of biases at scale. I mean, let’s not forget the AI is using data and data has biases. The models that are being trained on this data will have also biases that we’re seeing with AI, the ability to do things that are fake, deep fakes in video and pictures, et cetera. How do we, as a society, start dealing with that? How do we, as a society, start dealing with all the attacks that are going on? On the privacy side, the ability for these models and for these tools that we have today to actually have memory of the conversations we’ve had with them already and have context on what we said before and be able to act on that on us, and how is that information being farmed and that data being farmed? How is it being used? For what purposes is it being used? As I said, the dark side of our conversation today. I think we’ve been pretty positive until now. But in this world, I think things are going to get worse before they get better. Obviously, there’s a lot of money being thrown at rapid evolution of these tools. I don’t see moratoriums coming anytime soon or bans on tools coming anytime soon. The world will need to adapt very, very quickly. As we’ve talked in previous episodes, regulation takes a long time to adapt, except Europe, which obviously regulates maybe way too fast on technology and maybe not really on use cases and user flows. But how do we deal with this world that is clearly becoming more complex? Bertrand SchmittI mean, on the European topic, I believe Europe should focus on building versus trying to sensor and to control and to regulate. But going back to your point, I think there are some, I mean, very tough use case when you see about voice cloning, for instance. Grandparents believing that their kids are calling them, have been kidnapped when there is nothing to it, and they’re being extorted. AI generating deepfakes that enable sextortion, that stuff. I mean, it’s horrible stuff, obviously. I’m not for regulation here, to be frank. I think that we should for sure prosecute to the full extent of the law. The law has already a lot of tools to deal with this type of situation. But I can see some value to try to prevent that in some tools. If you are great at building tools to generate a fake voice, maybe you should make sure that you are not helping scammers. If you can generate easily images, you might want to make sure that you cannot easily generate tools that can be used for creating deep fakes and sex extortion. I think there are things that should be done by some providers to limit such terrible use cases. At the same time, the genie is out. There is also that part around, okay, the world will need to adapt. But yeah, you cannot trust everything that is done. What could have looked like horrible might not be true. You need to think twice about some of this, what you see, what you hear. We need to adjust how we live, how we work, but also how we prevent that. New tools, I believe, will appear. We will learn maybe to be less trustful on some stuff, but that is what it is. Nuno Goncalves PedroMaybe to follow up on that, I fully agree with everything you just said. We need to have these tools that will create boundary conditions around it as well. I think tech will need to fight tech in some ways, or we’ll need to find flaws in tech, but I think a lot of money needs to be put in it as well. I think my shout-out here, if people are listening to us, are entrepreneurs, et cetera, I think that’s an area that needs more and more investment, an area that needs more and more tooling platforms that are helpful to this. It’s interesting because that’s a little bit like how OpenAI was born. OpenAI was born to be a positive AI platform into the future. Then all of a sudden we’re like, “Can we have tools to control ChatGPT and all these things that are out there now?” How things have changed, I guess. But we definitely need to have, I think, a much more significant investment into these toolings and platforms than we do have today. Otherwise, I don’t see things evolving much better. There’s going to be more and more of this. There’s going to be more and more deep fakes, more and more, lack of contextualisation. There’s countries now that allow you to get married with not a human. It’s like you can get married to an algorithm or a robot or whatever. It’s like, what the hell? What’s happening now? It’s crazy. Hopefully, we’ll have more and more boundary conditions. Bertrand SchmittYeah, I think it will be a boom for cybersecurity. No question here. Tools to make sure that is there a better trust system or detecting the fake. It’s not going to be easy, but it has been the game in cybersecurity for a long time. You have some new Internet tools, some new Internet products. You need to find a difference against it and the constant war between the attackers and the defender. Nuno Goncalves PedroThe Parental Playbook: Actionable Strategies Maybe last but not the least in today’s episode, the parent playbook I’m a parent, what should I do I’ll actually let you start first. Bertrand, I’m parent-alike, but I am, sadly, not a parent, so I’ll let you start first, and then I’ll share some of my perspectives as well as a parent-like figure. Bertrand SchmittYeah, as a parent to an 8-year, I would say so far, no real difference than before. She will do some homework on an iPad. But beyond that, I cannot say I’ve seen at this stage so much difference. I think it will come up later when you have different type of homeworks when the kids start to be able to use computers on their own. What I’ve seen, however, is some interesting use cases. When my daughter is not sure about the spelling, she simply asks, Siri. “Hey, Siri, how do you spell this or this or that?” I didn’t teach her that. All of this came on her own. She’s using Siri for a few stuff for work, and I’m quite surprised in a very smart, useful way. It’s like, that’s great. She doesn’t need to ask me. She can ask by herself. She’s more autonomous. Why not? It’s a very efficient way for her to work and learn about the world. I probably feel sad when she asks Siri if she’s her friend. That does not feel right to me. But I would say so far, so good. I’ve seen only AI as a useful tool and with absolutely very limited risk. At the same time, for sure, we don’t let our kid close to any social media or the like. I think some of this stuff is for sure dangerous. I think as a parent, you have to be very careful before authorising any social media. I guess at some point you have no choice, but I think you have to be very careful, very gradual, and putting a lot of controls and safety mechanism I mean, you talk about kids committing suicide. It’s horrible. As a parent, I don’t think you can have a bigger worry than that. Suddenly your kids going crazy because someone bullied them online, because someone tried to extort them online. This person online could be someone in the same school or some scammer on the other side of the world. This is very scary. I think we need to have a lot of control on our kids’ digital life as well as being there for them on a lot of topics and keep drilling into them how a lot of this stuff online is not true, is fake, is not important, and being careful, yes, to raise them, to be critical of stuff, and to share as much as possible with our parents. I think We have to be very careful. But I would say some of the most dangerous stuff so far, I don’t think it’s really coming from AI. It’s a lot more social media in general, I would say, but definitely AI is adding another layer of risk. Nuno Goncalves PedroFrom my perspective, having helped raise three kids, having been a parent-like role today, what I would say is I would highlight against the skills that I was talking about before, and I would work on developing those skills. Skills that relate to curiosity, to analytical behaviours at the same time as being creative, allowing for both, allowing for the left brain, right brain, allowing for the discipline and structure that comes with analytical thinking to go hand in hand with doing things in a very, very different way and experimenting and failing and doing things and repeating them again. All the skills that I mentioned before, focusing on those skills. I was very fortunate to have a parental unit. My father and my mother were together all their lives: my father, sadly, passing away 5 years ago that were very, very different, my mother, more of a hacker in mindset. Someone was very curious, medical doctor, allowing me to experiment and to be curious about things around me and not simplifying interactions with me, saying it as it was with a language that was used for that particular purpose, allowing me to interact with her friends, who were obviously adults. And then on the other side, I have my father, someone who was more disciplined, someone who was more ethical, I think that becomes more important. The ability to be ethical, the ability to have moral standing. I’m Catholic. There is a religious and more overlay to how I do things. Having the ability to portray that and pass that to the next generation and sharing with them what’s acceptable and what’s not acceptable, I think is pretty critical and even more critical than it was before. The ability to be structured, to say and to do what you say, not just actually say a bunch of stuff and not do it. So, I think those things don’t go out of use, but I would really spend a lot more focus on the ability to do critical thinking, analytical thinking, having creative ideas, obviously, creating a little bit of a hacker mindset, how to cut corners to get to something is actually really more and more important. The second part is with all of this, the overlay of growth mindset. I feel having a more flexible mindset rather than a fixed mindset. What I mean by that is not praising your kids or your grandchildren for being very intelligent or very beautiful, which are fixed things, they’re static things, but praising them for the effort they put into something, for the learning that they put into something, for the process, raising the process rather than just necessarily the outcome. I feel that’s more important than it ever was. I think growth mindset is critical in the world that we are in today. Then obviously, last but not the least, the ability to It creates some ground rules around this connection, around the offline world, around socialising without having your phone around you, be it not having your phone at the table when you’re having a meal or having specific times of the day where there is no plugged in, there’s no mobile phone, there’s no whatever. The ability to have families, I think, interact in an environment where the mobile phone is not there. There is no technology necessarily there. The hikes in nature, the interactions with other people in sports, et cetera, et cetera, not esports, but sports. All those, I feel, should be greatly emphasised going forward because that, I think, is what will create these humans that we want to be successful, that would want to bring us into the future in a positive manner. Bertrand SchmittI think that’s very good point. I certainly love the growth mindset. I also think that you have to find a balance between respect for authorities, your parents, for instance, versus at the same time questioning enough authorities, Because not all authorities might have your best interest at heart. I guess your parents usually have. But beyond your parents, I think that’s a really big question. From teachers to the government, they might not all have your best interest at heart. You have to be- Nuno Goncalves PedroTo influencers. Bertrand SchmittTo influencers, for sure. Nuno Goncalves PedroTo influencers, definitely not. Bertrand SchmittNot even a question. But yeah, you have to find the right balance because there is a lot of evil masquerading as a figure of authority or abusing their figure of authority. So, that part, I think, is quite critical. As you say, that limit on the digital self. Digital self is part of your future and part of how you grow and learn and be a successful person in your life. But at the same time, you have to find the right balance. You have to be careful about red or blue pill that you’re going to take, I guess. My personal take is that I think it’s a balance you have to control. You cannot be oblivious to new technologies. You have to learn them. You have to be You have to be comfortable with them. You have to understand them and their limits. At the same time, be careful going all the way. Be careful losing yourself. The real world is important and critical. Nuno Goncalves PedroConclusion In conclusion, our children’s future is, we still believe, bright. A lot of shifting will happen. A lot of job displacement, reskilling will be needed, but new jobs will emerge. We’re positive. We are optimistic about the future that our children will have. In the words of the great passed Whitney Houston, “We believe that children are our future, and they should be taught well, and that they will lead the way.” Thank you, Bertrand. Bertrand SchmittThank you, Nuno.  

Can AI be a co-founder? Do you need a technical co-founder, any more? How about a business co-founder? What can AI do for you as co-founder? Will this become the “brave new world” of start-ups, small and medium businesses? For this and much more discussion, a no BS perspective on AI as a potential co-founder. 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 Subscribe To Our Podcast Bertrand Schmitt Intro     Welcome to episode 70 of Tech DECIPHERED. Today, we’ll talk about AI as a co-founder. Can AI be your co-founder? Do you need a technical co-founder anymore? Or do you need a business co-founder anymore? What can AI do for you as a co-founder? Will this become the brave new world of startup and small businesses? Nuno, what’s your take on this topic? Have you started seeing that for early stage startups, the AI co-founder?   Nuno Gonçalves Pedro Yeah. We start seeing this notion of people now—”Oh, I could be a single founder.” I mean, single founders have existed for a long time. We’ll come back to a little bit the taxonomies of founding teams. But definitely, is now a little bit of a trend where people are like, “Well, I don’t need a co-founder. I’m just going to go do my own thing.” Normally, the case is made more for, “Oh, I don’t need a technical co-founder. I can vibe code and put some stuff together and go through things.”     As we go through the episode today, I think we’ll go into the details on why technical co-founders might still matter and why there are certain areas of technical founding that might not matter as much where AI can really be your co-pilot, so to speak.     The Classic Case for Co-Founders     But maybe let’s start with what is the case for co-founders? Why do you need to have a co-founder? Why can’t you just do it yourself? Historically, there’s been really sort of an angle where there’s sort of these two entities in the founding team. Right? The business founder and the technical founder.     The business founder is the person that runs business related activities. If you’re doing, for example, enterprise software, SaaS, et cetera, your business co-founder is responsible for go-to-market like hiring sales—in particular, at the beginning actually being the person who does sales, establishing partnerships, creating and managing elements that are more related to admin with the help maybe of third parties around finance, et cetera. The business founder is more the person who’s focused on the business aspects of the company, which would be go-to-market, which includes sales, channel partnerships, marketing, et cetera. Might include, as I said, the admin side, et cetera.     Then the technical co-founder is more focused on elements that are connected to the technology stack, development of the code base. If it’s just software, development of software, could be more on the product side as well, someone who’s more of a product manager, et cetera. That’s why you need those two entities. Because you need these two entities, so to speak, these two people. Because you need someone who has more knowledge of how to develop a code base, how to get it off the ground, how to develop the MVP, the minimum viable product early on.     On the other side, you need someone who figures out: how do we get this thing to market, how do we actually deploy it, how do we monetise it, how do we create partnerships if they apply. That’s why we’ve had this classic case for founding teams. Now just to be very clear, it is also true that we’ve also had single founding teams for a long time. We have companies that have been founding only for one person. But at the end of the day, the ethos has been, let’s have two co-founders, one on the technical side at least and one or more on the technical side and one or more on the business side at the very least.   Bertrand Schmitt That’s true. That’s what you have typically seen. Maybe, going back historically, maybe the most famous example of this technical co-founder plus business co-founder has been the founding team of Apple—Steve Jobs with Mr Wozniak. Steve, on the business side; Woz, as he was called, on the technical side. That has been that maybe that’s reference point for all of Silicon Valley for decades. At the same time, it has not been true for every successful company. If I take HP, for instance—if I remember well, they were both technical co-founders: Bill Hewlett, Dave Packard. If you take Microsoft, Bill Gates had, in some ways, a lesser co-founder, but both were technical. Paul Allen was technical like Bill Gates.   Nuno Gonçalves Pedro I would say Gates was more incredibly technical, but he became a business guy. I think that was part of the secrets of Microsoft early on. He was very business-savvy in some ways. He was very technical. Until this day, I think he’s extremely technical and extremely intelligent, but he was definitely very business-savvy.   Bertrand Schmitt He was able to wear two hats in some ways. If you think about HP, it’s probably a similar story. When we talk about the one-person founder alone by himself, the question would be, is it a technical co-founder or business co-founder or a mix of both? Someone who can do both even early on or who learned to do both pretty quickly. Probably, Bill Gates would be a good example if we assume Paul Allen was less critical.   Nuno Gonçalves Pedro Yeah. I think that’s a good point, and you went back to one of the OGs like Wozniak and Jobs. I’d say Jobs was business clearly, great marketeer, et cetera. But he was also very deeply involved in product. Interestingly enough, think maybe not as involved on product early on as he became later on with NeXT and then his second coming, so to speak, to Apple. Where you get much more involved in product management and how products were deployed. But to your point, he wasn’t a technical co-founder. Clearly, that was not the role.     I think if we look at some of the great success like Google, Sergei and Larry were both very technical. I guess they brought in Eric Schmidt very early on to be the CEO. But at the end of the day, the definition of founders in Silicon Valley, maybe we’ll come back to that later, is at least you need to have technical founders early on. Then maybe the business people will come along or maybe one of the technical people will go more onto the business side. But you need to have this duality of role that you, Bertrand, we were just talking about. Someone who either becomes more business-savvy, more business side, but definitely someone who’s more on the technical side. I think that’s how the Silicon Valley has emerged over the last many decades. Right?   Bertrand Schmitt Yeah. It’s interesting you brought in the story of Google with Eric Schmidt because you could argue they brought him in as a CEO, but he used to be CTO at—was it Novell? I forgot.   Nuno Gonçalves Pedro Novell. Yeah. I think he was CEO of Novell at some point. Yeah.   Bertrand Schmitt He was CEO at some point because I was going to say, clearly, he has also a technical background. Able to do the business side. No question. But he was also coming from the technical side.   Nuno Gonçalves Pedro He was definitely technical at the beginning of his career, and he was also at PARC, Bell Labs, and a variety of other organisations. He was in software engineering at Sun Microsystems, to your point. Then he became the CEO and chairman of Novell. But he is a technical guy by background, for sure. No doubt. He has a PhD. But he was brought in to be the CEO. He was brought in to be more the business guy. I think, very honestly, Silicon Valley loves the story of actually the technical CEO. The person who has at least very product or deep product knowledge and understanding of technology, so it doesn’t get bullshitted necessarily by the rest of the engineering team, so to speak.     Now there’s notable exceptions to that. There are companies that were built very heavily on people that were incredibly business-savvy and very much on the go-to-market side. But, again, justifying why you have co-founders, why you have the technical person and the business person at the very least early on in the structure of the company.   Bertrand Schmitt If we look at more recently, of course, we have the exception of Elon Musk starting and running so many companies in parallel. Some he didn’t technically funded. He was early on investor, took over very quickly. But he’s also an interesting example of a very deeply technical person with very strong business acumen, obviously. That’s another example. Do you have examples of many successful companies just started by a very business co-person in the tech industry? Obviously, outside tech, it’s a different story. Yeah?   Nuno Gonçalves Pedro Not a lot, but I feel like in the enterprise software side, there are people that have managed to be great at doing it because they are amazing at building sales teams, and amazing at then building engineering teams around them. I’m not sure I can start giving as many examples as we’ve given on the other side of people that did have a very strong technical background so to speak. I don’t know if he’s a technical guy. I do think he had the bachelor’s in electrical engineering. One guy is David Duffield. He was the guy who founded PeopleSoft and then later on founded Workday.   Bertrand Schmitt Yeah. I was looking for him, actually.   Nuno Gonçalves Pedro David Duffield, to my knowledge, I think he has a bachelor’s in electrical engineering and then MBA. But I feel when he started his companies later on, he was very much on the business side. He had gone through marketing at IBM, and did a variety of other roles that led him to create PeopleSoft in 1987. My perspective is probably that he had become more of a business guy later in his career.     But to your point, I don’t think there is a ton of examples. Jobs, I guess, maybe was a great example of that because he was very business. He wasn’t as technical. I think he always had a great product mind, but he wasn’t very technical, from what we know about Steve Jobs.   Bertrand Schmitt Of course, we have Larry Ellison, founder of Oracle. I think he did it alone. No? I don’t have memories of any co-founder of Oracle. He was technical originally.   Nuno Gonçalves Pedro Yeah. I’m not sure if he had a co-founder. Actually, that’s a really good question. These stories are never very well told, so one never knows. My knowledge, I don’t think he was. I do think he’s he was very sales-driven from the outset when he was doing Oracle.   Bertrand Schmitt No. Actually, he co-founded Oracle. Bob Miner and Ed Oates were the other co-founders.   Nuno Gonçalves Pedro He founded Software Development Labs, right? Yes. Then they changed names at some point. They changed names a couple of times, actually, so he did co-found it. But he was more of the sales guy from what I understand. He was more the hardcore go-to-market guy, so to speak. Really impressive how he built that. I think that’s another good example of someone that was more on the business side that managed to scale a company dramatically. Really interesting.     Not a ton of examples, but probably if you guys are listening to this, and you have a lot of examples that you want to share, you share with us. Maybe there have been some certainly on the enterprise side, enterprise platforms, or Software as a Service side that have been incredibly successful. Do feel free to share with us on X or on LinkedIn.   Bertrand Schmitt Going back to AI as a co-founder, do you see AI as a potential technical co-founder or more like a business co-founder? What’s your take?   Nuno Gonçalves Pedro AI as the Technical Co-Founder     Let’s start maybe with the technical side, because I think that’s the most interesting one to debate. Could you be a business-savvy person that just uses artificial intelligence as your technical co-founder, and you don’t need anyone technical early on? There’s now a lot of discussions that people have built an MVP in a couple of weeks, raised $500,000, raised a bunch of money and went forward.     I’m not sure I’d call it an MVP, a minimum viable product, but building a proof of concept or something early on with the help of AI, I feel is eminently doable these days. With vibe coding, with all the tools that people have out there. I am still of the opinion, again, being a computer engineer by background, that at some point having technical founders on board or technical people on board very early on is pretty important. The reality is, we’ve had this discussion in one of our previous episodes, is we need to go back to the methodology of software development.     For those who are listening to us who are not very technical, for a very long time, just a very quick rehash, the world was based on this methodological approach to software development, which was called waterfall, where you would first think through design, the architecture of the system, and only later you’d code it, and then you test it, and then you deploy it. It looked like a waterfall. It looked like every stage has its own part.     Then at some point in time, I would say probably with the advent of the Internet late ’90s, we started going to a world that is definitely more going through a methodological approach that now people call broadly agile software development. Again, if you guys want to go back and listen to the different methodological approaches, we’ve had episodes on it in the past, so you can definitely Google it and search for it.     The world has gone to agile. What that means is that, with going through an agile software development where it’s a lot more iterative, where you’re deploying code a lot more iteratively, you might be under the impression that, actually you don’t need to architect systems very early on. You just need to fake it until you make it. You just need to develop a code base that you can use, and then you go and basically, it works, or it doesn’t work. I think that’s still a mistake. I think the world has gone too agile. We discussed that in one of our previous episodes as well.     Architecting the platforms and what you’re doing early on is important. I think that’s one of the key reasons why you still should have a technical co-founder, and it’s going to be very difficult for AI totally replace it. Because I think the parts of AI that you can use as, so to speak, as a technical co-founder are the parts that would be done by a relatively junior developer. If you’re not very good at asking AI for what you need in terms of code, the code you’re going to get is going to be crap. The architecture and the underpinning and everything that’s underneath it, the platforms that you’d use in terms of your cloud architecture, et cetera, will also be crap.     Basically, you can develop a proof of concept. Maybe you can even get to an MVP early on, but at some point in time, you’ll need to rewrite the whole thing. You need to get technical talent in, just to figure out, is this code base unique or not? For applications that are just software, basic apps, et cetera, potentially can get away with it early on, but at some point, you’re going to pay the cost of it—of not having had a technical co-founder, of not having had any help in terms of architecting the system early on, of not having had any senior software developer early on prompting the AI or working with the team or developing it him or herself. You’re going to pay that cost at some point in time.     Now for deep tech stuff or heavy-duty platforms, whatever, there’s no way in hell. Because that’s not something that AI can help you today fundamentally innovate on. It’s just the level of knowledge you need to have to build it. It’s intrinsically linked to a technical co-founder, so to speak. My perspective on it: it’s great to if you’re doing software, if you’re doing something that’s little bit simpler—be it consumer or enterprise software—maybe you can get away with AI as your co-founder early on. You’re going to pay the price later on, so having at least senior engineering team early on that can help you or can help you think through things is something that actually has a lot of value. I feel the more you delay it, the more you’re going to pay for it later on.     Can you raise money? I think it’s very difficult. Again, unless you figured out some angle on your go-to-market or the business side or something that allows you to have a bunch of traction, retention engagement early on because you figured out some angle, that’s great. But you definitely won’t have developed a tech mode. That’s the piece that at some point in time you’re going to have to pay for. What’s your perspective, Bertrand?   Bertrand Schmitt I think as you say, it depends on the industry. If you are in deep tech or core infrastructure, it’s quite obvious that you need someone already technical to lead that because the technical side will truly be your key differentiating factor. You need that not just to raise money, but just truly successfully execute. If the product is a bit less technical like many SaaS products are, to be frank, I guess it’s a different story.     For me, the question would be what type of non-technical funder are we talking about that can benefit from an AI co-founder? If we are talking about the business co-founder who truly has no clue about how you build stuff, I guess it won’t really work. Yes, maybe you can fake it to go to the first level of the model, raise a few $100,000s, and then find your co-founder.     I will say where it gets more interesting is if you are technical enough yourself, have a good business sense, and just don’t want to have a technical co-founder for some reason because you don’t want to share the equity, you don’t want to share the control, or you just want to have some level of control on the whole business, but you don’t have the time, you don’t have the true expertise. I think that’s where AI can be quite interesting, actually.     I must say myself, I’ve been quite impressed of how I’ve been able to use AI recently to develop tools, to develop products, to build infrastructure in the cloud. Yes, it requires me to spend some time to understand what I’m doing because I was not going to just trust blindly the AI. I spent some time discussing with it options, and I must have been quite impressed how it was coming up with a level of expertise that is actually not so easy to find. Because when you build out infrastructure and stuff, you have to think at so many levels—from security, to Linux configuration, to network, to storage, to development stack. You’ll realise that it’s actually quite rare to find anyone, even a good CTO who has truly expertise on all of this stuff. That’s where you realise that there is a lot of value if you kind of understand what you are doing, and you don’t let your AI go wild. Because it’s very clear that if you let your AI go wild, step by step, it goes wrong. It’s very clear.     From my perspective, if you are technical enough—like a product manager, for instance, who did some engineering studies, learned some computer science. I’ve not really been deep technical, but understand how all the pieces of the puzzle fit together, have some understanding about what is state-of-art in the industry, but didn’t rise from the ranks of coding and developing or network administration, that sort of stuff. I think you might get real value from AI today as long as you are ready to control it relatively tightly.     For instance, vibe coding, I have absolutely no trust in that. I think it’s just plain crazy when you see how it’s working. But I think you can do some development where you are helpful significantly with AI. You can make the architecture decisions with AI. I think there is a lot you can do if you have some, I will say, technical flair, but not deep technical expertise.   Nuno Gonçalves Pedro Yeah. I mean, it’s unavoidable that AI will take over a lot of coding right now, that people will be using AI agents to develop code for them. I think there’s Y Combinator Winter ’25 data that 25% of the startups are using 95% plus of AI-generated code bases. I think that’s a bit scary, but anyway.   Bertrand Schmitt That’s scary for me, as of today’s technology.   Nuno Gonçalves Pedro It’s very scary. Yeah. Back to the point, you will pay for it at some point. There’s another unintended consequence of everything is AI-coded, so to speak, which is we often forget that companies, when they’re early, they might have a very clear vision of what they want to become and what product they’re developing. But at some point in time, they might have to, shockingly enough, pivot and go to other areas. If we think about pivoting as part of the intrinsic development of a startup through its life, that you serve intrinsic, maybe at some point you’ll need to change, in terms of what product area you’re going after, even what business you’re going after, a lot of it sometimes actually is educated by the tech stack that you’ve built in the first place.     We’ve had amazing failures in companies, notable gaming companies that failed as gaming companies that led to the creation of great companies. I won’t flag App Annie, but App Annie came out of a gaming company. Slack came out of a gaming company as well. There’s all these things that sometimes happen, and it happens because someone developed code that was really, really good on something else.     That allows you to figure out maybe we should pivot. Maybe we should go after that space instead. Maybe we have more of a platform angle here rather than an actual app angle or vice versa. We’re more in an app angle than a platform angle here. That doesn’t happen if you’re just coding stuff that serves a purpose. There’s no actual quality of code that would allow you to, at some point, go and pivot to something else. I think that’s a little bit the unintended consequence of also having such huge dependency on AI-generated code bases and potentially not having a technical co-founder just because you’re like, I don’t want to deal with technical co-founders, and it’s too complicated, et cetera.   Bertrand Schmitt Yes. I mean, you could argue before AI, what were people doing if they didn’t want to have a technical co-founder or couldn’t find a technical co-founder early on? We had many situations, I guess you heard as well, about teams that are outsourcing their early development to some sweatshop far away. We thought control was talking about what’s going on. In some ways, that’s similar to AI vibe coding today. You have no clue what’s happening. You ask for change, and you get some change, and all the stuff got broken. It was available in a different format, and definitely more expensive. You had the option before, and obviously, that was not a great sign. I guess some very early investor will accept it if there is a plan to change that, basically, and make a tech transfer of some sort.   Nuno Gonçalves Pedro It’s very interesting because I’m going on two different portfolio companies of mine. I’ve gone through two different at the same time two different stages. One where the two co-founders weren’t highly technical. One of the co-founders was really a product person, though, product manager, et cetera. At some point in time, they believe we want to control more of our engineering team, so they started having more and more of their engineering team in house and less of it outsourced. Very interestingly, another co-founder, actually, co-founder who’s the CEO of a company, she is a computer science background, and she can code. She’s actually going the opposite direction now. She’s like, I want to outsource more and more of my team actually, because I can control quality.     I think what’s really important is can you control the quality of what you’re getting on the other end, back to your point. If you can have visibility on what you want, you can have some ability to have oversight of the code base that’s being generated, you know it’s solid, and you know it’s very strong, and the quality of the code is strong, I mean, it doesn’t matter if you outsource it or not.     To your point, you could use AI for a lot of stuff if you’re an individual contributor or if you’re a founder, et cetera. If you don’t have that knowledge, if you don’t have that understanding, if you can’t judge the quality of a code base and the architecture that your team has put together, then maybe you should have a technical co-founder at some point in time or a very senior hire very early on to the company that can help you make those decisions.     I feel AI—as a full on technical co-founder—maybe can get away with it early on, stage-wise, and maybe pre-seed. Maybe you’re early days of figuring stuff out, but at some point, you’re going to pay the price for it. Be it at the series C stage or a series A stage, you’re going to pay for it. If you’re really, like, I’m not very technical, and I don’t need a technical person, I feel at some point you’re going to pay for it. At some point, someone’s got to ask, where’s your senior technical person. That’s keeping the trains going, either CTO, VPN, et cetera.   Bertrand Schmitt You talk about evaluating the quality of the code and everything. I mean, you could argue you could use AI for that. I’m sure AI these days is not so bad to evaluate code quality. How is it structured? How is it documented? How which standard is respecting? I think, actually, AI for this type of task is really not bad. You as a founder, that might help you understand that if you decided to use AI to build, you could use AI to review. If decided to outsource to build, you could use AI to review. By the way, if you use outsourcing these days, how are you sure that, I mean, it’s not a lot of AIs behind the scenes.   Nuno Gonçalves Pedro Correct. I mean, you can’t be sure unless you have, again, some technical knowledge, or you’re checking the code in some way. I think my verdict on can AI be a technical co-founder is yes early on, but not long term if you are a company that has some level of technology differentiation, be it in software or physical tech. That’s my two cents.   Bertrand Schmitt I agree with you. I can see AI as a shortcut early on as actually a way to improve things early on. Because one thing I’ve seen a lot in early stage startups is that technical co-founder who is good but not great, you’re a bit worried. That’s why you are like, actually, AI might help evaluate or might help a company, might help make better decisions. Someone who was mediocre or good become much better, thanks to AI. That could be another perspective.   Nuno Gonçalves Pedro AI as the Technical Co-Founder     Maybe moving to AI as the business co-founder, what do you think? Can AI be the business co-founder? You’re technical, and I just want to have a business co-founder, but I don’t want to have a business co-founder. I’m just going to use AI for it. Can you get away with it?   Bertrand Schmitt I think that’s an interesting perspective. I think it’s quite similar to the technical side. I think AI can help you a lot to improve things, make better things. For instance, designing part of the product, designing your logo, picking your colours. I think AI can help you get much better if you were a technical co-founder. Can it truly replace a more business co-founder? I’m not so sure because a business co-founder will what? We help find financing. We’ll help put in place partnership. We’ll help you close some big deals. This is stuff that you cannot really do with AI. There is some stuff, business side, that AI can help you with. That’s for sure. To help you set up a company, to help you do some legal reviews. I think there are a lot these days that AI can help. In terms of truly big value add, I’m not sure.   Nuno Gonçalves Pedro I have a bias. I always felt the need for a business co-founder early on wasn’t as significant as others thought. Now you, I think I identified the key issue with not having a business co-founder early on, which is, for me really fundraising. Because everything else you can definitely get there early on through help on marketing, on content, on SEO, on your sales collateral stuff, on pitch decks, or whatever. This is true not only I think of B2B SaaS, but I think it’s also true of consumer. You can be a highly technical founder and just find a lot of stuff online. Now with AI, it’s even easier. You’re really interacting in a way that’s almost like a co-founder, so to speak.     I think the problem starts if you need to raise a bunch of money. If you start having to have a discussion around raising a bunch of money, then you have to have that salesmanship of pitching your company, identifying the markets you’re playing in, being very clear on what’s your go-to market, for example, again, you’re in B2B SaaS. That, I feel, is difficult to do if you don’t have the business co-founder. Now it could be that the technical person is very good and a bit of a hustler type. I mean, often type when we talk about co-founders, we talk about the business person as the hustler and the technical person is the hacker, so it’s the hacker and the hustler. It might be that the hacker in this case might be a hustler as well, but it’s very uncommon. It’s very uncommon that the person has salesmanship. The person whose technical has salesmanship. I think that’s the only key issue that I see.     That said, you can get away in my opinion, I think you can get away with it more being a technical founder that doesn’t have a business co-founder and for longer than the other way around, than you being a business founder and not having a technical co-founder. That’s at least my bias. You can get away with it longer and deeper if you are that technical founder yourself. That’s my two cents on this area—is you have the advantage still to be the technical person.   Bertrand Schmitt I certainly agree. I think the usually, most of the moat of a company goes to the technical side. It’s not always the case, but it happens often enough. If you’re an investor, even if you’re a buyer, you will feel more comfortable when you see that in front of you, you have someone who understands the technology, who understands the pieces of the puzzle, and who you feel can deliver on it. As you say, I think there is a belief for investors that early on, do you really need that business co-founder? Because early on, for instance, maybe you are deep down just coding for two years to get your product out of the door, and you might have two years where you don’t really need that business co-founder. Could even be nearly a deadweight in some ways.     One thing I’ve seen also is a belief from some investors that I mean, as we talked during Google early days that, hey, you have the great founders, great technology. We’re just going to attack a CEO or a COO, and that will all work out. No big deal in a way. It’s easier to find that than to find the right product and the right business. Adding that later on, there is a market for that business person who wants to join a high-flying startup. I think that’s definitely how things have been working for a while in Silicon Valley. In the same direction, there has been a new approach maybe the last 10, 15 years where instead of replacing that technical co-founder, it’s been to make sure you nurture that technical co-founder. He’s becoming more business-savvy over the years, and there is no real need any more to have a business co-founder. You will have a COO, chief of staff, or whatever.     I mean, a good example, we now talk about Mark Zuckerberg from Facebook, but, I mean, he clearly came from the technical side. He stayed CEO, but he had some COO who helped him on the business side of things, but were still running the show. I think that’s another good example.   Nuno Gonçalves Pedro Yeah, I think the points you’re making, Bertrand, are extremely valid. Maybe two things that I would say. One piece is we have had some companies, just to be clear, where there was huge distinctiveness. You could argue it’s more on the product technical side or less, but for example, I think the stuff that Nikita Bier did at TBH before they got bought, it was very centred around growth hacking, and we’ve talked about it at a previous episode.     To my knowledge, his background is more non-technical. It’s more on the business side. There’s sometimes you do have a business founder, co-founder, et cetera, that does identify an angle that is very unique either if it’s B2B, a go-to-market angle, or if it’s on the consumer side, some growth hacks or some way to really get in front of consumers, et cetera. We don’t want to downplay the role of a business founder here, and there’s a lot of knowledge that gets attributed in terms of distinctiveness to it.     That said, I feel this is probably an area where, again, the technical founders are going to get away more with not having the business co-founder than the other way around. We already mentioned at the beginning of this episode a bunch of cases where the team that started was really technical—I mean, Google, et cetera. Having the ability later on to bring in a senior person that acts more as the grown up and adult like we could argue Google did with Eric Schmidt back in the day, like you were just mentioning Mark Zuckerberg did with Sheryl Sandberg.     I think that’s definitely something that from the perspective of the play book of a company has its scales is more widely accepted, certainly in technology. I guess, as it goes, the tech mode is probably more definitive and more important than any other piece. Probably goes without saying that there’s a little bit of bias in our comments. We are both technical by background, but we probably feel that I’m speaking for Bertrand. Don’t know if you’ll correct me in a second, but we probably feel that AI can likely be a business co-founder to a technical founder or a human technical founder longer and more successfully than the other way around. At least today, we’ll see how things evolve over the next few years.   Bertrand Schmitt Yes. Again, I can see AI as, if not a replacement, a booster. Can you actually create better teams faster because they are complemented by AI at very low cost? AI is there to help them make better decisions all the way. On the technical side, architecture choice, some coding, code reviews. On the business side, helping you generate better copy, better design, better logos, better this. I mean, create your photography for your website. There are so many things that now, for instance, if you’re a business co-founder, you could do your job much better. I think AI as a booster, as an enabler, that could also be a way to go.   Nuno Gonçalves Pedro The beautiful thing about AI as a co-pilot thing is you obviously have immediate access to very distilled and synthesised information. Again, in the case of business best practices, that can be very powerful and very helpful. Even, again, if you do have business co-founders. Just checking on quick things. I mean, I use AI myself for my own stuff. Either it’s a social media post for Chameleon or leveraging other things. Obviously, I’ll rewrite stuff, and I’ll write it the way that I think it’s my voice. Having that at your fingertips is very powerful. In any case, the co-piloting is hugely valuable even if you decide to have a technical and a business co-founder along the way.   Bertrand Schmitt Yeah, I can see in the past, if you are a younger start up, there are so many things, so many decisions that you have to take, and it’s very tough to find the right level of expertise. It takes time to find it. It costs usually significant money to pay for it. Well, now we say, hi. When I say now, these days, because I’ve just said two years ago, even one year ago, it was not the same quality—but now the quality you get in some of the answers you receive, if you ask the right questions, it’s getting quite impressive. I mean, the added value you can get to have a better architecture product, a more secure platform from the get go, better design. I just feel there is a lot more you can do, a higher quality you can do, thanks to AI, relatively earlier.   Nuno Gonçalves Pedro Investor Sentiment & Founding Team Dynamic     Maybe moving to our last piece then, which is what is the investor sentiment now in everything that’s happening with AI as co-pilot, AI as co-founder, and how does that change as we look at founding team dynamics going forward where we’ve had the two technical co-founder, the technical and business co-founders, two technical co-founders, all sorts of founding teams, how does that evolve over time?     I would say on the investor sentiment, maybe just to lay the ground on my area, at least, of focus, we spend a ton of time really looking at tech and science modes in a company. Obviously, at the top end, we look at product modes, but then we go under the hood and try and understand technologically and scientifically what are the underpinnings of the product that this company is about to deploy or has already deployed. If we can’t find anything, if we can’t find modes, if we just go under the hood and there’s no technical element to it that’s very differentiated, you’re like, I’m not sure I’m got to invest in these guys. Why would I invest in this team or in this founder if it’s a single founder company? If it’s all AI as a co-pilot on the technical side, maybe it’s a little bit of a difficult decision for us to come and invest in the company.     Now, again, we’re series Seed, series A investors, so maybe at that point in time of the development of the company, we would expect that there are some senior technical talent at the table, even if it’s not a founding talent. That’s, I think, our skew on the technical co-founder discussion where AI is the technical co-founder.     On the business co-founder thing, we do appreciate, and we do spend a lot of time looking at the company and in particular to the CEO, founder-CEO position if the person can raise money for the company. We do spend a lot of time around salesmanship. Is this person that… After we give this person money, can this person go and raise more money in 18 months or 24 months, et cetera, from other larger investors. Does this person have ability to sell?     The story of the company that they’re building. Is this person, for example, if it’s in B2B, is this person able to actually sell, sell the product and go to market? Founder led sales early on is the name of the game. If the person, again, doesn’t have that savviness, that ability to articulate the story of the company, that edginess around either marketing or sales or something else, probably will also be a pass for us.     Where do we get to? I mean, I think it would be more likely that we invest in a highly technical team that has a very low business savviness, but has something very distinctiveness and differentiated on the technical side, then we would do the opposite. We would invest in a founding team or a founding person, a company that is incredibly business-oriented, amazing hustler or whatever—but has no technology mode whatsoever, no ability to create anything in the foreseeable future. I’d say that’s probably where our biases are as a firm today. Now it doesn’t mean we won’t do the second one, but it’s just more unlikely. I think that’s how we would frame it.   Bertrand Schmitt I guess that’s also for me, what I’ve often seen is a discussion with the team, with the founder in these situations of, are you okay bringing in a technical co-founder? Are you okay bringing in an external CEO, or a CEO to manage the business side? Have you started discussion in that direction? Do you have leads? What type of people are you thinking about? I think that could be part of the discussion, depending on the stage of the venture. I must have seen that quite often, that discussion. Even if, from my perspective, I still have a preference with the founders—the technical founder, or relatively technical founder staying the CEO. Instead of bringing an external CEO, bringing more a CEO type of person.     In some ways, I prefer to see the CEO build up his game on the business side as necessary, versus the replacement like it used to be in the Google days. Personally, I’m a bigger fan of growing up a technical background CEO to stay as a CEO for the long run.   Nuno Gonçalves Pedro Basically, we both have similar biases, I guess. When will we have the solo founder AI thing be happening all the time? I think pretty soon. We already have solo founders as a really significant part of the business. We already have right now, I’m pretty sure, the next big company that is a solo founder using AI as a co-pilot being created. I don’t think there’s anything dramatically different from all of that. I feel that’s where we’re at this point in time. We’ve had the single founder strategy. We now have a different angle to it in terms of co-piloting. It’s just a different co-pilot. Instead of advisers or outsourcing or other mechanisms, we have AI and AI agents.   Bertrand Schmitt I think that the way it’s going, as you say, that we’re already solo founders. I think AI is just increasing the odds to have a successful solo founder. I think if you are technical enough, you can control AI and understand AI. I think it always goes back to some question. How mature is a founder? Can he grow into the job? Can he learn not just his side of the business, but the other side of the business? It’s always true that it’s tough to learn from the business side to the technical side. That is something that you will rarely learn on the job. As we said, unlike Steve Jobs demonstrated, as a more business person, you can learn becoming a good product person. You can learn to inspire and somewhat control more technical teams. That part, it’s definitely possible.   Nuno Gonçalves Pedro Conclusion     In conclusion, do you still need a technical or business co-founder? We think probably not. Not certainly at the early stages of the company. You probably can get away with not having a technical co-founder or business co-founder. You’ll probably pay for it earlier on, if you’re missing that technical co-founder, so the technical co-founder does seem to be more important in some ways, and more difficult to replace even by AI than a business co-founder. But it’s not fully, in any case, yet a substitute for real human judgment. Having a dynamic where you have a team, and you have a co-founder that can help you, that can support you, that can take you to the next level, that can commiserate with you when things are hard is probably still better than just going through the use of an AI co-pilot or an AI agent, so we’re almost there, but not fully there yet. Thank you, Bertrand.   Bertrand Schmitt Thank you, Nuno.

What do we travel with? How do we prefer to travel? What are our travel hacks?  If you are seasoned travel or just getting into that hamster wheel, this is the episode for you. Our thoughts, best practices and hacks on traveling. Share with us yours on LinkedIn or X. 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 Subscribe To Our Podcast Nuno Goncalves Pedro INTRODUCTION Welcome to Episode 69 of Tech DECIPHERED. Today we’ll go on a slightly softer note and discuss our travel hacks and preferences. Bertrand and I often are asked, “What do you guys travel with? What do you prefer to travel with? What are your travel hacks?” And a few other questions in this world of hamster wheel travelling. Today we’ll share a bunch of our preferences. We’ll share a lot of the things we travel with, from luggage to electronics to other services and devices. We will share to the best of our knowledge, how to really do it in style, if that’s at all possible, once you’re in that hamster wheel. We’ll share some of our hacks, not only for business travelling, but also for leisure travelling. Interesting stuff. We all have our hacks. We all have our stuff going on. PREFERENCES TRAVEL Airlines, alliances, loyalty programs Maybe we start with airlines and all the things around that. Bertrand. Bertrand Schmitt Yeah, sure. Don’t get me started on Air France, who cancelled on me a huge quantity of miles without alerting me, without notice, just a few weeks before I was supposed to take a flight. I will try my best to never use them again. Nuno Goncalves Pedro It was that bad. Air France is out, so that’s the beginning. Let’s maybe talk about the guys who are in. I’ll give you my top airlines around the world. Obviously this depends. Depends if you have to travel through that region or if you’re travelling to that region. My favourites, I think maybe not sure if it’s in full order, but I would say Emirates, obviously, Qatar Airways. If you’re hubbing through Middle East or if you’re going to the Middle East, two amazing airlines, probably two of the best in the world. I would say maybe Emirates is my favourite now. I have to be thoughtful in how I put that forward. Qatar is also exceptional, obviously if you’re hubbing through Doha. Incredible airline as well. The Asian ones in general, we’ll leave the Chinese for a second because that’s a different ballgame all together. Let’s not say all Asian ones and obviously different ones are great. I’d say Singapore Airlines continues being systematically an exceptional airline. They’ve become very expensive, but an exceptional airline. A little bit SOP driven, only airline in the world, true story, that I complained not once or twice, but three times on the same incident, and I actually never got a response from them on an incident which is interesting. In general, service is exceptional. Their facilities at Changi Airport are exceptional. The planes are really well-kept, the food is great, very attentious, and really like them. Cathay, I haven’t flown with them in a while. They went through a bit of a slump at some point. They were my favourite for a long time. Then they went through a bit of a slump in terms of product in particular, in terms of the quality of the product, in terms of the quality of the seats, service on board, et cetera. I’ve heard positive things recently, so maybe worthwhile putting them back on my Top 5 list around the world. Then the Korean Airlines in general are pretty strong on service. Depends a little bit on the plane. I’ve had always better experiences with Korean Air than with Asiana. Maybe Korean Air gets that last Top 5 thing. Talking about the negative ones for me that I try to avoid. I try to avoid as much as possible some of the European ones. TAP Air Portugal, the Portuguese one, is actually pretty decent by European standards. British Airways depends on the format of the plane. I find their business class service and product not to be as compelling as other airlines right now. I always found the service on British Airways, you only get great service on reshares if you’re in first class. On long haul, even in business, it’s a little bit matron. It’s like, “Sit down and just stay put, and we’ll serve you, but we won’t really be particularly paying attention to you.” In some ways, TAP Air Portugal, I think they’re a little bit more thoughtful and nicer. Lufthansa is similar to British Airways. I’ve had very mixed experiences, but in general not great. The service, they got a lot of bad rap on their first class stuff. In Europe, I’m not sure there’s anyone that I’m excited about. I haven’t flown with Air France a long time. Apparently I shouldn’t. Iberia I’ve flown with and it’s okay-ish. I don’t remember any airline in Europe that I’m particularly fond of. Maybe I’m missing someone. SAS is okay, I guess in the Nordics, but not a great deal of amazing airlines in there. Then negative Chinese. Most of the Chinese airlines, I haven’t flown with them in a long time, so I obviously have to be careful in not pushing it forward. Not a huge fan of JAL and ANA in Japan. When in doubt, I would go ANA. Then in Taiwan, also not particularly excited about any of the Taiwanese airlines, but they’re not bad either, so it’s okay kind of thing. Then on the American Airlines, which I’m sure people are excited to know about, I’m really not a fan of United. Sadly, they’re on Star Alliance Bertrand Schmitt Do you remember this video on United? There was this guy being dragged out of the plane, bloodied and everything. Nuno Goncalves Pedro It sounds about right, I think. Bertrand Schmitt I think it’s just before COVID or at the beginning of COVID. I forgot. It was bad. It was so bad. Nuno Goncalves Pedro My favourite was only domestic flights with Virgin America. By the way, Virgin Atlantic, I’m going to fly again with them in a couple of months and I remember them fondly. Their upper class product was really cool back in the day. Their lounge was really cool at Heathrow. This was many years ago. Looking forward to experimenting with it again. Virgin America was really strong and then obviously they merged with Alaska. Alaska is okay. It’s good. I feel it still has a little bit of the Continental and Virgin America ethos, which is pretty good. I’d say of the big ones in the US, the only one that I think has improved quite a bit in terms of service has been Delta Air Lines, although their hub is Atlanta, which as I call it, is where you get lost in space in general. It’s a black hole, I guess. We’ll come back to airports later. American is okay-ish, but I’ve had some really bad experiences as well in American. United is the bottom for me. Southwest, I haven’t flown in a while. They’re quite expensive now, Southwest, actually. Bertrand Schmitt I think they have changed dramatically, Southwest, from what I read in terms of what you get, what is included, not included, how they work. It’s not the same. Nuno Goncalves Pedro Top 5 guys that I would make an effort to fly with: Qatar Airways, Emirates. Emirates obviously doesn’t really belong to any of the alliances, which makes it a little bit more cumbersome for points gathering and all that stuff, but I think they’re really top end. I think Singapore Airlines belongs in that group. Then just below for me, Korean Air Lines and Cathay and then the rest. There’s preferences. I have preferences as I said. If I have a chance, I’ll go Delta rather than American or United. If it’s to Europe, then I prefer a European airline to American and to United. To Asia, the same thing. I prefer an Asian airline to American and United. Delta, it depends a little bit on the plane and all that stuff. That’s my rough preferences. I’ve had my worst experiences with United. My worst experience I think probably were all with United, delayed flights issues and all that stuff, bad service. Bertrand Schmitt If I have to fly to Europe, I used to try to use Air France, but two issues again, they take away your miles. That was during COVID. Two, you run the risk to have a strike in France. That’s obviously the risk. Now I’m probably more trying to fly Delta if I go to Europe. Asia, I will try to stay away from Air China, that’s for sure. I got some memorable experience when they were so scared away I would bring down a plane by using my tablet. It was just as crazy. I would say the Taiwanese airlines, I have overall positive experience. Not great, not bad, I would say. Nuno Goncalves Pedro Which is your favourite of the two? Bertrand Schmitt Let me be careful. It’s China Airways, China Air. There is a new one, actually, a third one that started recently. I cannot say I have a big preference, a clear-cut preference between the Taiwanese airlines. Taipei Airport is quite convenient to branch from in Asia. Nuno Goncalves Pedro It’s EVA Air or EVA Air and China Airlines? Bertrand Schmitt Yeah, EVA Air is one of them, China Airlines, and there is a third one now that just launched. Nuno Goncalves Pedro STARLUX, is that the one? STARLUX Airlines? Bertrand Schmitt Maybe. Yes. In the US, living in Seattle, this is a hub for Alaska. We use Alaska quite a bit. I will use Delta as well, and United if no other choice. Nuno Goncalves Pedro And American? Do you have a perspective on American? Bertrand Schmitt I have never used them, actually. Nuno Goncalves Pedro Really? It’s American Airlines. Bertrand Schmitt Same for the other one we talk about, Southwest. I’ve rarely, rarely use it. I’m sure I use it once or twice, but I’m doing my best not to choose that. I feel already having three airlines to manage on points and stuff is enough. Nuno Goncalves Pedro There’s these guys, JetSuite, JSX, which I do use once in a while. They’re pretty good for domestic flights. Obviously they don’t fly to all airports and they fly to some funky airports. The experience is almost a private jet kind of experience. Shout out to those guys because those guys are still delivering a really nice experience for pretty good prices. Bertrand Schmitt Are you using them for LA to SF, for instance? I’ve heard they are quite good. Nuno Goncalves Pedro Correct. I think they have LAX as well. I don’t know where LAX flies to, but it’s either Burbank or SNA, which is John Wayne, Orange County. I’ve used them in Burbank. Burbank right now is not very good for where I live. Then Burbank flies, I think it’s to Oakland and maybe Fremont, if I’m not mistaken. They have some funky airports in the Bay Area, so it’s like Oakland, Fremont and then one in Napa that they give you access to. Oakland is fine. If you’re going to San Francisco in particular, you fly to Oakland. As an airport, it’s actually pretty easy. Bertrand Schmitt You have to cross the bridge, so I guess it depends on traffic. Nuno Goncalves Pedro It’s just you have to organise so that you’re not getting into heavy traffic. If you fly in the morning, that’s a pain in the neck, if you need to get to SF, but if you fly in the afternoon or evening, it’s normally less of a problem. If you come back in the morning, then it’s not a problem either. The experience is really, really good. I’ve flown Burbank to Oakland a couple times and it’s really a nice experience. They’re expanding all the time, so they’re in a bunch of other places around the country. I think they just expanded to New York, if I’m not mistaken, so that should be cool. I’m not sure which airports in New York, but pretty, pretty cool. Bertrand Schmitt Do you fly window or aisle? Nuno Goncalves Pedro I’m an aisle kind of guy. I was window at the beginning. I’d like to be at the window and whatever. For two reasons I like to be aisle. I think the first reason we’re all intense people. I like to get out of the plane as fast as I can, and normally the aisle in your row is the first person that goes out, so just getting out, getting the bag, putting it on the floor, getting ready to go. I’m not the guy that rushes through the cabin just to be clear. I think there’s a term for it now, but I am definitely the guy who gets ready quickly so that I can leave. If I’m flying in economy or premium economy, I’ll try to fly as much to the front of those classes as possible. If I’m flying in business class, then I would be the first seat if possible, certainly on domestic flights. Obviously on international flights, if I’m flying in premium economy or business, sometimes there’s a first class, so they are obviously the first guys to get out. I’ll fly obviously in the first row for my class. The second reason is I’m on ketogenic diet, so I need to go to the restroom very often. If it’s a 15-hour flight or a 12-hour flight or whatever, being on the aisle is obviously easier because if there’s people around you that need to jump to or whatever, they can. You jumping over people like several times during the flights is a pain in the neck for everyone involved. I pay attention to those details and I prefer just to be on the aisle, so I can just go and come back and there’s no problem. I don’t need to bother anyone or everyone on my row Bertrand Schmitt For me, it really depends on, is it a long flight or short flight, is it business or premium economy? If it’s a long flight in premium economy, I will usually pick window. I don’t want to be disturbed by someone trying to cross me, waking me up and stuff. That would be where I would be careful. If it’s business, it’s usually not an issue, so it’s different. If it’s a short flight, I don’t mind window, I don’t need to go out. If it’s a longer flight but not too long, not sleeping, then aisle usually I would take. It really depends for me. As you, I will try to go in the first rows as you can for your given class. I don’t like to stay in the back and to wait. Nuno Goncalves Pedro We’re impatient people. We want to get out quickly and people are like, “What difference does it make?” Getting in, it doesn’t make a huge difference, but it could. It depends how much space is there available for you to put your bags on if you’re carrying a bunch of bags or not. We’ll talk about bags in a bit and later on, what our preferences are on that. Getting in, it depends. Depends on how much you’re carrying with yourself. Getting out, it matters because it could be a difference of 5, 10 minutes to get out on planes. If you’re all the way at the back versus you’re at the front, it could be material, in particular, if you don’t have bags that you’ve checked in, that you need to go into the conveyor belt to get in terms of baggage claim. In terms of loyalty programs, what’s your preference? Who would you run with for the different ones? For Star Alliance, for SkyTeam, who do you run with? What are the airlines that you have? Bertrand Schmitt I have a few depending on where I need to go. Star Alliance for sure. Nuno Goncalves Pedro Star Alliance here with who? With Air France? Bertrand Schmitt I used to be Air France. Nuno Goncalves Pedro Air France is SkyTeam. Bertrand Schmitt So SkyTeam, Air Delta and United for the other one. That’s the two main I would use usually. Nuno Goncalves Pedro I did a stupid thing. Air France was my SkyTeam team, British Airways was my oneworld and Lufthansa with Miles & More was my Star Alliance. I’ve now switched all of them to American ones. Delta is my SkyTeam one, United now with MilesPlus is my Star Alliance one and then American Airlines is my oneworld one. I found with the American Airlines it’s easier to have the loyalty card with them because you get the upgrade lists and all that stuff. For domestic flights, all that stuff is done automatically, so it’s easier to fly with them. Normally you get the status as well. In most cases, faster than some of the European airlines. Similar alignment on oneworld tiers and Star Alliance tiers and SkyTeam tiers. Then some of them are very, very bad. You mentioned Air France. I had the same issue as you did, which is all of a sudden my miles disappeared at Air France because they obviously don’t keep your miles for very, very long. They take away your miles, which is like robbery in my opinion. Bertrand Schmitt It’s robbery, and especially during the time around COVID, it was really disgusting to do that. The fact they do it without any notice, any warning, nothing, it’s just plain disgusting. Nuno Goncalves Pedro It was exactly the experience I had, so very, very nasty kind of stuff. At a certain point in time, I was top end, I think on the three. I was still based in Asia, but I was top tier on oneworld, Star Alliance and SkyTeam for a period of time. Honestly, it matters a lot if you have to do a lot of travel between classes like economy, premium economy, business, et cetera. If you can fly a bit more in business or if you don’t care, it matters a little bit less to have tierage with all these. I don’t optimise as much on tierage anymore, to be honest, for the different airlines. If I did, I’d probably have to do a lot more Star Alliance. Recently I’ve been doing a lot of American, a lot of oneworld, so something for me to think about, I guess. Bertrand Schmitt On this topic, I still remember a long time ago, someone who will stay unnamed, who would keep flying around late December to make sure he has enough miles and keeping his miles. So on purpose, not taking a direct flight, but flying through second, third airport to make sure that he would build enough miles, sustain the right tier. I just couldn’t believe that level of optimisation. Maybe it makes sense. The guy was smart, so no question. There was some logic behind it, but I was certainly not willing to do the trade-off to spend 10 more hours or more than necessary just to keep the right levels. Nuno Goncalves Pedro To finalise maybe on the airline side, two things. One, I optimise for the time of the flight. I normally don’t like to hub, to do stops. I prefer to go one flight somewhere and willing to pay a little bit more and fly maybe in premium economy if it’s a very long flight. Obviously if it’s like a 16-hour flight to Dubai from San Francisco or LA, obviously better to do so in premium economy than in economy. Economy is obviously a killer for these flights. Bertrand Schmitt If you have to sleep, yes. Nuno Goncalves Pedro If there’s prices that are compatible and there’s a lot of ways to hack pricing around business class travelling, it may be worthwhile. I always optimise for direct flights if I can. The big hack, and I think I’m going to regret this because a lot of people actually don’t know this, this is a hack I learned with one of my former partners in my first VC firm, this is back 2011, 2012, maybe even before that, is Round The World tickets. If you guys have never heard about this, those listening to us, you need to look into this stuff. It’s magical. It has a bunch of rules to them, but you can get Round The World tickets with oneworld and Star Alliance. SkyTeam, I’ve never done it. I don’t know if it’s possible or not. With oneworld and Star Alliance you can for sure, and you book them. Look for oneworld Round The World ticket or Star Alliance Round The World ticket. It has a minimum number of sections that you need to do. You need to go in one direction only. Think of it as you have to cross the two oceans kind of thing. You have to go Atlantic on one side and then Pacific on the other side. You can’t go back on your trip. For example, if you originate in, let’s say San Francisco, you start your trip in San Francisco and you said, “I want to go to Europe first.” Then you can go to a bunch of places, US, Europe, whatever, but then you need to move to another place, Asia, Middle East or whatever to go through the Pacific Ocean to get back to the US. You need to end in the same place that you start because it is around the world. You need to end at San Francisco, start in San Francisco. You have 12 months to do all the trips. I think it’s up to 15 flights if I’m not mistaken. I’ve never been able to optimise much beyond. I think 11 is my record, maybe. There are some people who do all sorts of funky optimisations like back and forth. They have two tickets running at the same time. I’ve never figured out how to do it. I’m sure there are people smarter than me. These tickets are actually super, super value for money. With taxes and stuff, they might go a little bit beyond that, but it’s in the 10K, 11K range for business class travelling around the world. If you get in seven flights in, if you’re going through a bunch of different countries… For example, if you’re roadshowing, if you’re going to a bunch of different funky places, it’s more than worthwhile because if you just did one trips around, that alone would be over 10K if you’re flying in business, and it’s done. Now, obviously 10K for business class is still quite expensive. It might be that you want to fly in premium economy or economy, there’s also tickets available for that. A huge hack that I found over the years. You can fly in economy, premium economy, business or first class. You get the ticket, the ticket issuer becomes the first airline that does the first flight effectively. The systems are a bit clunky, in particular the Star Alliance one. I remember super clunky, but their customer service is really good. It’s used to dealing with issues. You can change stuff, you can change flights last minute as well if you need to, et cetera. It’s really, really a great experience. Bertrand Schmitt That’s so good to know. I don’t think I ever used it, but I knew about it. Nuno Goncalves Pedro You can also use it for leisure, or a mix. You can do like oh, it’s part business, part leisure or just fully for leisure or fully for business. As I said, it’s a really great package opportunity. I don’t know if SkyTeam actually need to look into it, but definitely you can do it for oneworld and Star Alliance. Airports, lounges Let’s move on quickly to airports. My top airports in the world versus my top hated ones. I would say top loved, probably, I think Dubai DXB, Qatar, the Diu Airport’s wonderful as well. Anything else that I would highlight, Incheon, I’ve had pretty good experiences there. It’s just very far from Seoul, so if you’re not hubbing through it, if you’re actually going into town, it’s very far. That makes it a little bit more painful. What else? I would say Haneda in Japan is a wonderful airport. Narita is very far from Tokyo, so it’s a bit of a pain in the neck and not as nice as an airport as Haneda is. Bertrand Schmitt Yes. I like Haneda. It had some food options that I really like there. Nuno Goncalves Pedro Maybe the last one I would highlight. I used to like Hong Kong International Airport a lot. It’s a bit mixed now, it’s become really big. Changi in Singapore is probably one of my favourite airport in the world, I would say. I did have great experiences. Bertrand Schmitt Yeah. Changi is great. I like the Hong Kong one. I think it’s quite good. I have used the Taipei one quite a few times. It’s quite efficient as a hub, but it’s not to the level of Hong Kong or Singapore. If you take in Europe, I’m not sure I would have a big one I would recommend. Nuno Goncalves Pedro Let me say, I mean, Lisbon, I have to say, this has become a mess, like a tragedy. An airport that’s been 50 years, a discussion to build another airport, and nobody can come to a conclusion. Fifty years, right? Now it’s a mess, because obviously there’s too much traffic into Lisbon, and out of Lisbon. I’m not a fan of Heathrow. Even Terminal 5, it’s sort of messy-ish. I mean, they’ve done a decent job now, but it’s still a bit messy. It used to be worse, so I guess they’ve improved it. Frankfurt is a total mess most of the time. You have to get really lucky for it to work well. Munich’s okay. I’d say Charles de Gaulle, I’ve had some of the worst experiences in my life, so I’m not sure I like going through Charles de Gaulle. Amsterdam, I’m not a fan either. Bertrand Schmitt Yes. Have you noticed that it has been getting worse for ground transportation? I used to be able to get an Uber relatively easily from any airport, and now there are a lot of airports outside the US where I’m taking taxi because it’s actually much easier, much more convenient, at least from the airport. They make it on purpose, I guess, a nightmare to use Uber from the airport. Nuno Goncalves Pedro I think some of it’s related to local regulations. Some of it is just to your point, they’re making it worse. But I agree. It’s like, even Lisbon, the way that Bolt and Uber operates out of the airport in Lisbon is a mess. They’ve now created a new area for pickups only. I haven’t used that area. I don’t know if it’s better or not. But the old area they had it in was absolutely awful. Mind-boggling awful. Bertrand Schmitt Actually, LAX in the US is also bad. If you want to take an Uber, you have to walk 10 minutes. Nuno Goncalves Pedro Ten minutes if you’re lucky. If you want to get UberX up to, I think up to Black. Black and above does curbside, which could be actually slow as well because LAX is a mess of an airport. Talking about messes of airport really depends on the terminal, I guess. The international terminal is very nice, but then the ground transportation in and out is messy. It depends what time of the day, departures, arrivals. I haven’t really figured out the patterns to that airport yet. San Francisco is doable for the most. Although Terminal 3 right now in San Francisco is a total mess as well because it’s under construction at least until I think it’s 2027 or 2028. It’s going to be a while. A lot of airports that are not great, some of them in the US. I mean, Atlanta is a mess. I know they’re working on stuff, but it’s a total mess. One of the largest airports in the world by movements, I believe. Newark, I’ve had some good experiences in New York. It’s in New Jersey, I guess. Then you have these funky airports, the smaller airports that somehow managed to be better. Like John Wayne in Orange County. Long Beach Airport, which is mostly Southwest. Bertrand Schmitt I was going to say in New York, usually the issue is the traffic to get to the airport. You have to be very careful about that. Nuno Goncalves Pedro Yeah. Bertrand Schmitt Or coming from the airport. If you are taking ground transportation. Nuno Goncalves Pedro Do you have any big favourites? Any ones that you really dislike that you avoid at all costs? Bertrand Schmitt I’m not sure. I can just say that Seattle Airport that I’m using now as my base airport. We recently got two luggage lost. It was on some minor airlines. You could argue they were not lost in Seattle, but before. But that’s still not a great experience from that perspective. I must say I like the airport so far. As you say Charles de Gaulle is not so great, but sometimes I have to go there travelling to France, so no other options are there. Nuno Goncalves Pedro In Madrid, I’ve had some bad experiences. Bertrand Schmitt The mainland Chinese airport, in terms of food options are just usually not great. Yeah, that’s not why you want to use them. Nuno Goncalves Pedro I still have nightmares with Beijing Capital Terminal 3. But honestly it wasn’t a bad terminal. It’s just I guess I spent too much time there, and you have to walk a lot in and out. But yes. Bertrand Schmitt Yes, it’s a big one. You have to walk a lot. Usually the food options are quite limited. But I mean clean and modern, that part was okay. No, it’s not as if the other ones I will [inaudible 00:25:05]. To be frank, I try to go direct as much as possible. Usually I have. If I’m in an airport, it’s because I have to be there, if you see what I mean. It’s not I have to go somewhere close by. Nuno Goncalves Pedro Let’s switch to lounges. Loves and hates. Your most beloved and hated lounges, Bertrand. Bertrand Schmitt Honestly, at least from my perspective, they’re all crap for food and coffee. Nuno Goncalves Pedro Is that what you want? You want just food and coffee? That’s the play? Bertrand Schmitt That’s a core part. Either I’m not so hungry or just snacks and okay, whatever. If it’s food and coffee, then usually I will pick somewhere else my food and coffee, and go to the lounge for a bit more safety, a bit more relaxation, less noise. I would say relatively whatever. I would be a bit more picky if I have really a long time to be at the lounge. That’s when I start to check, “Okay, what are my options?” If I know I have 5, 6, 7 hours to stay because some random stuff. Last time was a cancelled flight last minute and I had to pick another one. Yeah, I end up to spend 6 hours, 7 hours. That’s when you have to start to be a bit picky of which one you take. Also, some might not let you go in. Some might say, “Oh, you can only come in before the flight” or whatever. I would be a bit more picky. Nuno Goncalves Pedro I like to go early to airports. I don’t like to stress out, and I work from airports. I either do calls or work on stuff on my laptop, et cetera. Going to the lounge is really mostly to have a place where I can just hang out and work for a bit. Silence could be or not very important, but maybe not super important. Food’s probably a little bit less. It’s great to have something to eat while you’re there. To your point, most lounges are crap on food. I have a couple of notable amazing ones. Obviously lounges normally are business class or first class as people would know. There’s a couple of other options with Priority Pass that you get access to business class level lounges. My experience with Pass is very mixed. Some lounges are really good, some lounges are all but crap. On the positive side, I’d say again, the Middle Eastern airlines just are silly. Emirates business class, Qatar Airways business class. I’ve never been to the Qatar Airways first class one. I’ve been to the Emirates first class one once, and it was a bit silly because they have counters for any type of food. Like counters for desserts and ice cream, a counter for desserts and ice cream, a counter for sushi and sashimi, a counter for whatever. You can still order stuff à la carte because that’s what you do. I was in that lounge at night and I recall clearly it’s like maybe it was 20 of us in the lounge and there were like, I don’t know, five or six counters like this open, and you’re like, “Really?” There were more people working there than… Just the counters than people I guess actually eating. It’s absolutely exceptional. Singapore Airline, their business class lounges are very good. I’ve been only to their first class lounge once. Changi, it was really exceptional as well. À la carte, very nice kind of service. I would give a shout-out actually to United Airlines. I think they’ve won a bunch of awards. The United Airlines lounge at SFO for international. They’ve won a bunch of awards I think, and it’s actually pretty good by American Airlines in any way kind of lounges. It’s really, really good. Delta has a really nice lounge at the LAX, Delta Air Lines. There’s a couple of really good American Airlines’ lounges around. My last shout-out, I think on the positive side is the Concorde lounge for British Airways, which I’ve been to a few of them and that’s when you’re flying first class. Just to explain, I don’t fly first class. It just happened to be… I’m a hacker. It just happened to be that at some point in time British Airways had this promotion that if you booked a ticket, I think it was July to September, if you booked a ticket, and it was considered a full ticket in business class, you could upgrade one of the legs to first class based on availability. I ended up doing a bunch of those where there was Concorde lounges, which was I think New York at JFK. In London, Heathrow, you can go to the Concorde lounge, not the first class lounge, but the Concorde lounge. It was very nice and very fancy. I remember that fondly. Bertrand Schmitt In terms of first class lounge, I did once the Air France La Première, and I must say it was quite amazing. From the lounge to the first class in the plane, it was quite amazing experience. The food was top level. You even have a spa if you want. They bring you to the plane by a private luxury car. You get in not seeing any other passenger but people in first. I must say it was quite an amazing experience. I forgot how I ended up doing it, but price wise it was expensive, but it was not so insane versus the other option basically. That’s why I end up doing it. Nuno Goncalves Pedro American Express has a bunch of lounges, as we know, for Platinum and Centurion members around the world. I’ve been to a few of them. They’re normally pretty good. Recent issue with American Express has been that there’s always a wait list because there’s too many people I guess with Platinum cards. They’ve again increased the price of Platinum card and whatever. Then Centurion as we know is very complex as well to attain. Then on the negative side, I would say as I mentioned before, some of the Priority Pass access ones, those lounge-y things that are the commonly used ones are not great. TAP’s I think still running out of SFO, the Portuguese Airline. Still running out of SFO with this China Airlines Lounge, which is really not very good. I mean no disrespect to the people who work there, but it’s just the lounge is not very good. There’s a bunch of lounges that I feel are just a bit of a waste. Like you might as well go to the gate and wait. In some airports there are actually good food options. Maybe just go to one of the food options and have dinner there or lunch or some snack and just use it as a place to work from. Something like that. Hotels chains, AirBnB Hotel chains, Airbnb, what’s your preference, Bertrand? Loyalty cards, whatever. What do you go for? What’s your addiction? Bertrand Schmitt I would say I don’t do Airbnb too often. Once in a while, and typically for vacations, short vacation, I will say. Sometimes I use it for short vacation, few days. Usually typically I’m using hotel chains. I don’t want to bother take a chance in a lot of situations. Do I have a favourite hotel chain? I used to like Hotel W. I still remember the one in Taipei very well. It was really a nice place. But it really depends where. I’m doing Bonvoy quite often that’s probably one of the main one I’m using. Nuno Goncalves Pedro Yeah, I’m a big Bonvoy guy. Bertrand Schmitt Yeah. At the end of the day it really depends on where I go, what the price are. I mean I’m not forcing myself basically. Nuno Goncalves Pedro I have one force mechanism which is Marriott Bonvoy. I was a Starwood member back in the day and I got to Lifetime Gold. I think I missed Lifetime Platinum on the Starwood terms by 1 year to be a Lifetime Platinum. I used to fly and travel a lot in particular when I was at McKinsey. When they merged with Marriott I think the merger wasn’t too bad in terms of their loyalty program, but now you need a lot more years to get to Lifetime Platinum. I think I’m 2 years out from Lifetime Platinum or something like that. But that’s the one that I have preference on. I think the largest in the world, the Marriott as a chain, and they have a lot of brands that are exceptional. I mean on the top end obviously the St. Regis of the world, the Ritz-Carltons, et cetera. But even if you go one level below, you can find some of the boutique things are actually very nice as well with Marriott like Edition. The Ws have gone one level down. I think the Edition has taken that place, more top-end boutique. Ws are now a little bit more accessible as well in terms of cost and price. Westons depends on the part of the world you’re in. I mean in Asia the Westons are very nice. Some parts of Europe they’re also very nice. Sheratons similarly, not great in the US but in other parts of the world they might be okay. They have so many brands like I’ve stated, Residence Inns. There’s so many lower end brands, longer stay brands that they have that are really, really nice. I mean, you get really big rooms for not a lot of money, and they’re exceptional. Bertrand Schmitt I think often for me, it’s a question of location. Do you get access to a real, not just like is it a good hotel? You have the facility, but is it a special location? We were in vacation this summer in Banff in Canada. We spent a few days around Lake Louise, and we went to the Fairmont because that was the only hotel authorised at Lake Louise per se. It was just amazing. It was just an amazing experience. If you don’t stay at this hotel obviously you have to stay much further away, they limit access to cars, I mean it’s a total nightmare. But if you are at the Fairmont Lake Louise it’s just a magical experience. I mean prices are insane to be clear, but you have a special experience for a few days that cannot be replicated with another hotel. Nuno Goncalves Pedro I mean we could do an episode just on hotels, so I’ll just cut to the chase. I think there’s a couple of chains that I quite like. I do like the Grand Heights of the world, the Park Heights of the world are very top end. Prices vary a lot, I mean, some of these hotels are very, very expensive. Hotels have become more expensive. Hopefully at some point it will be a step back. There’s amazing resorts as you were saying, all around the world. I have this love for Aman Resorts, A-M-A-N Resorts. They’ve become super expensive, almost unbearable. I was an Aman junkie back in the day. I’ve been to a lot of their properties. They’re very beautiful location kind of properties, but they’re super expensive now as well. But there’s great places, as we were saying, that are great value for money. I’ve stayed at places that I wouldn’t have thought of spending time on, and they’re really, really, really nice for not a lot of money, and I think location matters a lot to me, but at the end of the day also having a place where for example if I need to work from the hotel room that I can work from the hotel room. If I don’t need to, then potentially that’s less of an important thing in terms of space and desk space et cetera. But Marriott’s is really the only obsession that I have just to get my layer at least of Platinum every year if I can so that I get to that Lifetime Platinum thing at some point in time, and then I can just get it. Mandarin Oriental, huge shout-out probably of the urban hotels. They’re quite expensive in some parts of the world but of the urban hotels. Bertrand Schmitt Which one, sorry? Nuno Goncalves Pedro Mandarin Oriental. Bertrand Schmitt Ah, Mandarin Oriental, yes, amazing. Nuno Goncalves Pedro I’ve always had exceptional experiences with them but again very expensive. Bertrand Schmitt Amazing in Hong Kong. Nuno Goncalves Pedro Hong Kong. I’ve not stayed at the one in Paris, but I’ve been to the one in Paris, and it seemed exceptional as well. I’ve been to the one in Barcelona, I’ve been to a few of their other Mandarin Orientals around the world, and I’ve never had a bad experience. They’re all very, very exceptional. Very, very thoughtful in terms of how they do service, et cetera. Four Seasons, for example, I’ve had mixed experiences in different places. A lot of people love them. But anyway, that’s our addictions. Ground transportation Ground transportation. We just heard from you. Now you’re preferring taxis to Ubers and Lyfts in some parts of the world. Bertrand Schmitt If they make the Uber experience terrible, yes. I’m discovering that more and more I’m picking up especially… Where did that happen? In Hong Kong, in Paris. I end up picking up taxi versus Uber. In some location, even in the US if you have to do a 10, 15 minutes walk, sometimes I might not take the Uber or Lyft as usual. Nuno Goncalves Pedro Yeah, for in and out of the airport, I agree with you. I think Uber and Lyft every time that they’re available, in some cases Lyft is actually a better option and cheaper. Bertrand Schmitt Yes, I always check both. Nuno Goncalves Pedro Yeah. Uber is a little bit more reliable in some ways and sort of the average quality I think is a little bit higher. But agreed with you also that there’s some cases where taxi is the better option, just easier. Just get into a car and go. Not necessarily super pricey. Some taxis obviously are very, very expensive. Like taxis in the Nordics are expensive. Japan very expensive. It depends sort of the country that you’re in. Car rentals, I do mostly in the US or unless I’m on vacation, I need to go around some place, whatever. I don’t do it that often everywhere else. I try and optimise for a location where I stay in the city and then if I can walk to most of the places or just do quick Ubers, that’s great, and not rent a car. Bertrand Schmitt Yeah, same as you. I rent a car if I really need to. Nice vacation trip and we’re driving quite a lot. But if it’s not that, if it’s business, typically I would just do [inaudible 00:37:04]. Nuno Goncalves Pedro In the US it’s sometimes worthwhile if you’re for example, going to an area, and you need like I don’t know. If I went to see you in Seattle, Bertrand, I won’t say where you live, but maybe to go to you, I’d get a rental because you’re not necessarily in the centre of Seattle. Then, if I want to go to Redmond to see people at Microsoft, it would be worthwhile having the rental rather than just Ubering around because that could be quite costly. Public transportation, I can’t say I’m a huge user of public transportation around the world, so apologies for that. I know there’s amazing undergrounds in many cities that work really well. I mean, London, I believe it still works extremely well, et cetera. Probably the fastest way to move around London is through the underground, through the tube, as they call it over there. Trains in some cases, obviously the Heathrow train, the Heathrow Express is a relatively fast way to get into town from Heathrow, et cetera, et cetera. There’s obviously a lot of interesting options there. I can’t say I’m the best person to probably opine on that. Bertrand Schmitt Yeah, I would take the subway once in a while if it’s really convenient. It could be Paris, could be London, could be Hong Kong. Tokyo actually has a good subway, but typically I will end up doing quite a bit of Uber. But really depends, am I in a rush? Is there a lot of traffic? That sort of stuff. On this topic, I don’t know you, but me, 6 years living in China, I didn’t take the bus a single time, I think. Nuno Goncalves Pedro I took it during the Olympics in Beijing because to move… There was one day or two days where… This was a whole mess for those… It is first world problems, I’m sure. But I got too many tickets for the Olympics. In Beijing at that point in time there were even an odds on the licence plates, every other day were evens and odds. I had a driver, and I had to hire his wife as well because they had another car, a tiny little car, but the other car, I think one of them was even, the other one was odd. The licence plate. They could drive me all days. But for some reason someday they couldn’t, so I had to take the underground and I had to take bus and whatever. It was actually much better than I expected to be honest. It wasn’t as bad as I thought it would be. Bertrand Schmitt The underground in Beijing or Shanghai was quite good. I didn’t take it a lot because usually it was too far away. It’s not as if it was dense. Usually you would not walk from where you want to go from the subways, that’s a problem. It could be too long, but as long as not using a rush hour, it was usually not too bad. Nuno Goncalves Pedro Global Entry / TSA Pre / Clear / Nexus Maybe last and not the least on travel preferences, any other hacks that we have, the global entries of the world and all that stuff? Bertrand Schmitt I mean, Global Entry/TSA Pre for me is critical. I would not survive without this. This is great. Getting in the US for sure. Skipping the lines. Once you have Global Entry, you get TSA Pre. Then inside the US you also skip the lines. For me, it’s quite critical. No question.  Nuno Goncalves Pedro Yeah, I agree with you. I think it’s life changing to have Global Entry if you’re entering the US because obviously you’re coming in an international flight. I’m a US citizen now. Even the lines for US Passports are not always neglectable. They’re faster for sure, but they’re not neglectable. Global Entry is a game-changer. I mean, you can go what I call Singapore Changi time. You can go less than a minute, and you’re past immigration. It’s incredible. Bertrand Schmitt Yeah. It’s typically one minute, and now it goes even faster if you do the facial recognition. Now there is a new way to go facial with your phone, I think. I don’t think it’s available everywhere. There might be a new way to do that I just discovered. Nuno Goncalves Pedro Yes. We’re now in the seconds, which, for those that have a very painful experience getting into the US with foreign passports and whatever. I’m sorry, I apologise in advance on our behalf. But it is what it is, sadly. TSA Pre, obviously, it’s great to get out. To get into the lines that have TSA Pre, both for international flights and also for domestic in the US. There are some airports where TSA Pre has become a mess as well. Not staffed properly. Because American Express has this thing going on where they pay for your CLEAR subscription effectively, I got CLEAR as well. This is the ultimate hack. At those airports, if the TSA Pre line is very long, I get CLEAR. Then CLEAR, you jump in the line of TSA Pre. CLEAR, if you have TSA Pre, you jump in front of the line of TSA Pre. Because they take you to the front of the line of TSA Pre. In the US Everything you pay for, it magically gets higher and higher, VIP level. CLEAR, if you have TSA Pre, they will jump you in front of the TSA Pre line. Effectively, you’re jumping in front of the TSA Pre line, so you go even faster. I have to be very honest, if there’s anyone from CLEAR that’s listening to this, you guys should be paying attention to the quality of your ground service and the staff that you have around there. I know it’s difficult to hire people and staff and all that stuff. But I’ve had at least two significant issues with CLEAR staff that are just unacceptable. It’s like just rudeness, aggressiveness that I would expect maybe from an immigration officer that is really pissed off. Not from someone that is providing a paid service. That is really a nice-to-have service at the end of the day. I’ll leave that note. It’s great to jump in front of line. I’ve had a lot of great positive experiences, but I’ve had two experiences that were very negative with CLEAR staff over the years. I think they were both at San Francisco Airport at SFO. Anyway, I don’t remember names of people. I won’t name them, but definitely very negative experiences. Bertrand Schmitt THINGS WE TRAVEL WITH Going to different topics. In terms of luggage, what do you do, Nuno, typically? Nuno Goncalves Pedro If you guys see the guy that has a bag that looks mysteriously a little bit too big to put inside the plane, that’s me. I don’t like check-in bags. I’ve only had like two lost bags, I think, or three, maybe in my life. I don’t like to check in bags, though. I’m a RIMOWA guy. I know they’re expensive, but they last a lifetime, literally. I mean, I’ve had a RIMOWA… Bertrand Schmitt Which one? Nuno Goncalves Pedro They use the Cabin Plus, which as the name indicates, it’s a little bit above the size of a cabin bag. They literally call it Cabin Plus. Basically, the way it works, it’s very simple. If you don’t have to go check in at the counter and if you go straight to the gate and if you either have tierage with the loyalty program for the airline, or you’re flying in business or first class, nobody will bug you. They won’t make you check the bag, they won’t make you weigh the bag, et cetera. They’ll just let you in. I mean, that’s the ultimate hack. They’ll just differentiate based on your tierage if you’re flying in business or above. My experience over the years is they don’t bug me. I’ll just bring in my Cabin Plus bag. I have two Cabin Plus bags from RIMOWA for reasons I can’t really explain. Then one of them I’ve had for 15 years. It’s travelled with me all over the world. Back when I was in Asia, I already had this bag. I mean, it’s a pretty incredible bag. It’s aluminium. It withstands a bunch of stuff it gets the marks on the aluminium, but I think it’s part of the passage thing. Then I normally carry a backpack. I don’t remember what’s the brands of the backpacks I’m carrying right now. I have a Troubadour, that’s my smaller backpack, which is very nice, very clean, very nice looking. Then I have another one, I forget the name, which is my bulkier one. For many years, I travelled with the TUMI backpack which is a classic. The black one backpack. Bertrand Schmitt I have the same. I used to have blue, and they exchanged for black. When you have an issue with your bags, they exchange with a new one. Nuno Goncalves Pedro RIMOWA, also I think my 15-year-old bag, the only issue I’ve had was I had one of the things that opens the bag at some point started breaking, and so I had it switched. But you pay for it of course, if you’re past warranty, which I was. But it wasn’t super expensive and it looks brand-new thing. It’s brand new except as I said with aluminium you get the dings on the aluminium, which I feel it’s part of the game. When I initially got one, I was like, “I just got this ding on my aluminium bag that I just bought and it was so expensive.” But then you get used to it, the rite of passage, et cetera. But almost all my big bags are RIMOWA. I have a big one that I rarely use. It’s only for big trips, which I forget the name of it, but it’s I think the largest bag that they have also in aluminium. Bertrand Schmitt Me actually, I must say I’ve changed quite a bit of approach. I used to be big on TUMI for the travel bag, but recently I discovered that they are adding 2 or 3 kilos versus the lightest bag you can get. Nuno Goncalves Pedro Yes. Bertrand Schmitt Now I have the opposite approach. Which is what is the absolutely lightest bag I can get. I want the lightest for two reason: one is they start to bug you in terms of your bag weight and stuff because you are not business, you are not big on their loyalty program, you are travelling just regular, economy, or economy premium. They might bug you on economy premium. Then saving 2, 3 kilos can make a huge difference fitting their limits. Especially in Asia where it can be very little. That’s one, and two, I want to be careful. I had back issues and stuff, so now I just want the lightest bag. I mean, there will be some stuff I will bring anywhere. I’m bringing usually a lot of electronics, so my bags are heavy, so I’m trying to get the lightest possible one. What I notice is that if I want the absolute lightest bag luggage, typically it will come with no brand. I move from TUMI to Travelpro to make sure I have the lightest bag, full stop. Nuno Goncalves Pedro Yes. I was a Samsonite guy, and then I was a TUMI guy, and I played around with a bunch of brands, and I ended up with RIMOWA. I know they’re not the lightest, but they’re also not very heavy. People always say, “Because they’re aluminium, they’re very heavy.” It’s actually not really true either. For me, the must is the four wheels. The four wheels from RIMOWA are exceptional. It’s like the Asia thing taught us, four wheels are better than two. You can put your laptop on it as well. You have your laptop on top of the bag, and you’re just moving at the speed of life through the airport, in and out. To your point, the back obviously suffers a bit if you have to put the bag up. I have to be honest, I’m normally kind if there’s something that needs to be done to the bags at some point. Not only I help other passengers, but for my own bag, I never let anyone touch my bag, including the flight attendant, because it’s so heavy. I don’t want to hurt them. I help them push the thing up and whatever to close it if it’s one of those. Bertrand Schmitt You don’t want them to notice you are way above. Nuno Goncalves Pedro Yes. I also don’t want them I’m way above the weight, but I do want to help. Bertrand Schmitt Just in case they suddenly become nasty and stuff? Nuno Goncalves Pedro I do help. Bertrand Schmitt Like you, I would do my absolute best to always travel with cabin luggage. It’s only now when we travel as a family that sometimes for some family trips we have to have a bigger luggage. That’s usually the ones that might get lost. But yeah, by default good four wheels, something that is cabin, and a backpack that you attach to your travel cabin luggage. That’s the best combo, no question. Nuno Goncalves Pedro I have to be honest, I only started putting AirTags on my luggage—I’m a bit of a late adopter on that—a couple of years ago. I know a lot of people have been doing it for many years and having it maybe for a year and a half, 2 years, it’s more recent for me, but it’s God sent. I mean, you can serve nowhere it is. Bertrand Schmitt To do AirTags? Nuno Goncalves Pedro Yeah. Bertrand Schmitt Yeah, no question. Usually I try to have one in every luggage, and sometimes that helps because if you complain with a luggage issue or something, or someone tried to pick your luggage, it adds peace of mind. Let’s put it this way. Nuno Goncalves Pedro Yes, maybe moving to clothes and shoes, what’s your program for that? How do you travel with them? How do you pack them? I just roll my stuff in, and I normally go with two pairs of shoes if it’s a longer trip. Some all bird stuff, and some more formal shoes. One will be on the luggage, one will go on me. Bertrand Schmitt Yeah, it’s one typically, you have no other choice. For me, it really depends. Is it a business trip, vacation trip? Is it a hiking trip? Then it’s trouble. That means a bigger luggage. Nuno Goncalves Pedro I roll my stuff in. Over the years even I find a way to do that for shirts, et cetera. Then what I do is… Most of the hotels, shockingly enough, do have irons. If they don’t, you can ask for one. Normally, they will bring you one, and I’ll just iron my clothes and get everything done. Trousers, everything else, and shirts. Bertrand Schmitt Usually I try to have a shirt jacket that are supposedly iron-free up to a point I guess. I’m usually very careful. I have small pouches and stuff to put clothes in inside my luggage. Usually, I already fold them carefully. I have these travel systems to put all my stuff carefully. Usually, it’s not too bad when I take them out if they are iron-free, wrinkle-free. It can be okay without iron. As you say, every hotel will give you an iron if you call them. Nuno Goncalves Pedro I am the guy who jumps on my bag to close it. That is even more of a testament for the RIMOWAs. They’re so full of stuff. I think I travel pretty light, but sometimes some of my trips are a week. I’ve been on trips as recent as this year, that were two weeks and a half. I try to optimise. At some point I might have to do some hotel cleaning, which is the most expensive activity of all time I think. You might as well buy new clothes, to be honest. That’s how expensive a lot of the cleaning is. Bertrand Schmitt Yes, it’s very unacceptable. Now I try to be more careful and not end up with any cleaning because… Sometimes you have no choice but it just… Nuno Goncalves Pedro Sometimes there’s no choice. If you’re 2 weeks on the road, there’s nothing you can do really. Bertrand Schmitt Yeah, exactly. If you are 2 weeks. But now if I’m travelling a week or 10 days, I try to see how I can optimise it. Just unreasonable. Nuno Goncalves Pedro Sleeping, what’s your game on sleeping? Bertrand Schmitt For sure, I have a sleeping mask. I will take sleeping pills, but very light ones. I’m absolutely not taking anything that is not over the counter. I’m very careful that if I have longer trips and big time zone change, I will usually take the Tylenol PM. One thing I’ve learned, don’t drink alcohol with that. Don’t take that wine of glass in the plane because that’s a really bad combo. I finally read the notice at some point and it’s a bad idea. Now I understand why I had these nightmares and stuff. Be strong and don’t drink any alcohol with that. I would do that flying and maybe one or two nights after flying if there was a big change of time. If not, I would take some even lighter ones. Nuno Goncalves Pedro My process for sleeping is, first, I don’t sleep on flights very well. I have to be extremely tired to get any sleep on a flight. Which makes sometimes the point of even being in business class a little bit moot because you’re not going to sleep. The good news of that is I arrive at the place I’m in, and I just adapt to that place immediately. I go into that time. I think red eyes can be a bit of a killer if you get in the morning at the other place. But if I get in the evening or the afternoon, it’s very doable. That first night I normally sleep very well. To your point, the second night’s normally the trickier night. In particular, if there’s big time differences and I haven’t found a magic way of dealing with it. I really don’t. I started wearing a sleeping mask very recently. Maybe 2 years ago I started wearing sleeping. I never did. It bugged me. Obviously, being a nerd, I ended up looking around for several sleeping masks, and I ended up with this sleeping mask called Manta Sleep.  I have a few of them, one at home, one that goes with me on the road. I actually may have three of them. But anyway they’re very nice. They’re a bit expensive, but they’re very nice. Then I use AirPods on my ears. At home, I use I think it’s Ozlo, O-Z-L-O, and I put some background noise for a period of time, and then I sleep. Then there’s a really good brand. I forget the name of the brand. I think they’re Finnish. They’re expensive and they don’t put any sounds. I think they’re as expensive as Ozlo, and there’s no sound on it. It’s just white noise. But they’re really good. I take them on the road with me. Those are the ones I take on the road. Ozlo are the ones I use at home. They’re called QuietOn, and they’re quite expensive, but they’re really good. They eliminate a ton of noise. The first time I used them, my alarm clock went off, and I couldn’t hear my alarm clock. That’s a little bit scary. I had to put my phone closer to me Bertrand Schmitt I’ve never used that type of stuff. What I use, however, because I try to sleep in the plane, and that’s why I need my sleeping pill in the plane. I would use my noise-canceling headset, but if I’m not in the plane I don’t put anything in my ears. I usually have no problem sleeping. My issue will be there is too much light in the room. That’s why I started to use sleeping mask, which of course you have to use in the plane, but I will use in other places if there is a risk that the room is too bright because that will wake me up. Nuno Goncalves Pedro Yeah, I started using it recently. Both things, both sleeping mask and earbuds. AirPods thing for sleeping. As I said, Ozlo and QuietOn. By the way, I have no participation, no investment in any of these companies that I’m mentioning. I just use their products, and they’re pretty cool. Bertrand Schmitt I bought the Ozlo for my wife. Nuno Goncalves Pedro It took me a while to get used to the Ozlo. It’s a bit quirky also on how it activates, in particular on the iPhone. But it’s been life-changing for me. I really do sleep better with those devices on. I don’t take pills unless I’ll indulge in the odd one NyQuil pill if I’m coming to a cold and take the leverage of that and sleep very nicely that evening. But I try to avoid pills as much as I can, and I can’t sleep on planes anyway, so I just avoid it altogether. Electronics, I used to carry a lot. I used to carry like three phones, switch phones on the road. I had different numbers for different countries I was in particular when I was in Asia. That is no longer true. I fly with one phone now, normally, unless I go to Portugal where I have my local phone as well and local numbers. I normally travel with that. As you guys probably remember, I collect phones, so I just need to select what’s the phone I’m going to take this time around. But USB-C changes for Europe have changed everything for us. We have to thank the European Commission for that because now everything’s USB-C C really. Even the iPhone. Easy to travel with that. I travel with a Fire Stick right now, an Amazon Fire Stick, also very recently just to go on watch whatever things I have and not have to log in every time, and then clear out every time and all that stuff. To stream from the room, particularly for domestic flights, to be honest. Then I have my laptop with me typically, which is a MacBook Pro. I, some point considered flying for shorter trips just with my iPad Air. I think that’s the last I have, and I somehow don’t quite do it well. I think I need to improve on that. I still have to fly with my laptop. I stopped taking my iPad Air because it’s just added to it. I do fly with my Kindle. I’m not sure which generation I have anymore, but it’s one of these basic Kindles. Then I have a bunch of plug adapters because you fly all around the world. I have two nice plug adapters per bag that I have just in case I need to switch stuff in. What else do I have? Then AirPods, I have pros just obviously got the latest version, the Pro 3s, but they haven’t arrived yet. But I had the Pro 2s. If I’m flying with an Android device, I’ll bring in one of the Android earbuds that I have, or EarPods that I have for Android. I have a setup that works for me. I’ve just travel with the same stuff all the time. If I have a rental car, I also have a setup for that. In the US, I’ve travelled with a radar detector. Radar detectors are legal in all, but I think three states in the US, so I travel with that. Not that I go over to the speed limit just to be clear. I just want to know if there’s police. Then as I said, I have the Fire Stick, I have my Fast Track which I use for California if I’m flying between places in California. I think that’s about it. Just the cables to connect devices and all that stuff to the car, et cetera. Bertrand Schmitt For me, I’m a gadget freak, so I usually travel with a lot of gadgets. I used to travel with my Galaxy Book Ultra and a Galaxy S9 tablet ultra as well, 16-inch laptop, 15-inch tablet. At some point I was feeling it’s too much, so I actually combined them both in a new Surface Pro 11. Went back to Dede with a Surface Pro. I must say this one is amazing because it’s an intel one Lunar Lake. It has huge battery life, and it truly works as a laptop or tablet all in one. It was definitely space-saving to use that. I will use typically Logitech MX Anywhere 3S travel mouse with it. That works really well as a combo. I bring my Samsung Z Fold 7 with me as a phone. One thing that I really enjoy doing now is my XREAL One Pro glasses. I don’t know if you try this augmented reality glasses, but it used to be crap. At some point it became okay. Now I must say it’s great. It’s your home cinema replacement, and it’s very amazing in the plane, in your hotel room. Now, if I want my big screen to watch a movie, TV show something and be really disconnected, it’s that plus your headset. You don’t need a headset if it’s not noisy. It has its own sound system. But if you use a headset, if you’re in a plane, for instance, it’s just amazing. For me, it’s totally game-changer. If I’m travelling, I don’t watch movies or stuff like this without using my One Pro. That’s one. I would bring the Nintendo Switch 2 now. I must say that now that they finally made a new one. Nuno Goncalves Pedro Just to be clear, you use the XREAL just for consuming content? Bertrand Schmitt Yes. From my perspective, it’s useless to work. At some point it becomes painful on your head, especially if you are standing straight, like walking. But if you are lounging, it’s very comfortable, or lying on the bed, it’s very comfortable. But that’s not a way to work typically. It’s pure entertainment for my use case. I don’t know how anyone will seriously work with that for 3, 4 hours, but for 30 minutes to 2 hours of movies, it’s just amazing. For me, it’s very interesting because I also have an Apple Vision Pro that I barely use, while I actually use the IZI One Pro. They finally nailed a real good use case. I think the Nintendo Switch 2 is great as a form factor. Finally, 8 inch, very thin, very light. In your backpack it’s not too much. What else? Typically, I would have an E-reader with me. Seven, 8 inch depending, in black and white of colour. What else? I just moved to Bose QuietComfort Ultra second-gen headphone. What I like with Bose versus other options is that it’s very comfortable which I care about if I’m in a long flight, and two. The box is very small. I think it’s the smallest box you can get for a decent headset. In my backpack, there is only so much space once you have your computer, your console, your One Pro and stuff. At some point space is tight. That’s very important for me. Comfort and a small case. Typically, I will also have some other earbuds, some that are close, some that are open, depending on the situation, because these ones are very small; they are just in your pocket, very convenient. I have a Technics EAH-AZ100 for the closed one, and I have some new SHOKZ that are actually very good. I’ve been very impressed that you can use for sports, or if you just don’t want to isolate yourself, the open dots one. Very good. Nuno Goncalves Pedro I’ll obviously bring some devices with me if I need that are a little bit more specialised along the way. There’s only one game that I systematically play, and it’s on mobile. I’ll bring in a nice gaming device out of the collection, and that’s the game I’ll bring with me that would have hopefully a good battery life as well. Something that’s a little bit more of a compromised device that does both good gaming, good pictures, because obviously I’m on the road, so I’d love to take pictures of what I’m doing and where I’m at, even if it’s business trip, but that becomes my all in device to a certain extent, and then the MacBook Pro is the rest of it. Then the Fire Stick adds the extension to the TV, which I think is valuable in particular if it’s domestic flights and domestic travelling in the US. I think over the years I just simplified my stack dramatically on travelling. I remember I was always stopped at ISRO and Frankfurt and whatever. They’re like, “Your backpack is like…” They had many questions about my back. Let’s just say that like, “What is this? Why are there cables here and cables there, and five devices” and whatever. I think over the years I just curated, curated, curated and got to a point where I’m like, actually, “I don’t need to travel with that much stuff.” But a lot of intriguing stuff from your side. The XREAL thing in particular, in terms of that experience, and how do you have a great content viewing experience in particular, for flights now? Because if we are thinking through a lot of airlines, even on domestic flights, you don’t have screens in some flights any more. You have to use your phone, and it’s a pain in the neck to get your laptop out, et cetera. Bertrand Schmitt I used to use a tablet for this honestly, in the past, but now I charge the movies on my phone and I watch from my phone using the One Pro. It’s just amazing. Maybe some other stuff is the power adapter. I used to bring a lot of power adapters, but I have just two-power adapter. I have a 65-watt one that is small, tiny that I would use in the plane typically. I have a bigger one, 100-watt. What’s nice with them is that they have typically three or four outputs. Two or three USB-C and one USB-A. Basically, I reduce dramatically how many adapters I need. That, for me, is very convenient. Typically, I like to have at least two because sometimes in hotel rooms and stuff location might not be great, so you have to optimise differently. Brings you some convenience. And they are lighter than before as well. That’s another thing. If you pick the right ones, it’s a big benefit, and typically, I will have a small power bank, something that I can recharge my phone from. A power bank can be convenient in some situations. This one depends more where I’m travelling.   Nuno Goncalves Pedro I carry power banks on my two backpacks, so I just leave one wherever, and it’s always charged, and I just take them with me. Not huge ones, to your point. I think the only huge power bank that I have that is still TSA approved, so I could still fly with it, I think, at the limit. I forget what the limit was, but I just checked the other day because I had to fly with it, and it was at the limit, but it’s for my racing. Sometimes funky stuff happens to cars and their connection for power to my Garmin Catalyst device. I need my Garmin Catalyst device to work for a variety of reasons including, for racing. You actually have to have a front-view camera that needs to be active and recording in races for issues that may come up with stewards, et cetera, et cetera. The Catalyst needs to be working. I bring in a big ass battery pack in case, for some reason, the car’s lighter is not working because I race Spec Miatas, so the connectivity is not always great. Otherwise, I fly like you with smaller power banks that would cover me for a day. Extra charge for a day, right? Bertrand Schmitt It’s more one or two extra charge for the phone, and usually you find a way to charge it. It’s more peace of mind in that weird situation where there was an issue with your charging port, that sort of stuff. Nuno Goncalves Pedro Mobile and setup. I have to be honest, I was a Google Fi early adopter. My first number actually in the US was a Google FI number, so I chose it. Bertrand Schmitt A long time ago. Nuno Goncalves Pedro The P player of Google Fi, it was a Google Voice number, and then I got Google Fi, and the Google Fi was super useful because they used to have this package that was amazing for you to travel internationally, that you’d pay very little for roaming. At some point, they got wise about it, and they started doing this funky thing, actually not very cool, which was to say “Oh, we’re going to suspend your international access.” I’m like, “Why? I’ve been using it, I’ve been paying for it, so why can’t I use it?” They’re like, “Oh, you’re not using it nationally, so we won’t allow you to use it internationally.” They did this to a bunch of people, so I don’t use my Google Fi to be honest, much any more. AT&T now has the daily passport thing, which is expensive-ish. Bertrand Schmitt Ten dollars per device. Nuno Goncalves Pedro Maybe it’s $10 per device or $12 now, I think it may have gone up, I’m not sure, but it’s limited to 10 days, I think. In 1 month, 10 days and after that you don’t pay more. It’s a 120-day cap thing. I think it’s now $120. Bertrand Schmitt It’s $10 per line, but I think there’s also a limit. It’s up to two line after that it’s okay. Since I started using that because it gives you unlimited data wherever you are I just stop bothering optimising. I’m just, “Okay, I’m going to pay.” Nuno Goncalves Pedro There’s no point to optimise. Bertrand Schmitt It’s $10, and if it was 20 whatever, but it’s unlimited, so you just don’t care. Nuno Goncalves Pedro I keep my Portuguese number just for more honestly historic reasons. I guess fondness of it. I don’t need it either. It’s just honestly with the Daily Passport things and whatever with AT&T it’s like it’s fine, it’s easy, it’s not super cheap but as you said it’s unlimited, so it’s like you’re just running as if you’re in your own country, and it works well instead of optimising for all these different apps that you have out there that will provision eSIMs and do all these kinds of things I’m like it’s fine, I’m happy with my setup. I don’t have a VPN service. I used to get VPN through Google One, then they stopped the service. I’d used TunnelBear for many years, which was pretty good. I used a bunch of VPN services in China that I shall not name. Recently, I haven’t really used anything. I haven’t found a significant need to know to use it. I have a phone that has an embedded service, the Punkt. There’s a Punkt. MC, I think it’s the MC03, one of my phones that has an embedded, for privacy reasons, an embedded VPN service for Asia, I think it’s Japan, Germany and US. I think it’s something like that. I haven’t found a great use for it. If I’m in Europe or if I’m in the Middle East, having access to Netflix US or whatever, cool. I haven’t found huge amounts. I don’t have much time to consume content normally when I’m on the road anyway, so I haven’t found a use case for it. Bertrand Schmitt I just started to subscribe to Mullvad VPN, very, very privacy-focused VPN. For me, some security, some safety, as you say, some access back to the US. I must say there’s a new product I started using called Tailscale, and this one is more your own VPN between your own machines. It’s very, very interesting product, and this one, so it has benefit if you have computers in the cloud, if you have a home network, and you want to access from anywhere, that’s very, very convenient. Tailscale is based on WireGuard. Again, it’s not your typical VPN service. It’s more for your own VPN between your own machines. Nuno Goncalves Pedro Anyway, no VPN for me right now. Maybe I’ll adopt Mullvad as well, because Bertrand is doing that, and I trust Bertrand. Maybe not, we’ll see. Other accessories that I carry around? I don’t think I have much stuff that I carry around. Obviously, I optimise for clothes, travelling light like yourself, Bertrand, as we discussed, I’ve probably curated a little bit more my electronics setup in the last few years. Is there anything else I carry with me? I already mentioned all these funky things like the radar detector for US and whatever, which is a little bit weird. I know, guys. That’s about it. I don’t think I have much stuff. I have a little see-through bag I forgot about. I bought on Amazon at some point. That’s very nice looking, and it’s hard-to-see-through bag, so that I don’t need to get all these. I used to have to get all these little baggies and stuff, and I’d normally get them at the airports actually, to carry my liquids, and now I just have the see-through one that I bought a few, and I’m on my second one. I’m about to get my third. I think that’s the only thing. Then I have obviously one bag that carries all my electronic stuff for hygiene, like your electric toothbrush, all the stuff you need for your hygiene. Carrying another one. Bertrand Schmitt I have one hygiene bag and I have two small electronics bags. For the chargers, cables, adapters, which takes some space and weight, I must say. Nuno Goncalves Pedro Quite a bit. Bertrand Schmitt It’s definitely not neutral. Nuno Goncalves Pedro I know this is going to sound really paranoid. I started doing something, maybe, I don’t know, maybe 2, 3 years ago. I don’t know why I started carrying. Obviously, in the US, domestic flights, you can carry your real ID, driver’s licence, so you don’t need to carry passports. Some of you might know I’m a dual citizen, and so I actually carry both my passports with me now, even on domestic travelling. People are like, why? I was like, I don’t know, why not? I don’t know where I’m going next. In principle, I’m going back home. I think some of the incidents of the last few weeks in the US, travelling abroad in particular and coming back and all that stuff. I’m like, “It’s not a bad idea to carry our passports with you both.” Anyway, it served me really well at some point. This was on an international flying. I was flying around, and I was going to all these countries that the US visa waiver with.  I was doing the round the world trip. We were talking about around the world trip, and I had to go through Istanbul, and I was actually having a couple of meetings in Istanbul. I went to the immigration officer with my American passport, and he looks at the passport like, “Where’s your visa?” You can get, I think, a visa on arrival or something, but where’s your visa? The guy turns to me, he’s like, “Do you happen to have another passport?” That’s a random question. He’s like, “Yeah, I have another passport. Would this one work?” Which was my Portuguese passport, and he’s like, “Yeah, your Portuguese passport works.” I entered with my Portuguese passport into Istanbul. No visa needed, whatever. Fine. Good. Bertrand Schmitt That’s a bad surprise if you forgot to pick up the visa. Nuno Goncalves Pedro That was good. I don’t think that’s when it started. I think I’ve been doing it for a while. Even when I fly domestic, which again, I wouldn’t need my passports when I fly domestic, but I fly with my passports. Bertrand Schmitt Usually, there is some benefit because you never know if there is some urgent travel that you need to do. You want to fly directly from where you are. If you don’t have your passport with you, you are stuck potentially. I think there is value. Nuno Goncalves Pedro Maybe it was the COVID thing. If you remember, we started having all these travel bans with COVID early on. I guess I got a bit jittery as well. I don’t know. Maybe that was the thing that started. Cool stuff. Then credit cards. I have my usual credit cards. Sometimes, if I go to countries that I spend more time in, like Portugal, I will bring some of my local cards with me. I’ll have a different wallet for that. I have these flip wallets that have a limited number of cards. You can carry like eight or something, and then you have stuff on the side, so I don’t have like a proper wallet any more. I’ll just switch. Like if I go to Portugal, I have a couple of cards that I only use for Portugal, et cetera. Otherwise, that’s it, and then most of the stuff now is on the mobile phone anyway. I do have to say, sometimes I will either print or get a printed version of my boarding pass. I guess that makes me a bit old somehow. It’s like the ads. You’re becoming like your parents. I just like to have the physical boarding pass in case. Honestly, I carry everything on my phone, so normally it’s not a big deal. Bertrand Schmitt I think that the benefit of the phone, I see the phone as a backup. That’s true. That, for instance, I have all my cards on my phone as well. In case I lose my wallet, I have my phone and vice versa. I have a Ridge wallet, like you said, something where you can put maybe eight cards in it, and that’s it. I like it because it’s the smallest wallet you can get. For me, that’s very efficient. Initially, I was like accept to have a wallet like this. It was a gap versus a traditional wallet, but it’s so much better for me. I never went back to a regular wallet. I must say. I’m not an optimiser on the credit card, but maybe I should. That’s one thing. Maybe I should optimise more. I don’t have an American Express, for instance, so I never bother. Nuno Goncalves Pedro I have an American Express, but that means that when I travel international, I have to make sure that at least I have a debit card, for example, Visa or MasterCard, because a lot of countries don’t support much American Express. Bertrand Schmitt That was my issue with American Express: Is that you cannot use it everywhere. That’s why I didn’t bother. Having a second one as backup could make some sense in case there is some whatever issue. One last piece of tech, I have a Yubico Key now. Basically, it’s in case I lose my phone. I would be truly in trouble for authentication on a lot of service. With my Yubico Key, it’s a backup, basically. I can authenticate to any service without my phone. For me, that’s an important backup when I travel. Nuno Goncalves Pedro I have a Ridge wallet as well, but I have a bunch of wallets, and the Ridge is probably the one I use the least and then the one I like the most. Probably it’s a similar format to the ones that pop up, that you have the little button that pops up the cards. It’s a Porsche design wallet, so I quite like it, and it has a little bit of space where you could put a little. Some bills if you’re in some country where you need a little bit of cash, not it doesn’t carry too many, to be very honest. I like that. That’s basically it. For a nerd, I think I’ve simplified my setup a lot. I used to travel with my own cameras and whatever for the video calls, et cetera. Now, the MacBook Pro has such a good quality camera, and then your phone is such a great quality camera. Why would I do that? I’ve simplified it greatly. Bertrand Schmitt There are questions. If you want a bit better camera, if you want a bit better mic, that’s the one from your headset. I’m the same; I’m trying to simplify. As long as the camera quality is good enough when you are travelling. It really depends. If you had to do a proper professional recording, obviously, you will travel with some other stuff, but if you don’t, I would try to keep it easy. I have a Fujifilm Camera that I use if I travel for vacation. If I have this one, it can double as an exceptional webcam, so I can do that if I want. Typically, I don’t have to mix too much of the two, and it’s usually not really that necessary. CONCLUSION I hope you had a good episode with us. Nothing was sponsored, to be clear. It’s just our personal preference over the years. Travelling in terms of airlines, airports, lounges, fidelity programs, luggage, electronics. What do we do to simplify our life? Build our home away from home when we are travelling, and I think when we travel quite a bit, it’s really nice to have one on one side or all the stuff you need to feel like at home, and at the same time what I think is nice is to try to keep some consistency. Always travel more or less with the same stuff. Make gradual change if needed, but have some routine that makes your travel easier and safer. Thank you, Nuno. Nuno Goncalves Pedro Thank you, Bertrand.

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. Navigation: 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 Subscribe To Our Podcast 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.

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 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 Bertrand SchmittWelcome 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 PedroI’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 SchmittSure, Nuno, feel free. Nuno Goncalves PedroGood 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 SchmittNo idea. Nuno Goncalves PedroThe 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 SchmittNice. 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 PedroMy 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 SchmittNot the same. Nuno Goncalves PedroMy 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 SchmittThey do washing machines. Nuno Goncalves PedroIt 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 SchmittDoes it still work? Nuno Goncalves PedroThat 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 SchmittMaybe it does value as an antique, actually. You never know this kind of stuff. Nuno Goncalves PedroYes. Bertrand SchmittMy 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 PedroThat’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 SchmittMaybe 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 PedroDefinitely 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 SchmittI think so. Long ago. Nuno Goncalves PedroThey did go to hell at some point. Bertrand SchmittYes. 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 PedroCompaq 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 SchmittI 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 PedroIt’s not a smartphone. Bertrand SchmittThat’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 PedroI 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 SchmittI 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 PedroMy 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 SchmittI can’t say watches changed my life. Nuno Goncalves PedroSomeone 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 SchmittThat 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 PedroThe 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 SchmittThere was much more experimentation. Nuno Goncalves PedroExactly. 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 SchmittIn 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 PedroOn 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 SchmittI’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 PedroMy 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 SchmittThat’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 PedroI 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 SchmittMaybe 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 PedroI 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 SchmittYeah, 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 PedroYeah, 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 SchmittDrive by Villa. It’s amazing. Nuno Goncalves PedroI 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 SchmittInteresting. 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 PedroFrom 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 SchmittInteresting. 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 PedroOn 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 SchmittContinuing 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 PedroFrom 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 SchmittInteresting device, and it looks quite small I must say. Nuno Goncalves PedroIt is pretty small. Bertrand SchmittMy 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 PedroLet’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 SchmittCompletely overpriced. Nuno Goncalves PedroSuper, 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 SchmittNo, 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 PedroI 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 SchmittOh, I don’t want to know. Nuno Goncalves PedroYou 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 SchmittNo, 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 PedroThe 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 SchmittYes. 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 PedroYes, 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 SchmittSo how did it work? You could open the keyboard. Nuno Goncalves PedroYes, so you’d open. It was very. The width was shorter, and when you opened it, it slid open. Bertrand SchmittIt slid open. Oh, well. Nuno Goncalves PedroYes. So it was like… I think they call it butterfly. Yeah. Bertrand SchmittOkay. Okay. I realized I didn’t know this device. Nuno Goncalves PedroIt 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 SchmittYes, 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 PedroMy God. Yes. Awful. Bertrand SchmittI 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 PedroWell, 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 SchmittYes, 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 PedroIt was nothing. Yes. Bertrand SchmittIt was just dead on arrival. We saw apps in 2011, 12 was not okay. Nuno Goncalves PedroTalking 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 SchmittThe 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 PedroIt was so clunky, though. It worked. It was clunky. Bertrand SchmittIt 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 PedroOn 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 SchmittYeah, 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 PedroFrom 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 SchmittYes. 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 PedroNo, no. Bertrand SchmittI 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 PedroWhat 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 SchmittYes, 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 PedroWell, 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 SchmittThe 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 PedroIt’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 SchmittI 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 PedroIn 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 SchmittThank you, Nuno.  

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 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 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.  

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 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 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.

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 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 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.  

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 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 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.  

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 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 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.  

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 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 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.  

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 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 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.    

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 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 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.

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 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 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.

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 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 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.

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 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 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.

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 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 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.

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 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 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.

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? Navigation: Intro (01:34) Overall… TL;DR 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 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 newsIntro Subscribe To Our Podcast 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.

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 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 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.

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 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 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.  

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 Subscribe To Our Podcast 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.  

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 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 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.  

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 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 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.

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 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 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.

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, @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 Subscribe To Our Podcast Intro Bertrand Schmitt Hello. 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. Pedro Let’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. Pedro Augmented 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. Pedro Mixed 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. Pedro I 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. Pedro Finally, 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. Pedro Again, XR; extended reality, AR and MR, very similar. The distinguishable pieces, they’re both using real-world and virtual-world elements. What normally makes the distinction between AR and MR is that MR is more interactive, AR is more static type of experiences. Finally, you have virtual reality VR, which is the fully immersive piece.   Bertrand Schmitt Yes, Nuno. I think I’m a bit with you, I’m a bit old school in term of AR versus MR versus XR. I certainly make a big difference with Zeus and virtual reality in the context of for me virtuality is you don’t see the rest of the world, you don’t interact with it, you don’t care, you are fully immersed. That for me is clear and I will say everything else is probably packed together in my mind.   Bertrand Schmitt I think it might have come originally from, as you say, some devices that were able to do just very basic AR, adding some stuff on your regular glasses and that was it. But I guess pretty early on people realized there was not a lot of use for that. On top of this, a few distinctions we can make between a lot of these devices. Some of them require a PC to work or sometimes a smartphone and some others are fully independent, wireless typically as well and basically don’t require anything else to work.   Bertrand Schmitt Obviously, that create typically some issues because a PC can be made very powerful if we want. But if you have to wear this device on your head and it includes CPU, GPU and the like, it won’t have the same ability in term of graphics. I guess you can argue that’s where Apple’s magic to reuse the CPU and the Vision Pro might make a difference.   Bertrand Schmitt But typically, there is a big difference in terms of computing power in all this independent headset and that has been well exemplified. We’ll talk more about it with the Quest from Facebook that has cute graphics but definitely not too advanced graphics.   Nuno G. Pedro Before we move further into this realm of AR, VR, MR, XR, etc. Maybe just a quick reminder, why does it matter? It matters because this is part of the domain of input and output. The domain of input and output, some people might have heard of it as I/O. Many will know because of Windows errors, right?   Nuno G. Pedro I remember there were I/O device errors all the time on Windows in the good old days that we would see in those beautiful green screens and before that on DOS and all that stuff. I/O is, as the name indicates, input and output. Output is what you see. So it’s like your screen, it’s a manifestation, it could be your goggles. It’s something that you see basically that you are observing. It’s an output of what’s happening.   Nuno G. Pedro A printer is also output because it prints, there’s something coming out of it that then you can actually observe or take a look at or do whatever you want with it. That’s the output side and then the input side are things like your keyboard, like your mouse, like a trackpad, etc. The reason why AR, VR mixed reality matter dramatically is that they are leading or they will eventually lead when they have a lot of adoption. They will lead to a fundamental shift on how input and output is done.   Nuno G. Pedro Input and output today is done on the move. In particular, it’s done through your smartphone. The input is done on the screen of your smartphone, it’s done through voice, it’s done through other mechanisms and then the output is what shows on your screen and a variety of other things that you can link to that screen.   Nuno G. Pedro The limitation today is you have these devices that sometimes look maybe way too big, but the limitation is still on the device. Actually, if you look, for example, at battery consumption on smartphones today, most of that battery consumption is on the screen, on the screen usage. So wouldn’t it be wonderful if we didn’t have that limitation defined like that?   Nuno G. Pedro Wouldn’t it be wonderful if people like myself and others that basically use glasses so Bertom myself, for example, would fit into that, could do something with our glasses that is not just see through them so that we see better the world, but could we add other things to it? Could the output be more interesting?   Nuno G. Pedro The reason why this fundamentally is important is if AR, VR, mixed reality takes off and before we talk about it taking off in terms of content, it needs to take off in terms of devices. If those devices take off, the world changes. The way we interact changes as it did when smartphones took off. That’s why this is interesting, that’s why this is super exciting.   Bertrand Schmitt Yeah, the world changes or we create a new world, a separate world. Some will call it the metaverse. Going back in a way to input output, in term of devices, we talk about the difference where you have independent device headset or you need a PC. There is also the big question of outside-in tracking or not. Outside-in tracking means like you track it from the outside world.   Bertrand Schmitt Typically early on, as it was used, there were base stations that were required in order to find where you are in the virtual world in your room, trying to position you in the virtual world and step by step, starting with the Oculus Quest, I guess, to have the first inside out tracking. So tracking done from your headset itself, so your headset having its own cameras and from these cameras trying to create a picture of the world and a position in that world.   Bertrand Schmitt So that has been the approach used by basically most independent from the PC headsets and the Apple Vision Pro will be also an example of that. So the benefit of this approach, obviously, is that you don’t need to set up your room. Having done that, I must say it’s a hassle. When you have to start installing stuff either on your desk or in your room, you start to run wires, you have to have additional stuff you probably already kill how it’s going to spread as a device, pretty big time. The more cables and stuff you need.   Nuno G. Pedro Yes. At the end of the day all of this is only purposeful as any device in the world, if there’s content. We’ll talk about it later today, but it’s only cool if there’s something fantastic that you can do with it. But irrespective of it’s, a new world that’s being created, a new reality that’s being created or not, this could fundamentally shift everything that we do.   Nuno G. Pedro We could at some point, maybe a decade out, maybe two decades out, I’m not really sure all be using devices that look a lot more like what we see today, that we used to see in science fiction. Unless these sort of mobile devices that we have today with this limitation on screen and this limitation on how we do inputs into it, etc.   Bertrand Schmitt To finish trying to explain how it works. The other piece of the puzzle, obviously, is how do you interact with this virtual world with this augmented reality? So some started with dedicated controllers, and that’s typically what you get with most headsets today. But Apple is launching probably the first headset without dedicated controllers and basically just requiring your hands, voice and eye tracking to interact with the world.   Bertrand Schmitt So obviously, a way that is way more natural than requiring dedicated controllers. These controllers, they look like a big console joypads, joysticks, one for each hand. So pretty cumbersome typically to use and not prone to really immerse you in the way that just using your hands and eyes and voice could immerse you.   Bertrand Schmitt Definitely they were not perfect for that. But I guess there were also a way to limit cost because the more you add stuff to the headset, the more you increase cost, the more you increase heat, the more you decrease battery life, and the more expensive it is to build. Section 2 – The last (lost?) decade Nuno G. Pedro But we’ve been going at this whole AR, VR, mixed reality thing for some time now, easily over a decade and a half, much more than that, probably. So what’s been happening? One, there’s been obviously, a lot of investment, particularly in devices.   Nuno G. Pedro We’ll come back to some miserable failures, but probably people will remember one of the biggest successes, which was Oculus and its acquisition by Facebook, which was for around $2 billion in 2014. There were also a lot of failures around the way. A lot of people probably remember the fanfare of Google Glass launch.   Bertrand Schmitt Yes.   Nuno G. Pedro I still have a pair. I fought so hard to get that pair, and it launched in 2013 and it seemed like a great idea and it was super limited. The battery is still limited and it didn’t quite work out very well.   Bertrand Schmitt I think Google Glass launched 10 years ago, were a great example, actually, of a pure AR device in the sense of this virtual world that you display on your glasses doesn’t interact with the physical world at all. It’s just displaying on top of it some information. It’s not connected to what you are seeing it’s not adjusting itself to what you are seeing, just adding stuff on top.   Bertrand Schmitt It was very limited in term of what you can view. Personally, myself, I always questioned the value ultimately. Obviously, there was this huge painful effect of how crazy do you look when you wear them and you are outside in the real world. That will be a question that all these manufacturers are trying to answer. I will say that it’s probably one of the very few ones that try to be advertising itself as something you could use in the outside world.   Bertrand Schmitt Not at home, not in a plane, but really just out there walking in the street, going to a restaurant. If we remember, that created actually some significant backlash in public place where people realise that if you wear these Google Glasses, maybe you are constantly recording people, you have even no idea that you are being recorded.   Bertrand Schmitt So that created a lot of questions about how do we want to live as people. You could argue today with smartphones in every pocket, everyone can be recording all the time, but typically at least you see that someone is specially using their phone to record you, to record around you, and you can take action or not. It’s not an assumption you are always on recording and you don’t even know if people are recording. Infamously, some people will say Google Glass were killed by Robert Scoble taking a shower with them.   Nuno G. Pedro No, poor Robert. He’s a friend. It wasn’t his fault.   Bertrand Schmitt No, of course. No. But maybe people started to realise that if this device you are supposed to wear anywhere, you bring it to the shower, maybe it’s a dead end.   Nuno G. Pedro Yeah, there’s been some companies that have failed miserably in their own right. We’ll get to the big ones in just a bit, but I remember ODG. Many people probably don’t remember ODG.   Bertrand Schmitt What is ODG?   Nuno G. Pedro It’s Osterhout Design Group. It’s a company that did their own devices. They got a bunch of money from Microsoft, I think, 2014 for their IP. Many say some of it was used on HoloLens, others say maybe not. Unclear how much that IP was used, but I think they paid 150 million for that IP. So the company wasn’t bought, just the IP was bought. They came back to the table and tried to become a product company again.   Nuno G. Pedro I believe they raised quite a bit of money, maybe 58, $60 million, led by 21st Century Fox or 21st Century whatever it was called back then in 2016. Then the company effectively ended up, from what I understand, imploding. They tried to do a patent sale again because they developed obviously, new IP. After the IP that they sold to Microsoft back then, I believe they just actually fell apart finally.   Nuno G. Pedro The company exists for 20 years. That’s pretty impressive stuff. They had a great product. I remember testing it, etc. They had a great product, but it was a bit clunky. It was very difficult to attract developers for it, content developers, app developers, etc.   Nuno G. Pedro So that’s one that I remember that I was personally in some ways. I wasn’t involved in. We didn’t invest in that company, but I certainly saw what the company was doing. But there’s other miserable failures and maybe the biggest of all is what, Magic Leap?   Bertrand Schmitt I must have always been suspicious about this business since I’ve heard about them. It looks sketchy from the get-go, at least from my perspective. I didn’t look at the deal itself, but from far it just looks sketchy in term of science, in term of promise, in term of potential breakthrough, all from people who at least some of them didn’t look so inspiring and too focused on the marketing side.   Bertrand Schmitt Some people try to copy Apple for the marketing for instance, but don’t realise that they need to also do the same level of R&D in software, in hardware. So Magic Leap actually raised 3.5 billion for a consumer device. They might still exist today, but in a much more limited scope, more B2B, focused. I think, and we will talk later about it, there is always this question of do you do a glass first type of device?   Bertrand Schmitt So real glass that lets you see the world through it, but then something is added on top of it by external mean? Or do you do a camera virtual world first? I think it’s a very big difference in philosophy. Both HoloLens and Magic Leap and Google Glass went through the glass first type of approach trying to project additional stuff.   Bertrand Schmitt Rumors says that Facebook also believe in that approach, even if they have not launched such devices. Ultimately this approach have been failing because technology is not ready. We’ll talk more about the Apple Vision Pro. But for me that’s really what’s interesting with Apple approach. Is that they acknowledge that if you want to go anything beyond VR, AR, MR, XR, you cannot use simply glasses, you need to go with cameras and you need to project everything on your virtual screen.   Bertrand Schmitt Ultimately, Magic Leap failed. I’m not sure how real was their tech, but for sure is that they didn’t manage to make it a consumer device and there is probably to be frankly, little hope to do a brand new consumer device where the tech is totally unproven and where you need new type of apps and where you need new SDKs and new stuff from an upstart.   Bertrand Schmitt I think there are ways and we’ll talk more about some players like Big Screen Beyond or Varjo that have a much smarter approach. Not trying to trailblaze in term of technology but do what’s the best possible with your current tech.   Nuno G. Pedro There’s still dramatic investment in the space. Google’s been a little bit off the news on this, but obviously, Facebook has injected a tremendous amount of capital.   Bertrand Schmitt I mean Facebook, we’re talking about 10 billion a year for their reality labs division. These are insane numbers. When you see the output, I would say it’s great that Facebook in a way has kept the space alive long enough to pass the torch to Apple.   Nuno G. Pedro What are they spending the 10 billion on really?   Bertrand Schmitt But it sounds like a lot of money. It sounds like too much money actually. Something not reasonable in term of what has been the output. That’s always a bad sign because of course scientists, engineers can go crazy for years with a lot of money. But at some point you need not just to try your product market fit, but you have to have some real success. We’ll talk more about the numbers.   Bertrand Schmitt Should we talk about maybe one of the last one that was pretty visible? It’s the HoloLens. A device from Microsoft. Some sort of Magic Leap maybe we can say. Definitely a glass first type of approach. Very focused on mixed reality. It’s quite recently like a lot of big tech Microsoft reality and apparently the HoloLens team was one of the big casualty where most of the team was fired. Not all the team, but most of them. To be clear, Microsoft has other efforts in place in term of virtual reality, mixed reality. But that team, that device is mostly gone. Section 3 – The inflection point for devices? Nuno G. Pedro Yeah. It’s maybe Microsoft saying we’ll wait and see and what happens. It’s maybe one of these spaces where there’s been so much attempt, so much capital put into it that people are just waiting for some big breakthrough to come through. But that leads us to moment zero. Is this moment zero. This the same moment we had with Apple iPhone.   Nuno G. Pedro When Apple announced the Vision Pro this year, is this the moment where we are getting the revolution in this space? You’ve mentioned already some characteristics of the product and we’ll go a little bit more in detail on it. I think it’s interesting that the reviews are positive. Although the reviews are very limited. They were done in a very sort of constrained environment, limited to 30 minutes, all of that.   Nuno G. Pedro But at least very good to hear that at least the reviewers were very impressed and some of them were skeptics. So it’s great to hear that. It’s very important to note that this might be the first big product launch of Apple that Jobs wasn’t really involved in. Everyone’s like, “Oh but there’s all these things they’ve done,” well a lot of the things they’ve done over the last many years are accessories.   Nuno G. Pedro There’s some debate whether the watch was already something that Steve had been involved in or not. This is a big SKU, right? This is a big product line, not just an SKU. This is a big bunch of SKUs that Apple over time will hope to launch into the market. I don’t know. We’ll go into more details on it. The price, 3.5k, all of that stuff. It seems like a too big to fail. I think I’ll get one. Although now there are some rumors that it’s by appointment only and all that stuff.   Nuno G. Pedro So we’ll see how that works. Very limited production. I’ll probably try and get one. I suspect you Bertrand will get one anyway as well. Just because it is Apple and it’s a big thing. But is this the one?   Bertrand Schmitt Like you, I’ve been collecting gadgets for a long time and smartphones, of course, but also headsets. I didn’t get the Google Glass, but I got the first Rift, I got the Quest, I got a G2 from HP. I got a Varjo. I ordered another one, Bigscreen Beyond. We can talk more about some of them. My point is that I have some perspective on all of this, firsthand perspective.   Bertrand Schmitt I must say I’m getting quite excited by the Vision Pro. For sure, on the tech side, it’s impressive. In a way, rightfully so, given for 3,500, it’s more expensive than a lot of headsets out there. Not all of them, but definitely more expensive than any consumer-scale headset. In a way they were able to put all the tech that they believe they need. It’s really, in a way, an approach of build it and they come, and you hope they will come. But as you, I’ve been pretty impressed by the reviews. I’m not sure I saw a negative review on the Apple Vision Pro.   Bertrand Schmitt For me, the most important part is that it’s definitely an XR device. Can it do pure VR in a way? Yes, it seems so, even if Apple is absolutely not talking about VR, or not presenting any VR example so far. For a device that could potentially do it, it’s pretty impressive how the marketing went all the way to not talk about VR and not propose any use case of VR and actually not include any VR peripheral with the device. You could argue that in VR where you don’t see the outside world, you absolutely need VR peripheral.   Bertrand Schmitt It’s very surprising. It means that Apple is focusing on an XR environment, mixing the real world with the virtual world, or proposing some sort of old school let me show you a movie in 3D, for instance. But technically it’s not VR because you can still see the background of your home, even if it’s really dimmed. They’re going for something else in terms of interaction.   Bertrand Schmitt As I said, no peripheral, just hand, eyesight, and voice. For sure, when I say just, I want to be clear. It seems impressive. It seems like this time really working. Hand tracking perfectly working, eyesight. It’s not the first headset where they track your eyesight. I have a Varjo Aero that track eyesight, but it’s the first one where it’s definitely your UX. You are using that to control where you want to point to click.   Nuno G. Pedro But the battery is connected to it. It’s standalone with a wire to a battery. No?   Bertrand Schmitt Yeah, but the battery can be in your pocket.   Nuno G. Pedro Yeah, but that’s not… I mean, I could see poor Steve Jobs turning around in his tomb like, “Mate.” The device does look beautiful, right. But it’s like, really.   Bertrand Schmitt I have trouble to criticise because some headset manufacturer put a big battery in the back of the band in the back of your head. Is it really so much better to increase the weight, to increase the heat on your head versus, “Hey, let’s just move it back to a pocket?” I don’t know. For me, it’s fine until tested. Maybe I will say, “No, it’s impossible to use,” but so far I will say, “Why not?”   Bertrand Schmitt For me, it’s independent. I was surprised. I was preparing myself for something that requires an iPhone, for instance. But no, it’s totally separate device. Actually, the big stuff is that Apple is really positioning it as something else, like a spatial computer. For me, that was very interesting.   Bertrand Schmitt Obviously, it’s marketing, but at the end of the day, it might go deeper than that. It might be that this is a different type of computer, it’s different from everything else, and as a result, it requires its own compute. We cannot do it by relying on something else. I guess hopefully at some point you don’t need the battery in your pocket. I can imagine people providing additional headband to put the battery on your head if you want. The battery is detachable, so I can imagine smaller batteries, bigger batteries coming up, and batteries you can put at different locations.   Nuno G. Pedro As you guys can listen to our comments, I feel maybe Bertrand is a little bit more optimistic on this. I’m a little bit more on the negative side. I think we’re still in fuzzy logic, so we’re still not fanboys, we love this, whatever, or we hate this, it’s going to be awful. But I’m a little bit more on the negative side.   Nuno G. Pedro The device does look beautiful. Apple’s amazing at marketing. The whole spatial computing thing is classic repositioning of a product category saying, “No, whatever you guys are talking about, this is not that.” It has other advantages. It has the advantage of you saying, well, it’s not really VR in that sense. It’s not really that or this or whatever. Gets potentially a get-out-of-jail free card, but this is a bit too big to fail.   Nuno G. Pedro The interesting thing is it’s too big to fail but they haven’t gone all in either. Just the limitation on the production is clear to me that Apple is edging on the product launch. Because if Apple was like, “This is going to be huge,” they would be going huge on it. There’s no way in hell they would come out saying it’s going to be 500,000 in production for the first year.   Bertrand Schmitt I’m not sure they are saying that officially. It’s more based on rumors that initially production run of a million.   Nuno G. Pedro But still, Bertrand, they’re not saying anything, but if it is true that it’s sub one million devices, it’s not a huge bet by Apple at this stage. They’re waiting to see what’s going to happen with the product. Some question marks on whether they put all their resources into this. This is a huge new product introduction. My feeling, and it’s a little bit more than a feeling, but my feeling is that they are seeing if this is going to work or not. We’ll see. Again, too big to fail, because it is a big deal and they have to find new product lines. At the same time, it seems like they’re edging a little bit on the launch, which is a little bit unApple, I think.   Bertrand Schmitt I don’t know if they’re already hedging. Yes, it’s not a lot of device for a first year. At the same time, it’s a new kind of device. What I’ve heard is that they definitely have production issues. When you look at this device, they have gone crazy in the sense of it’s so many new stuff and done in a way that is very difficult to build. You have this simulated view of your eyes so that others can see your eyes. A lot of stuff that personally, I’m not sure this is really necessary for everyone.   Bertrand Schmitt Maybe they went a bit too far has really created production issues. At the same time, I would say historically, Apple has really killed products. They try a V1, they try a V2, and typically by V3 it starts to get great. You have seen that with the iPhone, we have seen that with the smartwatches, even the iPad. There’s a big difference between the V1 and the V2. I will say compared to a lot of companies out there, maybe we can say Google, they are trying harder. When it fails or when it’s limited success, they try harder. They launch a V2, they take their time. It’s part of a strategic push, so we’ll see.   Bertrand Schmitt But I must say that, yes, I’m cautiously optimistic and even potentially optimistic that after what could be seen as a lost decade of VR and AR, we might be on the cusp of something else, with the Apple Vision Pro leading the way. To be clear, a 3,500 consumer device is way too expensive. I’m not saying that this is it. It might take five years to go where it needs to be powerful enough and cheap enough for consumers. But at the same time, I must say I like this approach. Going consumer too early with a device that is really not great, that’s trouble. How do you create a new world? How do you convince people? Yeah, you have volume, but then how much is it really based on good use cases?   Bertrand Schmitt I must say I’m quite optimistic that between the competition with Meta and some new upstart we might talk about later on, there might be a renewed focus and therefore renewed interest from content producers, app developers in this space. Also let’s not forget the Vision Pro should be pretty easy to program. If you are used to the Apple ecosystem, it should be… I don’t want to say piece of cake, but very streamlined. The same tools, the same SDKs, the same approach. I forgot to say, but any iPad application will work out of the box. Obviously, you will want to fine tune that, but that’s a great start versus how hard it has been in some cases to develop for VR.   Nuno G. Pedro I think a very positive piece of this is precisely that Apple does know how to manage developer ecosystems really well. They have very large developer ecosystem right now. The only guys that would compete with this would be Google, really. That’s very positive. It is also very positive that Apple is deeply involved in content development through Apple TV+ and through all the bets that they’ve made in the space. They understand content, they have spent money on content.   Nuno G. Pedro I believe we referred in the previous episode, their first launches weren’t great or at least took a little bit of time to take off, but now they seem to be on a roll. It seems like as a streaming service, they’re hitting the right stride, and it’s impressive. We now have cult series out there, Ted Larsen and all this stuff, which is really cool.   Nuno G. Pedro In terms of content development, developer ecosystem, management, tooling, the creation of tools for developers, ability of the operating systems to really take all of this stuff and take it to their hardware in the best possible way, there isn’t a better player to do this. Doesn’t take some of my doubts away, but it certainly gives them a shot. It certainly reduces some of the risks that you might have when you go into something like this, which is just creating a new category and just creating all this ecosystem around a new category.   Bertrand Schmitt To be clear, I’m not too worried about Apple and Facebook. If it takes them 10 years instead of three years or in term of five years to get there, I mean, they have the money to spend, they’re printing cash. Obviously, as we have seen with Facebook, at some point, there is all the pressure coming up and asking knocking on the door, what’s going on guys? You have to be careful even if you are printing money that your investors are still happy. But I think they can do it.   Bertrand Schmitt What is always more dangerous obviously, is for startups. If you go all in on a new innovation at the wrong timing, you cannot always wait five or 10 years for success like some of these big companies can. Maybe going to some of the competitors to the Apple Vision Pro, at least the current ecosystem, or at least what’s coming soon, what’s coming next.   Bertrand Schmitt We have the Meta Quest 3 announced by Facebook days before the launch of the Vision Pro, obviously, trying to steal some thunder at only “$500.” A much cheaper price. Interestingly enough, the Quest 3 is the first non-pro Quest device with the ability to show the world in an extended reality perspective.   Bertrand Schmitt In the past, you could see some pass-through video, but it was horrible. You would certainly not use it as much as you can. I think they are going to go for it and leverage some of the Quest Pro technology. That will be the big difference versus the Quest 2, is that it will be easier to use within your real world.   Bertrand Schmitt That has been an issue of VR for a while, is this inability to deal with the real world, forcing you to remove your headset the minute you want to do something else. You want to drink something, you want to check your phone, you want to do this, that, you have to take away the headset, limiting your immersion factor.   Bertrand Schmitt That’s the big thing coming up with the Quest 3. Again, $500, launching in fall. Meta has launched the Quest Pro early this year or late last year. Interestingly enough, it looks like it’s doing pretty bad. Launched at $1,500, price reduced to $1,000 in three months. Doesn’t happen often. Now there are rumors that production is stopping.   Bertrand Schmitt Personally, I’ve been very surprised by the Quest Pro. Very focused on extended reality, but not great at that, not really focused on VR, where today practically is the money, and at the same time not going far enough like Apple is doing to really give a shot at providing a very singular mixed reality experience.   Nuno G. Pedro I have the Meta Quest 2. I used it a little bit more, but I have a bunch of devices in my closet that I’ve used maybe once, twice and then never again. The Quest I use once in a while. I’m not super impressed by it. It’s a great, as you said, entry device, the Quest 2. I don’t know. We’ll see. I think there’s a lot of devices, but ecosystem building for them matters. As you mentioned before, Facebook and Apple are probably the best positioned players to really take it to the next level, and of the two, Apple is probably the best, so we’ll see.   Bertrand Schmitt To this point, I want to share some numbers. Apparently, based on internal talks at Facebook, there has been 20 million Quest headsets sold, and that would include… By only 2023, that would include the Quest 1, 2, and Pro. The vast majority is coming from the Quest 2. That’s the type of numbers we are talking about, 500,000 for a Vision Pro, 20 million for a Quest Two, mostly. In term of success, if we compare to other devices, they’re still very small.   Bertrand Schmitt The other piece of the puzzle, as you talk about device in your closet, the big issue is people don’t use their headset or at least maybe the first cohorts were using more the headsets, but the latest cohorts were not really using their headsets. You buy it, you test it, you have fun a bit about it and then you stop using it.   Bertrand Schmitt Maybe super quickly to finish with some other headsets and we can talk about the bigger picture. Varjo, a company from the Nordics, has been quite successful, I would say, selling B2B headsets. They’re probably the market leader in term of devices used for professionals and typically their headsets were typical of price points for professional at 6,000 or plus.   Bertrand Schmitt Interestingly enough, their headset would typically include most of the stuff we see coming from Apple. Eye tracking, hand tracking, mixed reality, very high quality screens providing very good resolution. One thing we forgot to say is that what’s typical of the Meta Quest devices, pro or not, is they have very low resolution. When you are used to computer screen high resolution, phones high resolution, going to hyper-pixelated screens on your eyes is very odd. I think that’s part of the reason it has been an issue people are not so much enjoying.   Bertrand Schmitt Varjo has been very successful on the enterprise side. But very successful is, of course, not so much success in term of volume when you are dealing with B2B. They launched a prosumer type of device, the Varjo Aero, at 2,000 that has attracted a pretty big fan base if you are into flight simulation or racing simulation. It’s probably the headset of choice today if you want to do that in VR, simply because it provides a much higher resolution than the Meta Quest devices. In term of immersion, it’s simply night and day.   Bertrand Schmitt Another player just launching, Bigscreen Beyond. It’s lightest by very far VR device. We are talking about, I believe, 127 grams, so very light. We didn’t talk about Apple device, but it looks like we’re talking about 1 pound, 500 grams. It would be way lighter than the Apple device.   Bertrand Schmitt I certainly believe comfort is a big issue and part of the comfort question is how heavy is your headset. Having something so heavy on your head limits how long you are probably going to spend time. Yes, you can create great headband and stuff and try to distribute the weight properly, but at some point, your neck is going to suffer, your shoulders, your head.   Bertrand Schmitt I think that’s a very interesting device. It’s also custom made to your face, which Apple is not doing, by the way. For me, that’s a device to follow because it can be really transformational and it can point to where is the future going in term of VR.   Bertrand Schmitt Maybe one type of device we don’t talk much, best exemplified by the XREAL Air or the Rokid Max. These are portable movie theaters, so these devices are presenting themselves as AR device but at the end of the day, these devices are just used to watch movies or play games, and play games from your Nintendo Switch, from a handheld device, or from a PC, but it providing you a very big screen. If you are traveling, if you’re in a plane, if you’re in a hotel room, that might be a great portable replacement for a movie theater at cheap price. We’re talking about 300-500 bucks. Section 4 – The inflection point for Software and Applications? Developer is king… Nuno G. Pedro Well, the king is going to be content and the king is going to be software and the king is going to be applications for these things. Maybe switching to that, and maybe actually starting with the big apps and the big content pieces. Everyone says when there is a big shift in content platforms that the X-rated guys, the triple X people lead the way. Probably that was true early on, that there was a lot of innovation-driven into this by that market. Probably less true now.   Nuno G. Pedro We have a lot of things that dominate the charts today on the Oculus Quest 2s of the world, etc, are around gaming, around meditation, around wellness, around fitness. Things are probably looking relatively obvious, but at the same time, we haven’t had really a title that has taken over the world. Probably the reason for that is that there isn’t a device that has taken over the world. Even the Quest 2 seems to have done quite well, but they are still small by comparison to what mass market looks like. What do we see ahead of us in terms of what will come?   Nuno G. Pedro For me, gaming needs to lead the way for sure. I think just content consumption, unless there’s some formats that we’re missing right now, will be there and it will be important, but gaming is going to be the way to go. If we have games that really take it to the next level in terms of these experiences, then we might have some one, two, three, four leading titles, really large titles that lead the way. What’s your view?   Bertrand Schmitt That’s always a great question. I certainly believe it would be way more gaming than X-rated content, that’s for sure. For gaming, interestingly enough, probably the most sold title in VR has been a game called Beat Saber, and it’s a pretty fun game. But what’s interesting for me is that it’s a totally different game than you would get on mobile and PC or anything. I mean, you couldn’t really play that game in this environment.   Bertrand Schmitt Like it happened in mobile for instance, what are the most successful games in mobile? Typically these are mobile native games, not PC imitation type of games. Yes, at some point you can reuse a brand, you can adjust a brand, you can do stuff, but in terms of major success, it’s typically stuff created natively for mobile and taking advantage of mobile.   Bertrand Schmitt It’s a touch screen, it doesn’t require controller, it’s a multiplayer, for instance, that sort of stuff. Beat Saber, you use your VR controllers as virtual sabers and actually it feels good because the controller is something relatively big that you hold in your hand. Typically it could be a saber. It is well done from that perspective.   Bertrand Schmitt I will say the only exception to that I believe are simulation. If we are talking about car simulation, flight simulation, I believe that there can be a translation from what’s happening on PC and going to VR. Because here, at the end of the day, the goal of this simulation is to be as close as possible to the real world. It’s not as if it has to be native for VR. What it has to be, however, it has to use some native controllers. I mean, native to the simulation. You want to have a real wheel to drive your car, you want to have a real yoke to fly your plane.   Bertrand Schmitt But that 2D screen, if you can get a 3D immersion, if you can get triple screen, yes, you probably want that. As long as the immersion in VR is not going to be so poor versus what you get on a 2D screen. Let’s not forget that VR is more resource intensive, if we want it to look as close as possible to reality and not a simplification of reality. That’s definitely one expectation I have.   Bertrand Schmitt The main market that we have seen so far for VR, it has been gaming, and that has been one issue for XR is that basically there was no use case for XR except if you are a high-end designer, you need to design your car or some complex engine and make sense to try to visualise it in AR. Even here, question mark, do you need AR or is VR enough?   Bertrand Schmitt But here, what’s interesting with Apple approach, Nuno, is that it looks like they’re absolutely not going for gaming. I mean, out of that one hour or 40 minutes presentation, there was maybe three, four seconds to gaming. Even that gaming was not a native experience at all. It was just, “Hey, this iPad game is working inside our headset,” and using a regular, not a VR gaming controller. That was very odd.   Bertrand Schmitt For me, that’s very interesting. That will bring some diversity to the use cases that we experience today, and that’s very exciting. I want to highlight a few type of use cases I believe could be interesting, at least if you have headset at the level of the Vision Pro. First, that could be obvious, but it’s watching 3D movies. Do you remember your 3D TVs?   Nuno G. Pedro Yeah, it never scaled.   Bertrand Schmitt Yeah, it appeared out of nowhere and in six months everyone is talking about 3D TVs. Two years after everyone forgot about 3D TVs. I’ve rarely seen a mass consumer market phenomenon going up and down like this. You could argue this might be the right device to experience 3D movies. For me that’s interesting.   Bertrand Schmitt Obviously, as usual, we see first the typical 3D movies that are already done today but maybe going forward there might be way more interesting 3D movies done more natively for the medium, so not shot for 2D. But it will not be an easy one because to invest if your total world audience is 500,000 people, that might not be enough to support any SaaS investment.   Bertrand Schmitt Another interesting one is sports. I kept hearing that some demo that Apple did of sporting event where they record the event live or not, but they are putting a bunch of cameras at one spot and you can basically experience virtually this spot as if you were there. Was really amazing.   Bertrand Schmitt There were examples of doing that during some basketball event, NBA event and people were like this is amazing, this is like having the best seat and experience it as if I was ready in real life. That is interesting. I’m not myself much of a sports guy, so I’m not sure what to think about it, but it felt interesting.   Bertrand Schmitt Another use case I found interesting was doing meetings. As you know, the big issue with VR is that typically you don’t see yourself. Quest with the Quest Pro came up with some ways to check the state of your face and to try to represent that on your cartoon-like avatar. But I’m not sure it’s a way to really mix people using your headset with other people with this cartoonish avatar.   Bertrand Schmitt Apple approach to scan your face and create a very realistic avatar is very interesting to me. If it’s good enough to do meetings, that might be an interesting use case because suddenly you can do your video meetings while working and people keep seeing you perfectly. You are not just forced to be seated in front of your laptop or screen to do your Zoom calls.   Bertrand Schmitt I see that as an interesting use case. Maybe after a few days I will say it’s crazy, but I’m willing to try. Apple presented some stuff like working with your Mac on your Vision Pro. I have trouble to believe anyone would want to do that, to be frank. But who knows, maybe when you travel and obviously, they present a lot of use case around doing mixed reality stuff.   Bertrand Schmitt You see some stuff inside your living room and you play with it or you do some stuff with it. You can imagine having a chessboard on your living room table that is virtual. That’s probably the spot where I have most trouble to see anything. It looks cute, looks interesting in principle. I’m sure there will be some great chess programs you can use. But seriously, that’s the part where I’m not really sure.   Nuno G. Pedro I think all the aspects that you mentioned will be potential killer contents or killer apps. The fully immersive opportunity is very compelling. There’s other input and output elements out there that are still being developed. We won’t talk about them today like holograms and holographic technologies and all those things.   Nuno G. Pedro I feel this paradigm as the highest likelihood of winning. If we’re thinking about the next 20 to 30 years, this paradigm of glasses, goggles, head devices is likely going to win for the next 20 to 30 years rather than holograms. But at the same time, what’s going to be the killer app, killer content, who knows?   Nuno G. Pedro We’ve seen some pretty cool stuff already developed. I mean, there have been award winning movies, short movies using a lot of these technologies. My hypothesis continues being that there’s going to be a significant game that will take off and then there will be other things.   Nuno G. Pedro There will be content that will come on and at some point there will be diversity, which is effectively what happened with the App Store launch. If we go back in history with the App Store launch in 2008, one year after the iPhone launch, we started having diversity of things that people can use.   Nuno G. Pedro Multiple apps, multiple things that serve different purposes, utility. Maybe that’s what’s going to happen with this. Maybe the key thing is that there will be so much content and so many apps out there that the proliferation of the devices will be immediate. Maybe it’s the other way around. The proliferation of devices will happen sooner.   Nuno G. Pedro Honestly, at 3.5K Pop, I don’t think that will happen with the Vision Pro. It might happen at 600, $700 in a follow-up device. It’s not out of the realm of possibility that within a cycle of two to three years, we might have a device that finally takes off and that’s exciting.   Bertrand Schmitt For me, what’s interesting is that Apple might have been with Vargau, the first player to start with a pro version of their headset. Definitely, they put some thoughts into it. If you remember the first iPhone, it was not Pro. The first iPad, it was not Pro. Actually, the pro models came later.   Bertrand Schmitt We are starting with a pro model. I’m very hopeful that it means that actually there are cheaper devices down the road and hopefully Apple will get the market feedback about what’s really necessary or not to include in that non pro version. Or just simply Apple will wait, that the prices of components and manufacturing will just go down over the years to launch, I don’t know, in two, three years, a non pro device, and maybe we’ll get a light version as well.   Bertrand Schmitt Apple doesn’t typically do light, but who knows? That would be an interesting development. Maybe another interesting use case might be to record, finally 3D videos. Enjoy 3D videos in return by yourself. There have been example of you can record with the Vision Pro, anything, anytime while wearing it and then you can re-live it.   Bertrand Schmitt That might be an interesting new way to create your own 3D videos and apparently the expense was very impressive. So that’s another potential use case and I guess we will see Sony and others building devices just for that.   Bertrand Schmitt I would say in term of price, another issue is not just the price, but when you think about it, most people absolutely need a phone, you need that device. You cannot survive the world without that device in your pocket because you need to communicate, you need to know where you are, you need to take pictures. That’s why it has scaled to billions of devices and also because the price point went cheaper and for $200 you get a smartphone these days.   Bertrand Schmitt It’s based on need. Second need is your computer. You need a computer in most cases at least if you’re a white collar, to do work. It’s not an option, you need that computer. Interestingly enough, if you look at console, if you look at tablets, you don’t need them to survive. You can do without a tablet but my point is that you start to get into devices that you don’t absolutely need. You can get by without them.   Bertrand Schmitt The console, you can play games on your mobile, on your PC or Mac, so the console is again, another step forward. That’s a bit the question for me of the headset. Is it another device that you don’t really need, but it’s nice to have? Then it can still be big. Tablets are big, but it won’t be as big as a smartphone. I know a lot of special investors are looking for the next killer big thing to change dramatically everything.   Bertrand Schmitt Will it really be that or will it be more a niche success? A niche can be, we are talking about hundreds of millions of tablets and for console, similar numbers, maybe lower numbers or are we talking even smaller? That’s really a big question. I have trouble to think that it will be smartphone-like in the next 10 years, 20, 30 years hard to say.   Bertrand Schmitt Everyone has seen Ready Player one movie obviously, if it’s as easy and as high quality to use and cheap, maybe everyone get one. But for the next 10 years I would be very dubious. Section 5 – A non sci-fi future? Nuno G. Pedro Yeah, and maybe that’s a good segue to the non-Sci-Fi future. What do we think is going to happen over the next 10 years? It’s actually interesting, I don’t think the Vision Pro is as big of a deal as maybe you think it is. Maybe it will lead to something else and that will be cool, but then I’m more optimistic on the timeline.   Nuno G. Pedro I think over the next 10 years we will have the first fundamental shifts on input output that will not make mobile devices disappear over the next 10 years and on that I would agree with you, but would make some of these devices mainstream. I think these devices will be essential and will be the core devices for input and output.   Nuno G. Pedro Then the discussion can be is it in the next decade or is beyond the next decade. Stake on the ground, I’d say probably within the next decade it will happen. I don’t know if it’s Apple, apple has a shot at getting it right. I don’t think it’s the Vision Pro. It’s the next probably iteration or two iterations down the road might have a better chance at that. But it will fundamentally shift the paradigm of input and output.   Nuno G. Pedro Over time, mobile phones will become a thing of the past, in my opinion. Again, I’m a guy who grew up on mobile phones. I made a part of my career on mobile. We’ve discussed that before. But at some point this will shift and the mobile phone paradigm is still very limited, in my opinion.   Nuno G. Pedro Is this going to be a lateral thing, like tablets consoles with very niche, limited market? Maybe it will continue being like that over the next few years. It’s still actually subpar compared to those two markets. But at some point, again, bet would be that maybe five years, six years down the road, we’ll see a hockey stick on some of these devices.   Nuno G. Pedro The limitation I see on this, just to be very honest. There’s always this discussion around are these devices pushing us more and more to a world where we act like individuals, where we’re surrounded by screens? Like we already talk about mobile phones and screens when we’re having dinner because we have them in front of us and we’re not looking at each other’s each other as we should, etc.   Nuno G. Pedro Maybe the paradigm will evolve to something that’s a little bit less intrusive, that people will get used to. I think when the Google Glass came out, it was just weird to see that in people’s heads, but people get used to it. Maybe there will be a shift, there will be a shift in how we interact and talk to each other. But at the end of the day, I feel that this non-Sci-Fi future is probably more upon us than we think it is. A little bit more optimistic on that.   Bertrand Schmitt Yeah, to be clear, optimistic that this goes into the hundreds of millions a year. In 10 years from now, I just don’t see the billions in less than 20, 30 years simply because of price of opportunities. We are not just SF or San Francisco as a world. I must say I’m quite optimistic that we’re at a turning point with renewed efforts from Meta, the fresh competition from Apple, investment for both Meta and Apple that need to give results.   Bertrand Schmitt They cannot afford to just close shop in three years on all their virtual reality investment, whatever they want to call it, at the same time, for sure, you cannot go faster than in a way, technologies allow you to do. That is clear, but they have the money to keep going and keep pushing.   Bertrand Schmitt I will say I’m quite optimistic on the short run for more specific use cases like better screen, better input, output. To be clear, I think the $500 ones are basically only about us today to do games. I’m quite optimistic we’ll see some very interesting use cases.   Nuno G. Pedro Even more interesting than that, just stacking up a little bit on what you’re saying. We didn’t even talk about B2B. We’ve been talking really mostly about consumer.   Bertrand Schmitt Exactly.   Nuno G. Pedro Just B2B by itself, we’ve seen some of the stuff already be being used in a very niche way for specific applications, industrial applications, manufacturing applications, taking away curbs of learning from some specialised workers. At the end of the day, we could do like a full couple of episodes just on B2B, AR, VR and use cases there. That alone could drive markets. That alone could drive markets.   Bertrand Schmitt I totally agree. That’s some of the niche use cases I’m thinking about. I think there are use cases where current headsets were not just good enough at all, but we start to go to a level where between the price point, yes, a bit more expensive, but higher quality, between use cases that these companies better understand, better promote. We are getting to a point where the business opportunity will start to be pretty interesting.   Bertrand Schmitt I think there are a lot of situation where you want to remotely control devices, where you want to cheaply train workers, where some of these devices are going to get more and more interesting. I’m pretty actually hopeful now that on the short run we will see some niche use case that would drive some opportunities in terms of business model.   Bertrand Schmitt I can see in the 5-10 years time frame on top of the specific niche use cases, some bigger mass adoption and in 10 years, yeah, we talk about 100 million device. If we have not just 100 million device, but 100 million device that are used regularly, that will be a big win because let’s not forget today that’s a big issue.   Bertrand Schmitt When people talk and try to compare to smartphones for instance, I’m always reminding people, yeah, for us a day, 6 billion people every day. At some point what you want to beat is really the number of hours used by humanity every year. That’s where VR devices have been falling short big time so far. But again, I’m hopeful that we have use cases in front of us on the short run that will make business models possible for a lot of companies beyond Meta and Apple. We can afford to burn money on the short run.   Nuno G. Pedro I’ll go back a second and then I’ll bring it to a little bit of a summary from my perspective, but just going back a second, there’s no way something like this, for example, multiplayer gaming or social networking, metaverse type social networking, etc. There’s no way it can scale if there isn’t critical mass of devices. If there isn’t, it doesn’t exist.   Nuno G. Pedro Effectively, at the end of the day, the big limitation we have today in a lot of even these contents and apps, even scaling, is there is no scale to be had. You need network effects that can’t happen without significant scale of device adoption. Maybe just bringing it to a frame and summarising my perspective is I think we are on the verge, maybe of the big movement.   Nuno G. Pedro If I had to guess, maybe Apple has a shot at it. I don’t think the Vision Pro is it. It’s maybe the beginning, it’s exciting, but it’s not it. I don’t know if it will be a variant for the down-road from the vision probe. As I said, they sure have a shot at it. Can Facebook make it work first at scale, maybe? I don’t know. They have certainly a lot of deployments right now, devices.   Nuno G. Pedro We’re on the verge of it. We’re not there yet. So, short term, maybe I’m a little bit more pessimistic than you, Bertrand, longer term in terms of timeline to get to real mass adoption, maybe I’m a little bit more optimistic.   Bertrand Schmitt Sounds good, Nuno. It’s still very early on. It’s exciting times. Let’s see how it goes. But I would say overall, as usual, except if you are one of these big conglomerates, big tech companies, you have to be extremely careful about finding the right business model because we are still early on. I totally agree with you, it’s still very early for that mass adoption and that virality to happen. You need to find business models that don’t require that and you still can be successful as an entrepreneur. Conclusion Nuno G. Pedro Very clear. This concludes our episode on AR, VR, MR, XR, all the Rs reality with other things that are virtual on it. We discussed what it actually is. What is AR, VR, MR. We talked about potentially the last decade that we just had, or the last decade and a half that we had. It wasn’t fully lost, but certainly there’s a lot of failure in there, despite a lot of investment.   Nuno G. Pedro We talked about the inflection point that maybe the Apple Vision Pro brings to bear, and talked about other devices that are on the market, the role that Facebook, for example, has had with their Quest series. We talked about an inflection point that is seemingly happening around software applications and content. Finally, we ended up with some discussion around the future, the next 10 years and beyond, and the non-Sci-Fi vision of that future. Thank you.   Bertrand Schmitt Thank you, Nuno.   Nuno G. Pedro Thank you, Bertrand.    

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 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 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? How can I look at companies that are real and not fraud and not BS? Within the companies that are real, which companies are of a high likelihood of having a shot at this? Are they creating a new market or tapping into an existing market that they can corner? Nuno I think that’s the real dilemma of VCs right now. I’ve seen a lot of VCs that have never talked about AI before now talking about AI. I think it’s a bit facetious and a little bit maybe intellectually dishonest at this stage. It’s becoming the new thing everyone needs to jump into AI. I feel there’s an app economy coming. You can invest in some of these companies to the next level and really build behind that. Nuno Then second part of our thesis, certainly at Chameleon, is very much that AI is going to be in everything. There’s a lot of companies that we invested in that were not generative AI companies even. They were actually using deep learning methodologies and techniques to do their business, but they were not actually generative AI companies. For them, it’s a feature extension. Having a generative AI proposition to their product line makes sense. Nuno It’s not like a new thing. It just makes sense to actually amplify their feature set by having a generative AI play that they can now use to cross sell or upsell on their current and new clients. Bertrand Schmitt Yes, it’s clear that as an investor or course, as an entrepreneur, you really have to question where do you want to position yourself in that range of possibilities? You clearly see the biggest tech companies in the world investing like crazy in AI. In some ways that’s scary. Usually you want to invest in space where the cannot invest for some reason or where they are not investing or they are not focused here. Ai for sure, they are investing. Bertrand Schmitt Two, you can see some incredibly well funded startups as well, from Open AI to Anthropic. It’s a tough space to be a pure AI player today. Then you can think about investing in infrastructure, and we can see a lot of interesting companies in the infrastructure space from Hugging Face, for instance. Bertrand Schmitt There is a space there as usual. There is also, as you said, the question of startups who are just going to do better what they do, thanks to AI, as they will increase their efficiency, as they will be able to propose new features that will make the product more attractive. One question will be, are there opportunities for startups to disrupt existing software? The same way that Saas had disrupted traditional software license, traditional CapEx software, then mobile has disrupted traditional computer software. Bertrand Schmitt Is there a way to disrupt some existing space, thanks to AI, I think that would be the question for new version of what we do today, but in a more efficient way, or is it just an opportunity for the existing player to just do better? They have some advantage because they already have customer data, obviously. As an investor, that would be a big question. Do you want startups with AI in your name, or do you want startups that are just focused on the value proposition that finally we can really do better or solve or do at a more cost efficient way? Nuno Maybe four or five years down the road, there won’t be any distinction. AI will be literally everywhere. It’s more of, are you an AI first company or not? Are you actually creating a platform or infrastructure on the AI or are you creating an app around the AI? It will be more of a stacked discussion rather than are you using artificial intelligence? Everyone will be using artificial intelligence, I have no doubt. Bertrand Schmitt In a similar way, everyone had to go to mobile. It’s pretty rare that you don’t have a mobile offering. The same way that actually you don’t talk about the fact that you have a database running your system. At some point, it was a new thing, having a database, a relational database. Now it’s obvious everyone has one. It’s not a differentiating factor. Bertrand Schmitt If you remember 20 years ago, the other new stuff was to have a website. I think some of this, over time, you either adapt or die. For sure, some new entrants will try to try to take advantage of this to position themselves against existing players that are slow to move. Nuno Well, we’re getting back to the… I have to give a mea culpa here, and the definition of AI is like electricity is going to be everywhere, or it will be like electricity, and I used to opine that it was a non nuanced definition, but I have to now say I probably agree with him. It will be effectively like electricity at some point, or different degrees of electricity distributed in different ways. — Open-Source — Nuno Let’s talk a little bit about open source, the real open source. We have incredible movements around open source. We see players like Google being a little bit concerned about this. Is there a fundamental moat or not? Is there? Bertrand Schmitt I think there was this fantastic article that looks like it was a leak from someone at Google. The title was Google, we have no moat and neither open AI. Acknowledging that potentially all this talk about you need to have a mass, a huge quantity of data in order to train an AI, you need a huge quantity of capital in order to build advanced AI might actually be wrong. Bertrand Schmitt That’s a very interesting take because today that’s one of the biggest question. At least if you look at the chat, will proprietary models win from Open AI, from Anthropic, from Google, or will open source models win? That’s a very big question because it will drive very different, fundamental cost situation, but also monopolistic behaviour. Bertrand Schmitt One interesting reference point is image. Generative AI for image in 12 months, from open AI being transformational, leading a new wave, to actually stable diffusion taking over and replacing it and being the leading solution, except that stable diffusion is open source. It’s an obvious parallel. It happened very recently. The question is, will the same happen to chat? Personally, I think it’s a strong possibility. It’s clear that some costs are going down like crazy very fast because our new ways to train models that might be more efficient. Bertrand Schmitt We are also seeing a standardization of training data sets, making it easier to build models because if you already have the data scrapped in one place standardized, you can really separate the problems. We also seeing new tools to evaluate the capability of models. Obviously, open source product can be trained with user feedback at scale pretty quickly because you can imagine that a lot of people would just want to use the cheapest product and therefore would provide a lot of feedback that can make the product better. What’s your take when you know this? Nuno The skeptic product manager and computer engineer in me would say the big guys and the well funded guys will ultimately win. The reasons I say that is I think open source has a role. I think it’s a great forcing mechanism for the big guys to behave. I think it’s a great mechanism as well for certainly data to be treated properly and the federation of data to be a little bit more equinonymous than it is probably today. But the ultimate play is in this world, product management benefits from enlightened dictatorship. Nuno It benefits from having clear direction on what do we need to deliver on, how do we need to deliver on it. That’s one advantage of having a company doing it rather than an open source community. A second big advantage of it is resources. If you need resources, and still, resources are needed. Whatever we want to say, do you need less data to train? Do you need less data in general, et cetera. Resources win. If you have billions of dollars that you can throw at it. It’s different than it’s a community that self organizes that maybe raises funding. I think open source has a role. Nuno I think open source will continue having a role. I do believe that most of the end user value, B2C, B2B, which is how I think, at least as an investor, will be created through the form of companies. But we’ll have certainly part of the stack will be proprietary. They might reuse open source stuff, but a lot of their stack will be proprietary. Again, I have no data to base this on, just my feeling and what’s happened over the last two big shifts in competition history. But, that would be my two sense on this. Bertrand Schmitt I might not be in agreement with you there. We can see how Linux, for instance, won the data center. A gain, more closely, we saw how in image generation, open source seems to have won the day. What’s interesting when you think about open source is that the two biggest open source models are one is backed by the UAE. You could argue that they have a near unlimited funding if they want. Nuno But resources are not just funding, resources are also talent, et cetera. Bertrand Schmitt But with funding, you can bring talent. Nuno I’m not sure at scale, but anyway. Bertrand Schmitt The other big provider of open source actually surprisingly in some ways has been Meta. The granddaddy of open source chat programs is LLaMA, partially open source by Meta. This one benefits from insane amount of resource, one of the best AI team in the world. You could argue Meta might have an interest to disrupt what Apple, Google, Microsoft, Open AI are planning to do with proprietary solutions and might have perspective that, you know what, we can play a different game and open source and bring everyone to our computing environment and computing paradigm, and that might be a benefit to them. That might be just a very different business strategy with, again, a very similar funding to the other big guys. Nuno We’ll talk about Marc Andreessen’s article or opinion piece on “Why I Will Save the World.” He talks about this thing. I don’t like it because it has Christian undertones that I’m not sure are very accurate to this discussion. But he talks about the bootleggers and the baptists. Baptists in this camp would be probably the open source people and bootleggers would probably be the big corporations. Normally, bootleggers win, I think. He’s obviously talking about the Prohibition time in the US, et cetera. That’s the analogy there. Nuno Short of being too philosophical about this, I think we’ll probably disagree on this. I do think that we will have corporations for profit and they will create stacks and there will be probably a lot more innovation in that top end. I also agree with you that there will likely be very verticals, not necessarily even niches, but there will be verticals that might be well addressed by open source platforms. Therefore, we will see the coexistence of both. But my skew is still that the big guys will win the mass market. That’s what I would go with. Bertrand Schmitt Let’s see how it goes. What’s interesting is that, I guess, we’ll get some answers in the coming 6 to 18 months. I don’t think it will take a decade to see how it goes. Nuno We’ll revisit the topic, yes. — Regulatory & Privacy Environment — Bertrand Schmitt Let’s talk about from a regulatory perspective. It’s a very strange place, I must say, at least from my perspective. I’ve never seen a regulatory interest coming so fast to a new space that barely existed two, three years ago. Was there, but behind the scene at small scale to suddenly becoming so scary for some. We have seen a wide variety of reactions. Nuno Can I make a joke, Bertrand? Bertrand Schmitt Yes, please, of course. Nuno Then you go serious again, but I want to make this joke. I don’t know if you’ve ever watched the IT Crowd, but it’s one of my favorite British comedy series. It’s basically about an IT team within a corporation that is very dysfunctional as always. The IT team is also dysfunctional, by the way. This is part of the roads, if you’ve never watched the last episode, please don’t listen to the next, I’d say, 30, 40 seconds. But there is the last episode, the manager of the team is actually totally incompetent because she understands nothing about technology or software or system administration or whatever. Nuno They convince her that the internet isn’t a box. She goes in front of the whole company saying, The internet is all in this box. A little bit by accident, the box falls and breaks. It’s chaos because they thought they broke the internet. The two guys from the IT team are just looking at each other like, “Oh, my God, not only they’re idiot, as everyone believes in this.” They couldn’t make her look bad. Everyone thought that actually the internet was in that box. What you’re about to talk in terms of regulation reminds me of just that. Nuno It’s like a bunch of people understand nothing about anything. It’s like, “We need to regulate this. We need to regulate this or it’s going to kill us. It’s going to kill us tomorrow.” It might kill us, but it’s not tomorrow, I think. Bertrand Schmitt Yes. I think regulation is coming from multiple sides. From one, we can talk about IP rights. Do you have the right to scrape some of this data? Two, what is the output? Is the output a clear copy paste of some existing content? That’s one big question. I will talk a bit more about it. Bertrand Schmitt Then there are privacy regulations, especially coming from the EU. Then we have obviously things around bias. Is it as biased as a human being? Is it as biased as what you see on the internet, or is it even more biased? That’s a fair question. Then there is the biggest one of all. It’s like, “Oh, my God, this is the end of the world. Ai is going to kill us all. It’s coming sooner than you can expect.” Bertrand Schmitt That the doomed people, for me, it’s pretty interesting because if we want to destroy ourselves, we have weapons of mass destruction at a scale unimaginable for the past 60, 70 years. Fortunately, that are present among us, we have obviously the risk of virus, the risk of labs making mistakes. It’s clear when you start to read a bit that it’s not very well regulated, these labs. Bertrand Schmitt Basically, we are very clear and present in danger that either we don’t think about or we don’t really care or we don’t really regulate that much, or actually, it’s going worse when you look at the past decades. Now we talk about something where there is very little probability and where there is absolutely nothing right now, but you’ll take care. Nuno Let’s go one by one. I mean, the privacy issues are fair, but they are privacy issues that exist already, right? Bertrand Schmitt There is nothing new. We are talking about scraping the internet. Nuno Okay, this thing scrapes more than the other things that exists out there, but the privacy issues already exists. I’d say they are fair, but they are not necessarily new. Maybe they take a different dimension in terms of the fact that the LLMs and everything that is out there are scraping a lot more information. But certainly, it doesn’t feel to me to be a new topic per se. It’s a valid topic, but it’s not a new topic. Nuno The world is going to end. It’s something that we need to spend time on. We’ll talk about it in our next section. There are some fair concerns. Everything is rosy, but I think it’s not a fair concern tomorrow. It’s maybe a little bit too doomsday. There needs to be thinking around this. I personally have some thoughts and we’ll discuss it in the next section. I don’t think it’s a hugely valid concern for right now. Nuno The IP rights part is absolutely spot on a valid concern. That needs to be absolutely flushed out. The fact that I have access to information that I shouldn’t get access to in any case and then I generate images out of that, et cetera, is a big concern. I think it’s rightful for them getting images to say, Well, wait a second, that image is ours. That’s our watermark. How does this work? Ip infringement, et cetera, needs to be thought through. It’s going to take a while because this technology is advancing very quickly and regulation, as we know, takes time. Nuno The IP piece, I think, of the three that we just discussed is probably the most significant one. Bertrand Schmitt If I can add on this topic, there has been some interesting news from Japan where they apparently want to provide a free, easy, very protected training ground for training without risk of infringement. That’s an interesting development if suddenly everyone start to train data sets from Japan. Nuno Yeah, sandbox stuff. Japan takes the lead on being the sandbox for training. Nuno The final piece is we’ve seen some people using any of these three things or the three of things together, privacy, we’re all going to die, it’s going to kill us, and IP rights, using a variety of these three things all three, one of the three, et cetera, to say, “We should pause progress, we should pause next level.” Be careful with the messenger. Nuno Some of the messengers who are making these comments of saying, “Let’s slow down, this is dangerous, whatever.” Are people that have actual parochial interests. Are people that have access to platforms that they might themselves create LLMs and create large generative AI platforms out of it. I won’t name names. You guys know who they are. Nuno Just be careful when people say, We need to pause for six months, and at the same time they’re hiring talent and they’re taking to the next level within their own companies because they have large data sets and they want to be competitors. Same people are saying, “Stop for six months.” But it’s not stop for six months because we have all these problems. Stop for six months so that I can catch up. That’s not okay. Bertrand Schmitt It’s either so I can catch up, so I can stay at the top of the world because I want others not to keep developing. It’s very typical of regulatory capture. You are the big guy. You are a friend with the regulators. You can influence regulators and you push for regulation even before the space has really started to mature, which is quite insane. Bertrand Schmitt Again, we have never seen that before. So fast, so early. That for sure for me is very scary because as you say, I think we have to think about what’s happening behind the scene and what’s really mastermind by some companies, by some people. Bertrand Schmitt Personally, I would not trust this proposition of both. Again, there might be some risk, but not as of today, not compared to other existential risk for humanity. Right now, actually, and we will talk more maybe about it later, but I actually believe there are strong benefit for humanity on the short term to use AI more, to be more efficient. That will benefit us way more than it can harm us. — The Future — Nuno Maybe that’s the segue to the future. Will it save us? Will it potentially kill us? Could it kill us? Will it be racist? Will it be biased? The answer is, yes to all of those. It will potentially save us. It will potentially kill us. It will potentially improve dramatically our productitivity. It will definitely be biased because it will pick up on all the biases that we have as humans. Nuno My co-managing partner and co-founder at Chamaeleon, Dr. Songyee Yoon published a very interesting article on venture beat on that, right on the neocolonization of generative AI because it’s bringing all the biases that exist from Western thinking and methodologies, et cetera, back into the forefront of the world. They’re accumulated, they’re there. The data sets are there, so they’re going to just be brought in. Nuno Let me maybe go on the whole, will it kill us or will it change us and make our lives better? It has the potential to make our lives significantly better. It has the potential to make us much more productive. It has a dramatic potential to make us not have to work five days a week unless we absolutely want to, or seven days a week if we absolutely want to, but work three days a week or two days a week. Nuno It has the potential to fundamentally shift professions over time. As we discuss today, what we’re seeing today is not general intelligence in the terms of a massive Godlike entity that could see everything and predict everything. It is not out of the realm of possibility that we will see AGI in our lifetimes. Who knows? There are dangers of this. Nuno The dangers of this, again, a simple person. The dangers of this is what do we give these agents, these artificial intelligence agents access to. Access to is input and output. Access to in terms of data sets that they can basically scrape, they can look at, et cetera. Access to in terms of outputs, what systems can they touch, can they action. Nuno Now, if you give some of these agents access to systems like national grids, systems like whatever, “Can they kill us?” Oh, yeah, they can. But it’s true today. We have embedded software that has been written into medical devices. Medical devices could kill us if the embedded software that was written in it was badly written. Nuno By the way, this has actually existed. I remember this was a case study when I was doing distributed systems in college that someone forgot to actually figure out that there was what was called a race condition within code, and actually patients died. There was software written. It wasn’t AI. It was software written. Whoever wrote that software didn’t take into account that there might be a condition under which two different parts of code would be run at the same time, and the outcome wouldn’t be clear, and alas, it happened a couple of times and people died. They were given too much radiation from a medical device. Nuno Again, can machines kill? Yeah, machines can kill. Machines can kill in a way that the human is not there killing people? Yes, because the software was badly written or because it had access to things it shouldn’t have access to. So can AI kill? Yeah, it can. Nuno It depends on, again, what are you giving it access to, what are you allowing it to do, and what data sets is it embedded from. We don’t need to have a GI for AI to kill us, just to be clear, sadly enough. Self driving cars could kill us tomorrow and they use AI. Nuno Again, yes. It’s about risk mitigation. It’s about understanding the code is working properly or not. It’s about explainability. It’s about being very careful with what you give access to your AI agents so that they can’t do whatever shit they want, sorry for my English. Nuno You have to have these things in place. Explainability of AI, for me, it’s a pretty critical field. If you can’t explain what the code is doing, we have problems. If you can’t explain to people in a simple manner what does this code have access to in terms, again, of actuation, what can it act upon in terms of output? You have a problem. If you can’t actually explain what data sources is this software actually accessing, you have a problem. Nuno I don’t think that problem is necessarily new with AI. It gets amplified with AI precisely because of the things we’re saying, because there’s code being written today that the person who wrote the code doesn’t understand exactly everything that then the code is doing. That’s the problem. Because if the code was relatively well understood 99.999 % by whoever wrote it and whatever manifestations that code has in the future, we’re fine. Nuno The problem with AI is you don’t. That’s definitionally what happens after you write it. Bertrand Schmitt I actually think it’s true of any complex code today. When you have code built by teams of thousands of people, all over years or sometimes decades like Windows or the software inside a Boeing plane, even without any AI, no one can dare to say that they fully understand what has been written. Otherwise, you will not get a Windows update every three days to correct a bug. Bertrand Schmitt At the end of the day, even with automated systems to prevent bug, to prevent security risk, and checking of code and stuff, there are still many issues. You talk about machine searching people before AI. Another good example was a Boeing 737 MAX. The onboard software I managed to generate two crashers. Killing, I believe, everyone on board. Software is supposed to assist pilot, by the way, except that in some situation with some failure of some systems, it will actually decide to crash the plane. Bertrand Schmitt Even before AI, we had life and death situation. Let’s not forget that software is already around us in a lot of situations, and we have still managed to find ways to control it. I think with AI, the same will happen. We will find step by step the way to manage, to control. Bertrand Schmitt I don’t think anyone will be crazy enough to put AI systems that they don’t understand, that they don’t control, in charge of advanced systems. I think it will lead to a relatively safe development. I think Yann LeCun is very famous, the chief scientist for Meta, to keep talking about the fact that we really don’t have intelligence yet, that we are not even at the level of intelligence of a cat or a little kid. Bertrand Schmitt I think for me, that’s always something I try to keep in mind, that there is still a long road to go to AGI. You talk of will it happen in our lifetime? I would think so. It could be wrong, but definitely, given where we are today, it feels like it’s years, if not a decade or two away. That’s another piece to keep in mind. If there are some risk, it might come with an AGI. But but we are so far from it that it’s really not something realistic to be thinking too much about it above all else when current AI system are not a risk or so little risk that it’s what you are used to with software. Bertrand Schmitt That actually there is a risk so much benefit. I think you talk briefly about Andreessen Horowitz and some article they published recently about AI saving the world. Maybe it’s a big title, it’s a big claim, but I certainly agree that at this stage of the day, there is way more benefit to AI than the other side. Nuno The objection, I think, Marc’s article on the positive side and what it can be used for is very eloquent and very polished and very clear. But at the same time, his article, I wouldn’t say intellectually dishonest, I don’t think Marc is an intellectually dishonest guy, but it doesn’t really talk about the fact of what we just talked about. Software can kill people, right? Nuno It’s not even in the wrong hands. It could be just badly coded. It could be a freak of thing. With AI, that issue is amplified, right? He doesn’t really mention that. You obviously don’t want people to say, Can AI just kill us all? In principle, not. If we develop systems with boundary conditions and the way we figure stuff out, like what access do you have, et cetera. As a system, a software system, hopefully people will be thoughtful on how they do that. But there are some risks. Even before AGI, there are some risks. It’s not just AGI that brings risks. Bertrand Schmitt In some ways for me, what’s interesting is that Elon Musk has been one of the most vocal opponents of moving into AGI, into proposing for a pose. At the same time, you could argue he’s the one who has invested most in AI with self driving, and he’s the only one combining AI and real machines on the road, two tons machines that can kill people at scale if they want to. That for me is very odd. It’s actually crazy to be frank, that he’s the one pushing back when he’s the one who has been pushing the most, some very dangerous machine potentially on the world. Nuno Let’s get this right. We’re talking about someone, I think it’s a bit, to be very honest, a little bit intellectually dishonest. But we’re paying attention. The guy owns probably the car company that’s been the most aggressive about using artificial intelligence, et cetera. With a view to replacing us driving, certainly in live action in production. Nuno He is in control of SpaceX, right? He’s in control of Twitter, which has probably one of the single largest data sets of interactions between human beings, news, et cetera. In the world. If all of that wasn’t enough, one of the first investors in open AI, and all of a sudden we’re all going to be killed by it, what is he investing in? Nuno Maybe you’ll troll me after this, but I don’t see him investing in a huge think tank that thinks through, for example, technology philosophy and whether everything that we’re actually doing needs to have certain aggressive boundary conditions or not. I don’t see it. Where is it? Where’s that investment? At the end of the day, put money where your mouth is. If that’s the key concern that we have, let’s do stuff around that. Bertrand Schmitt Both all of you are in AI investment in all your companies. Nuno Yeah, let’s start looking into it. Bertrand Schmitt For me, it’s very surprising. It’s actually unbelievable. At the same time, I might be that he’s investing in these AI topics because I think it’s pushing things, it’s pushing the envelope. Actually, maybe I would say that at least at Tesla, it feels pushing too hard versus what it can actually do. I feel personally the marketing is really, for sure, way too aggressive about how it’s so called self driving when today it’s not. Nuno Yeah, in some ways it’s actually breaking that boundary. It is not. It does things still that are not proper. But anyway, I’m also happy that he is investing that much money into artificial intelligence. Just to be clear, I don’t want to diss the guy. He puts money where his mouth is in terms of that. It’s a little bit intellectually dishonest. Bertrand Schmitt In term of building, not pausing. Nuno Yeah, in terms of building. But then it’s a little bit intellectually dishonest, like it’s going to kill us all. Okay, cool. But then why are you putting all this money to these things? Anyway. — Conclusion — Bertrand Schmitt This concludes Episode 44. Our second episode in a series of two episodes, 43 and 44, around AI, generating AI. We went through around what it is, what type of verticals is it developing, what are the big guys doing, what are startups and VCs doing, where it is in term of open source versus closed source, and what has been the evolution of the regulatory environment, and talking somewhat about the future and where this can go. Is it going to save us all or is it going to kill us all? It’s very interesting how extreme the different position on that topic and how extreme they are so early in the process of developing AI and AGI. Thank you, Nuno. Nuno Thank you, Bertrand.

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: 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 Subscribe To Our Podcast 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. There needs to be some sort of training mechanism, potentially even human in the loop, basically telling the machine, whether it’s classifying things appropriately or not. Nuno G. Pedro For example, in computer vision, is this really a monkey or not really a monkey, if you’re trying to classify a monkey would be an example of that. But again, that’s in generic terms what artificial intelligence is. Bertrand Schmitt Yes, and to build on what you just said, interestingly enough, the field of AI started probably at the same time as computer science per se started so in the 1940s. It’s a space that’s been alive, I can’t say well all the time, but definitely alive and ticking for decades. Interestingly enough, it has probably been a field that started, I don’t want to say too early, but definitely more early than we had the computing power to achieve what we were dreaming. Bertrand Schmitt That has probably created a lot of AI winters. If you talk to people experience in that field for the past decades, they have known some boom and some incredibly long period of bust, 10 years, 15 years where no one would want to invest in anything called remotely AI given some past experience of promising a lot and under delivering. Bertrand Schmitt I think things changed around 10 years ago with the advent of the latest GPUs from Nvidia, with the advent of new coding paradigms like CUDA from Nvidia as well, that let harness the power of GPU for this type of task much more easily, and obviously some new techniques in deep learning that let you train better and at more scale. Bertrand Schmitt Of course the availability and advantage of digital data at scale because since the 2010s we have the internet, we have books, we have content, we have audio, we have video, we have photos, we have everything online. Suddenly accessing data that you can use to train at scale model became finally much easier than it used to be, so a big dramatic change. What we are probably mostly going to talk about today as routes 50, 70 years ago, but really was enabled in the past 10 years. Nuno G. Pedro To be clear and just picking up on what you said, these have mathematical roots in things that have been around for many decades. Neural networks are not new. We’re now talking about convolutional neural network CNNs, recursive RNNs, adversarial. Nuno G. Pedro We’re going to talk about transformers. Transformers is probably something more recent. It’s an adaptation which actually is credited with Google, which is funny because it’s deeply used by OpenAI, but Google were the guys who came up with it. But in general, if we look at the field, it’s been around for a long time. The mathematical basis of the algorithms and techniques that we use in AI today have been around for decades. Nuno G. Pedro To your point, what has fundamentally changed? If I had to synthesise it and summarise it computational power, obviously with the advent of GPUs now there’s even ASICs so there are specific semiconductors that are very, very focused on the process saving of certain techniques of AI. Computational power has definitely changed. Availability of data at scale and the ability to process that data at scale and access data pipes has obviously changed a lot. Nuno G. Pedro I would say networks have changed as well. Latencies have come down, so if you want to process stuff in the cloud or even in your own processing power, in your own device, that has obviously simplified the whole story of it. Nuno G. Pedro In some ways, it’s brute force. If we think about it, it’s like a lot of data, a lot of compute, and it’s brute force. Now we get AI. I think this is an important point because this will come back to why our AI agents or our AI overlords will not kill us immediately because it’s still brute force. They’re not really intelligent, they’re just doing stuff. We’ll come back to AGI, to general intelligence later on, but let’s leave that positive note for now. They’re hopefully not going to kill us anytime soon. Bertrand Schmitt Brute force is a good point because ultimately a lot of researchers argue that we are still very, very early. In many ways, if you look at the way human baby animals are able to do stuff that AI still cannot do today, they always point to the fact that we can learn much faster with much less data, in some ways. At least, that’s one way to look at it about the world around us, the current way we train this machine. Bertrand Schmitt In a way, it is definitely a different type of intelligence we are building today with what we call AI. It’s not human level intelligence and it’s not trained the way you would train a human being. It’s very different based. That’s something to always keep in mind when you talk about AI. Setting the Record Straight (08:55) Nuno G. Pedro What about Generative AI? We’ve all been listening to it. I’ll open the hostilities and then you can tell us the real truth about generative AI. I’ll open the hostilities by saying that in my opinion, generative AI is not generative at all. It’s a very poor choice of words that someone at some point made on what generative means. I think it means generative within the context of the neural networks that it’s running on. Nuno G. Pedro But it’s not really generative. It’s more of an aggregation of things. It’s something that comes after something else that makes sense for that thing to comes after something else. That is true of images, it’s true of text, it’s true of a variety of other things. Sadly, that’s what even GPT stands for, Generative Pretrained Transformers. That’s a cool name. Nuno G. Pedro I think that’s the first thing I would like to debunk. Generative is not generative at all. These things are not creating things. We’ll come back to that later on, regulation and a bunch of other IP issues. But what is Generative AI, Bertrand, as we see it today? Bertrand Schmitt Yeah, that’s a good point. I think it always go back to how do you train these models. Have they truly invented something from scratch, from zero? Is it built on, or near entirety of human knowledge? At the end of the day it is built on the near entirety of human knowledge and definitely way more knowledge than any human being could have gathered among their life, at least consciously or at such a scale. Bertrand Schmitt The idea here is that you learn a lot about specific topics, be it coding, you would scrape at scale, different website focus on coding. It could be a GitHub, for instance. It could be a stack overflow in term of data and we can talk later, but regulations are changing, term of service are changing of this website. Bertrand Schmitt But you scrape everything that there and when you receive requests for support, for help, when you are automatically trying to complete a computing task, you are gathering in a way at scale that data and getting it out from the system adjusted to the local need, and that can be very powerful. But basically it’s transforming that existing knowledge at scale to a specific context and trying to find the best fit. Bertrand Schmitt As of today, there are a lot of shortcomings. Some shortcomings are that it’s simply… In some cases actually it has been proven, it’s very close to copy-pasting some examples and that’s obviously a big issue, especially if we think about IP concerns. Bertrand Schmitt Another piece of the puzzle when you are generating is obviously in that context you’re as good as your source. If your source is extremely biased for some whatever reason, you might have some real issues in term of output. One question will be are you as biased as your source or are you even more biased? I have seen some interesting analysis where in some cases it seems that the output was actually even more biased than the source. Bertrand Schmitt That’s another interesting question. Do you want to unbiase your source? Do you want to stay as biased as your source? That raises a lot of questions, including ethical questions. Bertrand Schmitt At the end of the day when we go to maybe what’s most exciting these days in term of Chat AI, one thing that is quite obvious in many situations is that it’s not trying to really understand what you’re asking. It’s trying to guess what’s the best word that should come after your question, and then the best word after that, and then the best word after that. Bertrand Schmitt In some situation it might look very appropriate, but in some situation, of course, it makes no sense. I was looking one of the latest running joke it’s spell this world in the opposite direction. No current chat program is able to spell a word in the inverse direction of the word. That shows how some very, very basic stuff and obviously a lot of calculations are up and wrong, some basic stuff are still not achievable by such an approach. Bertrand Schmitt The other piece maybe to finish is when we see generative AI apply to chat, for instance. At the end of the day, it sort of average, the average answer to your question as it is on the scraping environment it was used on. If it’s scraping Wikipedia or the internet, it will try to find you the average answer you can get on the internet, on Wikipedia, on whatever. That means that if the outside world is biased, is wrong, or is very partisan, it will be some sort of average answer of what you can find. Bertrand Schmitt In some ways, the power to the people who are spreading the more information on the internet, they might not be right, they might be wrong, but they will be the one winning that war to influence indirectly some of these agents. That’s something to really keep in mind. Right now there is no reasoning, there is no trying to make sense from basic axioms. It’s all about simplifying, averaging at scale what they can find in their scraping. Nuno G. Pedro Yeah, this is mathematics, probability, statistics picking up on very large data sets. You guys probably have all heard about this. There’s large photo data sets, large video data sets, there’s large language data sets, the famous LLMs, Large Language Models. Nuno G. Pedro It’s picking up these big data sets and then trying to figure out, this is probably what should be next in that sentence. That’s the answer you’re getting when you’re going on to ChatGPT. As you alluded and quite well, that doesn’t mean it’s truthful. You guys can run areas of expertise that you might have run searches on Bard or ChatGPT, whatever tool you want to use, and you’ll notice this. You’ll notice that in areas where you have deep expertise, the answers you might be getting back are actually wrong, or they might be mostly right, but there’s something in it that’s wrong. Nuno G. Pedro There was a study done recently, I can’t name the name of the hospital, where they did some checking of using what would be the advice given, given certain symptoms, treatment of certain illnesses, treatment of certain conditions. The conclusion they got to is, by and large, the artificial intelligence agents are basically I’m communicating through, let’s say, a chat bot. Nuno G. Pedro The answers I was getting were really very good, were very empathetic by the chat bot, which was cool. They were actually, for the most, spot on correct. But once in a while, the process that was prescribed by the agent, so the agent in this case is acting as a doctor. The process prescribed by the doctor for the treatment of that specific issue or condition, once in a while there was a step in it that would cause the death of the patient. That’s a bit of a problem, right? Nuno G. Pedro You can’t be right 97% of the times and then be wrong 3%. On a lesser note, I did this search. I remember now if you go and do the same search, it won’t show up like this. This was still on Chat GPT-3, not on GPT 3.5 or 4. But if you look, for example, how many venture capital firms are there in the US and how many venture capitals are there in the world, you would immediately realise it’s wrong. It can’t be possible that those two answers are aligned because the numbers I was getting back were both from 2021 and the numbers didn’t make sense, because if you just did the math, it didn’t make sense. Nuno G. Pedro But it was worse than that when I ran this on GPT-3. The numbers I was getting was getting sourced to a study from a specific publication, in this case, Crunchbase. The dangerous thing is that Crunchbase never published a report with a number of VC firms that exist globally that year. That’s when it gets really scary, is you’re asking questions and they’re giving you answers that seem very assertive and palatable. But basically this is just false. It’s literally fake news, because they’d never published a report on that. Nuno G. Pedro My advice to everyone is, I believe the tools that we have today with GPT, be it GPT-4, with Bard, with Claude, with all the tools that we have out there, just be cautious in how you use them. Triangulate the information, go back and search for the information. Can you find the report that it’s quoting to you? I see it as a directional augmentation layer. It’s great. It provides you, in particular, I think this might be the size of the market, or this might be actually the competitors in this space, or this might be actually the number of actors and players et cetera, et cetera, but it’s directionally correct, it’s not fully correct. Nuno G. Pedro The same with, for example, using stable diffusion when you’re generating art, et cetera. Be cautious that you’re not using something for your own purposes. In particular, if they’re commercial purposes, that is reusing stuff that actually is copyrighted, that is coming from another source, et cetera, et cetera. Again, it’s a great augmentation layer. It’s directionally interesting in most cases correct, in most, most, majority, not always, but be careful what you use it for. Don’t make life or death decisions based on it. Don’t generate entire thesis on investment or thesis on your strategy as a start-up based on it. Just cross check numbers you just triangulate, et cetera. We’re so far from having very truthful information being provided by these tools, by these platforms. Bertrand Schmitt Yeah, I think at this stage it’s mostly untrustworthy. It depends, obviously, on your need. If you are trying to generate a poem, you probably don’t care. If you are trying to generate some type of image, as long as the human beings look normal and you have something that looks good, you’re happy. Obviously, there was a lot of issues, especially in the past, about showing you the wrong number of fingers, when you generate fingers, for instance, that sort of stuff. But it’s getting better. But for sure, there are a lot of instance where you are looking for specific information where it’s just completely wrong and totally untrustworthy, at least at this stage of the game. Bertrand Schmitt We have been using it at Red River for some automatic competitive analysis. For instance, one thing we saw is that it was working quite well, actually. But where it was not working quite well was when you ask for a top 10 or top 20 of competitors in a small market, in a small deal, and then suddenly what you notice is that, yes, some are very good and then some are completely off. You realise that it’s trying to find your top 20 competitors, but if your market is too small, after it has found the four or five obvious ones, after that it stopped making them. It’s right trying to find whatever. Bertrand Schmitt You have to be very careful about understanding where does it stop working. Another basic example, I think not anyone can check to ask one of these AIs about themselves. “What do they know? What is your bio? What have you done in life?” I don’t know for you, but for me, it was completely off. There would be some truth, and there would be alpha fit, where there was nothing true. It was talking about companies I never built and I didn’t even know about. It’s pretty bad. Obviously there is a lack of source, if it’s giving you a source, but actually it’s not connecting to what it’s telling you, that’s not better. Nuno G. Pedro Yeah, I just search for mine right now, and it’s still incorrect. It’s directionally correct, but it’s incorrect. It’s saying stuff that I was an associate at McKinsey, which I was a Senior Expert at McKinsey. I’ve been doing Chamaeleon apparently since 2016, which, again, I’ve not. I’ve been doing it since 2021. Strive Capital since 2018, I’ve not. I’ve been doing it since 2010. It’s interesting. Bertrand Schmitt I mean, as we have seen, this stuff keeps improving over time. Nuno G. Pedro It’s directionally correct. It’s not totally, totally wrong, but it’s like, “Okay, cool.” Bertrand Schmitt I think it’s more a question of not just criticise, but be realistic about what you can expect and use these products intelligently. For some use case, it’s perfectly good. The minute you want to be precise, the minute you have to depend on it, the minute the life of someone depends on it, then you have to think very carefully, am I using the right tool for the right job? Nuno G. Pedro At the end of the day, if you have expertise in the domain, really exercise a lot of critical thinking. If you have some expertise or some understanding of it, this is not to replace critical thinking. This is to increase productivity. You can go faster because you can get direction on stuff, you can double click on stuff quicker. To your point, it’s about horses for courses. It can really augment you, it can make you go faster but it’s not going to replace you exercising critical thinking, doing triangulation of data which is a good practice in any case, even in the good old days it was a good practice. That doesn’t change. Verticals (20:30) Nuno G. Pedro Maybe we can go into verticals things that we are seeing around the use of generative AI and verticals that we’re seeing in terms of use. We’ve talked about chat. Do we want to talk a little bit more about that? Bertrand Schmitt I think in term of chat it’s obviously a good question. The dream has been for a while to have your own personal agent helping you on a different task and replacing in a way or giving you your own personal assistant. That’s the dream of many people. Obviously it can do some of this. There have been some very successful example of a ChatGPT helping you build your dream travel in a specific location, finding restaurants, finding hotels, finding stuff to do. There are some use case where it can be incredibly useful. Bertrand Schmitt Again, I don’t think anyone would want to do all by itself. Chat is definitely a big part of the game. It’s also interestingly like a new UI. If you remember the chat discussions five years ago, chat as a UI to replace apps for instance, it didn’t work at the time. The ability to communicate with a computer was definitely very difficult. Now you can see that there is a better ability to communicate with a computer. Again, the question is communicate about what and how can you double check what is being said to you? I am a firm believer there are some use case where there is a real true benefit, and somewhere it’s more limited. Bertrand Schmitt I think some benefits for me for instance will be to generate a loan text form from valid points in a specific ton of voice for instance, so you don’t need a ghost writer anymore, you can have your own personal automated ghost writer. Or the other way around to try to summarise text, make it more bullet points. I can see some use cases where it can have real value. I’ve seen some startups trying to generate automatically some slides. For instance, you talk about a topic to have summary and explanation and it can generate you slides, the bullet points to the images, to a specific agenda for the topic. Bertrand Schmitt There are some use case where it can help you start with a template in some ways that you can then adjust. Here it’s all about saving time. If you save 50% of your time by doing that, that’s great. That’s already a win in my book. Nuno G. Pedro Yeah, and maybe to another obvious vertical out of this is coding. We’ve seen developers coders tap into figure out pieces of code that they could reuse, et cetera. There’s some complexity to this. Some pieces of code might actually been used somewhere else. It does require expertise. The person who’s actually getting the code should understand what the hell the code is doing. To your point, it’s about reducing time too. It’s about, “Okay, can I reduce my time to develop this specific module, this specific part of code.” It’s really about productivity at the end of it. Bertrand Schmitt Yeah. You have also fantastic example for documentation if you want to document code, for instance. Apparently some of these models have been really well trained in term of commenting code. That’s definitely one use case. I have definitely heard reports that some developer finds themselves 2 X, 3 X more productive thanks to this tool. When you think about it, we have been used to autocomplete, for instance, for a long time. That’s all about saving time. If you can do even more than autocomplete but fully fill some code and work. Bertrand Schmitt If you ask it to review again, it detects automatic some bug and it corrects itself, and you do some iteration and it gets better. That’s just amazing. That’s probably one way to do it. As you say, you have to review, you still have to apply some additional best practices in term of security, in term of coding style. Another good example actually is applying uniformly coding style. That’s much easier with such a tool. Bertrand Schmitt Another interesting work was to convert from one language to another. This one for me was particularly interesting because there are a lot of projects where you need to upgrade your environment, change OS, change, develop a language for instance, or upgrade to a new version of that developing language. Bertrand Schmitt If you have the ability to accelerate that task by 9 X 10 X, this can change dramatically how you see some of this project. Stuff that was impossible to think about in term of upgrading suddenly becomes doable that could change how you architect complex system and how you manage them over the lifetime. Nuno G. Pedro I think about this in a very simple manner. I try and bring it to first principles. For me, what this is allowing is an extra layer of augmentation and productivity in the same way that, to be very honest, software brought a layer of augmentation in its early days. In the same way that mobile phones and smartphones having these little computers in our hands created a new wave of us having access to information. This is creating yet another level of access to information and productivity. Nuno G. Pedro We’ll talk about other items like venture capital firms and startups and what’s happening in this space, et cetera. But for me this is like a platform on which we are having another degree of augmentation and as any platform, it has great positive things and it also has some negative pieces to it as well, as we were saying it’s not fully trustworthy. It will probably propagate quite a lot of lies in the next few years and things are incorrect, so fact checking will become more important and all of that. But it is just another layer of productivity that we’re adding to our stack in this world of technology development that we’ve been undergoing over the last few decades, century, I would say. Bertrand Schmitt One interesting comment I saw from some people was as long as you consider it at best as an intern, that’s a great tool. Basically what they mean is that you cannot trust the work. You have to have very limited scope. You have to review carefully, potentially rewrite some stuff. You have lower expectation. But if you think that it’s truly a replacement for a full, high-quality software developer, you are probably at this stage today, totally wrong. Bertrand Schmitt But if you think that you can empower and improve the efficiency of your existing developers by providing them a near-free intern, then that’s a big difference. That’s a big difference. That’s something that was not practical before. Nuno G. Pedro It’s, at the end of the day exactly that. It’s sort of a first draft. I think it’s first draft, how I think about it. First draft text, first draft code, ideas, increasing productivity. Maybe talk about other verticals, first draft music, if you’re maybe a musician or want to go into music. First draft image or design that you want to use for your new app or for your new website. It’s a first draft. It shouldn’t be end of it. It shouldn’t be, “Okay, I’m done. I created a new logo for my company. It’s cool.” Bertrand Schmitt Yeah. Nuno G. Pedro Magically then you notice we’ll get back to that later there’s a little bit of a watermark in there from Getty Images or something. Bertrand Schmitt Yeah, there were some examples where the image were coming out with the original watermark. Image is very interesting because that can be used, I think, pretty well to apply, for instance, some consistent style. You might have an original set of image and you want to say, “You know what? I want to apply this type of style to all this image.” This would have been a work that would have required in normal times a lot of work to have graphic designer graphics do that work on some images and change the style and, “Okay, you want a Picasso style on all of this? Okay, I can do it, but will take me days.” Here you have it in seconds. Bertrand Schmitt I think that definitely for some stuff, some brand new opportunity where it’s truly from zero to one, meaning that you could not imagine doing it at scale and even situation where what you achieve is good enough. If you need a picture for an article to convey a message, you don’t need to go too crazy. Some easy AI generation trying to ask three times different prompt and correcting it a bit might be totally enough versus trying to find something for free that doesn’t really match, or spending some money with a real graphic designer, but who can afford that? Nuno G. Pedro Again, horses for courses, as always. But it’s a great moment that we’re living in, despite all the negatives that we just mentioned. A couple of shout outs in terms of platforms out there. I think we’ve talked about stable diffusion from stability AI. They’re having their own issues as well, but obviously massively used for the creation of images. We talked about DALL·E as part of obviously OpenAI. We’ve talked about ChatGPT, and then GPT-3, GPT-3.5, GPT-4 from OpenAI. We’ve talked about Bard from Google. Nuno G. Pedro There’s a bunch of tools out there. Also important we’ll come back to the whole notion of open source versus not open source to specify that even OpenAI, although it has Open in the title, is actually seen today as a proprietary platform, not as an open platform. Bertrand Schmitt Indeed. Other AIs (28:48) Nuno G. Pedro We’ll talk about some movements that happened around OpenAI later on because it was initially not-for-profit, and now it’s unclear what it actually is, maybe it’s a for-profit. But there’s a lot of great platforms out there that really can enhance your work. A lot of great things as well have happened in other fields of artificial intelligence. The work that DeepMind initially had done around gaming, that DeepMind has done around biotech, will come back to DeepMind. Obviously. This is a company that was acquired by Google, I believe in 2014, that now has been merged. Nuno G. Pedro We’ll talk about some of the movements that Google has been doing around that. A lot of really interesting things happening beyond the more generalist use cases of this, like generating text, generating code, generating images, things that are very, very specific to specific fields and verticals that have created quite a lot of value. Bertrand Schmitt If we don’t just talk about generative AI. But to be fair, the topic today is mostly around generative AI. There are non-generative AIs that have been quite transformational. We have seen DeepMind in Biotech, in gaming, providing some incredible advances in the field. Obviously, we have AI around self driving. Tesla is probably leading the charge. It’s still probably not yet full self-driving, whatever people say today. But it’s definitely improving over time and it definitely leaps beyond what we were used to even three, or five years ago. Nuno G. Pedro Yes, exciting days. I’m a computer engineer by background. I remember developing what we would call Mickey Mouse type AI applications and software pieces. I remember developing this game, which I think it was called Connections, the game. Very simple game, where you have to go from one side to the other of the board. I was shocked that at some point the game was beating me 10 out of 10. I just couldn’t beat the game anymore. Nuno G. Pedro It was just sheer brute force. It was functional programming using heuristics. Functions that figure out are you closer to the end goal or not? It’s just basically the computational power of the machine was just beating me because it was going down all the brand branches and it was just, “No, this is the branch I need to go through and I’m going to kick his ass.” I’m pretty sure the machine didn’t think kick his ass because machines don’t think as we said at the beginning. But it’s a little bit scary sometimes when you see it in action, even if you were the one that coded it in the first place. Nuno G. Pedro I think part of the challenge of a lot of these AI platforms and this new revolution of AI that we’re seeing is something like explainability. Can we explain what the actual algorithms are doing? At some point they become so opaque that even the developers might not fully understand what the code is doing. That’s when we might get into trouble. But before we get into trouble, let’s talk about the big guys. Who are the big guys right now in the market? The Big Guys (31:20) Bertrand Schmitt Good question. I guess for that we can use some leaderboards. For instance is the LMSYS leaderboard for Chatbots. Here it’s ranked by elo ranking and as of May 25, which is our latest ranking, we have ChatGPT from OpenAI as number 1. Then we have another startup as OpenAI, very well funded startup and actually built by ex OpenAI people, Anthropic, with their cloud model, Claude V1, Claude-instant V1. Bertrand Schmitt Then we have Chat GPT-3.5 by OpenAI and then we have others. Vicuna, we have PaLM from Google. We have another Vicuna, we have Koala. We have quite a few others. I want to note that has been another one that was recently released an LLM from the UAE and we’ll talk more about it in term of open source versus closed source. Another LLM called Falcon 40B, meaning 40 billion parameters is doing very well. There is a lot of action from either big startups, big enterprise or actually government funded labs. Nuno G. Pedro Very, very exciting times. If we look at the usual success, we’ve already talked about OpenAI with ChatGPT being at the forefront of it. Obviously now at release 4, which you can get access to if you subscribe for the premium payment every month. The Microsoft partnership that was announced initially was a potentially 49% buyout and it was positioned as an investment by Microsoft of around 10 billion. I’m not really sure if we know the exact amounts yet, but clearly Microsoft is putting a lot of its capital behind it and it’s really using it across the board for Bing, for Microsoft Office and a variety of other tools. Nuno G. Pedro The whole notion that OpenAI at its inception was more of a not-for-profit organisation and now it’s really becoming more for-profit organisation. That in and of itself creates an arms race, obviously Google, because Google are the AI guys. I mean, they came up with a whole transformer techniques. It’s only fair that they have a stake in it. I’m being facetious, of course. We’ve talked about Google in previous episodes. They probably have some of the top talent globally in the artificial intelligence field. They’ve been pioneers in the creation of languages, techniques, et cetera. Bertrand Schmitt One point is that Google probably has the most at stake. Google has the most to lose because in some way, a cheap interface might be seen as a perfect replacement for a search box. Instead of having lots of answers, lots of ads just have a clear, straightforward answers as long as you can trust it, obviously. That’s Google. That’s in the most risky position of being disrupted. Ut’s their whole business, basically, because 80% of Google revenues, profits are coming from search. They better be good and react fast on this or they really at risk to lose their cash cow. Nuno G. Pedro We saw how susceptible they are. I think the point you made, Bertrand, is spot on. How susceptible they are in terms of value. They rushed Bard to the market, and they lost 100 billion market cap that day, because the Bard made factual errors and stuff like that. By the way, one of these tools is making factual errors just to be clear. I’ve started actually using it side-by-side with GPT-4. Nuno G. Pedro I find actually Bard sometimes is more accurate and more interesting, so maybe catching up, I’m not sure. There’s been a lot of movements. They put AI at the centre of everything. There’s even the meme of the summary of Sundar’s statements at Google IEO, where it’s AI, AI. I think he said AI many times. Probably one that shouldn’t be really neglected is the formal merger of DeepMind with Google Brain. Nuno G. Pedro DeepMind was an acquisition, it was ran at arm’s length, and Google Brain was effectively ran by Jeff Dean, the incomparable Jeff Dean, and was more focused on internal things for Google and next level things for Google. They’ve now merged. This new entity is now led by the former CEO of DeepMind. Nuno G. Pedro A bit unclear on Jeff Dean’s role. He’s chief scientist. Seems like he reports still to Sundar directly, so it seems like a two-in-a-box structure, although he’s not formally the CEO, but Jeff does what Jeff does, I guess. We’ll see what comes out of this. Over the years, I kept hearing these stories that there was this conflict between Brain and DeepMind where they just had different philosophies. Nuno G. Pedro They competed it for resources, they competed for a variety of things. I think Sundar said, “No, you guys just going to have to align and work together and figure this out, because this is it.” But it’s a big deal. It’s a big deal that they’ve merged those two entities effectively. Very significant entities. Bertrand Schmitt Microsoft for sure. We talk about their partnership with OpenAI, as we have seen with the last build conference. Sundar Pichai is also all in on AI. It’s AI everywhere. It’s ChatGPT integration with every Microsoft product. It was not just about Bing, it was about Office. It’s not just office, it’s Windows. It’s really an integration of AI in every pieces of every product. It’s significant investment from the biggest players. Bertrand Schmitt One, we didn’t talk much yet, but I think we showed this meta. They have an incredible and incredibly strong AI team and department led by [inaudible 00:34:55]. They have applied this at scale obviously for their advertising work, but also for their headset, their Oculus headset and to great success to do a lot of things. One interesting things and we talk more about it, but they have been in some ways maybe surprisingly leading some of the open source efforts in AI. So taking a very different approach. Bertrand Schmitt Maybe one actor we have to talk about obviously is Apple. Even with the last WWDC I cannot say we have seen a lot. I think Apple approach is first, nothing is open source. Two, we barely talk about AI. Actually, it looks like they made a special effort not to pronounce the word AI once. They would talk about deep learning, More importantly they would just talk about how some features are better. Better predictive text input for instance, and that’s it. Bertrand Schmitt Or they would use for the new headset, the Vision Pro, they would use AI obviously to recognise your fingers or to recognise your eye movements more efficiently and very precisely. It’s more an AI behind the scene that is making some new experiences possible. But it’s really a behind the scene approach, and let’s not share too much with anyone. Bertrand Schmitt Obviously, one interesting piece is that most Apple products have very big AI capacity in term of learning or inference. In term of hardware they are, you could argue, leading the charge in term of how much AI optimised hardware and AI capable hardware they have put in the hands of everyone. Nuno G. Pedro Last but definitely not the least, let’s not forget the Chinese. Baidu has been doing things around AI for many years. There isn’t a huge amount of noise yet, but we’ll see at some point whether there will be or not. Tencent, given their gaming background, et cetera, I’m sure has done significant things around it. Then probably the most used AI-enabled app in the world or one of the most used, TikTok from ByteDance. Nuno G. Pedro interesting to see what’s going to happen around that. It’s not necessarily generative AI in the sense that we are discussing in this episode, but by the time we launch the episodes there might be some announcements from some of our Chinese brethren. Nuno G. Pedro Conclusion (38:38) This concludes episode 43. Our first episode on artificial intelligence and in particular generative AI. In this episode, we touched upon the definitions of artificial intelligence, AGI, why it’s meaningful now, why AI didn’t take off 10, 15 years ago. We also set the record state on what’s happening with generative AI. We discussed key verticals where AI has had a significant impact. We ended by talking about what the big guys, the Google’s OpenAI’s Microsoft’s of the world are doing. Nuno G. Pedro Next episode will conclude our two-part episode on artificial intelligence and generative AI. Thank you, Bertrand Bertrand Schmitt Thank you, Nuno.

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 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 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.

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 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 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.

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 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 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.

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:   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 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.  

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 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 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.

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: 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 Subscribe To Our Podcast 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, should you be focused as a company on your mission first at the extent of anything else? Bertrand Schmitt We have seen quite a bit happening in that sphere. Maybe two companies have, in some ways, best showcased to extremes. On one side, you have the Salesforce of the world who is definitely trying to take every topic out there that you can find and trying to push the company itself and its employees to become “good citizens” and to influence the public sphere. We can remember, for instance, how Salesforce was pushing for new taxation scheme in San Francisco, hopefully, to help some people. Nuno Goncalves Pedro Others beyond themselves, because I do think that they got at some point some tax break as a company in SF and that may have rippled to others. Bertrand Schmitt Some would say that it was a clever ploy to actually make it more painful for other companies, especially the competitors to operate in San Francisco. It depends how you position it. It was clearly positioned as a of being a good citizen by Salesforce, but not everyone would agree. Bertrand Schmitt But on the other end of the spectrum, we have a company like Coinbase, where, basically, there was a lot of internal pushback for more discussion internally around what’s happening in public policy, what’s happening in the US. At some point, the CEOs say, “Oh, this is good and nice.” Bertrand Schmitt But ultimately, we are mission-focused company, and this is not our problem. Our problem is, as employees, to focus our efforts and energy on our mission. If we believe our mission is important, that should help you believe you are focused on the right thing, and there is no need to do anything else, at least, during your work hours. Of course, obviously, what you do on your personal time and your personal name is a different story. Bertrand Schmitt But that should be enough. We believe that it’s creating too much risk of division of the company to have this constant debate about what should be done from a political perspective. That’s not productive or conducing of a good well-run company that wants to be focused on its mission. Bertrand Schmitt I think that, obviously, Coinbase, as well as many companies, have a very important deep mission, and that could be seen as a very fair statement. They think these two companies, Salesforce, Coinbase are really the two extreme of that positioning. Should you be involved in politics, at least internally or should you be much less? Nuno Goncalves Pedro It’s interesting because if we go back in time, once upon a time, there was a world where, as you said, there were PR departments, comms directors that were in full control of their CEOs, there were message houses that were followed, media training that was held regularly practice, people talked like really politicians. There was a separation between internal communications and external communications, or internal communications was, by nature, more open, although also fleshed out but more open. Nuno Goncalves Pedro External communications was a lot more focused on what key messages we want to give the market, how will that affect our stock price. Then all of a sudden, all changed. It changed with social media. It changed with the leaking of internal memos. It changed with leaking of town halls that were videotaped and recorded. Nuno Goncalves Pedro All of a sudden, we’ve gone into a world, where, on the one hand, and we’ll talk about employees later on, employees are sharing stuff that maybe they shouldn’t be about what’s going on in the company; and CEOs, in some ways, are acting in arenas that maybe they should be a bit more thoughtful about. The extreme example obviously is our great friend, Elon Musk. Everything that he does seems to be a meme. Nuno Goncalves Pedro We’ve talked about him in the past. Amazing one-man marketing machine. I don’t think it’s one man. He has people working with him, but definitely he’s the meme machine. Not mean, but meme machine. Everything got a bit fuzzy. Nuno Goncalves Pedro The distinction between internal and external is not there anymore. People say what’s going on, their minds. I share my perspectives on what’s happening in the market might not be aligned with my board of directors, might not be aligned with most of my company, actually. It doesn’t matter. Nuno Goncalves Pedro We’ve gone from a world in which people are saying, “You know what? We are a company. We have something we want to do, your logic of mission driven. We are of our own value system, and this is why we abide by the external stuff is the external stuff.” Nuno Goncalves Pedro Then we have the other part of the world, where it’s just like, everything’s open. I’ll just do whatever I need to do to get my company out there to manifest my perspectives on what’s happening in the market. I need to be very aggressive and active about it.” Nuno Goncalves Pedro In some ways, actually market Salesforce is a little bit more to the middle than to the extreme. Maybe Elon is the extreme example here. Marc is very thoughtful on how Salesforce will show up. Obviously, he has his principles. There’s a value system that they abide by. Nuno Goncalves Pedro Maybe Elon is at the other extreme, which is like, “I have perspectives on everything. Tesla is not the only company I’m running. This is my perspective right now.” Nuno Goncalves Pedro I think that’s a little bit too much. Honestly, at that point in time, you have people that are a little bit bigger than life, in some ways. I’m not saying that what Elon is doing is not creating value for his companies. It’s actually, quite the opposite, probably he’s creating a lot of value for his companies. Nuno Goncalves Pedro But it’s incredibly risky. You’re going to unavoidably step on people’s toes that you shouldn’t. You’re going to be operating in an arena that you’re probably not well-equipped to participate. Nuno Goncalves Pedro I think, for me, that’s the biggest objection I have is when I hear a CEO opining on something that’s geopolitical in nature, that is a social logic or social environment piece, where, in all honesty, I’m not sure why that person is better equipped to have an opinion in it than experts in the field or others. Nuno Goncalves Pedro They can say, “Well, I’ve talked to experts. It’s great hearsay.” But it’s like, “Why are we listening from you on this specific topic?” Again, this is not a stab at Elon, there’s many others that do it. But I’m like, “Why do we listen to you?” Nuno Goncalves Pedro That’s the other side of the fence. The other side of the fence is we, the consumers, we, the people that consume social media and that consume what is being put out there, how much are we aware that some of this is just generally noise, that actually, in all honesty, it shouldn’t manifest itself? It shouldn’t really be that important. It doesn’t really frame something that is fact-based. It’s just an opinion of a guy or a girl. Okay, we’ll listen to it because it’s their opinion. But that’s about it. Bertrand Schmitt I think at the same time, interestingly enough, when you think about Elon Musk counts out definitely, multiple sides to this coin, Dogecoin, should I say. But on one side, you could argue that he has been successful with Tesla and SpaceX, thanks to his visibility in this media, thanks to his public visibility, and that helped him to decrease the need for marketing. Bertrand Schmitt As a reminder, that’s one of the few companies today, Tesla. Without the PR department. There is no more PR department. It was removed by Elon himself. That’s also the question. Is he talking as a spokesperson of Tesla or SpaceX or is he just Elon Musk, who happens to be also the CEO of Tesla and SpaceX. Bertrand Schmitt That’s part of the question, because definitely, it has been a big win for him in terms of followership. I mean, 100 million plus people following him on Twitter. That’s just huge and game changer. Bertrand Schmitt But to put some of this in perspective, it’s coming, for instance, as simply as real all legal risks. When you are smoking pot on Joe Rogan podcast, when you are claiming to have an offer to bring Tesla back to being a private company, when you are talking about your perspective on the war in Ukraine, for instance, a few days after that, we had some apparently rumors that he’s going to get investigated, there is some real downside that might be significant and non-trivial for Elon. Bertrand Schmitt At the same time, because you are CEO, why should you stop having opinions and keeping them private? It can be tough. Sometimes you could argue that for a lot of companies or startups, having a very visible CEO can help dramatically your marketing. Nuno Goncalves Pedro I think there should be a line, and that line should be enforced by regulators. In the US, FTC is protecting consumers. It needs to get involved if it believes that there are things that are being done that are nefarious to consumers done by a specific CEO. Nuno Goncalves Pedro Be it who maybe be. We’re not just talking about Elon. It might be another person altogether. We’ve seen celebrities getting in trouble recently because of the whole crypto craze. Nuno Goncalves Pedro I think that line should be there. The SEC is there to defend a different line, a line around propping up the value of stock, how securities are being actually pushed into the market. Those regulations should be actually abided by. We are not in the far West. There are rules, and they need to abide by. Nuno Goncalves Pedro On the other hand, and I think you and I both agree on this, there are people that are doing well, at least in our opinion, at sharing their opinions without crossing some of these lines. Nuno Goncalves Pedro When Aaron Levie at Box is an example that we both discussed at length. You like him; I like him as well. I don’t know if he has a PR department or an agency working with him, but the way he manifests his opinions are at times funny. They are clear, but they are not, I think, breaking any laws or going across any boundaries. Maybe tomorrow, we’ll realize that he has been taken to court by someone. But anyway. Nuno Goncalves Pedro But that type of tonality, where you still have an opinion. You’re Aaron Levie. You’re the CEO and founder of Box. You have a view on what’s going on in the world. You share that. But you’re, at that point, where I am not crossing the line on influencing consumers to do certain things, on popping up the value of my stock, et cetera, et cetera. There is a way to do that properly. Nuno Goncalves Pedro Honestly, if anything, and this is my manifestation, and again, I’m not speaking about anyone specifically, I feel the SEC and the FTC have been very nice in many circumstances towards some of these manifestations. The crypto craze, in particular, was silly. People propping up tokens and stuff that had absolutely no vetting on. There was no due diligence. Nuno Goncalves Pedro This stuff lost people money. What happens? Who’s going to defend consumers. Who’s going to be the voice saying, this is not okay? It can’t be the platforms themselves. It can’t be Twitter itself. It can’t be the platforms themselves by themselves. Bertrand Schmitt I don’t think it should be the platform. I agree with you. I don’t think it should be the platforms. Nuno Goncalves Pedro I think the platforms have a certain role in terms of moderating content, in terms of the activities that are done within the platform, in terms of what is wildly accepted or unaccepted. But they are not the sensors. They are not the guys who define the line. The line should be defined by someone that is put there to actually define the line, and those are regulators. They are the agencies that regulate us, that protect consumers, that protect us in general. Bertrand Schmitt To follow up on what you say, and there is a lot to go through, I agree mostly with you. Aaron Levie, CEO of Box, definitely a great Twitter figure. From what I understand, he’s definitely doing it by himself, and his marketing department doesn’t know what he’s tweeting in advance. Bertrand Schmitt But I think he definitely has been careful and has listened to his lawyers and communication professionals in terms of what he can or should not tweet about. He has probably found the right balance. He’s team independent from his company. Sometimes his marketing team might have to do some work to follow up, but at the same time, he’s never crossing any lines at least as far as I know. Bertrand Schmitt If we take on some of your points, we need the regulators. I agree. In general, I will say it’s when we go into specifics that I might agree less in the sense of, we see too often regulators themselves crossing the line and going way beyond that charter, and it’s happening on a regular basis. I think it’s a huge problem, the overreach of regulators. Bertrand Schmitt Yes, there need to be some level of regulations, but it has to be fair, applied to everyone the same way, not just the people you don’t like at some point. It also should not be beyond the powers of a regulator. There are definitely questions about who should be regulating crypto. Bertrand Schmitt It’s nice to see the SEC trying to take that over. It’s not clear it’s in their charter. Once it is, I’m fine with that. But obviously, crypto is a risky space. I think there are many things in crypto that went wrong. If the SEC wanted to do the right things, they had many opportunities. Bertrand Schmitt Recently, there’s been a lot of stories about how some of the most senior staff has been leaving in rebellion to what’s happening there. I think it’s not as easy as there are laws and regulators. Sometimes laws might be wrong, and the regulator might not follow the laws themselves, or arbitrally, picks a fight. Bertrand Schmitt But overall, like you, I believe that you want to be careful. If you’re a public figure, that’s fine, but it can be challenging. It can be a lot of work to have to retract some statements. Finding the right balance is important. Bertrand Schmitt That’s true that, historically, if you look at the public sphere by being more aggressive, by being more extreme, that might be a way to get more followership faster, and that might tempt people. But that might be dangerous down the line. Nuno Goncalves Pedro Yeah, absolutely the case. Sometimes it gets more serious. We have Jamie Dimon thing with JPMorgan and the hearings in front of Congress. Do you want to talk a little bit about? Bertrand Schmitt Yeah, that’s an interesting one. Because someone, as a CEO, whether you like it or not, you are put under the spotlight. I think Jamie is someone who is probably going for the spotlight. But in that situation, sometimes you are forced to. Bertrand Schmitt Quite recently, there was hearing in front of Congress, where some questions were asked of CEOs. At some point, you are forced to take a side. You cannot always be in the middle trying to please everyone. In some ways, that might be what you have to do, as CEO, to please everyone. Bertrand Schmitt But up to a point, there was this interesting statement from him answering some questions about stopping oil and gas production or investment for the bank. Some representatives were asking them to divest investment. He put a strong statement, which I believe, was to his honor, that putting brakes on oil and gas production would be a road to hell for America. That was a very strong statement, very typical of a Wall Street CEO. Bertrand Schmitt But I think, at some point, you also want to put a line in the scene. Because at some point, if you keep agree on some things, you’re just going to be bad business and that might be very far from what you believe yourself. Nuno Goncalves Pedro Yes, and ultimately, you have to stand for something. Bertrand Schmitt Exactly. Nuno Goncalves Pedro The wishy-washiness that we see sometimes in politics, unfortunately, actually, doesn’t work as well in some cases in the corporate world- Bertrand Schmitt Up to a point. Nuno Goncalves Pedro -certainly, when it comes to managing a company, for example. We know there’s wishy-washiness as well in managing companies. But the point I’m trying to make is there is in effect that is very strong in that wishy-washiness, at times, if you are the CEO of a company, for example. You say, this day, once, the other day, whatever, actually the market, if you’re a public company, could crash you, and could destroy you. You just said, three months ago your strategy is X, now it’s Y, and what happened? Nuno Goncalves Pedro Again, I know that sometimes some of these argumentations are less related to the core of the company. But in the case of Jamie, obviously, for example, there was a lot of, not just traits put into question, but also later on, he had a very public view on crypto. I think part of it was warranted, which was this notion that crypto and Web3 was, in some ways, there was a lot of noise in it. There was a lot of things in it that were not proper, that weren’t right. Nuno Goncalves Pedro He may have manifested himself in the wrong way. He had to backtrack some of his comments later on as his own bank and the company that he leads has had to go into it as well. But here is a case of, honestly, there are effects on your business. Those effects on your business need to be taken into account and need to be put forward in a strong way, maybe slightly changing tack. Section 2: M&A changes everything (20:09) Nuno Goncalves Pedro Everything is great if you’re the CEO and if you’re the founder of the company until you’re acquired. Then when you’re acquired someone else owns you. Shockingly enough, although you might be a really large acquisition and you might be quite a big deal, the runner is a different runner. Nuno Goncalves Pedro We had this controversy, obviously, with WhatsApp and Facebook. Brian Acton, in particular, one of the co-founders of WhatsApp, left early and left a bunch of money at the table. I think was $800 million or something that he didn’t really vest on his earnout or that he didn’t get from his earnout, but a significant amount of money, and then very publicly came out and tweeted for delete Facebook, funded the start of the Signal Foundation. Signal already existed. Nuno Goncalves Pedro But the foundation he was funding it himself with a bunch of money. I think I forget the exact number, but maybe 50 million, something like that. So significant. I know on this one we have slightly different views. But I think, Brian, on the one hand realized, well, what I was promise before maybe is not what’s happening now and this huge amount of money that was paid for the company that I co-founded had some strings attached in the end and maybe became disillusioned at a certain point in time. Nuno Goncalves Pedro I know you have a different view than I do on this, but I’ll let you express your view in a second. For me, the one thing we would surely agree is once you sell, you’re in the hands of someone else, and that’s life. He came out publicly. He was very aggressive about it. His co-founder, Jan Koum was not. He put money where his mouth was with Signal. Nuno Goncalves Pedro And the Signal Foundation, I have to say, I still believe it took some balls to do that and it still took balls for him to leave earlier than [inaudible 00:20:11] was done, although he still made a lot of money out of it. I understand, but M&A does change everything. Bertrand Schmitt Yes, it does change everything because suddenly you’re not in control. And sometimes it’s interesting to see people who are surprised that they sold 100% of the stock of their company. So many things don’t happen as they wanted or expected. And of course, I’m not talking about just the first three months, but first two or two years might go very well or little surprise, but can change dramatically after that. And it’s normal. Bertrand Schmitt Part of it is that companies evolve, roles evolve, strategy evolve, the environment evolve itself. I’m not sure how much we disagree because it did some interesting action in terms of investing in the Signal Foundation. The thing, for me, why it’s a bit surprising is that at some point, it’s tough to say you didn’t know who you sold to. Bertrand Schmitt It’s easy to have this new earned dollars, billions of dollars selling to Facebook, and sometimes say you don’t like how Facebook is making money. At some point, you wanted money, you got the guy who got the most money and he’s paying you. And if you really didn’t like the company, the guy just don’t sell your business. Bertrand Schmitt But at the same time, if WhatsApp, from my perspective, was never going to monetize its product, it would have never been worth much at the end of the day. The only way for this company to be worth 20 billion or more was to definitely find ways to monetize. And it’s tough to monetize to the levels we are talking about 20 billion worth. Bertrand Schmitt We thought basically doing some advertising and leveraging the brand, doing cross promotions regarding the data. Again, I respect, but at the same time, I feel that it’s easy to have remorse after selling for so much. Nuno Goncalves Pedro I agree with everything you said, and obviously, 20 billion is a lot of money to pay. Initially, it was 19 billion, I think. When the transaction, it was done was 21-point something billion. And part of it was as an earn-out, as I discussed and mentioned to Brian and Jan. So they made a lot of money. Nuno Goncalves Pedro There are things that are probably discussed within the logic of the deal of how the asset is going to be used after it’s acquired. I don’t think it’s out of the realm of possibility that when that discussion happened, that WhatsApp was seen a little bit as a community driver in terms of messaging encrypted end-to-end and not by itself, a source of monetization in and of itself, it might have been that was part of discussion. Nuno Goncalves Pedro It might have been that there was a discussion where certain stuff was promised and then lawyers go and do agreements. And that’s not in the agreements and nobody really did the final check because the amount is so big at some point. You’re like I’m not going to have an argument on that clause. I’m giving a little bit more benefit of the doubt, I think. Nuno Goncalves Pedro I’m not saying there were naive or there were naive people in here, but deals are complex. I’m sure there are things that were promised in how things were done. I’m not sure you would be as vocally aggressive as he was on the whole end-to-end encryption of WhatsApp. Nuno Goncalves Pedro And still, Facebook is mentioning this. I just saw an ad yesterday where Facebook is talking about end-to-end encryption. I was like, how is that possible? If then you serve me ads in your platforms that are just matching the conversation I just had. I’m not saying they’re lying. I’m honest to God, I’m not saying they’re lying. I don’t want to get sued. But honest to God, all of us have had this experience. Nuno Goncalves Pedro We have conversations on WhatsApp and then we get served ads that magically are not just on the same topic, sometimes literally on the same thing that we just had a conversation on, either on Instagram or Facebook. What’s going on? And so it can’t be that it’s end-to-end encrypted. I mean, just it can’t be. Nuno Goncalves Pedro Again, there are manifestations out there of what was done that lead me to believe there were things discussed in that deal that really didn’t follow through. The fact that we still see these ads leads me to believe that there’s still things that are being propagated out there that might not be totally true or kosher. But again, I’m just a guy who has 10 different messaging tools on his mobile phone. So it’s fine. Bertrand Schmitt And sticking to Facebook, we also got the situation where the CEO of Oculus sold his company to Facebook, Palmer Luckey, at some point was forced to leave Facebook, and it looks like it was connected to its political position and he was not very public about it. I think it was some stuff where I found out, I’m not saying he was ashamed of anything, but he was careful of not being public about his opinion. Bertrand Schmitt But still, it came to hit very hard and looks like he was pushed out, but definitely not his choice to leave Facebook. And it came as a surprise that even if you’re not public being a public figure means that a lot of things you are doing would be scrutinized and some stuff that others could do without anyone noticing or knowing if you are a public figure having sold your business for billion plus, suddenly might become more visible or might make you a target, whether you like it or not. Nuno Goncalves Pedro I think political views coming into the fore in an explicit way that affect the company is one thing. I think political views coming out to fore, but they don’t really necessarily affect the company much is a different thing. Again, it is what it is. He also did very well in this transaction, I’m sure. It’s sad that maybe it ended in the way that it did. I’m sure that he’s enraged for a variety of reasons. Nuno Goncalves Pedro I don’t have an opinion on who’s right or wrong in any case, but that would be my line. My line is if it came to the fore it has a direct effect on the company, it’s one thing if it doesn’t, then it’s not okay. People have their own lives, right? Bertrand Schmitt Yeah. You have your own life, you have your own opinion, and you’re entitled to them. And if on top of it you are especially public about it to think that you can get fired for political opinions and views, especially when they are not specifically extreme, feels very surprising. I actually don’t think it’s okay to be frank. Nuno Goncalves Pedro Maybe switching tacks. And there’s plenty of examples of all these M&A changes everything. And we didn’t want to take a stab at Facebook. These are two very notorious cases, but there’s many other great M&A transactions that Facebook did that didn’t end up in this way. And many other companies have even probably more examples than Facebook. Again, we didn’t want to take a stab. Section 3: Employee activism (27:38) Nuno Goncalves Pedro But switching tack to employees and employee activism, we already talked about all the leaking of memos that’s going on and recordings of town halls and journalists that know stuff immediately after it happened. Or sometimes when it’s happening, I guess there’s maybe a direct, a live blog of people sending stuff to journalists. I’m not sure. Nuno Goncalves Pedro But there have been very strong views by employees manifested on a variety of things. And maybe we start with shall we build things for military or not? And the whole example around, for example, Google, and Google working or not working for the military and their employee views. Bertrand Schmitt It’s very surprising for me, this movement, to go back to your point about leaking me most on hold. If you take Google, that’s really a way the company was built on to have these tunnels where you can talk, where you can talk freely. That can be an honest exchange of ideas and perspective. And suddenly you cannot do that anymore, because if everything you say, everything you present got linked to the press, it’s very difficult to be transparent and honest as you would like. Bertrand Schmitt If you take a Google, it’s really a change of mentality, how you have to work if you cannot run the business, how you used to, because now so many things leak out easily. But if we go back to your point, building for the military or not. Recently, Google abundant its efforts and they were not that big to start with, to work and support the military. Bertrand Schmitt Of course, I just see others don’t mind, they’re competitors, others like Microsoft and others on top, of course, typical defense companies. I think for me, it’s pretty hard to understand that there is so much pushback because you are not supportive of the military of your country or at least doing work and support in some ways for me and maybe we are moving to opinions. But that’s what a lot of companies are doing everywhere in the world to support directly or indirectly your military. Bertrand Schmitt Google obviously has a lot of employees who are not even American citizens, but it starts to get very murky for me. I understand, at some point, Google’s decision, but it feels like it was not Google’s decision. It was some employees pushing an agenda. Personally, I feel better if the best companies support the US military. Bertrand Schmitt From my perspective, it will be a better outcome because it will create a stronger military and it would create a better military. The last thing I want is an understaffed, undermanned, under-equipped, ill-equipped militaries that just create more mistakes and more risk from my perspective. I definitely expect in other countries that companies actually have no choice, but to support the military they ask to. At the very least, it should be the compelling decision, not a small slice of employees we decide. Nuno Goncalves Pedro Two different topics. One is the whole leaking thing. On the leaking thing, I don’t want to be a brute, but honestly, it’s very simple. If you leak stuff with a very specific purpose of informing journalists and others on what’s going inside the company, honestly, unless magically that’s a value of the company, you should be fired. It is what it is. Nuno Goncalves Pedro There has to be a degree of openness in town halls and sharing that is not conducive to then people just sharing stuff outside of the realm of the company, which is a trusted realm at the end of the day in doing so. Unless, again, as I said, it’s part of the values of the company that you’re very open and you share everything. I don’t know companies like that, but maybe they exist. Nuno Goncalves Pedro For me, it’s a fire-able offense. In all due respect, it’s not okay. And sometimes it might actually have confidential information on the company. There might be other things that are discussing those town halls that are strictly confidential. Again, absolutely not acceptable. Absolutely not acceptable, right? Bertrand Schmitt Totally in agreement. You cannot run a business like this. Nuno Goncalves Pedro You absolutely cannot run a business like that. The second topic is, should you serve military or not, et cetera? I’m not going to have a particular perspective on the Google example in whether they were just peer pressured. Google’s them in business with military and defense for decades. They have as one of their core industries that they serve in several of their product offerings, including Google Cloud, et cetera. Nuno Goncalves Pedro Honest to God, it is what it is. A couple of points I would make. One, at the end of the day, the notion that a lot of innovation actually gets driven by money from government is there. It’s true of the US. We always forget that venture capitalism. We talked about it in one of our previous episodes on VC. A lot of Silicon Valley was funded on that, on public-private partnerships, on money from defense, and we should not forget that. A lot of the amazing tech we have was funded by defense. Nuno Goncalves Pedro The second piece we should not forget, is it still the case today? We have DARPA, for example, leading the way on many things. We use the Internet. DARPA funded this thing early on, right, guys? Again, the defense agencies have put money into stuff that we use today as consumer. Thirdly. Bertrand Schmitt GPS. Nuno Goncalves Pedro GPS. There’s so many examples we could give. Thirdly, there’s entire ecosystems that in their first inception, in particular when it comes to frontier and deep tech, are funded by defense. If we look at Israel in particular, how many amazing frontier and deep tech companies? How much innovation has happened, for example, in cyber security that was funded by the Israeli Defense forces that then made its way into corporations, et cetera? Nuno Goncalves Pedro Again for me, it’s not a matter of oh, where’s the line? It’s a very complex line. I understand that Google stands to do no evil, and that’s still part of the motto. But at the end of the day, what is evil and where does the line stand? Sometimes, in this case, I think it’s actually relatively complex. Defense is an industry. It needs to be served. Someone will serve them. Nuno Goncalves Pedro And it has driven a lot of innovation. It funds a lot of innovation. Still to this day, it is what it is. And so the question then is, do you want to take that money or not? How much do you want to take off that money? Do you need to take it or not? All of those are more complex questions that need to be answered by CEOs, by their boards of directors, by their investors, but ultimately that it is what it is. Bertrand Schmitt It’s a very good point. I think that the defense industry is not just attack, but defense. So it’s here to defend your country, to defend your citizens, to defend IT, your team, your company ultimately. As you say, if you are not ready to take the money, somebody else will, but they might not have as good intention, good ethics. And so that’s a real question. If you don’t do it, someone will do it. Bertrand Schmitt On some other topics, not just this one, we have seen companies being influenced by employees for different situations. For instance, some companies are firing employees because they are not fitting well enough in their environment. Apple fired pretty visibly someone who was just joining the business. Antonio García Martínez, a writer who dare to wrote a book. I actually wrote this book at the time and it’s definitely entertaining. Bertrand Schmitt And yes, at some point, you might agree or disagree on how it’s presented, but it’s a book written to be entertaining. If I pick so many movies or music that are designed to be entertaining and I start to pick the sentence and what he said and I say, oh, no, I really don’t like what I’m hearing and it’s shocking and I cannot stand. Bertrand Schmitt And let’s absolutely never hire this guy who dare to write such a thing because it was entertainment and it’s bad and it’s shocking how I see the world. I think it’s really not okay. In that situation, it looks like Apple was perfectly aware, but the booksy word would have been difficult not to be aware, but decided under pressure from employees. This guy should be fired right away because some, not all, but some don’t want to work with a guy. That’s pretty shocking for me. Bertrand Schmitt First, it’s either Apple new or didn’t analyze carefully enough what it means to bring someone with such visibility but at the same time, it feels like a case of giving in to the crowd. And obviously, you have questions about made acquisitions of people on their board, people who wrote stuff, people who wrote lyrics in music. Are we going to remove all the music on Apple music because it’s not okay? Bertrand Schmitt I think it’s raising too many questions. How you see it goes. If you have opinions and you communicate them, you can get fired. Obviously, it depends how you position them, in what context. Is it internal, external, is it on your own time? Is it representing the company? So you have to walk a fine line. It’s not always easy to find it because the line keeps moving. Bertrand Schmitt What was acceptable 20 years, 10 years, 5 years, 2 years ago might not be the same today. But we also have to be careful about analyzing that and overreacting to all of this. The crowd out there is aggressive, but that doesn’t mean you have to submit to it. Nuno Goncalves Pedro That sounds like a revolutionary motto. Maybe start a revolution next. I agree with the point you just made. Obviously, the line is a very fine line and you have to be thoughtful about it and you have to evaluate it within the context of the company you’re in. I personally very early in my career. And this person didn’t work directly in my unit and my team but I was part of a decision that led to the firing of someone for their views on racial diversity, et cetera. Nuno Goncalves Pedro And in this case, I still to this day believe that we took the right decision as a company. As I said, I was just a small part of the decision because the person wasn’t in my team, but we were consulted and it was a very complex decision for the company to make. But we’re talking about someone. And this was before I moved to the US. So this was not in the US. Nuno Goncalves Pedro But a Caucasian dude in the middle of a conversation, we’re having lunch and the guy says something like, I would close that neighbor. This is like a shanty town in that part of that country. I would close that shanty town and kill everyone in there. Bertrand Schmitt Wow. Nuno Goncalves Pedro And the people that live there are of color like 90-95%. And he had mentioned it already and he had made allusions in a very explicit way to which color explicitly had a problem with. And there was a guy next to him was one of our consultants who was a person of color and of that specific color. And in the middle of this charade, the guy says, well, it’s not about you. I respect you. You’re my coworker, whatever, but if that was the case, honestly, how can we then continue working with this person? Bertrand Schmitt This is insane. Nuno Goncalves Pedro People would say, well, but he was manifesting his views in an environment, which is a lunch. And he said to the other guy he wasn’t talking about. He was like, yeah. Bertrand Schmitt You should talk about killing people and the whole neighborhood. Come on. Nuno Goncalves Pedro But he said I would just close that things so that nobody would go down and put it on fire. Those are the exact. Bertrand Schmitt He’s crazy. Nuno Goncalves Pedro And at that point in time, with all due respect, I think that’s a fireable offense, it’s not going to work. Really sorry, it’s not aligned with our values. Please move on. Bertrand Schmitt What you describe remind me also an occasion we had to make a decision to fire someone on similar circumstances. And it’s obvious that if you are hateful, and you are in a company, you are working with other people. If your attitude is publicly to your colleague in front of them hateful, that’s a fire-able offense, that’s it. And that should be. Bertrand Schmitt As a company, you are here to provide people an opportunity to join a business, to make money, to develop yourself, to benefit from it, and not to be afraid of your colleagues. This is just not okay. This type of situation can be very shocking. Nuno Goncalves Pedro Absolutely. Bertrand Schmitt But I will say when it’s black and white, it’s bad, it’s horrible. But in some way, it’s easier because you can make that decision. It’s when you are inside gray zone where it’s tougher. Nuno Goncalves Pedro Bertrand, you feel this is a binary decision. But I had a conversation with someone I respect a lot who said, well, it’s not that easy because this was done in the context of a lunch. And he said to the other person that wasn’t about the other person. I was like, mate, all due respect. It’s like some guy comes and says, maybe one day I’ll just come with a machine gun into the office and just kill everyone. And we’re like, oh, yeah, cool. He said it within the context of lunch. Bertrand Schmitt Not really your team, but another team, another floor. Nuno Goncalves Pedro Honestly, yeah. At some point, you take the warning signals. Bertrand Schmitt Yeah. Section 4: Bring it all together (39:24) Nuno Goncalves Pedro Maybe we bring it all together and bring it to a more summarized vision of the world all through the first attempt at it. The first thing that is interesting for someone to actually think about is, is the time that you are spending on media or alerting people on the situation that is happening impactful and important, either for you individually, but more importantly, for the company? Nuno Goncalves Pedro I remember a book that I still love from Good to Great from Jim Collins, where he has this one chapter on leadership, and he talks about level four and level five leaders, where level five leaders are the ones that have the best performance. And he actually did some analysis. I haven’t read the book in a long time. So if I get this wrong, I apologize to everyone and Jim. Nuno Goncalves Pedro But I believe he was saying that actually level five leaders, which again, are the best leaders in terms of performance of their company had literally half of the media mentions or interactions than level four leaders. And what’s fascinating about that stat, that level five had around half of the mentions or interviews in media then level four is it’s actually based on a relatively scientific study. They looked at a bunch of years of data and maybe that is the point. Nuno Goncalves Pedro The point is that if you are in general a great successful CEO, founder CEO, senior executive, you’re spending most of your time focused on your company and not focused on media and focused on the vision that others have on you that you’re focused on really making your company work. Nuno Goncalves Pedro So really interesting finding. It’s always been in the back of my mind and I’ve been thoughtful about it also in my roles and venture capital about talking in public, obviously creating and helping create our brand at Chameleon and prior to that at strive, but at the same time not overdo it, really be thoughtful about it, but very interesting conclusion there from that study. Bertrand Schmitt Yeah, I agree. I think that’s a very interesting point. They’re saying not so surprising. Of course, we have said when standard deviation of two difference with someone like Elon Musk, there is a very high correlation of time spend and success overall. If we pick an example actually that goes in your direction, I must have been surprised by the Tweetstorms over the past, I don’t know, 12 months from Bolt CEO Brian Baslow, who is now Bolt chairman. Bertrand Schmitt It was definitely a lot, very aggressive, very controversial, but I couldn’t help but feel a sentiment that it’s always somebody else’s fault. It’s not me if I couldn’t race, it’s not me if I couldn’t get to Y Combinator. It’s not bad people they are against me. It’s very surprising. So that one also is pretty disturbing. Nuno Goncalves Pedro Maybe the last question of them all in bringing all of this together is how much is too much? How much is too much? How much should you exaggerate in creating a little bit of this reality distortion field, what I call smoke and mirrors? Obviously, as an entrepreneur, there’s always this notion of fake it till you make it. Nuno Goncalves Pedro And not just entrepreneurs. We’ve seen very large companies being led by very senior people doing similar things. The good old days of vaporware at Microsoft come to mind, but how much is too much? We have obviously the case of Theranos, where the view is that it was too much and that there was maybe really fraud involved in the claims that were made and reworks Adam Neumann in what he did. Nuno Goncalves Pedro Was it really fraud or was it not fraud? And it was really more about propelling and creating this imagery that we work with something that it was not in the end, that we work was a platform, it was software enabled. And it wasn’t about just real estate and now we realize it’s really all about real estate. So how much is too much? How much is too much? Nuno Goncalves Pedro I’ll offer my two cents. You have to be always running a little bit ahead of schedule in some ways as a CEO. You always have to be surf talking about something that’s coming next but be thoughtful that it is achievable, that you know that within a timeline of maybe a year or two years it’s going to be achievable. If it’s a longer term vision, be thoughtful on how you convey that to potential investors, existing investors, to people around you. Nuno Goncalves Pedro And that won’t take away from your message. It won’t take away from your story. It won’t take you away from your reality distortion field that you may use externally and internally within the company. Having a little bit of that reality distortion field having a little bit of a higher bar and a push for everyone is important. We know it actually achieves great things, but there is such a thing as too much. Nuno Goncalves Pedro For me, the borderline is achievability, vision, clarity, and communication on when we will get there in particular internally or with your investors. That is for me the line. Bertrand Schmitt I think everyone talk about reality distortion. It has been coined after Steve Jobs and his ability to really present things in a way that will, of course, benefit his company introduces product in a way that would change people’s mind and perspective. But what was always great with Apple is our ability to deliver the goods. It’s not Tupperware forever for years. There is really an ability to deliver the goods. Bertrand Schmitt We work, for instance. I was shocked to see the numbers recently. They have a 2 billion market gap after 22 billion investment in the business. If you want to talk about destruction of shareholder values, that’s a prime example right there. Obviously, Theranos, we are there even more, we had total loss of equity in the business. Bertrand Schmitt I don’t know if at the end of the day, once you spot a CEO in Vanity Fair or VOGUE, it means it’s too late. It’s really not focused anymore about the company building the products, but about the individual. I think that’s definitely a risk. To conclude, I think we took the occasion today towards you. I’m not sure we try to pass judgment too much. Bertrand Schmitt Obviously, these are extremes that actually everyone should stay away from. But ultimately, I guess that some of this, your approach to PR, for your company, your products yourself, as to defense about your company, your mission, your own personality. It has to be adapted. It has to be genuine. But still, at the end of the day, the more you do, the more risk you create and the more history I shown that on average, it might not be that good for the business. Nuno Goncalves Pedro I agree with all the points you made. I think the net of it is there is such a thing as too much. And the primordial essence of your job as the CEO is to propel your company going forward. Now, that does mean that you do have to have some social media presence. You do have to create some branding around the company. And part of that branding will go through you, the CEO, and the founder. Nuno Goncalves Pedro It’s not that you should be absolutely outside of the world and just focus on the company, and not do anything, although we have since some CEOs that have been successful at doing that. But it’s more around what are the limits of conveying your opinions? What should your opinions be focused on? Nuno Goncalves Pedro And the net of it from this episode from my perspective is really around that. That you should stick to your lane, talk about things you understand, you know, talk about your company. Be passionate. Don’t just go and create controversies where there shouldn’t be any. Thank you, Bertrand. Bertrand Schmitt Thank you, Nuno.

“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: 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 Subscribe To Our Podcast 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. What we’re going to share with you next is a little bit the menu. Okay. We’re in trouble. What do we do? This is the menu a la carte. Some of these you can bundle, you can mix and match. But this is like a menu of things you can choose to do. The first and foremost thing you can do in terms of order, and this is in an ideal scenario, is control your own destiny. And the levers you have in controlling your own destiny are relatively simple. One is top line What can I do about my top line? And my top line is my sales, my revenues. So can I charge more from existing clients? Can I play a little bit with pricing? Can I create distinctive pricing maybe for new customers? Can I ask some of our existing customers to pay more in advance or contracts that I’m negotiating right now, ask them to pay more in advance? Can I shift around cash and not just money? Again, one key lever that you have is very simple, which is top line. How do I increase it? How do I maybe even make it more predictable? How do I play around with it in terms of levers to make it work? Bertrand Schmitt I think on this one, I totally agree with that reason. That’s the first thing to do, it’s made so little tactical, but in a situation where you have higher inflation, the least you could be doing is immediately work on readjusting all your contracts with automated readjustment clause based on inflation. That’s the minimum thing you have to do about changing your pricing. You have certainly to take that into account. You cannot be stuck with clients who are going to spend for the next, I don’t know, three years as much money every year for the same service. They need to end up having to pay more. And that has to be an expectation. I’m talking must see a B2B context. B2C, you don’t need 10 people doing that, but it’s going to increase by that much. But in B2C, as we have seen from Disney to Netflix, all of them are readjusting their pricing. So please work on this one. It’s an easy one. It would be crazy not to use it, especially now that everyone is doing it. Nuno Goncalves Pedro It is a good time to justify it. I mean, it’s like inflation and there’s all these things happening and we need to pay more to our employees. And it’s a good time, as you were saying, Bertrand, it’s not just really about the B2B companies, also B2C, the ones that depend on subscription. Even in-app purchases. If you are a gaming company, you could actually tweak the promotions that you’re pushing to your gamers and to your users on a weekly basis. The second side is, as you can imagine, the cost side, and that sort of goes directly to the bottom line and how can you become leaner? This is the classic one that people say, “Okay, you just cut costs, right?” Again, I would always start by looking at top line, in the first instance, but you obviously need to look at your cost base. Are there parts of my organization that make a little bit less sense that I can become leaner in. Are there parts of my operations that I can optimize? Are there parts of my supply chain that I can optimize? Are there parts of my relationship with suppliers and logistics firms that I can optimize? Everything is up for discussion. And again, this is a good time to do it because we are in a crisis. So it’s a good time at a global level to say, “Well, I need to tweak this a little bit. If you say you’re my logistics partner. Would you be willing to cut your costs right now for a certain amount of money and maybe we have an agreement by which we go up in the future?” “Is there something I can do around a specific area of my team that was very geared, for example, towards growth?” I don’t want to take a stab at growth marketing because marketing can be a very important function during these times as well. But maybe there is a part of your growth marketing team that you could say, “You know what, we need to step a little bit back. We’re not going to be aggressively doing growth marketing in the next six months or 12 months.” Maybe the team needs to be leaner by default. I’m not defending that everything here is about layoffs and cutting, but it might be about renegotiating. It might be about actually being a little bit outside of the box and figuring out what is something that’s win-win for everyone involved that we could still make this work. We’ve seen this in the past. We’ve seen companies that have laid off almost no people, but they went to a reduction in salaries for a defined period of time to see if the company could rebalance itself where they gave something else in return. They gave more benefits in return. They gave maybe more time off in return to the team, or they made the team have more time off for a significant period of time. There’s ways of doing this that are not necessarily the classic, I’ll just call everyone, fire people or lay them off and we’re good. There are ways to do this in a way that is absolutely win-win for everyone involved. But cleaning up the cost side, becoming leaner for a period of time might be the difference between living or dying. Cash is king, and if you run off cash, as we discussed before, you die. So, again, very important to have these discussions. Bertrand Schmitt I guess I might be a bit more aggressive on this, in the sense that, yes, of course, you should do everything that you talk about, in term of trying to optimize your cost in the smartest possible way and go after easy win. If we are talking right now, it’s because easy win are behind us and we are in the situation where we need to go deeper and might take that one unveilment where a lot of great companies, especially in tech, have already been going to lay off, 5%, 10%. We thought even thinking about it, they were like, okay, markets trouble, recession coming, that the time to do a reduction in force and move fast. And you even have some companies like Microsoft who do that every year and sometime you have a few percentage of the [inaudible 00:08:15] falls that’s let’s go to [inaudible 00:08:16]. Basically to try to get rid of the lower performer. So it’s not typical of the startup culture to do that approach every year. But this is a time where not everyone is doing it. So if you don’t do it now and you wait, it will cost you way more money, obviously. But right now is a perfect time to do it. However, what I want to be clear is that you want to do as little with as possible. You want to send a clear signal that at least for this year, this is the last one. We have done one. We have been careful. We have analyzed the business carefully. We know where we are going. We know where it’s going to bring us. And this one is enough. Maybe it’s not 10%, maybe it’s 15%, it’s 20%, 25% of the workforce. Again, some great companies are doing that. What you don’t want to do is to do 10% one month, 10% in three months from now, another 10% three months after. That’s the worst of the worst that you could be doing. You destroy the morale of the company. And another piece, so it’s not just about laying off people, it’s also convincing the rest of the team that they should stay on your business. So you need to put a lot of time and effort and the right incentive for your best people to stay and be excited about staying. Nuno Goncalves Pedro I agree with everything you said. I would put a nuance in it. I feel the tech industry, even in earlier stage companies or in high growth companies, so we’re not talking about the big public companies, in particular in the US, there is a very strong skewed towards action of, oh, let’s reduce force. I mean, if a Google or Facebook or an Amazon or whatever decide to do reductions in force or freeze hiring or do a bunch of things, honestly, you could say by no means I’m disrespecting the people that work there and the functions that they have. But these companies, by necessity, already have overhead. We’ve discussed it in the past. They already have too much capacity. We discussed engineering capacity several episodes ago where there’s sort of the hoarding of engineering capacity in companies, for example. They have capacity to let go. Sometimes what I see is the company actually has a great team and maybe one or two people could go. But it’s not like I could reduce 20% of the team or something. And the more ingenious thinking around what other alternatives do we have? Could we actually move parts of the team or the entire team to 80% work week instead of 100%? Like one day off or something like, could we change things that we do around salaries, et cetera? In some countries, you can’t do this at all. In my home country of Portugal, you can’t do stuff like this. But in US you could. And in some cases, I don’t see that discussion happening. To your point exactly, it has huge effects on morale. And you’re maybe laying off someone today and you’re hiring for that position in three months or six months’ time because you’re still going to need that position down the line. And the business has changed and something has happened. I feel the humanist side of me coming out in this, like, let’s be very thoughtful and everyone will lay off. Is this really a position we don’t need? Because this knee jerk reaction of let’s reduce today and we’ll hope for the best, even if it’s not to your point systematic. If not 10% today, 10% tomorrow. It’s like even if I do 15% today, do I really need to do the 15% today or there are there are other options that I could have created. And again, that creates a dynamic. I feel in these times you can get very tactical or very operational even on your decisions regarding talent. And in some cases, you always lose the track of strategy. Now, obviously, it is about you surviving. It is about you making sure that you’re ready to be around in one year’s time or a year and a half or whenever you are able to be a growing concern again or raise more money. Nuno Goncalves Pedro But at the same time, think it through. It’s like, is this the right option for the company right now? Or could I do it in a different way? Could I structure this in a different way, at least for a period of time and see what happens? And that would not take away from me the option of at some point doing the riff that I need to do. Bertrand Schmitt Yeah, I think we can talk later on about this, but what I’m worried is really that situation of startup, this spiral. I think it’s Sequoia who talked about this. They were showing that example a few months ago of how you delay, you delay, and then when you do it, it’s simply too late and the business is going to die. Nuno Goncalves Pedro My proposal is not one of inaction. My proposal is one of action, but strategic action, thoughtful action. It’s not about saying don’t do anything. It’s about there are sometimes other options. And in many cases, there are other options from just doing mass layoffs. I feel that they lead to more complex discussions, but sometimes they lead to actually much better discussions and much better outcomes. And this industry, I agree with you, sometimes there’s just delay. My point is not so much the delay point. I totally agree with you that delaying can be death. It is about the other option. The other option of maybe we can make this work and we reduce salaries. Maybe we can make this work in a way that’s different from what we thought initially of just saying, okay, our growth marketing team, again, picking up on them needs to go fully because we’re not going to do any growth marketing. But maybe in six months, we do need to go growth marketing. It’s like, well, good luck now hiring that type of talent in six months’ time. Sometimes there’s a little bit of a lack of strategic discussion at that level. And also I believe the board has a strong impetus on that. The board can really be helpful in those discussions. In many cases, the CEO doesn’t really open the kimono on the discussion itself. It’s like the CEO makes the decision, the board takes it, we’re all good and we don’t think through consequences, we don’t really engage in problem-solving and all of those key aspects. Bertrand Schmitt It’s right. I’m talking about the situation where you have six months of cash left and you might not get some additional financing. At some point, you have to do what you have to do. And realistically, if 60%, 70% of your spend is salaries, like most tech startups, there’s only so much you can really reduce beyond headcount. Yes, you’re right, some companies might readjust salaries. I think it’s very rare when it’s working. It’s very rare also when it’s authorized. So it sort of might be a very complex process. Early on during COVID, there were some countries like in France where you could actually more easily put people at three-fourths or two-fifths for a bit. So it was doable. I’m not sure it’s actually doable again anymore this type of approach. In many countries and some countries, you are just going to have people accepting maybe for a bit and then stop looking out for another opportunity. I think the big issue is really around how you get your top performer and you keep them motivated. If you reduce salaries for everyone it’s a tough one and just reducing salary for a few it’s also a tough one. Maybe to keep moving on. If we go beyond revenue management, cost management, what can we do? We believe we have maybe not to the bone, but we move all to fat. And again, to be frank, I think there was a lot of fat these past few years, not just at Google and Facebook, but a lot of VCs spreading money around, sending cash by helicopter. So I think a lot of companies are definitely some fat, not all hopefully, somewhere focus on delivering great products and optimizing their spend. But if you have reached all that, what you can do to smartly adjust your revenues, your cost, I guess some to talk about what are your dilutive and non-dilutive options, in term of financing? Nuno Goncalves Pedro Even before we go there, we’ve talked a lot about riffs and all these realignments. Sometimes one way to control your own destiny is identifying that the issue lies with the leadership of the company, and it might actually be the issue with you. I remember the story at McKinsey of a very senior partner that shall go unnamed, that in front of the client turned to the client and said, “With all due respect to you, sir, the problem with this company is you.” Not something I would advise you to do as a consultant but it was an interesting moment. Sometimes the problem is with the CEO, sometimes the problem is with the executive team. So I think one last thing you have in controlling your own destiny is and this should be used very, very clearly and very thoughtfully, but when it’s done, it should be done decisively in my experience, and I won’t go into details, with the support of the CEO, even if it’s about replacing the CEO. Actually, if the CEO is the founder that started the company, doing it in a way that is decisive but at the same time that’s very thoughtful, is pretty important. But it might be replacing a CEO, it might be replacing some of the senior people on the team. It might be restructuring how the team is working without necessarily firing everyone. But again, there is something about controlling your destiny around that. Maybe moving first to dilutive because you’ve already alluded to dilutive and non-dilutive. My first intent, if I would be in that position as the CEO of the company, would be, can I get money from someone that’s already given me money? We call this typically, bridges, getting a bridge from existing investors. And that bridge might manifest itself under different ways. It might be straight-up the price rounds, it might be an issuance of equity straight up with a specific valuation in mind. It’s a tricky discussion to have with existing investors because, on the one hand, they want to show progression, the valuation of the company, but on the other hand, it’s against their best interests to show much progression. They would prefer to have a down round or a flat from their perspective of ownership in the company, but at the same time, they want to show that progression and be fair towards the company. It’s always a difficult discussion to have on the price round. It could come under the form of a convertible note or a safe note that will convert to equity at some point in the future, which happens mostly in early-stage bridges. To be honest, companies that haven’t raised a ton of money and are doing a bridge from existing investors. But that’s your first port of call. And why is it your first port of call? Because they’re already your investors. They already know you, they already have investor updates. They should know your financials reasonably well. Some of them might be on your board of directors. In some cases, if these people are not willing to give you money and there’s a different discussion to be had and they’re not obligated to give you money by any chance. Because they have other projects they can give capital to. So then it becomes a portfolio management and a portfolio allocation conversation for them as VCs themselves or as investors themselves. But it is important to see if you have them on board or not. It is important that you know that they’re willing to back your business and move you to the next level. Now you, Bertrand, always have this comment on you have to be careful with bridges and bridges to nowhere in particular. Bertrand Schmitt I think that’s definitely one of the first thing to consider because you want to get a sense of what the level of interest from your existing investors. It might be easier in a time of transition, of uncertainty in the marketplace to move relatively quickly and restore existing investors. There are definitely ways to move quickly. But then, as you say, it goes back to the price. When great companies are losing 50% market cap in a year, price is not going to be easy. And that’s true that you can go through convertible. And I would say if a new financing is coming soon and you’re preparing for a new financing, that might work with a discount. I think in this day and age it might be a more difficult one to accept for your existing investor to do on a convertible based on the discount on a future financing and you ask them to wait it out 18 months because this is a big time of risk. You should get paid for the uncertainty for the risk. So you might need to go through a price run. To be clear, I don’t think your investors are super excited to go to a down run. They know the issues, they know the pain. Even for them, it he probably doesn’t look great, old school down run, in terms of their own mock-ups. So I don’t think you have to go too far. But at the same time, you might have to expect some people who are going to say, “You know what, I’m not interested to do a convertible. Why should I do a convertible in a time like this if I don’t have a clear certainty?” I think if you are planning to fundraise or preparing to fundraise, if your investor believes you are in a good position to fundraise and yes, a convertible might make sense, a lot of sense. And then it’s a question of how much discount and are some good articles about this, how much discount you should put into your bridge loan. But one of the big question would be the pricing. Nuno Goncalves Pedro I think the pricing is very important. And to your point that there’s almost this thing, a down round is always negative. Even a flat run’s negative, let alone a down round. A flat round would be that the pre-money valuation of my next round is the same as my post-money valuation from the previous round. A down round would be where the pre-money valuation of my next round is below my post-money valuation of the previous round. And people are, “Oh my God, I’ve lost value.” Well, you lost value, but you’re alive. Someone’s willing to give you money at a lower valuation. And sometimes, this leads to hardcore recapping. Everyone goes underwater, your investors get super mega diluted, and there’s some nasty stuff that sometimes is done around this. But honestly, it might make sense to reevaluate your valuation and to really think through what does that mean even from a capital perspective. Again, bridges from existing investors. As an investing investor, you have to be also very thoughtful on how you put these bridges forward. It shouldn’t be a bridge to nowhere. When is the redemption happening on this bridge? Does the redemption change some of the core clauses on discounting, for example, depending on the time by which there’s a new financing at the table? There’s a lot of really interesting tricks. The devil’s literally in the detail on how you do this, but definitely the first port of call is existing investors. Can they give me a bridge? One other port of call is, can I get new investors on board? And it might be new investors that I’ve talked to in the past, people that I’m still in touch with that are still interested in my business. That might be saying you’re a bit overvalued, but then let’s have a discussion around valuation, right? If we reduce the valuation slightly, it’s not a huge down round, but a little bit. Would you then be interested in participating, and how would that work? It might be straight up new investors, normally a little bit more difficult as a port of call, although there are some situations where the company might be able to attract a set of investors that is not the natural institutional set of investors. It might not be your classic VC firm, it might be a corporate venture capital arm, or a strategic investing of their balance sheet, or family office, or high net worth individual that has a very specific interest in the company and what they’re doing. There’s many ways to raise money. There’s many sources through from which to raise money. It’s not out of the realm of possibility, I’ve just gone through at least one fundraise recently that I don’t think we expected to happen quite in the way that it happened. It was actually relatively quick and it was all new investors. The old investors didn’t put any money in. I’m actually not an investor in that company, but the old investors didn’t put any money in and we had new investors at the table. And it made sense to them to come onboard, and the rationale is eminently logic. And it wasn’t a down round, which is even more shocking. It was actually an up round. Again, there’s ways to do this, and there’s ways to bring new investors onboard, it is a little bit more art and science. It shouldn’t be our first port of call for dilutive fundraising, but definitely, if there’s existing discussions that make eminent sense strategically, etc., why not have them? Bertrand Schmitt Yes, totally. Why not? To be frank, I’m glad for that example. But it’s not an easy one, why existing investors are not willing to put some additional financing. You better have some good explanation to do as an investor, explaining to the new one why you are not putting any more money to work. So that might not be an easy situation typically to being just a new investor. You might not do a bridge run, but you might want your existing investors to show up if there is a new financing, as that could scare away your new investor. Nuno Goncalves Pedro Indeed. Obviously, there’s other elements of dilutive plays that you can have around resetting, stock options valuation… We’ve already discussed quite a bit about valuations in general, but maybe switching to non-dilutive. And what does that mean, non-dilutive? It doesn’t necessarily dilute existing investors in the company in terms of their equity positions, although as we will discuss, some of these might over time. The first that comes to mind is obviously venture debt. Venture debt precisely is not always non-dilutive, it sometimes may include warrants, it may convert under very aggressive circumstances, rates that are put forward are very, very, very high in many cases. It is this notion of, “I’m giving you debt instead of equity,” there’s a bunch of strings attached. In many cases, their seniority over current equity holders and their liquidation preferences. It is very clear that it has exploded over the last few months, maybe the last year. I was talking to someone who’s in the venture debt space recently and he was saying, “Well, it’s a two-edged sword, right? Because on the one hand, it is exploding in terms of pipeline for us of deals. We have so much stuff we can choose from and cherry pick from, which is great, always having a very healthy upper funnel. But at the same time, we are already in deals that might not be performing very well that are either defaulting where we may need to make hard choices on defaulting the agreements we have, or converting it into equity, and exercising our redemption rights, etc., etc.” Again, it’s a two-edged sword, but the first element of non-dilutive obviously is venture debt, and taking debt instead of equity. Some industries obviously are always a little bit more well-geared towards this industries where there’s predictable contracts, where contracts are well-defined, etc., but definitely, one element that you could seek and bring to the table as one source of fundraising. Bertrand Schmitt Yes, I think I agree with you. It’s exactly as you say. I saw multiple reference to the fact that now venture debt was exploding. And obviously, the guys on that side, it’s not normal. They don’t want to get those elements and just invest in companies that have no tomorrow. So they will be more and more aggressive in terms of analyzing the business, and in terms of asking for very high rates. I mean, you are talking about 15% plus, and this is a credit card rate you get as a consumer, so you have to use a lot of caution. And I’ve heard some has asking you for loans, and this is a 15% crazy close beyond that. That would not be my first choice. I would say, I would put it like this. Maybe we can talk about other type of non-dilutive line of credit. You have different type of line of credit, it can be based on your IR, on your revenues, or it can be based on what we call invoice financing. Certainly, I think these are pretty interesting things. Not everything should be financed by equity in a business. Typically, startups might wait too long to look at this type of alternative to support some business initiatives. So I think those all values there might be difficult for too small businesses. But for businesses that are big enough, I think the opportunities to get lines of credits and… And they can come with very interesting conditions. If a banker understand your business—a restaurant, predictable, you have good line of sight—they might have some real interest to do that and to give you a loan. Nuno Goncalves Pedro And in lines of credit, as you said, there’s many different types. Some that are the project that are being invoiced, and accounts receivable, and all of those. In general terms in the finance world, we talk about revolving and non-revolving. The non-revolving are very project-based normally. They’re very focused on a specific project or a specific set of projects. And the revolving ones are the ones we’re probably most used to, even as consumers, which is we have this line of credit we can use every month or every given period of time, and we can max it out or not. And it’s normally more adequate for variability of cash flow. You know that you’re going to have some variability of cash flow. And maybe it will be more difficult to make your payroll work because there’s something that won’t come through. Whereas the non-revolving are maybe larger and chunkier sometimes, but they’re more related to, “I’ve signed a deal, I have an agreement, but I’m only getting paid 90 days out,” or, “I need something to push my inventory to market in the hardware side—that happens a lot—but I have the contracts and my customers are good for it.” So it’s just a matter of, “I need the inventory to sell to them, and I’ll get the money in 60 days or 90 days. So can you give me that capital for me to do and make that work?” Very good ways of dealing with your cash situation without being dependent on doing massive equity raises that are dilutive by nature, so definitely a better option to your point, Bertrand. These are normally only given to businesses that have a track record where the bank can analyze their track record in terms of payments, where the agreements are very solid, etc., so it doesn’t always work. I think in particular in the non-dilutive world, because if we do talk about the covenants and clauses that we put as equity investors in the VC world and we say, “Oh, you guys sometimes get a little bit nasty and tweaked.” Talk about that for the debt world where their seniority and the waterfalls magically change, and there’s all these funky clauses on redemption. Be very, very careful on how you sign these deals because the guys are dealing with…. Again, we’ve given that advice in the past. If you’re a company, or you’re board of directors of a company, and you’re not used to doing this all the time, be very thoughtful. I have a great law firm working with you. Go through the scenarios, think through the implications on the waterfall for the equity holders, think through the maturity dates that are on the agreement. The devil’s are all in the details, right? In many cases, a lot of this money’s made on specifics, up clauses. So just be very, very careful because it might be that you’re signing yourself… You’re mortgaging your future today and not getting a ton in return and you’re like, “Oh, it’s such a great deal, it’s non-dilutive.” And you look one, two years out, and when finally something happens to the maturity of the agreement, you’re like, “This wasn’t what I thought it would be. And this didn’t quite happen the way I thought.” Bertrand Schmitt Yes, on the governance side, you want to be quite careful about some ratios that you are supposed to respect during the life of the loan. And I’m saying that because I think a lot of companies don’t fully realize that this is not the equity world, this is not a non-dilutive world, this is a loan word. The institution giving you the loan, the bank, might force you to have some reissue about cash, cash to [inaudible 00:29:14]. And you might realize at the end that the loan is not so interesting because giving you money only in the conditions that you don’t really need the money, so you have to be very careful about what this is. Another piece of the puzzle, and I’m seeing that in [inaudible 00:29:29] a lot of these loan financing are often done typically at the same time as your equity financing. It’s a bit before, at the same time, albeit after, a few months after. But then if you wait too long, at some point, they might not be interested until your next fundraise because they will feel that your ratios are not that good anymore. They were good at the time of your raise, you had a lot of cash equity. But now, they are less excited to provide you a loan, and this is trouble. Another piece for me also for the puzzle is ideally, you don’t wait to need one, to get the loan. You get it as soon as possible, and that should be best practice right after, or sometimes, as raising an equity financing to look for this because it would be harder at some point. And those are pieces is around… If you have a line of credit, you have to be careful. I mean, some are playing the game, not to draw the line, or to wait. You probably want to draw it relatively quickly. Is that something that makes sense? Because if you wait too long, the condition may change of your business, of what they’re doing. So personally, cash in the bank is much more save than the promise to have cash once you want it. Nuno Goncalves Pedro Again, devils are very much in the detail. How good is your consulting CFO or your CFO? How good is your finance team? You have to optimize your tax situation over the company and think through that as well. One element that I often see in venture debt or debt in general that is quite misunderstood, is a lot of founders—and some of them are repeat founders—they have this understanding of the discussions they’re having on venture debt. Not so much maybe the line of credits, which is more of a banking relationship, but the venture debt one.They’re talking to partners, they’re talking to people in the firm. I don’t want to bad mouth the industry. I think it’s a wonderful industry and it’s an industry that makes a huge impact at scale in our industry of venture capital firms. But a partner in a venture, that firm doesn’t quite behave the same way as a partner in a venture capital firm. This whole thing of being in it for the long run, and we are on your board of directors, it’s not the same. A venture debt person really can be long term focused, but in all actuality, the way they’re thinking of making their money is very financially-driven. Again, the way they’re going to support you through your lifetime, some of them are extremely supportive with their Rolodex, with their own skill sets. But just be thoughtful that you’re not getting the same type of support. It’s horses for courses, it’s different things. And it’s because it’s different things, you have to be, day one, very clear that, “Okay, I’m dealing with this venture debt firm. This is the relationship I’m going to have. Hopefully, they’re going to be supportive and help me out,” but they’re in this to make their returns very clearly. So are VC firms, but the time horizon of a VC firm is not the same. The way that a VC firm behaves is not the same. Again, I’m talking about an average VC firm investor versus a venture debt’s investor, rather than the exceptional ones at both ends or the crappy ones at both ends. But on average, it’s a very different type of setup. It’s a very different type of support. Again, don’t confuse it. This is not the same thing. You’re getting something different from someone different. You’re getting something different from someone different. And that’s very important to take into account. Bertrand Schmitt Yeah. And to your point, I remember the values of some firms that are very visible, very known with good reputation, for instance, a secondary bank. But I have also seen and heard about some that are very bad and shitty reputation. I was told that, “No, that’s a guess. You know, I want to talk to…” You talk to them, I guess when we talk about our next options, when… What happens when all fails, you are not there for the long run. You know that you have basically some sort of agreement as a devilment, but might still be better than the worst of the worst situation. Section 2: What if all else fails? Nuno Goncalves Pedro Good segue to what if all fails? You’ve tried all the stuff we just talked about. You can’t raise money, or existing investors don’t want to give you money, you can’t really raise debt, you’ve tried a bunch of stuff. Where do you start? There’s many places to start. I think one obvious one to take a look at is what I would call the normal sale scenario, a normal sale option. A normal sale scenario normally arises from existing partners, potentially even existing investors that you know for sure would have an interest in the company wanting to put an offer at the table and saying, “You know what? In these conditions, we would take the company off the table for this reason.” The circumstances under which you do a normal sale honestly can end up in a fire sale option, which we’ll discuss later. So unless you have interest from two or more parties, unless you have a little bit of a bidding competition, it’s difficult to really extract much value out of this. But in some cases, it might still work. It might be that you have a strategic investor that wants to buy you out. And because of the relationship he has with other investors, he’s not just going to screw you, so to speak, on the deal. They’re going to do a fair deal. Everyone will make a little bit of money and we’re all going home. More cents on the dollar, but we don’t all lose our shirts. I think as a first option, the normal sale is really within your realm of internal possibilities of existing strategic investors, existing partners, potentially even existing customers or suppliers. Look within your stakeholders, if there’s anyone that might have interest. The way to approach them, shockingly enough, is not just to say, “Oh, we’re up for sale.” The way to approach it is more what I call the soft sale pitch, unless it’s the strategic investor that knows how the company’s doing. It’s more about having a conversation, how to scale the interests of the company itself. And from there, really move the discussion from what I would call a classic business development discussion to maybe a corporate development M&A discussion. That’s the art of these types of deals. That’s where you can actually extract premiums. If you are looking desperate, guess what? The person on the other side will know you’re desperate. Life is tough. You might end up in that fire sale scenario that we obviously want to avoid. Bertrand Schmitt I will say that a normal sale situation, as you say, especially one where you managed to get some bidding between multiple parties, that can be really a great option. If we are in a situation where a lot of things are happening in the business, you should see that very positively if you can make it happen. Nuno Goncalves Pedro And there is a side option to this, which is the more articulate side option. In particular, your investors—if they’re institutional investors that have a portfolio of several companies—should consider this, which is, is there a play here that some company in my portfolio might benefit from acquiring this other company? Now, here you need to be very, very cautious. I’ve had cases that ended up in very good solutions for everyone involved. It was a win-win for everyone around the table, investors, companies, etc. I’ve seen cases where clearly everyone was ripped off except the one investor that managed to take one asset from one side to the other. Here, the devil is definitely in the detail, but it can end up well. It’s not always a bad case scenario. Even for other investors or for the founders of the company that selling could be actually a good option. Again, think a little bit outside of the box as well, and have these discussions with your VC firms. Maybe they’re not thinking about it for some reason, because they don’t want to be the douchebags at the table saying, “Oh, I have this other company that can just buy you guys out.” But honestly, if it’s not preemptively being put at the table, have that conversation. Say, “Look, there’s this other company in your portfolio that might be a good acquirer for us. Could we structure something here? Could we have a discussion even with a team on the other side that is a positive discussion? Although this is more of an external play, in some ways, it’s still an internal player that’s acting a little bit as the intermediary or gatekeeper in the relationship. Bertrand Schmitt Yes, I think it’s a reasonable option. One thing I have seen is in scenarios where the company is not in trouble, but also in scenarios where a company’s in trouble, is to consider a different approach. Where you believe that you have different type of assets inside of business and you believe that some assets might be better running separately. Maybe they are going faster, maybe they are more sexy in a way in terms of investment and trust. But you realize that a new investors might be interested for this business, but not for the rest. You realize that in terms of team, some people might be more interested to be part of one story, but not yours of story. So from my perspective, that’s something to keep in mind and to really have an open mind. It doesn’t happen at last minute suddenly, “Hey, how do I cover this stuff?” Usually, it’s because you end up realizing for quite some time that you have built up different line of products, or you manage to sell to very different type of verticals. And I think that are some of the options that you should be considering. Nuno Goncalves Pedro Definitely. In some cases, there are very innovative ways of doing this, where you carve out a bunch of stuff. There’s IP Plays. I think you’re sharing this Alex Rampell tweetstorm on his own experience with TrialPay and what they did there, which is interesting. An IP sale, a spin out or spin off, and then going back to core, and how do you make it work. The other option is obviously an external fire sale. Options like, “I’m going to go to the market, I’ll get maybe a banker really quickly—or what I call, the two men in the dark—type advisors on the M&A side that helped me just try to push a very rapid fire sale. I’ve rarely seen these ones work. Normally, you need a little bit more time to do these processes properly where an external player is interested in buying your company. Some founders have this mythical idea that by getting a banker at the table, that magically, there will be interested parties in buying them. I always said that I’ve said this in previous episodes. You can never sell a company at a premium. You can only be bought at a premium. I don’t think there’s anything magical about it. Unless something magical happens that buy… You’re desperate, you have a ton of assets, and you get a bidding war in place, which is very, very rare. But if that happens, that’s the perfect storm. And someone in external buys you, maybe that will work. These external fire sale options are very rarely conducive if the company is in the process of selling. And then the final option in this realm of exits that we’re still talking about is what I would call the Plan Z exit. Plan Z exit is the last type of exit I can try, which is normally under one of these forms. One form is maybe one of my existing investors or players that are involved with me. Again, customers, suppliers, etc., is willing to acqui-hire a team, or I can do an asset sale to them, so this is last resort. They’re not buying a business, they’re not buying a company, they’re just getting stuff out of it like other people or assets. There is a play around that and it sometimes works. It’s normally someone’s going to get pissed off at someone else, but honestly, as a last resort, who cares? And there’s the other one, which is I call it the recap and start anew, which is almost like, “Guys we’re going to die anyway.” And there’s some white knight that is not quite white, just to be clear. Quite white knight, might be someone is a bit smudgy around the edges. Who comes to the table and said, “Oh, I’ll give you 1 million, but it’s at the valuation. That’s a 10th of the last valuation.” So basically, if I’m actively taking ownership of the company or I’m taking a significant portion of the company. And we recapped the whole thing and we go forward. And this is a new structure and it might have some variations to what you were talking about earlier, about some of the carve-out option, right, where we just take part of the business and we recap that and do something around that. Again, all of these are possible options and I’ve seen some of them actually sort of work. They are not… Again, as I said, there’s always going to be someone pissed off. So unless you went through a normal sell option where one of your existing investors really wanted to buy you out or you magically did a very complex carve-out spin off play that worked really well at scale. The other options are always, I would say, very low probability of happening. I’m sure there are cases of people that are listening to us who said, “Oh, I know this case of this guy who tried to do an external fire sale and they managed to sell at a premium.” Please do send us your comments and tell us who those companies were because we’re really interested in that. But in general, it doesn’t happen. Bertrand Schmitt Yeah, and I would say especially these days and hopefully next year it’s a different story. But this year acquisitions would be tight. When you’re uncertain about your own valuation and when the acquirer is itself uncertain about its own valuation, let alone your valuation, that is a tough time to do an acquisition, especially when most bigger companies are going through layoffs, cost reduction. I mean, that’s not the time where you are making a lot of acquisitions. At the same time, are you becoming at least much more selective than you used to be? It’s not about cross-cost calls at all cost anymore for them as well. So that’s to keep in mind, these are the selling process that’s great when you are not doing great, but the rest of the market is doing great, and the rest of the market is not doing great and you are not doing great, that might be tougher. I think you touched briefly on the IP sale. In that situation, that might be something interesting because an IP sale might be easier for acquirers and acquiring a full company. It might give you some cash to run for 12, 24 months. So there might be some value in considering this approach in these times and days. Nuno Goncalves Pedro At this stage in time, you’re dead, right? So you’ve tried everything that we just told you and nothing worked. So you’re literally dead. Then a couple of options that you might have, many people would know, even ones that are not based in the U.S. There’s Chapter 11 in the U.S., which is a bankruptcy of sorts. It’s not a classic bankruptcy. It’s a position in which you’re put under reorganization, typically in front of a judge where there is a plan to find that just protects you from creditors and for most of the parties that have claims on you. Very atypical for startups to do anything around this, you need to be a larger company that has actual assets and things that are to be managed around where there is an option to be reorganized, smaller startups. I don’t know anyone that has gone through a Chapter 11 in early stage. There’s obviously Chapter seven, which is like the more classic bankruptcy of liquidation. Again, very atypical. It’s a costly process from what I understand, and that very follow through. And then finally, in many states, there’s other processes that are leaner, that are more applicable to startups. California, for example, we have the California assignment for the benefit of creditors process, which would allow you to be put in the face of someone else that takes care of your assets and tries to sell those assets and make money for all your creditors, not only debt holders, but also your equity holders. And there might be some value extracted from there at the end of the day. So again, you’re dead or you’re quasi-dead and you don’t have that many assets in there and good luck to you. Maybe there’s some value that we can still extract out of this. Bertrand Schmitt Yeah, and I would say before you reach that stage, make sure that you try to put your company as much in order as possible. You don’t want to reach a stage in a position where you didn’t pay salaries for two months. That’s not good at all and it’s bad for you, it’s bad for your reputations, and bad for your team—it’s a problem for board of directors. So please don’t do that. Organize a proper shutdown in time, not after it’s too late. Do it a bit before it’s too late. Nuno Goncalves Pedro In some countries, actually, this is interesting to know, but like for example, in Portugal, there was a direct fiduciary duty of the board of directors. So in the sense of, for example, if social security or the tax authorities say, “You still have money that you haven’t paid us,” there’s the direct individual liability of the person that is on the board, not just the investor, not just the executives, but the person that’s on the board, even if they’re representing a VC, etc. So again, be very thoughtful. I’ve learned this the hard way because I’ve seen VCs in Europe play all sorts of games around this, vacating board seats and they’re like, “I don’t know anything. Oh, the company’s failing. They haven’t paid taxes. I don’t know.” So again, if you’re an investor, be cautious. If you’re an investor of any type, an institutional investor, an angel, someone who’s on the board of directors of a company in general, even as an independent, because the laws of the country might be different. And just getting to know them is very important. Bertrand Schmitt And how can we say Europe is not always investor-friendly? Nuno Goncalves Pedro Yes, yes, they will come after you, for sure. I mean they won’t be like, “Oh, where’s my taxes?” well mate, my company failed. Bertrand Schmitt And then I can tell you in France, and it’s true of quite a few countries, you have to be careful as an investor, as a board member, not to be seen as having to have too much into the management of the company. So if you try to help, you have to be careful. You have to state who, what is typical of a board member is supposed to do, not going into management of what’s happening because then they might consider you might have been part of the problem. Again, as an investors of this firm, you also one with deep pockets and potentially will try to find ways to go after you. So you have to be careful if you [inaudible 00:45:37] everything is closing down in an orderly way. Section 3: Conclusion Nuno Goncalves Pedro And this concludes our episode 36, our duology on What if your company fails? What should I do? In this duology, we talked about and shared some context on what’s happening in the market today. We shared how to know that the company or your company is in trouble. What does being relatively safe look like? What to do if the company is in actual trouble, which is probably the most important part of these episodes? And finally, what should you do if it all other things fail? What if all fails? Thank you for joining us. Bertrand Schmitt Thank, Nuno.

“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: 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 Subscribe To Our Podcast 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, we will talk about a variety of situations. This question has been asked to us by some of our listeners, which is, okay, now some companies are in actual trouble, and we always have to qualify what does that mean? What does actual trouble mean? A company like Zoom that is worth significantly less than they were during COVID height, I mean, it’s troublesome for Eric and for the leadership team, but honestly, there was a readjustment of their value, and probably now they’re undervalued. Section 2 – How to know the company is in trouble? Nuno G. Pedro It doesn’t mean that Zoom is not a valuable company. If we look at some of readjustments that we saw around companies like Facebook and Amazon and others, these are not companies that are in trouble. They have had readjustments and reset things. These two episodes will focus a little bit more on actual trouble. Not just valuation trouble but actual trouble. Like what means, may I run out of cash? Do I have a growing business or a growing concern going forward? Maybe let’s start by setting that stage. How do you actually know that your company’s in trouble? Where do you start? This seems like a really basic question, but it’s often the case that people get it absolutely wrong for a long period of time. That long period of time could be six months or a year, where if I’m the CEO of that company, I could have been working already on a plan to readjust my strategy, my operations, my leadership team, whatever needs to be done to shift the boat into the right direction. And I just missed it. If there’s anything you want to take away from these two episodes, I would say the first thing to take away is figure out whether your company’s in trouble or not relatively quickly. Listen to your advisors. Listen to your board of directors. Figure out if your actual economics are working or not. Let’s start with the first thing you can take a look at. Many people in the startup world understand this, but we’re going to explain it in a little bit more detail. Understand your runway. What a runway means is how many months do you have ahead of you with a specific set of assumptions—we’ll discuss that in a second as well—that you can go without running out of cash. There are many companies that are just fundamentally profitable. They don’t have a concern around that, their unit economic scale, etc., but in any case, many companies are not in that camp. There’s a lot of startups that are burning more cash—we’ll talk about burn in a second— are burning more cash than they’re generating. Therefore, their runway is necessarily limited. It could be 6 months; it could be 12 months; it could be 24 months; it could be something else. What would they have to do? Just to start this discussion, a runway calculation is actually not that easy because it starts from the perspective of assumptions. In assumptions, you need to think through a variety of things. The first thing you need to think through in your runway calculations is, honestly, if I’m being extremely conservative in terms of my top-line growth, my sales pipeline, but also pretty aggressive in the fact that I might have costs that I’m not fully anticipating. When I do this analysis and I turn it into a cash flow analysis, that will give me probably a very aggressive runway. It’d probably shorten my runway more than I would expect it to do so. That’s a good thing because that will tell me when do I need more cash infusion, or do I need to do something else about it? Again, if you are in a case today, and we’ll talk about, later on, what is a classic runway. I think in the industry, we talk about 12- to 18-month runways once you raise money. We’ll discuss later that actually, maybe you should extend your runway above the 12- to 18-month period of time, which is classic in fundraising. So I raise so that I can maintain my business going for 12-18 months. We will talk about it later that we believe that you should actually prolong it. It should be more than 12-18 months. But if I have three months left of runway, we’re running out of cash in three months, and I’m not raising money yet, I’m going to have a problem because raising money takes time—takes 3-6 months; we’ve talked about this in the past—and so, how can I do it? How can I go to that level of maintaining my company growing or going either with financing or with something else? So I know I’m in trouble if my runway is really, really short, and I have no other way of changing course, or if I need to change course, but I need to change it right now. So first thing to look at, runway. What’s your runway? How many months you have left of cash? Do different scenarios. If you think your scenario is conservative, it’s probably not conservative enough. Second thing to take a look at is burn. Bertrand, what is burn? Bertrand Schmitt Yes. Maybe before going what is burn, I think it’s very important that the proper scenario is put in place to estimate runway calculation because if you start always using a rosy scenarios that you are going to grow, as expected, nothing more is happening in that market, in that situation, things are going to change; expectations might not be met, and you cannot plan a runway calculation just based on a rosy scenario. You might want to have a downside. You might want to have unexpected, maybe an upside scenario, but you cannot just plan everything on an upside scenario, an optimistic scenario. To go back to your question, what is burn, burn is simply how much money you are burning every month, so you are losing every month. We are talking typically about cash burn. To be clear, that means that if you are burning, let’s say, one million a month, and you have 10 million in the bank today, and in 10 months from now, you would be out of cash and the runway is 10 months. That’s a very critical metric. Obviously, this one as well would vary depending on your scenario and the assumptions. Nuno G. Pedro You mentioned burn as in if you have 10 million in the bank, and I’m burning one million a month, in 10 months, I’ll run out of cash. Obviously, you’re talking about net burn. It’s a difference between the money I’m making and the money I’m spending. When you’re talking to some of your investors, or if you’re on a board of directors, it should be clear sometimes with your CEO asking, is this net burn or is this gross burn? Is this just like how much money are you spending in your… Do you have at the end of the after the bottom line? How much cash you’re actually burning irrespective of how much cash you’re generating? It’s always an interesting discussion, the same as with runway. It’s like some people have different understandings of what it means and what you put into it. To your point, I think everyone around the table—board members, CXOs, CEO of the company—should have very clear discussion on what means what. If we have a burn discussion systematically, is that the net burn discussion? Is it a gross burn discussion? Runway, what does it actually mean? What are the scenarios around it? But again, another thing that you really need to pay attention in this case is burn. How much money is the company burning on a monthly basis? Then you have a bunch of other metrics that are very helpful for you to understand the status of your business. That might not be immediate metrics; that might not be immediate indicators for what you’re looking at that give you a very clear view of what’s happening in the future. A very classic one in particular in B2B businesses is your sales pipeline. How does your sales pipeline look? From top of funnel, to things that are under negotiation, to contracts that have already been allocated to the company that are now coming in to revenue. So you’ve signed a contract, maybe you’ve gotten payments or not. Maybe you’re about to get payments on that contract. Having all this view is pretty important because if in doubt, if you think the company is actually not doing great, and you’re getting the story of, “Oh, my runway is actually pretty solid. I have 18 months in front of us. We don’t need any cash infusion, just even assuming conservatively where we are.” Some of these elements that we’re just talking about, like a sales pipeline, will immediately give you a cross-check way to look at how healthy your business is. Because if you look at your sales pipeline, and you come to the conclusion, “Oh, we have our three largest contracts up for renewal, and we don’t know if we’re going to get them or not,” or if you look at your top of funnel sales pipeline and there’s nothing; there’s almost nothing going through your funnel, meaning you have what you have. You don’t know if you’ll continue having it in a few months or not, and there’s nothing else to replenish that cash-generative business, then you’re sort of in trouble as well. Again, this depends really on the type of business you’re in. There isn’t a one-size-fits-all, “Oh, these are the metrics I need to look at to make sure that my business is working or not.” To figure out if your business is doing well or not, you need to look at the core constituents and metrics of what actually derives growth for your business. Again, if you’re B2B, SaaS, sales pipeline is very important. You have to understand and actually dig into it. And not smoke dope. Again, you could look at the beautiful sales pipeline—I’m sure Bertrand has seen plenty of those—that looks like the top of funnel is the best top of funnel ever. Probability adjusted, this company is going to triple this year in terms of basic annual contract values or whatever. Then you go under the hood and you start realizing there’s been a lot of incentives created for the sales team that maybe is pushing a lot to top of funnel, but a lot of these things are very unlikely to materialize into projects or into actual sales. The devil is in the detail. Again, this is not just a discussion for the CEO, where you might be in an organization where you’re basically managing a lot of people and you need to know the truth. This actually is also true for a board of directors with investors on it, where they need to know the truth. They need to know is this really sort of directionally correct, or are we going to run out of cash pretty quickly? Because what kills companies is not having cash. This happens because people were basically caught napping, either the CEO or some part of the executive team or the board. Someone or several people were caught napping. Nobody paid attention. All of a sudden, the company ran out of cash. Now you could see a company running out of cash months before. Again, to the point I was making earlier, this question is the most critical question, which is, is my company in trouble or not? It’s a question that systematically needs to be answered. If you’re running a company that has board meetings every three months, and you’re the CEO of that company, it’s still your obligation to figure out every single week if there is something significant that has changed that you need to take into account. If that thing is so big that you need to convey it and have a discussion with the board, that preempts, for example, a board meeting or a board call, your responsibility is there as well. I’ve seen this over and over again. Like you’re seeing issues too late. It’s like you had a board meeting; everything seemed fine. Three weeks later, the CEO learned something about a contract that they think they were going to win. Doesn’t say anything to the board. The next board meeting is 2-3 months out. When it says it, there’s this board member who’s sheepishly normally raises their hands like, “Sorry, am I missing something? Aren’t you guys now going to have trouble on your topline?” Normally, pay attention to those questions. The questions of the sheepish board member are normally the most important ones. The guy or the girl that normally raises their hand and says, “Sorry, am I missing something here?” Normally, they’re not. Normally, they saw something that everyone else hasn’t seen and that’s a problem. Again, that’s the type of things in metrics that you need to pay attention to, to really know if you’re in trouble or not. Bertrand Schmitt Yes. On sales pipeline. I think the biggest issue for the younger startups is probably around predictability and making sure that they’re already predict good enough range, the conversion of their sales pipeline to sales. Because even if you have a sales pipeline that looks big, it’s going to solve all of your problems if ultimately, you are not delivering on the sales pipeline, that’s a big issue. Of course, you should try to fix that, but it might take time, change a lot of things. And to big minimum, you should be looking at evaluating your plan, and therefore, your runway based on your ability to monetize your pipeline. I’ve seen so many situations where some people just tell me flat out for instance that, “Oh, you know what? We know the conversion level that we should reach.” Most companies with these conversion levels. Sure, good luck with that. Once you deliver a track record of historically predicting well enough, then we can try to start to leverage your ratio and look at history and make analogies and take coverage. But to dare to talk about applying ratios from other companies on the sales pipeline, that’s a very difficult place to be. Or if you do it, you have to assume it’s a different risk. You just cannot come with just an expectation it would be all right based on other company’s ratios. I think you want to be very careful. And it’s not easy. At some point, as a board, you probably have to either accept the sales pipeline and step by step based on success or lack of success, force some adjustment in the process of the calculation. Or actually relatively quickly, try to go deeper to understand how it’s managed, how it’s calculated, or what are the incentives of the sales team. Some sales team feel that they have to show the highest possible number, even if they believe it’s not doable. It’s a lot of work to get this one right. To be frank, if it was easy to get the sales pipeline right, not a lot of companies would be in trouble. Section 3 – What does “being relatively safe”, look like? Nuno G. Pedro Maybe answering the question of how to know that your company is in trouble, let’s start with the opposite, which is how to know that the company’s relatively safe, the company is okay and there’s no big issue going on. Bertrand had shared with me some thoughts that were shared by other people that we like looking at, like Paul Graham and David Sacks and all that. Maybe you want to share some of the views that these guys have shared recently, the default alive or default dead, and default investible. Bertrand Schmitt It’s like a old saying in Silicon Valley nowadays after 10, 20 years, sometimes more recently. But I think it’s Paul Graham, the founder of Y Combinator who talk about default alive being default dead. Default alive means if you don’t do too much, if you keep it as it is, your company is a going concern. That happens when you are making, obviously, more money, generating more cash than you burn. So that means default alive. If you have a company that is not generating cash, and the trajectory is not clear, then you are probably in a default dead situation because at some point, if you don’t get additional investment, you are going to die. Once our big markets downturns, anything is possible. Things change. Your current investor might not want to put them on you for some reason. You might have trouble to raise financing. I actually like the position of David Sacks. A few months ago, we talk about being default investible. That’s kind of in the middle. It might not be as good as default alive. It’s not as bad, certainly, as default dead. It means that you are running your business in such a way that even by relatively prudent metrics with conservative investors, you are running the business in such a way that you should get financing relatively easily, even in a downturn. So relative easy may be a big word, but that you should be able to get financing even in a downturn. Typically, what is default investible? It means that you are not burning too much. It means that you have some ratio that you are careful to follow. We talk about some, but for instance, one that I like is Burn Multiple ratio. Burn Multiple ratio, it’s net burn. And if you’re a safe business, net burn divided by net new ARR. I guess you can find some variant of this type of ratio for different type of business. Net burn divided by net new ARR. Basically, it’s how much you are burning in net divided by how much you are bringing in term of new business. How much does it cost you to bring new business in? If this ratio is below one, that’s probably considered amazing. If it’s above three, it’s definitely bad. If you are muddling in the middle, your situation probably depends on financing situation. Or at least the valuation you’re going to get will depend on that. It might not be a binary situation. Definitely, you want to be less than three, probably less than two these days. Of course, less than one, you have a great ratio. So if you are in that situation, you are default investible. I think good enough situation. But of course, you have to be careful about some exception, like a big sales deal is not happening. You have to be on the lookout for some externalities. Nuno G. Pedro Another signal of being relatively safe is your runway. We just talked about what runway meant. In an ideal world, when you just raised around, you’d have a 12- to 18-month runway. During times of crisis, we normally push the companies that we invest in to be a little bit more conservative in their spending, in their plans, to the point where they can probably sustain 24-30 months of runway Here, we’re talking about almost double the normal runway you would get out of around. What does that mean? There’s a couple of implications on this for you to be relatively safe using this sort of runway metric. One is if you can raise more money, right now, raise it. If that means that extends your runway by 6 months to 12 months, that’s significant because again, you might be then in your 24- to 30-month cycle. The second piece to take into account and the reason why some of us in the investment world ask for 24-30 months of runway in cases where the company is in the middle of a crisis of some sort or there is a global crisis going on is because we anticipate that fundraising cycles will get more tight. It will be more difficult to raise money. And because we’re extending our runway, what that means is we’re giving ourselves more time to generate more top line, to generate more unit economics—we’ll come back to that—and also to allow us to do what I would call the soft pitching dance. The soft pitching dance is I’m not really raising money; I haven’t been in the market to raise money in a while, 12 months or 18 months, but if someone, for some reason, sees me and I pop in their radar, an investor, maybe I’ll have the conversation. Maybe I’ll actually raise without needing to raise. This is always an interesting dance. It’s much easier to raise money when you don’t need it—we’ve had this discussion many times in the past—than when you actually do. If you give yourself more time to raise, if you do it properly, then you actually increase your chances of raising, even though your numbers might not look amazing or not. There’s this notion that you’re relatively safe if you’re runway is in this new margin of, let’s call it, 24-30 months. The fourth item that one could bring to the table in terms of being relatively safe is unit economics. To the point that Bertrand was making and that Paul Graham has made in the past of default alive, if you’re generating positive unit economics out of everything you deliver, and if it’s a business that may not be fully predictable but has less risk than one would expect, you can have a chance to systematically generate net positive cash flow. If you’re systematically generating net positive cash flow, if you have clear positive unit economics, so to speak, you are a growing concern, even though you might not be growing very fast. That gives you many options. It gives you the option of doing other things along the way, pushing other types of businesses. But at the very least, it keeps you alive for much longer periods of time. It could be almost infinite. Infinity doesn’t exist quite in the world of tech startups, but it could be almost a world where you could say, “Maybe in the next 4-5 years, I won’t die, for sure.” Now, that’s not a great aim for you to have. Your investors probably won’t be super excited about that aim, but at least you’re around and you won’t die in the process. Bertrand Schmitt To go back to your point around if you get people proposing new money and you should take it, I definitely double down on that. I’m not sure people fully realize these days that every financing is a risky business. I have seen several situation now where, say, there’s a lot that’s supposed to happen and the financing doesn’t go through. And everyone is running to find an alternative to some things that just bogged down post-LOI, post-signing or in the middle of discussion with investors who are saying all the right things, giving all the right insurance, and finally it doesn’t happen. You have to be very strict. It’s very unpredictable right now what might be happening with some of your investors, and you don’t want to wait the last minute. So if there is some “easy money” on the table, let’s say you get a proposal from some investors, like last from the financings. They couldn’t get in or they couldn’t put enough money to work, come back to you a year after. They say, “You know what? I’m ready to invest at same price as last run.” I think you should take it. It’s like an insurance policy. Yes, it might dilute you a bit, but what it might add in term of runway is a big difference. As we just said, a lot of great companies lost 50% market cap in a year. So if you’ve got an offer to get more cash at the same valuation as your last run, you should just take it. You will have to be so amazing business to feel is not the right values these days. Nuno G. Pedro I think the final two elements of knowing that you’re relatively safe are around top line and cost, and they’re really around predictability. If you have a relatively predictable top lines because of the length of contracts you have in place, because of the low probability of default of some customers that you have at the table, meaning they’re trustworthy with good or solid businesses, because of how you really see the business evolving on the top line. Again, very important to make this assessment. They’re trustworthy customers. They’re happy with what they’re getting from you. Their business is also doing okay or doing well. If you have clear top-line predictability, that’s normally a good proxy to being relatively safe because even if you’re unit economics don’t work right this moment, you can maybe tweak some of your costs to make it work. Maybe you don’t actually need that heavy structure on the sales side. Maybe you don’t need that heavy structure on customer success, or maybe you do. There’s things you can probably tweak to make your unit economics work. The opposite is also true. It might be that actually your top line is a little bit more variable, but you can work a little bit with your cost predictability and that you can have a much better view on cost predictability. One thing that is very clear to me, for example, hardware-led businesses in the last two years have suffered a lot from supply chain shocks, from difficulty in sourcing materials, from increasing costs in logistics. If you at some point, actually my cost base is super predictable, that’s a huge advantage you have. That might be the difference, again, between the companies in trouble or who are sort of relatively safe because I have a very clear understanding with all the variables that I have, that I have a very clear understanding on where my costs are. They’re just actually relatively predictable, and so I can just maintain the company based on that. Bertrand Schmitt Yes. On that one, I would say that there are definitely some exceptions. As you say, hardware-based companies these days, it’s very tough to get predictability. But except for some of these industries, I think that the least you could do is to be predictable about your cost. Selling is hard, but making sure you manage cost to your plan; you manage EBIDTA to your plan. Even if the top line doesn’t go as well as expected, I think the expectations of not everyone around the table is at least EBIDTA is doing per target. I think that one is really critical. There is much less externality usually to manage and control your cost, so you should really be good at that. And if you’re in a space like hardware where you depend on a lot of externalities, it needs to be part of your job to get better at that and to become world-class at predicting costs in your industry because that’s the game. In your world with a lot of inflation of all supplier issues and stuff, that’s really becoming one of the box that you have to fill to become a good hardware company, and people are going to look into that. Nuno G. Pedro Not only predictability everyone always says, “Well, the hardware guys have more trouble,” some software companies also have sometimes issues with cost predictability when it comes, for example, to their infrastructure, to their cloud infrastructure. I’ve recently gone through renegotiations in some of the companies that I’m on the board of with very large cloud owners of the world. Some of these negotiations haven’t been going well. In some cases, it’s led to a point where it’s difficult to really trust that the other party is doing the right thing because they themselves are trying to increase their profits and they’re trying to get better unit economics on their own businesses. Some of them are gigantic companies, but they don’t really care. Again, cost predictability is sometimes a little bit more complex than one would think. It’s not just I believe a hardware versus software issue. It really depends on what are the big levers of variable costs in your business. Bertrand Schmitt We have reached the end of Episode 35, our first episode on what to do when your company is in trouble. We talk about the market context. We talked about how to know your company is in trouble. We talk about how to define not being too much in trouble, being relatively safe. In next episode, we’ll talk more about what to do if your company is in trouble, and hopefully not, but what happens if all is failing? What are your options? Thank you very much. Nuno G. Pedro Thank you. Bertrand Schmitt Thank you, Nuno.

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: 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 Subscribe To Our Podcast 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, it happened in two years, what probably would have taken 10 years. Nuno And again, it’s not perfect, there’s still pieces missing. But even the pieces that are missing, I think, because of this shock that happened to the world, we are all working from home. Because of the shock, the pieces that are missing are now much clearer. The flaws in the systems and tools that we had are all much clearer. Nuno Again, I think this is an amazing situation for us to be in as investors. This is an amazing situation for us to be in as entrepreneurs. It is now clearer that there are things missing that we can build. Bertrand I totally agree. A lot of things got accelerated are not disappearing. Another big example is around the cloud computing. The move to the cloud has been accelerated. It’s more efficient, it’s easier, ultimately, for many cases, less costly. So this is not something we are coming back. The same with mobile devices, which in some ways, strangely enough, did pretty well. Bertrand Mobile devices, mobile content in a situation where a lot of people were spending much more time at home. But even at home, you prefer the smaller screen that you have really everywhere with you. You don’t just want to be focused on one big screen. Some of those sectors are going to probably go a bit more back to normal. Bertrand Edtech has seen a lot of tension, not just because of COVID, but also because of regulations and changing platforms rules. Edtech is probably going to face a lot of unknowns, especially in front of an economic prices that are coming. Ecommerce, we probably keep moving forward, but as we have seen, it has been coming back a bit more in line with past trends. Bertrand But obviously, yes, a lot of things are not coming back, a lot of habits are not coming back. It’s still amazing for me to see how now everyone, there’s a video confer individuals, professionals, such situation, investment situation, stuff that in many cases were not possible, two, three years ago, would have been seen as a platform. Bertrand Yeah, it’s that acceleration of digitization is there to stay and more is to come. And I would say you could even argue that with an economic crisis where typically you want to optimize your spend more, there should be more digitization because people will realize that the most efficient channels are digital to which consumers transact with them. And you will need to be even more hardcore in order to optimize your spend. Nuno In some cases, the nuances of what happened during COVID have become very apparent in the last few months in particular. So for example, for us, one thing that wasn’t clearly solved in this whole stack of communication within the Enterprise and within the company was definitely the water cooler moments, the ability that people have going to each other’s offices or each other’s desks and asking something about something else that’s very quick in answering. Nuno And for example, for us, that has led us to some thinking around that thesis, we actually might make an investment in that space, so I’m preempting a little bit that. But there’s definitely pieces of the puzzle because they got so disjointed they became clear. Nuno The notion for me right now that is super exciting is this acceleration that we got, nobody probably would have asked for it that we got a global pandemic, but it provided a shock to society that has at least given us some positive things. And those things are things that we can build upon that can help us move forward across a variety of areas. Nuno One is that there’s been obviously advancements in artificial intelligence. We’ve been paying attention quite heavily at artificial intelligence. We think we are now at the point of what we call the app economy and artificial intelligence, where there is a lot of leading platforms that you can build on top of. And so what you’re effectively doing is you’re being amazing in terms of algorithms. Nuno You have amazing engineers with you and data scientists that really allow you to go to the next level, in terms of how you build your own platform around existing and underlying platforms. I think we’re going to see advancements around artificial intelligence that go well beyond it. That what got us here is not what is going to get us to the next level, what got us here was brute force. Nuno The next level is going to be finesse. It’s going to be smaller datasets, better algorithms, bare methodologies, less computer or compute intense methodologies. A lot of exciting stuff happening around it. Nuno And we’ve talked a lot about other big advancements. Quantum computing has moved forward. I’m not sure we’re there yet, to be very honest in that field. Biotech has had incredible movements. I think anyone that’s in biotech today should feel like totally vindicated that was the right choice. Bertrand Yes, indeed. Nuno That’s something for the future. Anyone that’s around data manipulation and from anywhere from data quality, data engineering, data science, it’s essential. The word becomes more digitized. Data becomes actually more important even. There’s a lot of amazing things happening in the world. And obviously one of your favorite, which is nuclear energy and nuclear fusion. Bertrand I’ve been a big fan of nuclear for more than 20 years. I’m glad that finally, this is something that is back on the table for people who are thinking carefully about how you solve energy needs instead of proposing to go back to prehistoric times and stop using energy. I’m very excited that nuclear fission, it’s back on the table that companies are investing more into nuclear fusion programs as well. Bertrand That’s two fantastic technologies. I believe we absolutely need more of them. You take one famous example, in France, around 80% of all electricity is nuclear. That’s a big difference in terms of energy dependence, but also in energy pollution. Let’s not forget there is no pollution coming from a nuclear reactor, and they are so safe. Bertrand It’s kind of crazy actually what happened the past 10, 20 years of using even maintain some reactors, let alone expand if I take some examples, like in Japan, in Germany, in California, where actually prices of electricity having traced like crazy. Bertrand And what’s even more shocking to me is that some of these misled policies from these countries try to impose their crazy policies to the rest of the world. Germany trying to block Europe from going nuclear. It’s already mad enough to do that to your own economy, but to impose it on others makes no sense. And obviously it was not very smart to decide to depend from Russia in terms of energy independence. Bertrand So pretty excited that a lot of smart people are thinking again about that. I hope that people are also going to go back to hacking for oil and gas again. It’s insane how little energy-dependent is most of Europe, for instance, or some other regions in the world, and we should absolutely push for that. Bertrand It’s too difficult in a very difficult world becoming more and more multiple. You need to have more control and to have closer-to-home sources of energy that you can depend on. As much as we like solar and other form of energy, this is not as available all the time than using nuclear or burning oil or burning gas. Bertrand We need to be realistic. We cannot keep having programs that are expecting people to face loss of leaving standards. That’s crazy. That’s going to just bring one thing is a lot of resentment, it’s not outright revolution in some places. I hope we are coming back in a way to sanity about what is energy, how we find energy, and what is the most optimal energy mix. Nuno So maybe moving again to probably the question on everyone’s mind, I mean, is what economic cycle are we on? Is there going to be a quick hard landing at some point that is even worse than what we’ve seen thus far? Is it going to be a long, soft landing? Is it going to be some other variation? What do you think, Bertrand? Nuno I’ve already put my stick on the ground the last episode, so I’ve already said it’s hard. We haven’t seen the hard one. We haven’t seen that moment where everyone trembles. Bertrand I think it will be bad when you are combining inflation with recession. Unfortunately, I believe it’s coming. Are we already there? I don’t know, it’s possible actually. Will it be by early next year? That’s for sure is my take. So you probably want to prepare for that. It’s always difficult to predict how it actually will work because it depends on lot of externalities. Bertrand Do we get back to normal relations with some countries like Russia? Tough to imagine. We have oil and gas from Saudi Arabia again at big scale. I think there are a lot of questions that are difficult to answer. I don’t believe we have a hit at the bottom yet. Bertrand I believe, again, the worst is still to come. But on the good news part, it took psych, at least central banks, I’ve got the signal, even the ECB, that they should raise rates to fight inflation. Bertrand I think in order to spot the bottom, you need to understand where is inflation starting to decelerate and the next piece of the puzzle at the same time, we will see that procession coming. I expect that to be relatively hard and painful. After all, we are paying for excess of the past, probably 15 years. Bertrand And in terms of inflation, we’re actually, in some ways, sadly so paying for world as that when global and is now getting generalized again. Nuno Indeed, maybe moving to our favorite subject of Startup Ecosystem and where we’re at, because obviously, that’s, as you know, is the world we operate in. We’ve spent a lot of time talking about macro the last episode, in this episode, and over other episodes as well. But the micro world of our beloved startups, VCs, investors, and others is where we always like to bring it back to. Nuno My clear view is that fundraising will be extremely difficult over the next 1.5 to two years. And this is holding true, not just for startups, but actually for venture capital firms. Limited partners are now reevaluating where they are and where their assets are. There’s definitely a cycle ahead of us. Nuno From the perspective of talking to a lot of the startups that are in our portfolio, or that even we’re thinking of investing in, the advice we’re giving is, historically, the industry has thought about 12 to 18-month runways, and then we’ll go back to fundraising, or will fundraise again. And we’re not talking about 24, 30 months, you need to really withstand this. Nuno We’re not talking about plan Bs and plan Cs, where if things don’t quite continue the trajectory there in terms of growth or your top line, how do you rescale? Definitely, there’s going to be a balance of power that will move back to venture capital firms and investors. I think we’ve seen entrepreneurs taking the upper hand for the last few years. Nuno There’s always a way to check if they’re taking the upper hand. By the way, if you guys have some doubts about that, just go and check out the reports from the law firms, Fenwick, and Cooley and that that talk about what’s happening in terms of the key clauses in the agreements. And you’ll see immediately when it’s tipping to the other side. Nuno When the clauses are becoming more beneficial towards investors then they are towards the startups, you see that balance moving. There’s always a little bit of lag, so clearly that’s going to happen, but it will depend on and go back to VCs and investors. Nuno If you’re an entrepreneur and you’re still trying to fundraise, but you started fundraising before you thought this was a crisis and now you’re having difficulty, maybe you need to adapt a little bit your deck, maybe you need to adapt how you’re pitching it. Nuno And if you were not being nice to the investors you’re talking to, because you thought you had like 10 investors at the table, maybe you don’t doved them anymore. Well, good luck. This is what I would say, it’s karma, as I call it. Nuno The funds with vintages from 2000, 2018, so funds that had their first close in 2017, 2018. As probably many of you know, funds are entities that are normally limited in time, in many cases, 10 years. And they do with first close, and then they might do subsequent closes to that close where they say, this is the capital I’ve committed, and then over time they do cash calls on that capital. Nuno Funds with vintages of 2000, 2017, 2018 are funds that would have started deploying money around then. And normally, the investment period is a term that we use in fund management, which declares the period of time under which you basically deploy capital for new investments. And normally, that investment period in many funds is four to five years, I’d say five years, classically was the timeline. Many funds are now doing three, four year investment period. Nuno It’s the time period of the fund under which you can deploy capital for new companies. After that time period, you can still deploy capital, but you can only deploy it in companies that you’ve already invested in. You can do what we call follow on money. You can put more money in that company and deploy more capital to that company. Nuno If you’re a fund with a vintage 2017, 2018, with a four to five-year investment period, your investment period sadly is coming to an end. It may already have come to an end. And if that’s the case, you’ve already deployed all of your money for new investments. So your stack is done. Nuno If you went in and were desensitized on valuation because you were hitting a lot of party rounds with companies that were being super overvalued, that magically on your books were looking amazing because they were raising more and more rounds, again super overvalued, and now they’re getting realigned, you’re out of luck. Because all that was on paper, either you’ve raised a new fund or all that was on paper is evaporated already. Nuno There’s also funds, and we’ve talked about a few of those funds in the past that just literally went in and deployed everything in one to two years. They might be funds that are vintage, just before COVID, 2019, early 2020, and they just deployed everything, so they’re sort of done in terms of investment period. Nuno They’ve not deployed all their capital, but they’ve done all their new deals that they needed to do in that fund. And therefore they’re, again, their portfolios defined. They can’t do anything with their portfolio. They can put more money to a Company X than Y going forward, but they know who Company X and Y is. They can’t choose anymore. Nuno A lot of companies and VC firms that had great gains on paper that were walking on water, as I’d say, now they’re going to be subject to gravity. And the thing that matters is liquidation. All that matters in venture capital in the end is DPI Distributions to Paid-In cash on cash. How much cash do you give back? And the rubber is going to hit the road in the next few years. Nuno It’s going to be interesting to see if the superstars of the last two years are going to be the superstars of the next two years. A spoiler alert. No. But it also gives back this notion of what happens next. What VCs are going to be the VCs that are going to do well going forward? Bertrand Yes, I totally agree with you. It’s a big reset for entrepreneurs and for VCs as well. On the VC side, I guess it’s clear that we are going to see longer processors and more detailed due regions. When you have more time to analyze a company because there is less competition on the deal, and you can finally go back to normal. Bertrand I want to highlight that some VC firms had not stop to work properly during COVID, only some of them definitely stopped. And I guess we know soon which one are already in trouble. The other piece is that it will pay to our VCs with a strong operational knowhow, because that’s when you would be able to help your portfolio company to guide them during this difficult time. Bertrand It won’t be just to be there on the board to upload and just say good, nice stuff to the CEOs to keep him happy and motivator, it will be time for the truth. I’m not sure all CEOs will be willing to use the truth, but hopefully there will be more of this at board meetings. Again, I think that would be very, very helpful to provide a better pictures to different firms. Bertrand I guess we will see also investors looking more carefully at business models and go back to basics. Is it the reason about business model? Is there some payback? Is it insane? I think it would be actually exciting times. Nuno Indeed. And this is a good time to know who’s with you and who’s not. If you’re an entrepreneur, it’s a good, really good time to figure out what your investors really stand for. When push comes to shove, how do they behave with you? What advice do they give you? How often do they interact with you? Nuno If you’re an investor, it’s also a good time to know what you can count on from the founder side. If you’re not getting any calls for help right now from a company, chances are someone else is, maybe you’re not the investor that they talk to about these things. There’s a lot of metrics there that are quite interesting. I believe all sets of good time to know who are the employees that are all in as well. Bertrand Definitely. Nuno These are tough times. Again, as I said, we still haven’t seen, so to speak, the tip of the iceberg of what will, I believe, become this great unemployment trend. Some employees are still maybe in a world where they think they can get better places out there. And if your company’s going to a crisis, it might jump ships just on the sake of it. Nuno A couple of months down the road, I think things will be a little bit more of a moot discussion because the job market will have changed dramatically in a couple of months. But in any case, it is very important at this stage for you to really figure out what you have and what you don’t. Nuno Again, in times of crisis, you really get to know who’s on your side, who’s not. You get to know who you can count on or not. Again, it’s a really good time for you to do that analysis to figure out who’s on your side or not. Nuno It’s also a really good time to go and build a business properly. And we always forget a business. We saw this in 1999, 2000, and we talk about the new economy. I think somehow we weren’t talk about the new economy recently, but we were talking about something similar. Nuno But again, it’s the same fundamentals. It’s the fundamental piece of getting profitability right in the way that works for your company, wherever the profitability needs to be. It’s the ability to figure out not only react your cash consumption, cash burn is, but also the cash flow that you’re generating from the perspective of what you’re doing. Nuno It’s the opportunity, as I mentioned before, to figure out what your org chart looks like. Who are the employees you can really count on? Who are the people who are going to go to the next level? Make them sure that those people are staying onboard. Nuno And then also figure out those who are not in for the long ride, who are not all in. And if you’re in a startup, you want all in people for the most, certainly if you’re in early stages of a startup. It’s also great time to be focused on what actually matters to the existence of your company. And we know companies for the most fail, certainly startups because they run out of cash. And that’s it. Nuno Everything that you can do to preserve cash, be a top line, optimizing pricing, being more aggressive in certain contracts you’re negotiating right now. Anything you can do potentially on bottom line and not the classical, we’re just going to lay off a bunch of people because layoffs have their own side effects as well. Nuno You might lose customer service capability, you might lose product management cap, you might lose a number of things that are not actually ideal for you to lose. But this is a time where you do those tweaks. It’s the time where you start figuring out, okay, this is my running plan going forward. It’s what I’m going to do over the next year to two years. Nuno This is my plan B if things really start going really bad. This is maybe my plan C if things go really, really well. How would I up my ability to serve the market? And have that in account and have these discussions with your investors, have these discussions with your advisors, get their advice and at some point make your online. Nuno If you’re the CEO, it’s your call. I was recently on a board where, and this doesn’t happen very often, but I was recently on a board where there was, let’s just say there was fundamental differences of opinion between several board members at the same time. And the CEO I feel was taking into account all their opinions, which I’m not really sure will provide him with great guidance. Nuno He was, I think, trying to please everyone. It’s up what you can’t, you can’t please everyone. You have to choose what is your path. And maybe your path is aligned with board member X or board member Y, maybe your path is actually not aligned with any of the board members. It’s something different. But when push comes to shove, it’s your call. Bertrand Yeah, it’s just CEOs, entrepreneurs have to understand. It’s a two-way street. I think you also talk about the fact that the poor relation is changing. Suddenly, investors are becoming much more selective, terms would be harder. You really want to think carefully about how you are going to manage your board, how you are going to run the company in such a way that you make it interesting for new investors. Bertrand You cannot just be dreaming about the fact that you are going to not listen to your board members, not make all the change that a lot of companies are doing. At the same time that all of these would be good and well, and you will find new investors. If it doesn’t work, you can still count on your old investors because very clearly you don’t put good money after bad. Bertrand Right now, some investors are going to make very clear decision that, hey, we all spend a lot of money. Sometimes at a high valuation. As you say, it might be time to double down financing some existing board for your companies. As investor, your job would be to use very carefully this additional datas. Bertrand Because you will want to be saving and helping the one who are trying, first, to save themselves, to really do well, and to be very good students about what was the best way to run a business in this situation, because you will want to go to the one that at listen to good advice and are going to become your winners. I think it’s really something important to understand for CEOs. Nuno At these times of great challenges, there’s also great opportunities for all involved. If we’re a startup, we’ve talked about this in the previous episode as well. I certainly believe we’re moving from the great resignation to the great unemployment. And therefore, this whole thing where employees were running the world in many areas in general, I think is going to move back to employers. Nuno If that’s the case, if I’m a company and I’ve had difficulty hiring and I’ve had difficulty finding talent, some really good times might lie ahead. I might actually be a good time for me to expand my team rather than actually just contract my team. If I have the capability financially to do that, it would be a perfect time to do that. Nuno There’s going to be a lot of opportunities. There’s going to be spaces that you think your competition was occupying, that they’ve always been there, that they may have just dropped the ball on, and it’s not very visible. It’s a good time to talk to people that you wanted to sell to customers that you wanted to sell to Enterprise that you wanted to sell to, and figure out if they’re satisfied or not. Nuno There’s going to be a lot of opportunities, hopefully all within, again, the ethical realm that arise from it. There’s also great opportunities for investors. In terms of new investments, with the rebalancing evaluation expectations, with more difficulty in fundraising, we get not only the power that comes with clauses and terms and all of that, but we get more reasonable deals. Nuno We get more of the longer dating period, you were talking about longer due diligence processes, and longer processes lead to longer dating. And so we get to know each other a little bit better. I really won’t make a mistake in the investor I bring on board, and the investor probably won’t make a mistake in the company they’re investing in as much. Nuno There’s a lot of positive pieces to this that I believe will come out of this overall. And hopefully, the last thing that I would say is maybe we’ll stop being obsessed with unicorns for the second. We’ll start getting obsessed with something else, I guess, but we’ll stop being obsessed with unicorns for a second. Nuno Again, think about liquidity, think about who are the companies that have a standing business, that should have a standing business, that have an ability at some point to either go public or to sell to someone else, but like a proper business. Bertrand Yeah, no, totally. I think we are in agreement. What was the expression? The edge of the unicon replaced by the age of centers. Centers being companies at 100 million run rate. Nuno And let’s not to have any mythical creatures in our lexicon, please. Bertrand Let’s talk about potential scenarios for the future. I think that’s really is a big question from all of this. Where are we going next? I think we talk about short term in terms of inflation, increase of rates, or recession, because that’s the short term.Medium term, long term, if I stick to the economies, there is a question of, are we going to enter a long period of taxation? Bertrand We got that in Japan. We got that in the ’70s in many countries. That would be a big question because that’s a very different economic environment that companies startups we have to face. I don’t know if it’s clear at this stage, but I think it’s a very real, strong possibility that we go in this type of scenario. So that’s one. Bertrand I think we talk about the world becoming more multipolar, a world becoming more regionalized. I think we will see more about how can we build closer to home. I mean, if we’re in the US, how do we build more in urban Mexico instead of China? If we are in Europe, it will be more in Eastern Europe, for instance, on north Africa. Bertrand I think we see some adjustment pretty strongly, especially with what’s happening in China. I don’t know many people willing to go back to live in China, given the handling of COVID. I think we will. And obviously, there is a big joke. Political tension between us and China, China and Europe. Bertrand And of course, especially when you see the partnership between China and Russia, I think we were very tightly synchronized with China. I think it’s going to unravel, and it does started to unravel, unfortunately. So we have to take that into account how he sees the world and where it’s going. Bertrand I’m not saying it will happen over time, but after 30 years of world integration, we might go back to 30 years of, I don’t want to call it disintegration, but definitely a certain role back to a more regional world, a world being less flat. Nuno A second potential scenario is that we go into a world that goes back to where it was, obviously China, and there’s other parts of the world that have decided to go in a different route. But we go back to a world where the collaboration that did exist to a certain extent during COVID. Nuno Actually sediments that we were going in the right direction, that the world was becoming quasi flat, that integration, internationalization, globalization was a given. And so that’s another potential scenario that we would be under going forward. Nuno Maybe a more unlikely scenario than the first scenario that you described, Bertrand, but certainly a possible scenario. I do feel for that to happen. I am not a Doomsdayer, but I do feel for that to happen, that we would need, unfortunately, and sadly, another shock somewhere, that gets us back all to the table to do stuff together. Nuno Although I hope for that scenario, I’m not sure I would hope for the triggers that would lead us to that scenario. At this stage, the more natural thing is we are going into a siloed environment. What I would call the siloed scenario that we just described, where everyone builds their own capabilities, everyone has their own regulatory environment that are pretty aggressive, everyone serves themselves. Nuno And obviously, this has a lot of implications at the micro level on which companies win. Why do they win in those markets? Are they regulatory advantaged because they’re local companies? Do they have other advantages that others don’t have in terms of connecting to infrastructure in those specific regions? Nuno Again, I would hope for the more collaboration back to the world is quasi flat. Again, I think the triggers to that are probably negative unless I’m missing something. Maybe we’ll just have to do with the whole siloed stuff for a while and see where we come back from. Bertrand Yeah, to be clear, a flatter world is more what I would have preferred. I’m trying just to be ready, stick in this, and think about what’s going to be most likely. I would like it to go back where it was, but I think at this search, it will be a tough one. Obviously, there are some additional risk we could talk about in terms of potential scenarios. Bertrand Of course, additional issues and risk in the world that there can be a new type of pandemic. I guess everyone has heard about monkeypox at this stage. I don’t know if it’s the next big one. I don’t think so. Not certainly not pops so. But as we have seen, pandemics have increased in intensity, and we travel going back more or less normal in the north region of the world. Maybe it’s that some things that will happen again. Bertrand And to be clear, we’re still not out of the woods with COVID. We are talking about something on top of this in terms of geopolitical risk. We talk a bit about Ukraine, of course, but obviously in another region of the world, there is another big potential flashpoint. It’s Taiwan in front of China. Bertrand This one feels like a very high risk situation. Even more high risk, since everyone has seen what’s happening with Ukraine. So hopefully, this will be sorted out peacefully, but it’s very difficult to know at this stage how this will be solved. Nuno And on this beautiful note of Taiwan war, monkeypox, we are very hopeful of the world, as you all know, and we’re very positive and optimistic about the world. But on this note, maybe it’s a good time to do a bit of a recap on our season too and what we’ve been discussing, what we’ve talked about. A lot of our Season 2 was in the midst of what many thought was the end of COVID, which we actually called right. Nuno If we go through our list of what did we get right versus not, one that comes clearly right was COVID timelines. I think from the beginning, we were saying, this is going to be a multiyear thing, maybe two, three years, even when in 2021 we launched Season 2. Later in 2021, there were a lot of people already talking about, Oh, it’s done, and it wasn’t, as we know. Nuno I think now we’re probably close to something that’s really more endemic in the world, and there’s a really big silver lining on that. I think the second thing we definitely got right was the bubble bursting. We’ve been talking about it for a while. Nuno Maybe the one thing we did get wrong is early on in Season 1, we were talking about the fact that we were going to finally have the bubble burst when that first lockdown and shelter in place happened around the world. We got that wrong. And there was a lot of stimuli, but we probably stuck to our message throughout the last two years. Nuno So through two seasons, saying that all of this didn’t quite make a lot of sense to us, that we were not economists or macroeconomists, but there’s something wrong with it. Unfortunately, we’ve been proven right. Bertrand I guess it’s maybe because we are not economists that we saw things that were obvious, but not seen by economists. Nuno We don’t want to be ostracizing any economists that maybe listening to us. Bertrand There are some very good ones, but they are few and far between. Nuno Generally good track record. I think we’ve seen a lot of the dynamics around valuations happening in private markets and public markets quite well. We’ve been talking about not just the bubble at a high-level term, but also that everything was grossly overvalued. Nuno And we didn’t understand a lot of the price turning ratios, and we didn’t understand a lot of the valuation multiples that were being practiced. We talked a lot about behaviors by certain investors in early stage and why we didn’t understand those behaviors. We didn’t understand lack of DD. We didn’t understand insensitive to valuation early on. Nuno If you’re listening to us, and when we don’t understand something, and we question it a couple of times, maybe it’s a good time to take note. We seem to be getting it right more than we probably thought in the first place. But that’s good news. In some ways, I think it’s good news that it shows that common sense, which as we know, is not very common, does seem to rule the world. Bertrand Yes, indeed. I think that’s a good lesson. I’m sure you can make your own analysis. I think what’s key is to try to understand what’s really happening, to go back to data you can trust, and to go back to analysis that try to understand carefully cause and effect. Bertrand I think it’s quite key not to be simply blindly listening to the main discourse on the main media these days. It’s sadly not trustworthy. You want to make sure you are making your own analysis, finding the right data. And if you do that, I think you have better chances than most people to get a sense of what’s happening, what might happen next or so. Bertrand Learning to think, learning to analyze, finding your data points, your data sources. Personally, I try to spend a lot of time finding the right sources on Twitter, for instance, to follow people that I’ve seen making logical arguments on analysis, providing the source of data. Bertrand Usually, if you think like everybody else, that’s not going to work. At best you are not getting a significant advantage over everyone that thinks. To keep in mind, at the end of the day, you want to have a relatively strong opinion on some topics that would matter on where you think differently. And strangely enough, it’s analysis that we can think. Nuno It’s about triangulating data. It’s about looking at data. It’s looking at different perspectives on the data. But at some point, it’s about also asking the fundamental questions and having a perspective, and having critical thinking. And we both work in venture capital, as you guys all know, and there is a little bit, sometimes of lemming mentality in our industry. Nuno There’s hot areas everyone jumps into it. There’s new plays that come into the market and everyone thinks. So that new play, very rapid investing, very little DD that may change the world. We all have to deal with our own teams. We’re partners. We’re managing partners. We’re part of our VC firms at a relatively senior level. Nuno And we have other people on our team that read a lot of stuff as well, and they’re very intelligent as well, our associates, our principals and our quantum technologists and team members, and they bring things to table. And sometimes they look like brilliant ideas. And you’re like, why? I mean, I don’t understand. Nuno And it’s very funny, because it’s happened to me many times that the person on the other side is like, this guy must be stupid, because Sequoia is saying this, because Benchmark is doing this, because Tiger has done that, because Softbank is playing this way. Nuno And then we look at some of these things, fortunately, these firms are all amazing. But we look at some of these things and they’re like that something that looked like a brilliant idea two years ago was just the stupidest, dumbest ass idea ever. We see two, three years later, and I think that’s one thing to take into account. Nuno It’s true of macro economy as it is of startups and the startup world. Things take time to really pan out. But when they pan out, it is a big deal. Again, critical thinking, critical reasoning, having your own perspective, you can’t lose that. Bertrand Yeah, and for sure, Silicon Valley, is its own eco chamber. And personally, I’ve longed to be pretty worried about what’s the current theme of the day, because it has been more often wrong than right. Let’s not forget that most investors and entrepreneurs in Saucon Valley didn’t see mobile apps coming up, that we had so much chat around the VR, AR and it’s still going nowhere. Bertrand I think the last news today was meta was delaying the launch of AR headset. As we discussed before, timing is key. Especially as an entrepreneur in VC, if you invest at the wrong time, it will usually be a total disaster. It’s really key to make your own analysis. I try not to remember too much all the bad advice I was given by people when I was running a business at penny. Bertrand It was pretty amazing to see people coming to you with just a latest fad every year. You should do this, you should do that. There is money in this, money in that. Again, so many of these things didn’t pan out at all. One thing to be worried is actually some of the big tech companies. Bertrand People should not forget that the Facebook, Microsoft of the world, Google of the world, they have a lot of spare cash. They are cash printing machines. And what it means is that they use that to fund a lot of ideas, some being totally crazy. And they will tell you, once in 10, it works great. Bertrand But if you’re an entrepreneur working on your own business, do you really want to take one intention? No, you want to really find something you really believe in, find something that, for a lot of reason, is going to work, and bet on it. Obviously, not everyone will see that way. But for me, the worst has been to try to just follow what some of the big cops are saying when they perfectly know. Bertrand Even if they say that it’s important, it’s a next big trend, targeting very little. And for them, it’s a pocket change. But for you, as an investor, as an entrepreneur, it might mean the difference between great returns or total disaster. And most of the time, it’s a total disaster side. It’s really not to follow some of these big trends to create your own opinion. It’s easier to serve on a big wave, but better to serve on a real wave that’s really happening. Nuno I mean, at the end of the day, yeah, use your own thinking, create your own perspectives, see the people who trust you and you don’t, but generate your own perspectives. I think that’s the thing we would take away. Nuno This concludes our last episode of Season 2, and our last episode of our geology on the winter has as arrived. We had a chance to share with you in episode 33 that we were right, but also share quite a lot of details on what is happening around the world at this time and what is happening exactly around the world. Nuno Secondly, in this episode, we discussed what will happen next. And we did a little bit of some scenario analysis of the future at a high level. And finally, we did a quick recap on our Season 2. Nuno We look forward to doing Season 3. We look forward to having you send us topics that you want us to discuss, sharing with us on social media, sharing your perspective, sharing your thoughts. If you agree, if you disagree, we’d love to have you in the conversation. Thank you, Bertrand. Bertrand Thank you. And in time of timing for Season 3, we expect to take a smaller summer break, so we will be back with Season 3 around the fall. Thank you.

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: 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 Subscribe To Our Podcast 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. Although I know this is not about really being vindicated or not, it is good to know that we weren’t smoking dope, that we were seeing something that made sense. Bertrand I will say that the sad truths about this and about people who tell you they cannot see the bubbles, because actually, you can see the bubbles, actually. It’s pretty obvious and I think you have to be pretty blind not to see them. Unfortunately, our officials, elected or not, seem to be totally blind to this sort of stuff. I don’t know if it’s simply incompetence or if it’s on purpose, but this is what we have to deal with at this stage. Maybe to go back in time, as we discuss, indeed, initially, we are very scared about the impact of COVID you don’t put hundreds of millions in lockdown. We saw consequence. Early on it was probably the best approach. You don’t know what’s happening. You don’t know how bad it is. You don’t know how it works. You don’t even have access to masks or testing, so you have to take a lot of precautions. I think that initial reaction, which was not immediate, by the way, it was only after it was probably too late, made sense. Beyond that, I think that’s when the craziness started, when we kept locking down too much, when we started to print money too much, I must say, I didn’t see that we would be so fast on the printing press. Bertrand I was reading an article recently, and they were saying, “It took us two months in 2008 to push the printing button. It took us two weeks in 2020 to push the printing button. I was expecting myself it will go down further and it would take longer for recovery. But I was obviously underestimating what was the readiness of the government, the central banks to print money, distribute money and send checks to everyone, to do nothing. Obviously, it just delayed the inevitable and you probably could argue it made worse as inevitable. I’m really not happy to hear a lot of self congratulations from a lot of people to say it was the right thing. An early reaction was the right thing, but continually printing money as if nothing happened for two years is another story. That over-stimulus is probably the start of all of this. Do you have anything to add on the over-stimulus of the economy? When we talk about this, obviously it’s happened in Europe, in US, in Japan, in many countries. Nuno I think the initial reaction was the right reaction. It was truly tragic and everything was happening at the same time. I think the stimuli that were applied in different parts of the world, obviously we don’t know all the policies by heart, but we can look, for example, at the U.S. I think the indiscriminate stimuli, I’m not sure is a good practice. We need to follow the money when it happens at scale and you give money to everyone, even some people that might not necessarily need it, or it’s extra savings or whatever. What are people going to do with it? They’re going to apply it to something that they believe, “You know what? I might as well apply it to something that gives me high returns.” Maybe it’s higher risk. We saw, and we’ve talked about this before in a couple of other episodes, and move towards putting into public equities. We saw that the public equities were ridiculously overvalued. The reason for that is also because at some point in time, bonds stopped being attractive, and other things stop being attractive because of how the economy was moving. Where did you put your money? Nuno I’ll put it to public equities. Then valuations public actors go through the roof. The multiples of public equity companies are commanding, are going through the roof. We always know what happens next. What happens next is then private markets going through the roof, the later stages goes first, then the mid-stages, and then early stage. We saw this panning out very cleanly. Then there’s a little bit of lag in markets, the corrections starting in November. But it took, I think, until the beginning of this year, probably the end of first quarter, maybe beginning of second quarter, for us to start really seeing significant withdrawals in the private markets, where term sheets for early stage investments were being renegotiated because people didn’t want to pay that valuation anymore. Investors were just scrambling at some points, there were a couple of term sheets that were left on the table where people and investors just walked away. Now we’re back to a market that, obviously we’ll go through a tough time, and we’ll talk about what’s next in our next episode. But it will go through a tough time necessarily. There was an exaggeration of everything. I mean, entrepreneurs that were raising left and right, and they were like, “We’re the best thing to slice spread” and they were not. Nuno There was just a lot of capital and the capital needed to go somewhere. Everyone was flush with capital to give around. In some ways, after a big, big, big high of a bull market, now we’re going to have a low, low, low, low because these things need to rebalance over time. For me, that’s the big issue of the over stimuli… The over stimuli, if it hadn’t been applied to other things, if it had been focused on consumption of things that were really necessary, if it hadn’t been applied, for example, to savings accounts in certain circumstances, if it hadn’t been done in discriminate way, maybe after the first check round. If it had been done in a different way, and I know politically this sort of creates all sorts of cans of worms, but if it had been done in a different way, maybe the over stimuli would have been more positive than it wasn’t the end. In the end, it propped up a bunch of stock. It propped up, also a lot of investment in crypto assets, which were even riskier. That crash we haven’t seen yet. We’re going to see it. We started seeing some of the early signals of it, but it will happen and there will be consolidation. Nuno It’s not that crypto is bad, it’s not that Web 3 blockchain is bad. It’s just it was too much. There were too many things getting financed. There were too many things getting capital that shouldn’t be getting it because there was just too much capital in the market. Bertrand I guess the crash of crypto is already with us at this stage and probably got accelerated with linear explosion for [inaudible 00:08:05] that followed. Actually, I would argue that even before cash went to investment, however risky is it were, cash went to very, dumb stuff is a bit extreme, but particularly, I still remember being shocked when I heard from France in the HiFI industry that in 2020, the business exploded like never before. You’re like, “Just to be clear, just give a bunch of money to people” because conclusion is people are all buying HiFi equipment, sound speakers, TVs. That’s really where our money went. It was that and Robin Hood and other places. That’s very scary because I feel that there is strictly no accountability. Just “I’m going to create stories, talk on TVs [inaudible 00:08:51] and you just channel the money in every direction. Pretty scary here, at least. People, instead of saving the money, of using it for stuff that matters, they do whatever with it. It’s pretty scary and sad. For me, it was already bad sign that is going in the wrong direction, and it’s going to be a waste and of course, at some point it’s payback time, and that’s really what’s happening right now. Nuno It was even worse than that Bertrand in that sense, because you’re talking about accountability, we’re talking about a lot about consumers. Retail, as we would call it, consumers got the money and they did whatever they wanted with it. But companies as well, because of the loan programmes that were applied, and it was, I absolutely would defend it, it was strictly necessary to create a program like that to keep many businesses afloat. But there are many businesses that received money from that programme that I’m like, “Really?”. Again, accountability, and I understand you can’t make the process too cumbersome, because if you make the process too cumbersome, becomes too long and too complex, and the people that actually need the capital won’t get it. But there should be some accountability. I mean, if the company didn’t need the cash, or if the company is in an area that you couldn’t really justify the assumptions behind the loans. Why the hell did they get it? This was like a free for all for a period of time. You got to a point that they weren’t even accepting more applications. It’s just a free for all. Bertrand This was crazy shit. I’ve heard stories about businesses who got money and they got more money per month that were given to them than what they were making, typically an average sales this month. It just cannot work. You cannot be that dumb and accept everything. It does happen in Europe, in U.S. It’s pretty scary, again, you work hard to make money, to generate money, then you give it to the government tax you, and then they do whatever the hell they want with your accountability. Any business work like this, any individual work like this, they go bankrupt. But government, they keep doing it, and they keep getting elected. It’s pretty shocking. Nuno It keeps illustrating that a lot of people say that the problem with most governments is policy, that they’re bad at doing policy. It’s actually not just that. They’re actually extremely poor with execution. In many cases, they’re inefficient. They don’t know what they’re doing with the money. They can’t do targeted they can only do a hammer. They can’t do like targeted things. They can only do the hammer thing. It’s like, okay, this is why it’s going to go. I honestly understand that policy stuff to approve. There’s political interest, et cetera, et cetera. I understand that’s difficult, but then even the ability to deploy things and do things is mind-boggling to me. I was in China when the 2008 correction crash happened, the Chinese government, the way they deployed capital, they make the capital get to people for them to spend in buying, in this specific case, white goods for the home, like washing machines and automotive so cars, et cetera, which were the two things they were trying to really stimulate in terms of consumption. I mean, they did it, honestly, they did it. I’m not sure there weren’t flaws. There’s always leakages in these programs, but they did it. Nuno But it’s like, you can’t have leakages on programmes, which is a significant part of the programme went to the wrong hands. You can’t do that. Then what’s your use? What are your vehicles? What are your abilities as the government to do and enforce policy to your constituents? How does that work? Bertrand I think you are making a great point. When you listen to politicians, it’s all about the policy programmes. It’s never about how I’m going to execute better, which should be 50%, 60%, 70 % of the discussion actually. But no, it’s not sexy, it’s not fun for a lot of these people. But at the level of waste, years ago, I was thinking, okay, there’s some government waste. It’s 10%, 20%, 30%. Now I stop being blind. We’re talking about waste to levels that is simply mind-boggling. We’re probably talking in the 80-90 % level of waste, especially here in the U.S. Also in some other places, like in Europe, the waste level is just insane. It would have made any normal company bankrupt. But instead of having smart discussion about, “Okay, you want that policy, let’s make sure it execute well.” We don’t have these discussions. It’s pretty scary. I just read an old article written in 2014 about literally a sinkhole where files and folders were going to manage government pensions in the U.S. For federal employees. It’s just so insane to read. Basically, they tried to digitize that for like 30 years. Bertrand Couldn’t achieve. The digitization of the process first three or four times burnt hundreds of millions of the last. This is stuff like any normal company would have achieved in the 1st place. If not in the 1st place, a bunch of people would have got fired and the next time it would have worked. But no, not when it’s run by the government. I hope that at some point we have discussions beyond the policies, but more into the processors, the execution, because that can make a huge difference, especially in time of crisis. In time of crisis, money is scarce. You need to find ways to not build on crazy everyone individual employees, either by inflation or by increasing taxes. You need to do more with less, and in a ways, the positive news is that it should be absolutely possible to do more with less, given how inefficient is a system. But I cannot say I’m optimistic because no one talk about it and obviously we have right now in the U.S. And many countries, governments are still blind to inflation, its causes, its, a solution. Just even a few months ago, they were claiming it was transitory. Bertrand You can’t believe it, right? Are you guys kidding or something? Or don’t you know what’s going on? Which is even worse. Bertrand That’s a scary part is a level of incompetence at [inaudible 00:14:23] from governments to central banks. Again, anyone who have made some of this decision in a normal company would have been fired. Nuno They could have been sued in many cases if they got erroneous guidance. Bertrand Yeah. But look at Jerome Powell. I mean, he just got restricted his position as chairman of the Fed. This is the same guy who told us it was transitory. Janet Yellen, she just recognized that she was mistaken when she talked about the inflation being transitory. This was a two top people in the U.S. Who should have done better, and they were totally wrong. They’re still in place. Nuno Powell now says he can’t guarantee a soft landing. Changing the tune of that. Bertrand I love his euphemism. I hope everyone translate it properly, it means that it’s going to be a crash landing, of course. Nuno Without any personal attacks or any specifics, but talking about the numbers for second. U.S. Economy shrank 1.4 % annual rate in the first quarter. Bertrand A surprise as well, no one expected that and suddenly came up as a bomber. Nuno It’s all of a sudden, “Oh, it shrank. Oh, okay, that’s cool. Thank you.” Inflation accelerated to 8.5 % in March. But you were telling me in April it’s even worse. Bertrand In March, I believe it was 8.4. It was 8.5. The consensus was 8.3. Thinking we’re at the top. It’s starting to be behind us. It’s decelerating. Guess what? This morning it was announced it was 8.6 %, actually, for fire period so instead of decelerating it is accelerating. Nuno I have to take my hat off, because the two of us have been talking this for a while, but you have been always hampering on this inflation thing. It’s like, “I can’t believe these guys are talking about it’s going to be managed and whatever. There’s no way.” I think you got it absolutely right. Bertrand It’s been a year I’m going nuts about this. It’s shocking, because you see these officials, you see academics. Academics were all following the lead from government officials. That’s where you understand they are part of all of them, of a system with different tools to analyze what’s happening. This is quite frankly, disconnected from the real world. It’s more systems that try to justify insane policies and build around that. Just let’s build the system to justify crazy international policies and have nice talks and be able to tell the world our crazy policies make sense. Then, of course, when the crisis happens, they don’t even get it. I’m not even sure it’s because they are lying to us. It might simply be that the tools and systems equated are unable to help them comprehend what’s really happening and then when it really happening, it’s too late. I guess now they get it, hopefully, even good news. Even the ECB finally decided to increase its rates. Amazing, after months telling us that for some magical reason, Europe didn’t need to increase its rates. Of course, Europe need to increase rates, the ECB need to increase them because is being inflation happening in Europe, and it will continue to happen. Bertrand I know it’s easy right now to put everything on the war in Ukraine, and it’s obviously part of the reason, but it’s definitely not the main reason. We talk more about the details of why it has been happening. Nuno We’re going to go a little bit more micro and talk about companies and investing and all those landscapes that we are so deeply embedded in. But maybe before that, let’s talk a little bit about the externalities. Because if all of that wasn’t quite enough, obviously we had COVID, there were issues because of COVID with a supply chain. There’s been second, third waves of COVID in certain parts of the world, obviously, China finally had their second wave, which then locked them down again, if that was enough, just to make supply chain even worse, where you can’t get stuff. We’ve talked about it in previous episodes, getting a car you can get maybe preowned and you pay above MSRP, above the price that you would buy it new. If all of that really wasn’t quite enough, we obviously had the war in the Ukraine just to make things just, let’s make this a little bit nicer, because it’s not bad enough yet. That had created its own issues in Europe. It created issues in Europe. It created issues of supply chain again, because there was actual manufacturing there. It created issues around that relationship with Russia and then around energy dependencies. Bertrand Just to be clear on the war in Ukraine, I’m feeling extremely sad and sorry for the people of Ukraine who are facing war and destruction and loss of life at a tremendous scale. I feel sometimes it’s a bit forgotten. I’ve got impression people are just, “Oh yeah, it’s great. They managed to push back and managed to defend themselves”, but at what cost. The other piece of proposal in Ukraine, for sure, one country invaded another one. But at the end of the day, when you dig enough in what happened since 2008 in Ukraine, one thing that is clear is that in a way we did everything we could to set up Russia for war and push them to invade Ukraine. From this perspective, it’s scary, again, the other one responsible ultimately but I would say the trap was set well, for me, it doesn’t make sense. Just to be clear, to do such a thing I certainly don’t support that. I can certainly imagine that for the poor people of Ukraine, being in that situation again is terrible but I feel that we did our best to make sure that peace as real chance. Bertrand If we look at what’s happening right now… The peace process has stopped, mostly because on the west side, we don’t want a peace process at this stage. That’s pretty scary because it means, is it another Afghanistan, except that it’s at the door of Europe and destabilizing an entire region. As we have seen, it’s not just going to impact Europe. First and foremost, it has impacted Ukrainian people, it has impacted Europe, it has impacted Russian people, it is impacting Americans. Everyone is getting impacted. On the worse, will probably come to developing markets. The food crisis that’s going to happen because of the war itself, but also our reaction to war. I think our reaction in terms of sanction is disconnected from what we should have been doing. We are hurting ourselves. We are hurting as a developing world. I’m not so sure where are team Russia. To create sanction on the basis of what seems right, versus of impacting the best way a situation and sanctioning the right people, I’m very worried we have done absolutely everything wrong there. Basically, for me, it has been adding gasoline to the fire, and that’s the scary part is, where do you see that ending? Bertrand Let’s not forget, Russia is one of the biggest, if not the biggest provider of gas in the world, also the biggest provider of aluminum. They are the biggest exporter of so many things that the West depend on that dominion to start to upend that. It’s a really big problem. Obviously, these are global markets. If the West doesn’t want the Russian products, then the East and India and China and the Brits and the [inaudible 00:20:57] , they are very happy and interested to buy the Russian products. We are just creating a situation of extreme stress in the economy, creating a lot of trouble in the world economy. I’m very, very worried that millions, if not dozens, if not hundreds of millions of people are going to pay the price of some of our policies where, again, it’s not about what is the right strategy game we want to achieve that [inaudible 00:21:22] sense, but it’s a lot about value signaling at the end of the day, even at the expense of lives of millions of people. Nuno It is truly a tragedy that cannot be ever fully understood by us. We have an investment in a company that most of the team was in Ukraine. A lot of the people on the team managed to get out. A few of the people who were men did not leave the country. One of them is the co-founder of the company. We now have board meetings where he is still in Ukraine, and they’re working and they’re working hard. You can’t really understand what is happening to these people’s lives. We just actually hired a Ukrainian person, and that person, by something, they predicted that there was going to be a war, and they actually left the Ukraine a couple of weeks before the war started, went to London. We run across his profile. We actually just hired this person, and his girlfriend have moved to Portugal now. I have to be very honest on this. It’s very difficult for me, even to have a conversation with the people on the team that we invested in, that are Ukrainian. This guy we just hired, a Belarusian guy that we were working with that we can no longer work with because there’s a sanction on Belarus, and we can’t pay the guy. Nuno I have difficulty even having conversations with him because I just can’t fathom what the country is going through. I think on the positive side, I would say, in all these conversations, it is very clear to me that there is a commitment by these people, these companies, to go back. In this case, for example, this company was asked or ask most of the employees, “Would you go back?” Or “Shall we start another office somewhere else and just start from there?” Almost everyone said, “We’re going back. Whatever’s there, we’re going to rebuild it.” It is incredible. There’s many stories of, obviously people that gone to the front, from athletes, celebrities, and they’re on the fronteople. People are dying. Again, we don’t want to underrepresent what’s happening there. It has having a tremendous effect in Europe. It is having, as you said, a tremendous effect in the world, and again, in geopolitical terms, changing the dynamics yet again. It’s added to maybe putting a nail in the coffin of this. Bubble does needs to burst, because the fundamentals are not there. We can’t hold this anymore. I don’t think the war self-justifies the burst of the bubble, but definitely I feel it was one of the final nails that in some ways really took us away from the la la land that we were in. Bertrand We got the peak of the bubble in November, 2021, caused by, as we say, that inflation, that influx of money, which at some point created price inflation, supply chain issues, and ultimately this rate increase. At the end of the day, it’s quite mathematical how stocks don’t connect to weights. Then we combine that with a war in Ukraine. We combine that, as you said, by a sudden wave of COVID crisis in China that seems much worse than before. It’s particularly connected to the fact that now most Chinese people did not have the best vaccine available, because for some reason, they did not use mRNA vaccines. We are in a situation where people are not properly protected. We have a virus that, it was bad initially, but the last COVID versions can diffuse much faster than before. It’s much more difficult and painful and costly to work it out the China way, and because everybody else has stopped trying, basically. I think this one is also another big unknown with very big implication. When a place like Shanghai is stopped, it has huge impacts on the world. A lot of shipping is happening in Shanghai. A lot of factories are around Shanghai. Bertrand It’s really a tough place to be, and we don’t know when it would stop. We don’t know when some of these will stop. I think that all of this together, it’s really a change of the century in terms of how we work, we live, going for a while as we discuss briefly. At the same time, we managed to get another crisis, but I guess it always happened like this at some point when crises are big enough to create additional ripple effects everywhere. Here, with cryptos, that’s what we got with [inaudible 00:25:15]. At some point, these currencies that was supposed to be tightly connected to the dollar one to one managed to completely disconnect because some people saw weakness in their protocols. It was not backed by one-to-one asset ratio. It was on the contrary backed by a protocol system that actually many criticized as being flawed, deeply flawed. This one, the stablecoin has burst. The question is, what is next in crypto? For sure, we have seen cryptocurrency is decreasing big time. But on this level, I think part of it is really a general realignment of risky assets, easy access to capital that has been happening, and now, all this money is just all flowing back because people need the little money left. Bertrand It’s a system to buy real stuff. Nuno The correction we’re going to see, obviously you’re talking about the crypto correction, but there’s very significant public and private market correction, as we discuss. Valuations have come down dramatically. Was warranted. It’s now become a little bit, what happens when a bubble burst? It became a blanket realignment, right? Everyone gets kicked out and/or kicked down, so to speak. Everyone’s valuations has to go down. Then there’s obviously some companies that are undervalued to a level where you’re like, “Really?” Fortunately, that actually creates another dynamic, which is it starts creating opportunities for predatory behaviors like, “This company is that low value, I’m just going to take them over”, right? Bertrand Totally. Nuno Again, like in everything in life, a time of crisis will bring opportunities. Some will be ethical, some will be unethical or borderline unethical. But definitely, the correction is happening. It’s too much of a blanket correction. I look at many companies that are not necessarily even my investments that are public equities, and I’m like, “They can’t be worth that little.” It’s the beginning of the process. Everyone gets pulled down. Now, let’s see where these guys head out in the next few months, maybe in the next year, and hopefully we gain some of that value back. Bertrand I think we have two phenomenons at play here. One is: the markets are overreacting or not, that’s a big question. I think the big question depends on where investors think the central bank’s rates going forward to fight inflation. Because right now, we don’t have more money to put to work. Putting money to work is what created the inflation in the first place. Let’s be absolutely clear. There is no magic formula right now to just put more money to solve the problem, as we have done in 2008, or in 2020, actually. The money is gone and should be gone as fast as possible in order to fight inflation. The big question is, how high we need to go to rate? Very clear that we go at more than 2%, 3%. Actually, some argue that the market are being valued today on the expectation of rates at 4%. The big question is, would it be enough to fight the inflation? Some argue that actually, to fight an 8% inflation, you need rates like in the ’80s that go beyond the inflation rates. You need a central bank rates at 9, 10% in order to really tame inflation. Bertrand I think that’s the biggest questions right now for the market, is where is this stuff going to go in order to stop these crazy levels of inflation? Of course, that will have an huge impact on where are we going in terms of level of recession? Are we already in recession, or is it a recession in Q3, Q4? Is it early next year, and how would it be? Personally, I think recession is inevitable and will come relatively quickly, and it would be probably quite bad, because nothing I’ve seen so far in public policy has given confidence. I’m very hopeful central banks are going to do their job. But from past experience, when they try to increase by 2018 and ’19, were not symbols of the capacity to do the right thing when you need to do it. So we’ll see when central banks decide to post the rate increase. The other piece of the puzzle… The first piece is this reaction in the market is based on a new estimate for where the rates are going to be. The second piece of the puzzle is that suddenly the expectations for what is a good company have changed. We move from gross companies to be very valued just based on growth to now the new star in town is the value company, the company that are growing not too fast that is generating cash. Bertrand To your point about some companies look undervalued, we really have these two phenomenons at once. For companies to switch one model of how they work to another one, it takes, in best of cases, a few quarters to readjust, to reposition yourself, if not, one or two years. Some of this is going to take a while for companies to readjust, and we are right now talking about public markets, but we’ll talk more about private markets, obviously. But this is from me, the other piece of the puzzle. The expectation of what is a great company has changed dramatically in a matter of weeks. Nuno Just to bring a crux on the macro site, and then maybe move a little bit into the more micro side of technology and what’s happening in venture funding. One is this whole notion of, are we going to have soft landings and their prolonged soft landing? Are we still going to have a really hard landing and this wasn’t it yet? I continue having my definition that we’ll see a hard landing moment. We haven’t seen it yet. That’s my hypothesis. I’ve put it at the table before. Others believe that it’s actually going to slow down, but it’s going to take really a long, long time for that to happen. So again, the slow, soft landing scenario. The effects are being noticed already. I mean, to your point on how companies behave and are they geared towards growth, or are they geared towards creating more value, extracting more cash from their business, we already started seeing it, companies that are actually doing really well, that did stupidly well through most of COVID, that then got major realignments in their market cap. Now they’re like, “You know what? We’re going to restructure, right? We’re gonna either freeze our hiring or we’re going to do layoffs.” Obviously, some companies are in real trouble, so that’s a different type of scenario. Nuno But you see companies that are actually doing well that are either doing hiring freezes or are doing effectively layoffs as well. They’re taking advantage of this to clean up the way they work, again, to gear themselves toward this new stage where they’re going to be valued on how much cash they generate, their guidance, et cetera. That creates the next issue, which obviously with some companies now having difficulty in raising money, some companies that maybe have raised too much money to high valuations that we’re burning through through much cash. I know you have a couple of pet peeves on that, Bertrand, that at this stage, basically they say, “We have to lay off people. We have to lay off a significant percentage of our team.” What happens is that it leads us to a slowdown on unemployment. It leads us to a point where everyone’s like, “Oh, we’re not noticing it yet, but it needs to…” What I usually say, which is I think we are going to go from great resignation where people were resigning left and right and they were doing whatever they wanted, and like, “If you don’t allow me to work remotely, I’m not doing the work for you, whatever,” to the great unemployment, which again, sadly, is going to be a tragedy , and it’s going to change again and shift the power that has been really with, in many cases, with employees for a few years now. Nuno Certainly in tech, we’ve seen that in a very dramatic manner. Very difficult to hire people. You have to pay ridiculous salaries in many fields. Even for that specialized type of labor, I think we’re going to go through a phase where things might not be exactly like that going forward. A lot of that powers, as I said, will move back to employers.I Bertrand I think that the only good news was when all of these bubble bursting started, we are at best place possible in terms of unemployment. Unemployment was at its lowest. That’s the good news. That part was started from a good place. As you say, I would definitely expect some dramatic changes in every industries. I’ve already heard people who used to get five plus job offers. Now, if they get one, they are happy. Changes are happening, there is no question. To be clear, it’s not a sign that companies are in bad shape. If you are reducing your team size by 10, 25%, it’s actually a sign that you are careful. You are good steward of your money. You are changing your investment priorities, you have acknowledged what the markets are telling you and what are the signs of a probable recession, and you are doing your work in advance of some of the worst happening. Guys who will be in bad shape are companies that are going to wait too long to do some of this and will have less cash in order to transform themselves, and won’t be as much trusted when it’s time to ask for additional investment money, because investor will say, “You know what? Bertrand You guys waited too much. Why should we trust you that you are going to do the right thing the next time?” That’s a tough place to be. Nuno It is a very tough place to be. We are thinking through a lot of these implications. My advice, and this is based a bit on my prediction that the next 3-6 months are going to change dramatically the employment markets around the world, so by the end of the year, by latest, early next year, will be in a recruiter market where recruiters are going to be having a much better time than they’ve ever had before. But in some ways, this links maybe to one other topic if we talk about private markets and private equity investing and venture capital investing. Venture funding fell the last quarter for the first time in a really long time as you were mentioning to me, Bertrand. Bertrand Yes. Nuno It’s not just the notion of hiring and firing. It’s the notion of, there’s going to be, again, like everything in life, there’s going to be opportunities. There’s going to be tremendous talent out there available to be hired. It was generally difficult to hire in many places for many companies. Bertrand It was near impossible. Nuno There will be an opportunity. Again, it’s like everything in life. We probably at this stage, if all read the several decks from Sequoia Capital, which by the way, are very good decks. If you haven’t read them, you should read them. They have the famous quote from Senna on, “you can only really pass 15 cars in the rain. You can’t do that in the dry.” I’m a race car driver, so I love quotes from Senna and others, and it’s totally true. We’re in the rain right now. This is wet tire mode. If you’re in a good position to really go to the next level, if you’re in a position that you’re generating cash, your top line is actually doing good, and you’re not really hitting the wrong end of the cycle right now, maybe you’re the guy who has the opportunity as a company to start basically hiring, and hiring amazing talent. Bertrand And, to be fair, to craft venture, as they were probably the first to show a deck on the downturn and what to do about it. Sequoia was two weeks late to it, but always with a great quality analysis. I think that when you talk about recruiters, for instance, their life could be easier for recruiters who won’t have been fired. Because to be frank, the first to be let go in these type of periods are recruiters, so it won’t be fun to be a recruiter right now. You better move quickly to a company that is well-positioned for growth in that situation because typically that’s really some of the first position to go when you have to recruit less people. But a very different situation, full of opportunities, for companies with really good business models. I think what we would see is that we are going to see quickly, as we say here, who were swimming naked, and I think it’s already happening. We saw some companies, I believe it was Fast that imploded, that payment company. Some others like Bolt that are in trouble. I think we’ll see some change quickly. Bertrand I think it’s good because some companies were getting financing for no good reason, except because they were good at getting financing, not good at running a business. This has to stop at the end of the day. It’s a good realignment. It would be good for employees as well, because people were not able to really clearly understand what was the right signal which company to join. They were just looking at the amount of fundraising and that sort of stuff, and variation, when unfortunately, given the lack of discipline from investors, this was not a good signal anymore to follow. Partisan people will have a clearer picture of what companies are doing great and are already running well, and companies that you want to join versus the ones that actually have serious trouble. Here, we’re talking about the companies that are getting staff in two, in three, or more, and that’s very tough to go back. To move forward, another piece is that some of the huge changes in behavior brought by COVID, some of them seem to have disappeared or partially disappeared. We see that in ecommerce decreasing as a percentage of all commerce. We see that in terms of less home delivery, less video games, less Netflix, students back in class. Bertrand Some employees, not all, are going back to the office, and people go back more to fly to meetings. But that one might change direction fast, because usually that’s another thing you cut as a business is a business travel if things are doing better.We Nuno We talked, when we first started doing episodes on COVID, about this notion that they’re going to be behaviors that were fundamentally going to shift through COVID, and there were going to be behaviors that would change through parts of COVID that at some point in time would go back to what they were before. Knowing the difference was very significant because that would allow you to analyze the markets and how those markets were behaving. Gaming, for example, was a great example. Would gaming stay at its all-time highs? We now know that it didn’t. But at the same time, there’s types of gaming that are done very, very well through COVID and continuing doing so. The whole notion around traveling around the world and being around the world, obviously, I think there is definitely less business traveling going on. I still stick by my gun saying business traveling has changed and it will change. It will be more thoughtful. But at the same point in time, it has come back. Leisure traveling, we know everyone’s going nuts. Everyone wants to go and travel and go to Bali and nice places and all of that. At the end of the day, the world that we have been describing, and have been talking to you about for the last almost two years since we together went on this journey of COVID is materializing, which is a world that is not really as black and white as many predicted it to be, where the whole world doesn’t go remote, the whole world doesn’t really adopt this great resignation philosophy where you just do whatever you want wherever you wanted. Nuno It goes back to normal. In some ways, this normal is a new normal, but it’s still a normal. I think that’s where we are going into. The whole notion, for example, around home delivering, the fact that there’s less home delivery makes obviously a lot of sense because people want to go out now. They want to go to restaurants and they want to explore and they want to do other things. I think there’s a lot of habits that will realign markets around them in a very, very significant manner. From the perspective of what startups and companies are doing right now, this is a really good time to go back to the drawing board. This is a really good time to revisit your assumptions on the market that you’re in, really understand if the things that you were betting on will manifest themselves. Realign pretty quickly, because if you don’t realign, your numbers are going to go basically into /def/null. So into an abysm of nothing. This is the time where you need to reassess markets. In particular, for startups, and that’s why I’m emphasizing the role that this would have for startups, startups tend to actually go into firefighter mode at these times and not think much about strategy. Nuno They don’t question some of their core assumptions on their top line, on their pricing models, on who are the second we’re really going after, on what we’re trying to simulate. Nuno Again, I think this is a really good time, obviously, for larger corporations as well, but certainly for startups to do that strategic exercise of going back to the drawing board and figuring out if this is going to work or not. Bertrand Yes, we are in agreement. In conclusion, for Episode 33, as we have discussed, a lot has happened, and it was key to try to get some sense about what happened, why it happened, so that we can focus more in the next episode about what will happen next. Talk to you next time. Thank you for listening. Thank you, Nuno. Nuno Thank you.

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: 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 Subscribe To Our Podcast 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, something that is neither four or five years from now, but certainly not something that we’re going to get done this year. You need to think through how that is done and then serve the classic final pieces operations, which is the one month, three months, six months, one year, we need to get this done. What are we doing in our day to day and how are we thinking through this? In some ways, the CEO role is very difficult because of this, because it is a little bit of a necessarily paranoid role where you’re always looking very, very far ahead and trying to think about two to five years, how big can this be and how can we scale, et cetera, but at the same time, you’re thinking about right now and what happened today and how can I compete and how can I go and do this, et cetera. What makes this particularly difficult is time allocation, for example. How do I allocate my time? I remember having clients at McKinsey, one client in particular, I won’t name them, but one client that one day turned to me and said, “I envy you.” I said, “Why do you envy me?” This guy was CEO of an organization. He said, “I envy you because you have time to actually think about my business.” I was like, “Wait a second, you’re the CEO of this business. I’m a consultant. I’m leading a team of consultants working on projects, engagements for you. How can you say that?” “I went to my calendar, and I would estimate that, at most, I have 15 to 30 minutes a week that I get to actually have thinking time about my business. Normally, I’m just basically 80, 90% firefighting crap, stuff that happens, that just goes across whatever. I get maybe 5% more on managing stakeholders, board, customers, clients, whatever, in a more proactive manner. It’s not so much firefighting, more proactive, whatever. Then there’s very little time left for anything else. You guys, in whatever three-month engagement that you’re doing, for me, will have more time to think about my business than I did in the last six years.” In some ways, I know he was exaggerating. This was not a badly run organization, just to be clear. Sometimes you do work with badly run organizations. It was just a very large organization where the CEO, at the end of the day, his role was just tough. It’s tough to think strategically when you don’t even have the time to do it. Bertrand Schmitt It was not just on being you because you were young and handsome. That was for other reasons. Nuno Goncalves Pedro I was young back then, I’m not sure I was handsome, but it was many kilograms ago. How is that handsome? It shows the difficulty of the role. For example, one thing that I always do when I have leadership roles in different organizations is I carve out time to think. I put time in my calendar. I’m extreme calendarer as many people have told me. I put time in my calendar on a weekly basis to actually just think. I create situations in which I think. I create situations where I can be in my backyard overlooking the ocean and I think, I can create situations in which I go to a place that is particularly pleasant to me, like drinking coffee or whatever, to think. To be very honest, a lot of my best ideas in terms of forward-looking strategic elements and even sometimes even operations, like day-to-day stuff that were not cracking. Some of the best ideas come during those moments where your brain just creates the space to not have the day-to-day biases. The bias towards an action that comes after another action. The bias to say maybe this is the wrong way, maybe we should just change this. I think having that discipline, the discipline to create those spaces is very, very important. Bertrand Schmitt Yeah. To double down, because it’s an important topic, sometimes I see people who tell me, “Oh, I only have time for the tactics.” I think it’s a big mistake. You absolutely need to do both. When I say you need to do both, if you are the CEO, maybe you are stronger on one side or the other, but that’s why you have to build a team and work out all together. Ultimately, you need to spend enough time on the short-term view, running the business, operations, and the long-term view. What does it mean? Why are we doing this? What’s our strategy? How are we going to get there on the longer run? You have to combine both. People will tell you they can do only one thing or the other. They don’t have time. You have to make the time to do both well. Strategy without tactics, you are going to die pretty quickly if you don’t have the execution right. If you just have the execution right, you are going to run very fast to a cliff or to a wall. Both don’t work. People have to really get that to build a great and maybe even a good organization, you need absolutely both. You need to get right both. Not negotiable. Nuno Goncalves Pedro I studied with Professor Burgelman at Stanford back in the day, and he wrote this book called Strategy is Destiny that formed a lot of my thinking around strategic planning. I had a variety of strategy roles in my career, and in some ways, I always thought the title of the book, I told him this, shouldn’t have been Strategy is Destiny, but Strategy is Direction. Probably less sexy of a name, I guess. Strategy defines where you’re going to, to shoot to find North Star. A lot of people think about strategy as beautiful charts in a slide deck. It’s not that. Strategy, as I mentioned before, is an integrated set of actions that leads to competitive advantage, right? There’s actions for strategy. For me, tactics then becomes a little bit the pillars, the building of the core pillars, the present ones and the future ones. Then operations, to your point, is the building, it’s getting stuff done. It’s, “Okay, how do we now move this?” That’s how I look at these three dimension, strategy, tactics, and operations put together. One other topic is the whole topic of, and we’ve already addressed it a little bit, of breadth versus depth in the CEO role, and how sometimes being a helicopter-type CEO or leader is advantageous because you can go very deep very quickly and have that depth to have the discussion and push stuff to the next level. Sometimes the devil’s in the detail. I always say the devil’s in the detail, but God is also in the detail. Sometimes you find that amazing piece that will catalyze the company to the next level. We have plenty of examples in our tech industry of companies that a small detail of something that was tweaked create tons of value for the company, either monetary value or user growth or something like that. Sometimes very small things, a growth hack, a change in pricing. It can kill someone who can also build a company. The breadth is always important, in my opinion, for the CEO role in terms of having the ability to jump from different topics and being a little bit more multifaceted. Now, it doesn’t mean that CEOs need to be amazing at everything. It just means that they will need to have the right team behind them in certain areas, where they’re not amazing or they’re not great. It means that in the areas that they’re great, sometimes they will need to actually be intellectually honest. It’s one of the tests I always do with startup entrepreneurs. I check for their superpower, and then I check if they are intellectually honest on their superpower, because that’s the biggest, single, biggest blind spot they may have is that on their superpower, let’s say, their product people, they’re not going to listen to others, that they’re not going to look to a data. We’ve seen plenty of examples of that in recent history in technology. Again, breadth is not just that I’m very broad and I can address all sorts of topics, and I’m a true Leonardo da Vinci. It’s not that. It’s the ability to have the right team around you, and in particular, the ability to know when you’re not the right person for that call. In some ways it’s almost like the AA motto, which I don’t know by heart, but it’s the notion of knowing what I can do and where I can improve today, knowing where I can’t, and actually knowing the difference is probably where most of the value is. Knowing the difference the things I can control and the things I can’t control is probably the most important thing for a CEO at a certain point in time. Bertrand Schmitt That’s really great point. To rebound on that, I think that metrics are really a key part of any business, a key part of any manager role. But I’m also a believer that you have to have common sense regards instincts that are right and that lets you move fast. Sometimes some people just misinterpret the data, wait too long for the right data to be there, or just blindly follow the data. I think it’s quite key there is an art to it, and I think it’s a balance that’s also quite key to understand. Again, not everyone has everything. As a team, you need to have that. I truly believe in it. Maybe another piece on the execution, if you are in a fast growing startup business, you really have to acknowledge that your job is going to change every 12-24 months and your job and most of your team’s job typically. My point here is that you have to be in learning mode, in coachable mode a lot. You cannot stick to what you know to your current comfort zone. You cannot just hope for more of the same. If your business is relatively fast-growing, you have no choice but to change your job, your own job, on a regular basis. Initially, it might require you to be more deep into the search process, to be more focused on the competition. At some point in time, however, things change. Your market is going bigger, competition is stronger. You are bringing new people to the table in your executive team. We have a different level of expertise. You have different financing questions, issues. I think that’s quite important as a leader to recognize a change in your org, in your competitive environment, even in the market. We are not going to talk right now about the change in the financing market for startups, but dramatic change is happening right now. We need to acknowledge that and adjust your organization, your job, and your team around you. Nuno Goncalves Pedro There’s a couple of elements to what you said that are really important. One, I would put a parenthesis—in some organizations early on, as everyone knows, I do early stage investing—the job of all even change a bit quicker than that, sometimes every six months, sometimes even every three. That’s a bit too fast, but sometimes it happens. But there is something about cadence, and I think the CEO is the one that sets the tone for this. Cadence is space. It’s at what pace do we go and how do we impress the space. I think it was Mario Andretti used to say, “If you’re driving a race car and you don’t feel uncomfortable, you’re not going fast enough.” It has to push you outside your boundaries. I actually race cars, and I think he’s right. I’m not going fast enough. Bertrand Schmitt Maybe you want to live. Nuno Goncalves Pedro Exactly. There’s a level of discomfort you need to create as well in terms of pace to really get to the next level. Amazing things only get done fast and well if you push the boundaries on it. Cadence, the piece of cadence that’s really important is you can’t always be full throttle. In a small organization, you can’t. In a large organization, you can’t. In a specific department, you can’t. Because what will happen? You’ll burn out everyone. Everyone will get burned out. You’ll create tons of antibodies, and it will be the worst possible outcome in the end, because people will end up leaving or their performance will get severely hampered. I always used to say I never understood the point at McKinsey of people pushing their teams when I was a partner there, when people would push their teams to 80-90 hour week. I was a consultant once, and I used to pull 90 hour, 100 weeks. And I was like, “There’s no way there was high quality at the end of those 90-100 hours.” You can’t do that. You need to step back at some point. Maybe you need to do it one week. Maybe you need to do it two weeks because it’s live, but you can’t systematically do it. Again, cadence is the ability, if you’re a CEO, to manage the pace and the rhythm at which you operate at every single moment. It might be that, at some point, you’re pushing your marketing guys to go very aggressive, but you’re stepping back a little bit on the product management team and letting them have a little bit of a breather because it’s just at a huge launch. It might be that, at some point, you push the hell out of engineering to get stuff done, but then you go at the same time to one of your business development teams and tell them, “Look, we can’t do as many deals as we were doing before because we don’t have engineers to the integration, so just chill a little bit.” There’s a lot of this cadence across the organization that the CEO is critical at. Nobody else can do this. There’s nobody else that can do this because the chief technology officer is going to push for something. The chief marketing officer is going to push for something different. The chief development officer, chief strategy development officer is going to push for something different. It is the absolute role of the CEO to do what I would call is in some ways the facilitation, maybe the arbitrator is the best word, of all these resources. Cadence, again, plays to this. “I’m going to push this, but I’m going to step back on this. I need to do this, otherwise, it doesn’t work.” In many cases, success will very well also depends on these little levers on how well do you do this and how well you push the people that work with you, your direct reports, in particular the CXOs, or the VPs, or the directors, how well do you push them to do this well. It may be the difference between a miserable failure or huge success. Sometimes it’s just timing and how things come together. To finalize just on some thinking around this, and I know we both like Dan Rose a lot, and particular, Bertrand is a big fan, a fanboy. I like Dan a lot. I think his tweets are more insightful than many books out there. Bertrand Schmitt Da Vinci. Nuno Goncalves Pedro In terms of leadership, he talks about this concept of leadership requires followership. I find this funny because followership is all over at McKinsey. McKinsey, we talked about followership since day one, what that means. There are several angles of analysis on the performance of someone. But for example, for a partner, three of the angles of analysis are knowledge, which is very interesting even for a partner. What knowledge do you have? Is it distinctive or not in your area, be it industry or functional? Another one is client—client relation, client serving, how do clients perceive you. Then there’s always an important dimension about what we call people at the firm, which is how do the rest of the people around you perceive you, not only your colleagues, but also the people that work normally for you, for example, in engagements. There’s this incredible notion of followership. For McKinsey, this is particularly true because at McKinsey, if I’m a really good associate and I don’t like you as a partner, next time, I won’t work with you. I have a say. I will tell whoever is managing staffing, I’m not working for this guy again. I’m going to work for that person because I’m a super, so I can choose. I have choice, right? It’s, again, demand and supply is very open at the firm. The best people work on the projects they want to work in. That’s how it works. Followership is almost this intrinsic piece of, “I want to follow that person. I want to follow their path. I want to learn with that person. I want to be working on the same things they work in.” In organizations, this is vital. It’s vital in a specific organization. It’s vital across organizations and within a career. We see a lot of these dimensions. We talk a lot about the PayPal Mafia in Silicon Valley. But honestly, the PayPal Mafia was this—it was a bunch of people that work together, some of which probably like each other, some of which actually didn’t. But they had respect for each other; they had respect for different skills. And that’s what created that mafia, that gang of people that still do stuff together, that still maybe co-invest together when they need to. That’s still our market movers and market makers when they need to be. That’s all followership. It’s all about the notion of I want to be with that person. That person is a great leader and/or a great manager. I want to be with that person. That person makes me feel that I’m evolving, that I’m becoming better. One ultimate result of followership is mentorship. When you have a mentor, when you have someone that you will go to many years out, even maybe when you’ve left your organization, ask that person, I have this decision to make. How would you think through it? Am I making the right decision, et cetera. It’s such a blessed moment when someone you worked with many years ago or that maybe, in some cases, you didn’t even work at all with, but you exchanged meetings or they were in the same organization, reaches out to you and say, “Can you give me advice on this? And it’s life advice. I need to move from this job to this one. I have these three options. What should I do?” And that’s when you say, “Okay, this is followership. This is the definition of it. Very powerful.” Bertrand Schmitt If you don’t have followers, no, you are not a leader. You might be a dictator; you might be a mercenary; it might be many thing. But true followership, it only goes to true leadership. That’s a great way to think about what it means to be a leader. Come to your followers and you will get a sense if you do a good job. Section 2 – Culture & Values, Our Core Beliefs Nuno Goncalves Pedro Moving to our section on culture and values. We truly believe that culture and values set a lot of the tone for great leadership and management experiences. We’re going to start with one of Bertrand’s favorites, so I’ll let him go for it. Bertrand Schmitt This one is indeed one of my favorite. I have seen that again and again by managers at every level of an organization, from a new manager up to CEOs. It’s that notion of delegating versus abdicating. I see people who are very proud to let their team, in a way do whatever they want, and they believe that’s enough. I don’t call that delegating. I call it abdicating. I believe that you absolutely need to ensure that you understand what your team is doing. You lead them, you challenge them, you push them. If you don’t do that, just to be clear, I don’t know why I need you as a manager. If you are just letting stuff fly by you, you are not necessarily in the org. You need to be involved. Too many people are really afraid because they have this worry to be seen as a micromanager. But you can totally be managing a team without nano-managing if you are careful. But please don’t go too far. Don’t go into abdication mode, because then you become irrelevant and useless, and you would be seen as such by your team relatively quickly. Nuno Goncalves Pedro I’ll throw a key value into there being outcome-driven and not driven by necessarily just FaceTime and processes. For me, the notion that I’m asking people that work with me to say these are the outcomes that I expect you to get to is very powerful. Now, it’s a little bit more nuanced than just saying, “Okay, I’m just setting objectives or just setting outcomes, and you just get to it and that’s it. Or I’m setting OKRs and we’re good.” In some cases, you need to step in because your team will need your help, or someone on your team will say, “Can you help me on this? I’m having difficulties getting through this thing that you told me to do, and I’m not really sure what you want as an outcome, and you need to define it more.” In some case, you might actually have to get your hands dirty and show how it’s done, but it’s more at the pace of this interaction with your team members, the pace of obviously what you want to attain in terms of objectives, but at the pace also of your team members and how do you get there. But again, I’m a big believer in outcome versus FaceTime versus micromanage for the sake of it. We’ll talk about micromanagement later. For me, that’s the one I would put at the table immediately. Bertrand Schmitt Makes sense. I think you’re totally right. It’s even more true in the age of remote work. In a way, remote work has put that to the test. Companies that are not outcome-driven don’t work in a remote work environment because the way you evaluate people and results is just based on FaceTime, not on really have we achieve our results or not. A management style and attitude, call it a management philosophy that I like and I wanted to share. It’s called radical candor, and it has been pretty popular in Silicon Valley, and I believe it still is. The idea here is to make sure you are in the right quadrant. They defined two axes. One is around challenging or not challenging your team, people you work with. From either silence to very direct challenge. They say, “Yeah, it’s right,” and obviously you have to challenge. But you also have to find a balance on the other end between being just in a way stupidly aggressive versus caring personally for the person in front of you. If you manage to combine direct challenge with personal care, you end up with what we call a radical candor. Maybe we can have more topics about this, but I think that’s a very important concept. If you don’t challenge directly, it’s a big problem. You are either too empathic, you might say, but actually, it’s strenuous for the relationship, for the business. Or you can decide to be manipulative and not anything but manipulate behind the scenes. That’s horrible. On the other hand, you cannot just aggressively attack. At some point, people will stop listening to you because you’re just not someone that you can work easily. You need to smooth things out, and you need to not just smooth things out, but really care for people. I wanted to share that because I believe and I’m not saying it’s the only one, but that one I favor. You need to have some sort of management philosophy and how you are going to run your team, that you can explain it, share it, train people around it, and ultimately create the right culture for your company. Nuno Goncalves Pedro I like the radical candor methodology, and I know a couple of practitioners in it. There have been other movements before that are similar or have similarities to it. A lot of people could say for some time I practice tough love. Bertrand Schmitt It is tough love, it is tough love. Nuno Goncalves Pedro Authentic tough love as I would call it, because there was no inauthenticity. I’m trying to move towards true love. It’s more difficult true love where the boundaries come. I think there’s a couple of rules that I would apply to this. One, it needs to be authentic. Bertrand Schmitt True. Nuno Goncalves Pedro It needs to come to a place of authenticity. If there’s no authenticity, it doesn’t work. Bertrand Schmitt So true. Nuno Goncalves Pedro In the US there’s so much artificiality, there’s so much BS stuff that is said that is not meant, et cetera. You have to be very careful. It’s a very thin line, but that line is literally everything. The second piece is it needs to go a little bit both ways in the sense of you need to be willing to take feedback. In, again, McKinsey example, 360-degree feedback. Actually, McKinsey was 720 because we had client feedback as well. But I think getting feedback from people upwards as well is important and taking that feedback on board and more difficult, creating the environment under which people that are more junior give feedback to people that are more senior is really a powerful thing. Then I think the final piece of the puzzle here is beyond authenticity, beyond all of this, that there needs to be genuine caring. I call it genuine love. There needs to be genuine willingness that I want this person to be the best person they can be. That also means I want this person to actually be happy in doing what they’re doing. In some cases, it might lead to really complex decisions where maybe the right thing for that person is actually not to work with me or not to work in this organization, because that’s not what we need right now or because maybe that’s not the type of skill sets that that person needs to develop, et cetera. For example, the extreme view for me on this notion of what I am trying to get to of true love is might be saying to someone, “Actually, maybe it’s time for you to go do something else and maybe I should help you doing that.: It’s very funny, because McKinsey has always thought through as a very aggressive organization. I think McKinsey was actually decent at that, at the whole placement piece and maybe you should be doing something else. And it’s not that you’re not good. It’s just this is maybe not the right thing. Again, something that I’m very passionate about. One more value that I would add is by example and not by memos. Sometimes memos aren’t necessary. Sometimes communication needs to be written and needs to put down. There needs to be an anchor that people can be coming back to. A video, an email, a memo that was written. But normally what people pay attention to is the example. If the person doesn’t know how to do it, do I step in and help them? Do I show them how it’s done? If I’ve made a mistake and I’m the senior person, if I’m the CEO and if I’ve made a mistake, do I apologize? I had a conversation the other day with someone in my team, and we ended up having this conversation that was just a bit circular. I told this person, “I don’t know if you’ve noticed, but everyone on the senior side of the team, we sometimes apologize, and you just did something that’s visible your fault. It’s not a huge deal. Nobody’s going to die. But you did something that’s absolutely wrong and it was clearly wrong and you didn’t.” I think this was a radical candor moment with this guy. He was like, “I think you’re right.” But it’s not the culture and companies in particular in the US for people to apologize because it’s always a signal of strength. Actually in American society, I think maybe it’s more than a signal of weakness, apologies, signal of weakness. It’s more than weakness. It’s also a signal of potential “Maybe this person can take me to court. If I said I did something wrong”. I don’t know where it came from, but it’s weird. It’s that type of example that I mentioned here. Example is the small things, but also the very big things. When a CEO apologizes to the rest of the team, that’s a big deal, and it does set the example. Bertrand Schmitt One thing I hold dearly is strong opinion weakly held. That’s something that you might hear a bit in the valet, and I immediately connected to that wording because I really believe quite a lot in it. I believe I have strong opinions. Typically, if I don’t, I don’t talk about it. But it’s typically weakly held in the sense that if you show me data, if you show me a better argument, if you show me a flow in my reasoning, I will buy it. I just care about the best outcome for me, for the business, for the team. Ultimately, I will adjust relatively quickly. But the benefit of a strong opinion is also that people have to come ready for “a fair fight”. A strong discussion come with a strong argument, so that ultimately the best argument win. My follow-up to this is that I’m obviously a big believer in meritocracy, and for me, it can be the young person, the young developers, the young analysts, whoever. I don’t care. I just want the best ideas win, the best approach win, the best product to win. I think it’s really key in how you want to run the business. Because the minute people stop believing it’s a meritocracy that’s when you start losing it, you will not win with the best idea, you will win with the best schmoozer around. We know how to say things nicely, but he’s just following the winds and doesn’t have merit on his own and he’s not trying to bring the best ideas. For me, that’s pretty key in how you want to run a business. Nuno Goncalves Pedro I totally agree with those two values. Just a tidbit for our regular listeners. Strong Opinions Weakly Held was supposed to be the title of our podcast when we ended up in Tech DECIPHERED. True, but Strong Opinions Weakly Held was almost the title of our podcast. It’s something that Bertrand stood by for a long time and I’m a big believer in as well. Using the other side of the Strong Opinion Weakly Held piece and going to some values that I certainly have tried to bring into my companies, into Chamaeleon VC firm that I’m one of the managing partners of. I would call it intellectual honesty. You have to stand by one’s beliefs and opinions debated, but be open to change one’s mind when given strong argumentation and/or facts and admit when you’re wrong. I fully agree with that. It is about having opinions but then having the argument and then being intellectually honest. One belief I have as well is this notion of low ego and get stuff done. How difficult is that? Low ego and get stuff done. The get stuff done I think is probably easier, but the low ego stuff is tough because we all humans are in some ways, it’s gradients of egotistical. We all have our egos. It’s like we all believe we have a little bit of pride and we have a little bit of “Okay, we want to feel like we’re respected and loved by others. We want to feel like others respect our knowledge in that area.” But that’s something I try to at least bring to the table and we try to work very hard at. Again, it’s more of a work that we keep pushing. We’ve talked about continuous learning and self-improvement. Falling upwards, the notion of failing and rebounding and using the failure as the beginning of the rebound, not just necessarily toughening it out, but actually using it as a positive catalyst, the failure becoming the rebound for whatever comes next. Then I would highlight just a few more from things that I’ve thought over the years that I’m very passionate about, and I’ll take my hat off, one to McKinsey and the other one to Amazon. The McKinsey one is the obligation to dissent. Every one of McKinsey’s one of the values. It’s obligation to dissent, which means if I’m an associate or business analyst to the most junior person on the engagement team, I don’t have the right, I have an obligation to say there’s something wrong about this. There’s something wrong about the recommendation we’re making at this point. There’s something wrong about this analysis, et cetera. If you don’t say anything and you later mention it, it is a big deal. You should have mentioned it before. Creating again, that culture is very difficult because there has to be openness by the more senior people inside the room to say, “Okay, we need to listen to this person because it’s one of our values. We can’t dismiss them or take it against them.” It can’t be the reverse whistleblowing thing. It is something that I like to abide by. Finally, the shout out to Amazon is dissent and commit, which is strategic discussions are amazing and they’re very important. There’s a lot of why, whats. But once there is a decision made by someone, whoever is the right holder of that decision, the CEO, the chief product officer, whoever it is, the team has to commit to the decision. Each individual, even if they didn’t share on the view that was the right decision to take. This is again, very very tough. But it is very important to drive an organization because otherwise you’re going to have a bunch of people that are not fully executing, because they’re like, “I don’t agree with this anyway.” And worse, if it doesn’t work out, they’ll be the first guys to say, “Well, I told you so, this is the wrong thing and whatever.” It creates all these dynamics that are very negative, lack of execution, focus, nobody’s all in. In creating, again, this notion of dissent and commit, you just, “Okay, I’ll argue, but then I will go and fight with you once the decision is made.” It’s again difficult to orchestrate in an organization. But once you do it, it’s beautiful. It’s beautiful that you’re side by side with other people that were just fighting two days before. And right now, you’re just giving it your best to make this idea actually work. Bertrand Schmitt Yeah, I totally agree on the importance on the dissent and commit. That was also one of my favorite. As you say, it’s key. You can dissent, but after that you have to commit once a decision is made. If you play games behind it, if you keep pushing back, nothing can be executed. Nuno Goncalves Pedro One or two final ones from my end, integrity and respect are fundamental. I already talked about authenticity and how vital that is. Authentic things come across very quickly, but integrity and respect is very important. A lot of the issues we see today with bad behaviors and companies and all these issues starts just there. Integrity and respect are not part of the equation and people don’t really stand by it. Sometimes there are trade-offs. Sometimes there are trade-offs in terms of speed of getting stuff done, et cetera. But having that ability is very important. Then last but definitely not the least from my side is to have fun. It’s very funny because that have-fun piece is one of my first early signals of “there’s something we need to work here”. If nobody’s having fun we have a problem. If we’re all working really hard and we’re all trying to make stuff move but nobody’s having fun, then we’re doing something wrong, or we’re in the wrong environment or the wrong path, I don’t know. But it’s like the fun piece is important. It’s not that we’re all a rugby-pack mentality leaders and we’re all together but we’re all kicking each other’s butts if we’re not delivering and we all have to win. It’s more nuanced than that. It’s the notion that it should be fun to work together with people that you enjoy working with that you respect and they’re very different. Bertrand Schmitt I think it’s clear that the key point of the game. Life is too short if you are going to commit to work 40, 50, 70 hours a week. You better have some fun. Be around people you can enjoy and have a good time at it. Life is really too short. Conclusion Nuno Goncalves Pedro This concludes our two-part episode on leadership and management. We hope you have enjoyed it. We went through the definition of what leadership and management is. We typify different styles of leadership and management, explored various value systems and shared some of our core beliefs along the way. We hope you liked it. Follow us, give us five stars, and tell us where should we take this topic next. Thank you, Bertrand. Bertrand Schmitt Thank you, Nuno.

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: 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 Subscribe To Our Podcast 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. That’s really what he did to rise to the occasion and convince people to fight. I think it’s an interesting version. I’ve never heard this one. I guess you have different type of leaders, different type of situation, different type of CEO, but this one is the benefit to be very generic and very illustrative. Nuno Yes. We should talk a little bit about the origins of management. Management as a so-called science is relatively young. We should go back to people like Peter Drucker—may he rest in peace—people that started looking at management and formulating what management actually is and the different sides and aspects of management. I’m a computer engineer by background. I have a Masters in science, computer engineering, and I had a professor for a management optional, but he was an engineer himself, that used to say, “Management arose from engineers not wanting to do management as a science.” I always felt that was interesting. But certainly I think Drucker is probably one of the precursors to management as a science. Obviously, if we look at management in measured ways, we can even go back to, for example, the origins of McKinsey & Company. Mckinsey & Company in the early days was very much focused on measuring activities, for example, in manufacturing, which was emerging back then in the ’30s and ’40s in the US, and understanding the impact that certain operations would have. Again, management is a young science. Leadership, I would allege, is still probably not a science, still not at that level. But obviously as a science that is young, it’s a science that some people still feel is a little bit BS. There’s still a little bit of, “Okay, what did you study in college?” Well, I studied economics.” And then you have someone else, “I studied management.” It’s like somehow the person who studied management might not be seen in the same light as the person who studied economics. Economics feels more of a science than management, although one could also say that economists don’t have a particularly amazing track record of impact in society. As a science, it may also have some work to be done. For today’s definition, we will use both leadership and management at times a little bit interchangeably. But just beware as I said at the beginning, we do believe there is a difference. The leader is sometimes a little bit more charismatic, the person who can convince people without necessarily proof, the person that can go for the moonshot. The managers, sometimes the person is more process-driven, more step-driven. Again, today we’ll use it relatively interchangeable just to make our lives easier and your lives as the listeners a bit easier as well. Bertrand Maybe to add to your point about management being a young science, maybe leadership is still an art in some ways. Section 2 – Typifying Leaders Nuno Indeed, it’s still at art level. Maybe we’ll see developments there that will get it to science level as well, whatever that may entail. Let’s start by typifying the different styles, the different styles that we’ve seen of, let’s call it leaders, managers. Bertrand Maybe we can start with one level and go back to leaders, assist manager. There is a typical, let’s call him or her, quote-unquote, statesperson, chairman, visionary. So someone who will be very high level, providing very high level vision, high level orders, maybe some tactics, but we will rely on CEO, managers to really execute per se. That type of person, it’s pretty typical in many companies that you have a separation between these two roles to function, but some companies don’t have that separation. Of course, you have the same person as chair and CEO. In that situation what you might have, however, is a CEO in the organization, someone who will be more focused on the execution side of the business. Every business will be different. What’s your perspective on the chairman vision? Nuno It’s funny because you can see Chairman Visionary states person archetypes across many large organizations in various different roles, right from VP to directors. Sometimes even individual contributors, which obviously ends up not working very well. Obviously you see it in CEOs. The archetype is defined by people that are always at a very high level, they’re always at 30,000 feet, etc. Normally they have difficulty in articulating their high-level vision and what they think they’re conveying into actual actions. It’s normally very difficult for this type of leader or manager to convey very specific type of actions. Now this type of manager, this type of leader, is not necessarily ineffective. They can be effective, but to your point, Bertrand, they need to surround themselves with the right level of talent. If it’s a CEO position and the person is very high level, then they need to have a heck of a COO, they have to have a heck of a chief revenue officer, a heck of a chief product officer, etc. They need to delegate a lot, and they need to work normally with teams that are extremely good at doing that translation, extremely good at understanding high-level objectives and views into actual tangible actions and outcomes. Again, I’m not a huge fan of this type of manager. They normally skew towards, “Oh, I’m so brilliant that I don’t need to get in the dirt and define actions and processes,” and stuff. They’re also normally that people that behave like chairpeople, chairman or chairwoman, and they show up last minute for meetings, and they show up into a discussion where everything is decided and they are the ones, “No, no this doesn’t make sense, let’s change it all,” having a convincing opinion and decision-making logic  They like to leave decision-making as late as possible. They would be what I would call extreme Ps in Myers Briggs Type Indicator. I’m not a huge fan of that type. I’ve worked with many through my career. Fortunately, nowadays I don’t have many in my life, thank God. But it’s that type of action. It’s the action as if, “You all work for me, this is my high-level vision. If you can’t translate it into processes, you’re not very good.” It’s not my style. I don’t like it very much. That said, as I’ve mentioned before, it can be effective. There can be people that are driving this style, that are very good at how they do it. But again, they need to have a lot of support beneath them. I think this style is particularly good for moonshot top plays, for companies that really need that level of ambition and looking forward that maybe demand someone who has a huge reality distortion field and doesn’t know all the details and they just hire amazing people around them to figure that out. Bertrand We talk about who you need to surround yourself with. One position I’ve seen more and more is chief of staff position, and I think that can go specifically well with this type of profile. To your point around, even VP levels can be statesperson and the like. That’s unfortunately trend I have seen, and I’ve seen VP level as well with own chief of staff, and everyone wants a chief of staff for their function. I think at some point you have to be careful. For me, nothing has been more painful than to have report will behave like statesperson. That is very painful, and not to have anything precise coming from them, and them needing somebody else from their team to come and explain the details. That’s something that, at least by my book, very difficult to work with. I expect the ability to dig when needed, and dig pretty far, and it’s always a challenge if people are not able to do that. Again, if you have absolutely fantastic people around you, that works. But you really have to bring the right people and people who enjoy this type of situation, who enjoys that separation between someone on the vision and there’s me on the execution. I understand the role and I like it that way. Nuno And it’s funny that you mentioned, there’s now VPs and even directors getting chiefs of staff and whatever. I always say if you’re in an organization like this where everyone around you starts asking for it, start thinking about this little thing, which I’ve actually given some thought to, which is in some positions, at some point, maybe you should just fire the boss and let the chief of staff take over the role. Talk about a way to create bench. “You’re not very good. This guy is amazing. He should lead.” Obviously, this doesn’t hold true for all positions, which do require sometimes a lot of more strategic thinking and seniority to be well-led. But there are positions where I do think it works well, this proxy like, “Okay, yeah, go ahead, hire a chief of staff. I think your chief of staff is better at this than you are, so I really enjoy this. But can you leave, please?” Bertrand That might be a good lesson for people around and for the peers. Nuno That would make you learn. You just go ahead and learn. Bertrand But, yeah, it’s a question of balance. I think if you express strong talent on one side of the puzzle, acknowledging that you might not be as good on the other side will still be better than not acknowledging and running a business to the ground because you don’t care about the details. Nuno Another type that we see quite often, which Bertrand has pointed me in the right direction, because for many years, I was calling it the wrong thing. The helicoptering type of manager, the micromanager, the person that goes normally very deep into the entrails of whatever has been done in a specific project or process, et cetera. Obviously, the cons of the micromanager are very obvious. If you have a lot of talented people around you and you’re micromanaging them all the time; one, you’re not getting the best out of them, two, it’s a bit of a waste of resources because you’re probably paying them well and whatever. It doesn’t allow them to grow. It doesn’t allow them to have more outcomes. That said, in defense of the micromanager, because I do sometimes go into micromanagement mode, I think my leadership style certainly has different facets to it and my management style has different facets to it, as these are gradients in different scales in some way. I think the advantage of the micromanager is sometimes to show by example. It’s the ability to go from 30,000 feet to three feet and say, “Okay, and now I can show you how I would do this, and how I would drive this process, and how I would write this email, how I would put the wording correctly in that press release, how I would evaluate this investment in the right way, et cetera.” For me, helicoptering and micromanagement, if it’s done systematically, it’s not great for the reasons I just pointed out. But if you have the ability to do that… We’ve listened, for example, Dan Rose talked a lot about Jeff Bezos and Mark Zuckerberg and his experiences at Facebook and Amazon. The best leaders or the best managers normally are very good at that. They’re very good at 30,000 feet. But I can go three feet as well. I can be discussing strategy for the company. I can be discussing that word is wrong there. I think that skill is just an incredible superpower, but it needs to be used very carefully. And getting that nuance right is difficult. Bertrand I like to call it actually in nano-management to make fun of it even more when people are going way too much into some details. But for me, going too much into some details, it really depends, because the example of Jeff Bezos going into strategy and then what’s missing an important communication. At some point, if you are the leader of a business, communication is important. What’s missing? Something that’s supposed to come from your mouth is important. Yes, you will have someone writing it first. But of course, you need to create your own flavor, and to adjust to your own tone, to your own style. And you want to create if you don’t agree with something, even if you have great people, they won’t be totally aligned with you. That’s one thing I’ve been pretty frustrated sometimes is that some people don’t understand that you aren’t a big picture, but that doesn’t mean you are going to accept everything presented to you and that you will not request some adjustment. At some point, you still need to do some of this. The question is more a question of percentage. Are you in 90% of your time in nano-management mode, or is it only when it’s really important and you can make a difference, especially for the one presenting, talking, or signing something? That’s another aspect, another style, and probably an extreme you want to be careful. Nuno I think micromanagement, as a tool, has two advantages if it’s well exercised, which is, one, it gives you very deep understanding of what people are doing and what the company is doing at certain levels. Bezos is a famous example of him taking customer service tickets and addressing them to himself. I think that gives you a very granular view at a very low level of how the organization is behaving, what’s maybe not totally right in terms of translation to strategy for processes down your lines. It gives you a very granular understanding of that. I think that’s very powerful if it’s well done. The second piece that it really gives you is, it allows you to touch key parts of your business that sometimes you wouldn’t touch otherwise. Sometimes that disconnection, that being away too much from your business creates too much reality distortion field. I think using micromanagement, as a tool, sometimes allows you to moderate your reality distortion field, which is good. Reality distortion fields can be very positive and very well-used internally, but they need to be balanced. They can’t be nuts. There’s nuts, then there might be fraud, or the company goes down the drain, down the road and nobody noticed that, et cetera, et cetera. For me, the micromanagement tool gives you that balancing act, the pullback of “Okay, now I know the truth and maybe I need to tone down some of the stuff I’ve been saying on the strategic side in terms of objectives and what I’m setting to the team,” et cetera. Bertrand Nothing can frustrate more team when someone is asked to disconnect from the business. As you say, you have to be careful because at some point, especially if you’re in the top positions, you have fiduciary duties to the business to the shareholders. At some point you have to sign stuff, put your name on the line. You have to try to understand what’s happening, and more than just understand, go into details when stuff look weird. That’s a key part of the game and you cannot just delegate. If shit hits the fan, at some point, the buck will stop with you. Maybe another example of leadership style is the revolutionary. We have seen this approach. Some companies tried different ways to run a business, one that some favor at some point in time in Silicon Valley, five, seven, eight years ago was holacracy. Some talk about liberated companies, and of course, it all depends on how you manage it, how you apply it. If we take the example of Zappos, I’m not sure it worked out well to work that way. My take is that, especially in tech, you’re already at the cutting-edge—or even bleeding-edge—of either technology or business model. Usually, you bet one of the two as why would you be the company succeeding in your space, and why would you be valuable. When you try to be cutting-edge on the tech or business, trying to be cutting-edge on the absolute latest management fads that are extreme—I’m not talking about a new flavor, but a relatively extreme new approach, especially holacracy—I don’t think it’s right. I don’t think it’s right because there is only so much you can do right in your life solving either a very difficult hard tech, or approaching business in a very new, different way. You can, at the same time, try some bleeding-edge management styles that have not really been tried elsewhere that is new, where you don’t find people to support you, to explain, to understand views that have not been vetted by others. My take on the revolutionary approach is extreme caution. Maybe take some bits and pieces here and there that you feel could resonate, but be extremely careful, because typically, it doesn’t end well. If it ends well, it’s really because it has been done very carefully and usually in a very limited way by people who have really deep expertise in managing people. Nuno There’s always been this notion of very flat organizations that are driven a lot by values, but there’s a lot of autonomy given to all the team members. There might be environments where that works better than others. We could be talking about a very small organization. We could be talking about an organization that is very focused on a very key and creative element of the value chain that they’re in. There’s a lot of reasons why you could do things that are a little bit out of the box. But to your point, Bertrand, I totally agree with it. These things need to be done in moderation and carefully, because if it becomes an archic and it becomes complex, your culture will become, normally, in my experience, the least common denominator. It becomes whoever’s the biggest asshole, worst person in your team that is the most vocal, that’s how the culture is going to be defined because people are going to be bullied all the time. In certain ways, you need to be quite thoughtful around applying these styles of leadership and management. Again, they might work in certain circumstances, even in some larger organizations. For a long time, there was this philosophy around extreme programming, which in some ways led to the whole advent of Agile as a movement, that the right way to do things is to be relatively flat in engineering. There are great examples of how that can work, but ERK always has a role in terms of cutting through the moment, and making decisions, and getting stuff done. Maybe that is a good segue to our next type, which is the benevolent dictator. Normally, benevolent dictators are people that are both strategic and tactical. We’ll come back to the benevolent piece in a second. Dictator means that the buck stops in her or him, so the final decision is always with her or him. That makes things very clear. All decisions at the end that matter within the remit of that function, of that operation, are with that person. The benevolence piece comes when those people normally give space for others to scale. What that means is the benevolent dictator normally manages more by outcome than by process, which doesn’t mean that the benevolent dictator can’t use micromanagement and other tools, but certainly, normally, it’s more managed by outcome-driven pieces like, okay, you come to me and say, “Okay, what’s the conclusion on this project that we were doing?” And then if there’s a decision that needs to be made or strategic direction that needs to be taken, I have the final call. Again, this is a model that can work very well. The negatives of this model, well, the difference between benevolent and an evil dictator is just a couple of decisions, as I always say. The margins of decision-making are very thin. The second piece is with that, sometimes it’s difficult to empower people because at some point you need to empower people in actually making decisions. In some cases, the benevolent dictator becomes—by nature—a micromanager, which isn’t the main aim of this type of leadership style. There’s a couple of negatives to this. I think in terms of the team you’re building around you, you need to have a team around you that normally is extremely self sufficient in terms of getting to outcomes, but at the same time, it’s a team that’s highly motivated by processes and operations and actions, where they are willing to delegate the final decisions and the complexity of decision-making to one person. There are some cases where through the bench, through the way you manage these teams, you are able to pick up people and let them go into their own leadership challenges and management silences outside the remit of this organization, or business unit, or team. What ends up happening is, if you’re very good at this as a benevolent dictator, what you’re effectively creating, if you have very good decision-making people as part of your organization, is you’re creating space for those people to go somewhere else. It might be somewhere else in the organization. It might be leaving the organization altogether. It’s normally a type of leadership that leads to what I would call a very good followership, very good cubs using the Tiger Cubs nomenclature, the people that left the organization and they go on to do their thing. They might actually not be the people that will thrive within the organization because they want to do their own decision-making. They want to create their own things at a certain point in time. You end up with two positive extremes of people on the team; the people that are very operational, very focused on getting actual stuff done, or the people that actually have different objectives and want to be more decision-making oriented and want to take their own calls. Those people normally tend to actually leave and go somewhere else. There’s nothing wrong with that. You’re creating just pools of talent around you, and they will have had your tour of duty with you, their war with you for three years, four years, whatever the time is, and then they go and do something else, which is also valid. Bertrand If we talk about another profile, I will say the typical Silicon Valley profile, it’s the product CEO, at least if you look at CEOs. I guess we have the example of nearly every big tech founder CEO. Take a Bill Gates, take a Jeff Bezos, take a Mark Zuckerberg, take a Steve Jobs. They were all product-centric CEOs. Of course, they understand the numbers. Of course, they understand sales, but their core, their love, what they are famous for is the product side of the business, because in the best tech companies, product will define strategy and culture. I think that Dan Rose and some very good threads about this and how he explains it with the CEO of Amazon and Facebook. That’s something that ideally you want to look for in a tech CEO. At the end of the day, you can optimize sales, you can optimize finance, but if it’s run by the accountants, your tech companies is going to go to the ground at some point to be franck. Nuno Definitely, it’s the defining type of CEO in technology. It is a subtype of a couple of types we’ve already talked about. I think the product CEO style that Jeff put at Amazon, Gates back in the day at Microsoft, not only as the CEO, but also after being the CEO, being the chief software architect, which was the most high title on that organization at that point in time, no pun intended. It literally was. They are a mix of what I would call benevolent dictators, people where all the key decisions go to them, and at the same time, a bit helicoptering, so people that go 30,000 to three feet, both Jeff and Bill clearly in that camp, people that can go and have a discussion with you on assembly when you’re leading their latest OS development. Bertrand Bill was very famous in terms of interview practices and how deep he could go. At the end, it was not to show off. He wanted to test people basically up to the end of their job, and if it works, that’s good. I don’t have to worry about this guy anymore. Nuno I think Jobs was as well this style, a bit the benevolent dictator and the micromanager. I think his micromanagement skills were maybe a little bit more UX-driven than certainly Bill was much more technical. That’s why I think early on, they had this amazing fight because Jobs was more UX, and it was more commercial, and Bill was more techy and more nerdy. But in some ways, they had very similar styles. They just went deep on different things basically. But again, the product CEOs that we’ve seen work really well are normally around these camps. I would say Mark Zuckerberg—and to a certain extent, Larry Page—slightly different styles. There are areas where I think Mark is the benevolent dictator. Product is probably one of them. There are areas where he’s willing to let others take the decision and just run with it and be very outcome-driven. I think the fact that Sheryl has been at Facebook as long as she has been is probably a testament of that, that she has a lot of autonomy to drive a lot of things, which is incredible. I think that relationship… They’ve had their own stressors, but I’m sure it has worked very positively in terms of just duration is one of the most incredible relationships. I think the Eric Schmidt, Larry Page, Sergey Brin relationship also worked along those lines with Sergey maybe going more moonshot special projects at a certain point in time, Larry being more focused on really building the core product of what they were doing around Google, and Eric serving a little bit as the third in the box and normally the CEO in some ways. No disrespect, he was obviously the CEO, but certainly the person that would balance those forces. But again, always to the point that you were making, Bertrand, very focused on product and products. The notion of how do you address end customers and users, how do you get stuff done to a level that delights them? I think maybe, none other than Jeff, maybe he wouldn’t see himself as a product CEO because he is so broad in terms of his skill set and very analytical. But this customer obsession that Amazon has as a value I think is really coming directly from him. They are obsessed and that’s made them successful. Bertrand Definitely. If we talk about another perspective on the different styles of leadership of managers, there is one good distinction that John Doerr from Kleiner Perkins was famous to talk about was the mercenary versus missionary type of profile. From far, for some people, it might look like it’s not too different, but actually I think it is quite different. It used to say that you have one focus on the sprint of the mercenary. The missionaries, they go for the marathon. Mercenaries driven by paranoia, missionaries driven by passion. On that one, I might disagree because I guess many people read that famous book from Andy Grove, Only the Paranoid Survive. I think he was a great leader. I guess it’s not only mercenaries were driven by paranoia. Missionaries are, but I think that definitely missionaries have a passion that mercenaries don’t have. They have a love for the business, a love for the company, a love for the team, where mercenaries will be much more tactical, typically obsessed about entitlements as well, motivated by just making money. I think missionaries might recognize and like money, but definitely, they are here for something bigger as well, a bigger meaning, bigger outcome, bigger impact. So very different type of profile. Ideally, just to be clear, we just want to hire missionaries. I don’t think you want mercenaries in the team. They won’t last as long, and typically, they will have a negative impact on the team. Your best people might be saying that and that’s something that can destabilize your business. My take on this is please be careful, focus on the missionaries type. The mercenaries won’t be there too long, will jump at the first bump, will jump at the first better opportunities, and they can really negative impact also on them and bring more people like them. Nuno The framework that John has been sharing for many years. Funnily enough, obviously John overlapped with Andy Grove at Intel and was senior at Intel before going to Kleiner Perkins. I have a little bit more of a nuance view on mercenary versus missionary. I think I agree with this assessment of what constitutes each type. Sometimes you do want to have aggressive transactional people on your org and then it becomes more of a discussion around value system, how to incentivize, and how to get it done. In some pieces of work, some areas like sales and areas like business development, maybe to a certain extent, depending on the type of business development you’re doing, corporate development. I’ve worked in banking for a period of time as well. It’s good to have someone there that is just sharp and they just go systematically for the transaction. Now, again, it needs to be toned down and needs to be managed. It can’t be someone that goes against all the value system of what the organization stands for. I fully agree with you on that, Bertrand. If someone who is just, this is the value system of the organization and this guy is the opposite, or this person is the opposite, that won’t work. But it’s good to have the transactional person there. I have had some experiences in my life where people that ended up staying very long—for some reason—in the organization, much longer than I thought they would, systematically figuring out, what’s the point optimization for me on this? Again, normally they are working around transactional work and stuff like that, and maybe a little bit less around day-to-day, in six months, you’re still going to be doing that type of stuff. So yeah, I think in principle, I agree with missionaries better than mercenary. But sometimes having a little bit of a healthy dose of that, having a few around and being able to manage those people, and being able to have them actually deliver that sharkish transactional point is not a bad thing. Bertrand I would say maybe individual sales contributors might be one of these type of position where it might work okay. But you have to be very careful because these people, when they leave, you can discover after that some corpses. You will open your closet and you’re like, “Oh, really? They did that? That’s why my client doesn’t talk to us anymore.” From experience, you have to find that balance. I think that mercenary, it’s really that yourself and your own personal outcome is way beyond everybody else, including your company, your teammates, your boss, your reports, your clients. That typically doesn’t end very well. Nuno There’s two final points I would like to make. One is, not all missionaries are great. I think the difference between a missionary and a mercenary is a mercenary on their best day, using the notion of, Good to Great. Jim Collins book, Good to Great, he has this chapter on leadership where he defines several levels of leadership up to level 5, which is the best, I think we’ve mentioned in one of our previous episodes. I think the best a mercenary can get to is probably level 4, whereas a missionary can potentially get to level 5. Those are the guys who really are going to inspire followership and get to the next level. That said, there are awful, awful missionaries around us. You could hire someone for your organization with the wrong type of missionary. It could be like a level 1 leader, who is someone who’s so focused on the values and on the passion of whatever that they forget at some point their call to action. At some point they get just totally embedded in value systems and stuff. Again, it’s not that all missionaries are better than mercenaries. It just the highest you can get to is probably different. To your point, Bertrand, which I totally agree with, if you get mercenaries into your organization, it’s like you just got a wolf inside the henhouse. You just need to be careful. It’s like, “How do I protect the hens right now? I need to be very cautious in how this structure will work.” Again, as you said, individual contributors might work a little bit better. Checks and balances might work a little bit better. You better have an amazing leader managing that person, et cetera, et cetera. It’s a little bit of that. I feel it’s just a bit more nuanced, the point, than black and white. In some ways it’s more fuzzy logic than binary. Bertrand It makes sense if you have a missionary who does not execute and is just focus on the values and other stuff, but not on very delivering business, that’s not going to work either. Yes, some people might disconnect from the practical things. That’s true. I would say I was more thinking on average, with the same level of execution, I would prefer to rely on the missionary type of guy, because the mercenary, I don’t know when he will backstab me, but he will try at some point, or somebody else, or the client. You never know. They have to be handled with care like a dangerous knife. Nuno Maybe the last discussion we would want to have in this notion of typifying a little bit styles of leadership is, the practitioner versus the manager. Do you want to talk a little bit about that, Bertrand, in your experiences? Bertrand In terms of practitioner versus managers is always that question. Do you really know your industry, your vertical? Do you have expertise in it? Or are you just managing people, the people manager? I think that’s where we go in the discussion of, I don’t want to say, weird but weird level of management where you’re not on the topic side. You are not managing a team directly, but you’re in that middle management layer. That’s usually where a company dies, when you have too many middle managers. You need some of them to be clear. They, of course, can be very good, but you have to be very careful. Me, a pure manager with little expertise or functionality or in the industry, that’s typically someone that even if he wants well, will probably do some harm at some point because he will have trouble to really inspire people. If you are more of an empty shell, in some ways, you need to find a balance. But some industry expertise, some functional expertise. I think it’s key to have that. Nuno There’s been a lot of this discussion around the T-shaped leaders and managers, people that are brought on top and then have one very specific area of deep knowledge in. I prefer pie shaped, I guess, because I see myself as pie-shaped so it’s like I’m very broad on top, and then there’s two areas where I’m super deep. There is a notion of superpower to that almost. I think both you and I believe that it is better to have an expert functionally or in industry or sub-industry or whatever job they’re doing because that person at some point needs to come down to the team and explain to the team, “Okay, this is how I would do it,” and that sets the standards. It sets the template, it sets how things are going to be done going forward. If you don’t have that capacity, the ability to go down and say, “This is how it’s done,” one, it will be very difficult to lead by example, which I think leading by example is a very, very good thing in general. Again, if it’s not too much micromanagement. If it’s not too much my way or the highway, but there is a value in that for sure. The second piece is, if you don’t have that, then at some point in time, your ability to even assess what the people that are working for you are telling you disappears. In some very technical areas, for example, if we’re talking about engineering or product, there are areas of product management in engineering where you can be played around by your team all day long without knowing that they’re screwing around. You just literally would need to move the leader and the manager of that team and the team would necessarily perform better, even without changing the team, because just you can push people a little bit more hard, how things are being done and how they should be done, et cetera. I think this version of the very broad manager, very elastic manager, I’m not a huge believer in. I do believe there are people that have more than one spike. There are people that have several spikes, and they can go from business development to product, and they’re exceptional at both. But I have difficulties in believing in someone who’s an exceptional manager in a relatively complex area or technical area that doesn’t have any or any real knowledge of that area, as a practitioner. There are maybe some areas where you can get away with it. I won’t go into details on what, because I’m sure I’ll get some nasty messages and email after that. But there are definitely some areas in my mind that I believe are a little bit broader in terms of the dimensions that you, as a manager, can bring without having necessarily expertise in that space or in that function, but there are others where I think it’s impossible. For a period of time, we saw a lot of dimensions. I remember Google, later on Yahoo, with Marissa, that they wouldn’t hire product managers who didn’t have an engineering background, because they’re like, “You need to be talking to engineers all the time. You need to call them on their BS.” If you don’t understand the limitations of the work they’re doing, even at a high level, even if it’s not in depth, it’s very difficult for you to push back and have arguments on prioritization, on what needs to be done versus not, on whether this is a good schedule to get stuff done on or not. Bertrand To this point, I think, the perfect example is if you’re a product manager, a lot of companies, take Google, for instance, Facebook as well, you cannot be a product manager if you don’t have a technical degree specifically in computer science and if you have not spent some time doing computer engineering. You are just not going to be product manager in these companies. In some ways I believe it’s probably a bit too extreme because I think there are exceptions, people who can do a great job as product manager without that deep technical background. Obviously, you can have people with deep technical background who are horrible product managers, but I subscribe that, by default, expecting technical understanding of what’s happening by your engineering team. When you’re in a product manager position, you are not directly managing them. It’s quite important, as you say, you cannot get bullshitted. You understand, you can challenge, you can discuss, you can negotiate, can appreciate. That part is, I believe, is quite important. As usual, I believe you have to make exceptions for people who can be very talented even without that technical background. Nuno I think it goes without saying everything we’re saying has exceptions. There is incredible people out there that have not studied computer science but they’re incredible at product management and a bunch of other amazing examples. Obviously, we’re not instituting some type of religion fundamentalism here, but rather sharing what normally works versus what normally doesn’t work. Section 3 – Conclusion Bertrand This concludes episode 31, our first episode on leadership and management. In our next episode, episode 32, we will focus on how to execute, as well as, what are the key elements to make a great culture, what are the right key values that you want inside your business? Thank you again for listening to this episode. See you next time.

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: 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 Subscribe To Our Podcast 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 destroying value. And they have a lot of people who put years of their life, in this trying to make it work when ultimately there was not much if anything. And it’s easy to create hype but it’s another thing to deliver. There have been constantly shocked. And for me, what something typical is when you’re very secretive about it when you promote too much hype, you are very secretive of how it works. Typically it doesn’t end well. Either you are fully secretive, like Apple and you wait until it release, and I respect that 100% or you are very more transparent. You have to be transparent. So in a way, people probably do not like us to talk about Magic Leap because it’s making their metaverse effort look in danger. But I would say that the life of tech there has been a lot of promising companies in some ways that go bust. And a few years after that, you have the real thing coming up. So I don’t want to hold ourselves to Magic Leap. But that’s also a sign of a market going too hot. Nuno Just a couple of notes. One, I think they’re now led by Peggy Johnson. We’re not buddies, but I have a lot of appreciation of the work certainly she did at Microsoft. So a lot of respect there. Hopefully, they’ll be able to really make a business out of the enterprise side. A couple of points. One is they’ve been a ton of companies that have risked quite a lot of money. And even in the AR space, which is what this sort of portrays a little bit more closely to ODG, HoloLens in the end who ended up at Microsoft. But honestly, they really haven’t made much with it, to be honest, either. So there’s been a lot of these sort of false starts. I think what was particularly, I wouldn’t call egregious, but particularly significant about Magic Leap was 2.6 billion, just incredible. It sort of edifies a little bit the case of companies that over promise and under deliver very good salesmanship on behalf of the founder, CEO, and people that are really running with the company. And then sort of this huge delta, what I was mentioning as vaporware early on, this huge delta between what they are promising and what it actually can do, which is not necessarily very positive for the expectations of the world and consumers and others. So I don’t know, hopefully they’ll make a go at it that works well for enterprise. I’m sure they have a lot of tech that they’ve developed over the years. They better have given all the money they raised. But it does exemplify these types of companies that are to your point, Bertrand, secretive, arrogant, aggressive, we’re the best things since sliced red. And then you go a little bit under the hood is like, I really don’t get what’s special. And they’re not the only one. I don’t think they’re going to be the last one, such as the price of tech innovation. Bertrand I’m deeply respectful of deep tech, but I feel that Magic Leap is one of these companies that went a step too far in terms of what they promised to investors and the reality of the technology and the business. And at the same time, you could argue some of these investors might have only themselves to blame. I don’t know. I’m still deeply troubled when I see that. In some ways, if you think about it, at the time it was a time when journalists were friendly to tech, I guess. But people were not questioning much, to be frank. It was just accepted at face value. And I was still shocked about that. Going to a player that I must say I’m much more impressed what they have delivered, it’s Facebook. If there is one player in the metaverse, at least today, that is open and public about what they build, it’s Facebook. I mean, they built on Oculus, of course, but it has been very impressive. I mean, they went all the way from buying the best company in the space at the time with Oculus to investing huge amount of money since 2014 in that space. And not just money, but AI research. So a lot of pretty precious resource. And it’s pretty impressive to see everything they have done. And to be clear, they are probably, at least from my perspective, the best working product with Oculus Quest 2. The only issue obviously, is that it’s not a massive success to the scale. It’s really needed to make a difference. At the same time, it’s costing this year around 13 billion of spend. One-three. Nuno Fair enough. Bertrand So of course, Magic Leap with 2.6 billion of funding and nowhere to run when you are facing a player who can spend 13 billion a year in that space. And I’m very thankful because in a way they are pushing all alone, by themselves, the space. Nuno For all the crap I give Oculus Quest 2 etc it is a pretty good device and it’s sort of the closest we’ve had to real mainstream-ready VR experiences, right? So they’ve put money where their mouth is. They’ve made it evolve as a product. The experiences they’re creating in terms of software, I think are still… Jury is still out. We’ll see where they head and if they really scale. Maybe they’ll be the guys that’ll hit it with the next Oculus Quest and that will sort of untap the whole world. Or then again, it will be our friends at Apple, and they’ll come out of nowhere. They’ll just launch it and it will sort of work. We’ll see. Bertrand That’s a tough part because if we look at computer history, Microsoft was very early in mobile. I had a Microsoft at the time. I forgot the exact name, and I’m sure I will be wrong, but it was called HPC, one of the first iteration of a windows mobile. Then they had a pocket PC and a palm PC. It had so many things every year to change branding. But my point is that being first doesn’t guarantee you a spot. And that’s exactly what happened. Actually they had too much baggage, were not ready to make the move quickly to a new approach. Instead of having a dedicated slimmed-down version of Windows, what ended up winning in a way was an OS built from the ground up for more powerful devices. That was iOS based on macOS, and that was Android based on Linux. They made the wrong choice. And when you are 10 years too early, you are making the wrong technological choice because you cannot afford anything else at the time and you create baggage. And when the time is ready to go big, you might be too slow to react. Actually, that’s a very dangerous game. I’m also worried that in the way Facebook acquired Oculus maybe not just for the right reason. I think they realized, clearly saw, that it was a big mistake for them to have missed mobile and they had missed [inaudible 00:08:57] initially as an app and they corrected course quite quickly, but initially it was a mess. But they missed the part of running the platform. And for them, they were still a young company to invest in that. But ultimately missed a mobile platform, discovering that they don’t really have a seat at the table, not owning a desktop, laptop platform, not owning a mobile platform, not owning a TV platform. It was like, okay, what is left? Or it’s this VR stuff. Is that the remaining piece left? So let’s buy it and let’s spend shit load of money in the hope that it’s going to be the next platform. And therefore, because I’m controlling that platform, I would be the one to benefit the most from it. And no one is going to disintermediate me. And if you look at what happened with Facebook recently, were robbed 25% of market cap in a day because of an announcement acknowledging the cost of depend on the iOS platform to do your business. It’s estimated the cost to be a 10 billion loss for 2022, I believe, because of the changes Apple made to the platform. So there is real value to own the platform. The problem it’s not because you spending a shit load of money in a platform that your platform is going to win. Unfortunately, markets are not working like this. And I’ve heard people were saying, “Yeah, they can keep putting billions. They can pay developers to do their apps and that’s what they are doing.” Microsoft did exactly the same with windows mobile. They paid developers millions to put the app on windows mobile and look at how it served them. It didn’t serve them well. So I’m not a believer that cash is the only thing that make it work. It goes beyond that. Nuno And maybe switching to Apple. You already talked about VR and what will come out of the can there. Their mobile devices are probably the number one mobile AR devices in the world. And by probably, I mean for sure. They’ve developed a lot of things that enable developers to use their APIs and to make the experiences seamless. There are a couple of areas. Obviously, they’ve gotten more into the entertainment space. We talked in the past, Apple TV Plus and a few other things. They’re doing this Apple RK thing, but that’s more sort of a wrapper rather than actual play into gaming. I would say the only thing that is interesting to me that Apple is not an app company. They run people’s apps. They dominate on the app store, but they’re not an app company. So the only thing I would say is their gaming plays are nonexistent. They’re not a gaming company. They have not actively gone after that. And maybe it’s a notion of we are the app store and we are the platform, so we can’t be that. But I don’t see how they get out of being a hardware company in this world of metaverse, metaverses, if they don’t go into app stack, or if they don’t go into gaming, if they don’t go into a couple of other things. Again, it might be that’s where they want to be. They just want to be a hardware company, an enabler. They have a lot of the underlying platforms that these things will run on and that’s it. We’re happy with that, right? But it’s still an interesting conundrum and question mark I would have for one of the greatest companies, or certainly one of the companies in one of the most incredible bull runs of all time, how do they sustain it? But I would definitely say hardware, maybe they have a shot, and let’s see what comes out of there. But certainly, they haven’t made enough movements on the application layers to really decide any excitement around being the builders of the metaverse or metaverses. Bertrand For me, it’s very interesting how they’ve built a step-by-step ARKit, augmented reality API, or development kit. It has been more impressive year by year. You see that constant investment, which makes absolutely no sense for Apple if they were not going to make an Apple Glass at some point. So it’s a pretty strong bet that it’s going to deliver something because when you see the apps using ARKit today on the app store, it’s a complete joke. There is no apps with a new level of success whatsoever. I’m not even sure Pokemon Go is actually leveraging the ARKit because it predated Apple ARKit. You see if you develop on Android you need to support another system. For me, it’s really a clear sign they are going to deliver at some point some level of Apple Glass. And the good news is that they will have working APIs that people know. There might be some apps, but right now it’s a clear disaster in terms of success on the iPhone. No one is building any AR app of interest again, beyond Pokemon Go. It’s not a good sign. And I guess that Apple will be perfectly happy to stay in a position where there is a taxman, where there is a policeman for the metaverse, where they are your bank. I feel that all the pieces of the puzzle for them run that and let somebody find a killer app. It’s a fine position for them. Nuno Honestly, Google can play part of that game as well, certainly in terms of enablement and ownership of the operating system in the app stores. So it’s not just Apple’s to play. We will see what happens with Apple. It seems like it’s still in a hardware company. That’s where they’re going to make their money. And then owning the OS and then owning the app store will make them, as you mentioned, the taxman. Not my words, yours. Moving to Microsoft, starting with the big one, obviously, the Activision acquisition, the largest ever acquisition, if it fully goes through, of a gaming company. Bertrand For Microsoft. Nuno Microsoft, this is the funny piece of it. A lot of people don’t think about Microsoft and consumer and gaming, but they are the guys, right? I mean, not just in terms of the fact that they have the Xbox and they have console, but they own a lot of gaming developers and significant gaming developers. I was just thinking through it. Nuno There’s only four games that I still play on console. One is owned by Sony. The other one is Agnostic, it’s an independent gaming developer. And as of now, two are going to be owned by Microsoft because I play Call of Duty and I play Forza Motorsport and that’s it. We’re done. So Microsoft, I will have to get the Xbox. Bertrand Microsoft has great games. I was a happy user of Flight Simulator, of course. Latest Flight Simulator is very, very, very, very impressive. If you want to talk about metaverse or the ability of flying all over the globe in real-time based on the real earth, that part is quite amazing. I’m not sure about the big success of billions of users, but it’s amazing. Nuno It’s a player that really has gone after the software layers. They’ve figured out where their sweet spot is. They’re still incredibly big in enterprise, but then on the consumer side and in gaming, they’re significant. They’re powerful. They have some scale to them that enable them to do a lot of things. So I don’t know. It’s interesting to me, obviously, despite the ownership also of the console and the console play. But it’s interesting to me what they’re going to do going forward with Activision. Maybe we’re all going to be shooting people all around and that metaverse of ours. Cool, I don’t mind. I like Call of Duty. I love the experience. It’s better than shooting people in real life. There’s definitely something exciting about what Microsoft is doing. Again, a lot of hits and misses, HoloLens. I don’t think they’re using much of their original acquisition there, to be very honest. I heard back in the day that they weren’t using almost anything from their original acquisition. There was a lot of an IP play around it that they had obviously sort of effectively bought it to have IP defensibility on a lot of things that they were trying to do. But honestly, I’ve heard that and then on for a long time. Anyway, we’ll see. Bertrand I remember initially they created also a good hype, at least delivered the working product compared to Magic Leap. But in terms of success, I think it has been really bad in terms of units shipped. And going enterprise on this type of product, good luck to find a use case and companies that are willing to take a bet to believe it’s truly transformational for their teams. It was not an easy one. I guess we have heard some rumours, like everyone that they might consider dropping HoloLens at some point. And then of course they said, “No, we’re not dropping.” But we’ll see where it goes. But it’s not a great place to be. Definitely looks cooler to be clear in terms of product, but it’s sort of place at some point, how do you really move from hype to reality to execution? It’s not an easy one. I’m a big believer of trying to understand what are the use cases? How are people going to use in real life? How different is it from how they do stuff in general, how they use tech products? Typically people forget that phones, for instance, moved from a fixed-line phone to an ugly big mobile phone, transportable phone, to a mobile phone, to a smartphone. And it took 100 years. Here if we talk about AR VR transformational objects that are moving from zero to one in 10 years. I don’t think anything moves so fast. And that’s very big part of the issue is that people didn’t have any time to adjust to this, so it would take time. Nuno Two final notes on the consumer side, at least from my end. One, a company that we’ve mentioned in different ways already, but just to again, reemphasize Epic Games. If there is a company that has a shot at creating metaverses relatively quickly, they’re the guys. They own Unreal. We talked about Unreal earlier, one of the dominant platforms around the space. They own Fortnite, one of the dominant games. They are very active. They buy a lot of stuff. Bertrand They own an app store. Nuno If you bet against them, probably sure you’re going to be wrong. They’re going to do something really cool. There’s going to be, at least in my opinion, a metaverse that they will create. The second one, which we haven’t talked at all, and it’s interesting that we haven’t talked about them. So the apps in this case makes it even more interesting to talk about them, is Tencent because they are such a huge owner of gaming assets and they have such scalability on a lot of their other businesses. Interesting to me to see what Tencent is going to do. Are they going to do anything? Are they just going to continue acting as holding company for a bunch of great gaming developers and having great results? What are they going to play in this game and where will they fit in the value chain? Bertrand Let’s not forget that Tencent owns a piece of a Epic Games also. Nuno Whatever. Yeah, I say potato. I say potato. Bertrand For sure, Tencent is a big, smart company, and they managed to extend very strongly beyond games. Of course, they tried to position the metaverse, but we see how it goes. No Epic, of course, a big fan of these company says, I’ve done so much in gaming in 3D for years. Sometimes it might be too aggressive. But anyway, let’s talk briefly about the metaverse at work. And I think for me, at least the first expression of the metaverse at work is probably Zoom, because it has changed so much how you interact with people businesswise or friends in such really able way. Because before Zoom, doing online meetings was very difficult and painful. And I think they managed to change that. Of course, there is still room for improvement, no question. But I wanted to make a shoutout. It’s maybe the most basic version of the metaverse for me. They managed to build some things that changed work. Nuno It’s not the 3D world, though, and it’s not fully virtual, maybe not metaverse. Bertrand It’s not 3D, but again, it depends on your definition of the metaverse. Nuno You also disagree with Matthew Ball’s definition. Bertrand Another one that is 3D is Oculus/Meta/Facebook Horizon product. And they have a product called Horizon Workrooms, especially for work. It’s a social place for office that you can use with your Oculus device. I’ve heard some good feedback anecdotally. I know some people who use it with their team to work together in a brainstorming mode once a week. So I’ve been quite surprised. We’ll see if it’s more than anecdotal. But it’s one to watch. In a more startup-y way, one company that got some traction is Gather Town. You have tried it like me a bit? Was your tech…? Nuno Yeah, I’ve tried it. Some of my starters that tried it, they quite like it. There were very well funded, sadly, at this stage. They have several competitors, a lot of competitors that are creating sort of these custom worlds, get together environments for companies. And in some ways, it needs to be a little bit like that. We need to somehow recreate the water-cooler moments. And the tools we have today are not great at that. We do stuff sometimes on Zoom and we just stay tuned. We go through what we call sprints or hackathons at our VC firm. And it’s strange to all be connected and we’re all on mute and doing our thing. And then we convey after 30 minutes. It’s okay, but it’s still not cool. It still doesn’t really recreate that mindset of we jump into each other’s rooms or go into each other’s rooms and have those water-cooler moments in some way. Bertrand It’s mostly web and there is a bit of a desktop app. Section 2: So-whats for entrepreneurs and investors (22:36) Nuno Yeah, it’s in a web experience. Absolutely. Switching gears to the last topic for those that are particularly interested about the so what. I’m an entrepreneur. I’m a venture capitalist. I’m an angel investor. I’m thinking of playing in the metaverse space. I’m thinking of potentially putting some chips on, let’s call well-positioned bets, or high-likelihood bets to win the space. The first piece of advice I always give, it’s back to the point that Bertrand was making earlier, 10, 20 years earlier, is earlier and earlier is wrong. In this case, it’s particularly wrong because you’re at the mercy of a lot of key enablers. Let’s say you’re an entrepreneur creating a company that is sort of trying to create a piece of that metaverse or creating a metaverse yourself, but you’re lacking everything else. You’re lacking the devices that are present in the market and are mainstream to be used whatever devices they may be. It might be that you need augmented reality glasses. It might be that you need headsets for VR to be pervasive. It might be that you need holographic technology. It might be that you need a bunch of stuff that’s not there yet. And the issue is it won’t be there anytime soon, potentially for you. So figuring out timing is pretty important because if there is no scale in your enablers, be it tools, be it picks-and-shovels tools, the underlying platforms that would support your development, be it hardware, you can’t scale at all. Think of it as like a distribution channel. You don’t have it. So if you don’t have it, you can’t distribute it. The only reason why we had mobile app only, or mobile app first companies becoming huge companies in and of themselves was that the mobile app ecosystem had exploded and the app stores had exploded and the devices that supported those app stores had exploded. Distribution is pretty vital. And we’ve been wrong in all honesty about the advent of VR and AR and all this stuff in terms of scale for many years now. So this is not a new issue. So again, just be thoughtful about it. What sort of premises do you have in terms of scalability of your business? For me, that is something that’s very valuable, both for investors and for entrepreneurs. Final note and this is a note that I think should be very pervasive in product strategy and in strategic thinking in general, around the metaverse space. I’ve said this at a previous episode, I’ll say it again, and this is a strategic thinking that is always valid. We always tend to overestimate the speed at which we get to a revolution in technology. We always tend to underestimate its impact. The importance of this is, you probably are going to be wrong on timing. It’s going to take much longer than we thought, but once it happens, it’s going to change everything. And if it’s going to change everything, probably the user experiences we’re talking about are very different than the ones we’d idealized 10 or 20 years ago. Maybe some of these legacy players that have been around for 10 years or plus will not have an advantage, back to one point that you, Bertrand, made as well. Maybe they’ll just be legacy because they’ll have the wrong architecture, they’ll have the wrong user experiences, etc. So again, we overestimate speed. It’s going to take probably much longer than we think. We underestimate impact. It’s probably going to be much bigger, much more impactful than we ever had hoped for or imagined. Bertrand From my perspective, as we said, timing is everything. I don’t think I would want to be an entrepreneur, investor in a VR or AR-based company because timing is just wrong. So the opportunity will take a while to develop. And you are facing the titans of the industry, from Apple, Google, Microsoft. Nearly everyone, maybe except Amazon, are putting effort there and are able to burn through billions. So good luck facing that for a while. So I would be extremely careful in that space. Sadly so in a way, but that’s a true reality. I think that trying to think more about all these themes and beyond VR AR is something real. Is that the world is becoming more connected. We all have these devices. We are all building digital communities. Again, video is getting better. So if we forget to redesign, I feel in some ways we are indirectly building step-by-step something. Yet, if you want to rename the internet to the metaverse, sure, why not? We are putting our identity, our finance, our digital self online. And in some ways, that’s what we have been building in the past 30 years. Putting a fresh paint on your company, on your startup, calling it metaverse, probably has some value if you are very stricken off about the game because the some ways that it went up very fast in terms of interest. Historically we have seen that moving the other way around as well. Moving down very fast. So you have to be pretty adapt at jumping ship when this stuff lose steam. But I think that right now the wind is on your back. If you leverage it smartly, that might give you an advantage to position yourself if it’s relevant as part of the metaverse. Nuno I think we’ve gone through probably the trough of disillusionment for VR. So there’s maybe hope that better times are to come. And to your point on metaverse, maybe we’re at, as Gartner would say, the point of inflated expectations. So there’s still a trough of disillusionment to go through it. And then we still would have to get to enlightenment and all that stuff. So honestly, the upper layers, that’s why I think metaverse for me feels like an app economy. Feels like metaverses. It feels like stuff that’s on top of the application layers, the presentation layers. Interesting to see what’s going to be the underlying infrastructure below it and what’s going to dominate and whether blockchain, web3, internet III, whatever we want to call it is going to be the core enabler also to these metaverses. Or if it’s going to be one of the core enablers because it brings all these out-of-the-box pieces that are very valuable for the new internet that we need. An internet that is hopefully more trusted, where there are underlying business models that can be easily deployed and where at the end of the day, there is a way of sort of compensating the different elements and the different pieces and stakeholders that are involved in the system. So again, maybe a little bit of a plug for blockchain at the end, but certainly that might be the scenario we’re in. Upper layers for these metaverses and the layers underneath being powered by a variety of things, potentially even blockchain, or blockchains because they’re also plural. Bertrand You make a good point to go back to web3, blockchains and we will dedicate an episode or more on this topic as well. I feel that one of my issue is many definitions of the metaverse is that it sort of implies some level of central authority of centralized system, centralized platform. And I’m not really sure that’s where the world is going. I actually feel it’s going more and more to more decentralization. I’m not sure how some are thinking the metaverse. It’s very compatible with where the world is going as simple as that. That’s for me, probably one of my biggest issue with the metaverse. And of course, when you think about metaverse, Meta, Facebook, they would love to make sure everything happens in their platform, in centralized world garden. And again, I just go back, I just feel that everything they are trying to push for, and also companies are trying to push for is more centralization. When I believe the world is actually looking for centralization at many levels. That might be probably the darkest clouds on many definitions today for the metaverse. Nuno The product guy in me tells me the best products are normally enlightened by one person or a very small group of people. And the experiences we’re talking about in this metaverse or metaverses have to be enlightened. They have to be exceptional. They have to be the best. I fail to see a world where the dominating metaverse or metaverses are highly decentralized at the app layer, where there aren’t clear decisions made by central entities be it those entities companies or something else. So I don’t know, I may be a little bit more skeptical. I think the silver lining is hopefully along the way, there will be other pieces of the ecosystem or the lower layers of that deployment, payments, etc, that will hopefully be more decentralized and will at least allow for more accountability. But I don’t know. I mean, I’m just maybe being too structural in my strategic thinking to say there’s no way for the types of experiences we’re talking about. Maybe there is a way, maybe someone is going to show us the way. Conclusion (30:35) And this finalizes our duology on the metaverse. We have gone through the definition of what the metaverse is and our agreements and disagreements with some well-used definitions in the industry. We talked about key players and what they’re doing in the industry. We also went into details on the core enablers for the metaverse, or metaverses to happen. And we ended by sharing what we believe should be lessons learnt for investors and entrepreneurs alike. Thank you for listening to us. Bertrand Thank you, Nuno. Nuno Thank you, Bertrand.