Hitting The Bottom?

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I've got sunshine on a cloudy day When it's cold outside, I've got the month of

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April the 7th, 2023. It's that time of the week, the end of the week. For our weekly conversation with my old friend Keith Teer, who amongst other things is the CEO of SignalRank. He just closed a round of financing this week. Congratulations, Keith. He's the only man, I think, in the universe who can raise money in this atmosphere. And we are apparently, according to Keith, in that was the week newsletter. I'm not sure how serious he is. I'm not sure how serious he ever is, but we may be hitting the bottom. And perhaps coincidentally or not, he launches his newsletter with reference to his wife's piece about venture funding from Crunchbase News. Keith, is there any connection between Jeunet and hitting the bottom? Oh, Andrew. I couldn't resist. I mean, you set yourself up for that one. Yeah, exactly. Yeah, we can't talk about that because I'll be thrown out of the house for the weekend. Maybe Jeunet will hit your bottom. You're pretty naughty. I mean, in this current woke environment, I'm surprised you risk making jokes of that nature. Well, I'll be thrown off Twitter. Or actually, probably Elon will be pleased. I'll be the only person left on Twitter making sexist remarks. Anyway, in all seriousness, Keith, hitting the bottom, are you being serious or are you being in your own Tyrian way, making fun of the consensus? A bit of both. You might notice that the headline of the newsletter has a question mark, but the graphic doesn't. And I added the question mark after I'd done the graphic. So clearly I was considering how serious I was myself about it. The headline is derived from not just Jeunet's coverage, but Jeunet's coverage on Crunchbase did get widely picked up in the media. And the headline of her piece is that venture funding is down 53 percent year on year. And that obviously is a massive drop. And it is borne out in the numbers I see at SignalRank across every funding round. The amount raised is down. The valuations are down. Carter also produced its quarter report this week, and it confirmed the same thing. Now, of course, anyone who watches that regularly, this will not be a surprise. It'll be a bit of a why are you telling me this? I already knew kind of a headline. But I don't think it's widely understood what the linkages are between the correction in public markets, inflation and interest rates. Is it just the money sort of washing through the system, so to speak, or the absence of capital or cash? Why is venture funding down so much? Are they not able to raise the same kind of funds? No, they have a lot of money. It's to do with the probability of an outcome. You know, a year or two ago, the probability of an outcome measured by value growth was very high and value growth was a function of new investors investing in the next round after you'd invested in the current round. Now, all of the calculations which used to make sense don't make sense. The likelihood of the next round happening are much lower. And if you look further out, the likelihood of a public offering is a lot lower due to the way public markets are behaving. So the entire value chain that begins with an angel investment, where that investor is focused on what the value might be 10 years from now, that whole value chain is unpredictable and certainly currently very negative. So your crystal ball doesn't really tell you what to expect anymore. And insofar as it does it, it isn't good. I'm not going to make any jokes about crystal balls and hitting the bottom. But isn't this the perfect moment, Keith, to invest? I mean, it seems to me as naturally a counterintuitive person, when everyone's running one way, the smart investor runs the other. And that's exactly what I'm doing. And that's why SignalRank was able to close a round, because we invest in the best B rounds, as you know. And it is the best time, absolutely the best time. The best investors are gun shy. So when they decide to write a check, it implies that the due diligence they did on the company and the prospects persuaded them to go against the grain. And that's a very strong positive signal of the strength of that company. So this is a really good time, if you know what you're doing. But the weird thing is that when, I guess maybe it's like 1999-2000, we have two things simultaneously going on. We have the hitting of the bottom in theory, maybe in practice. And then we have this huge AI boom. So how can the two things coexist? Well, it didn't really coexist in 1999-2000 until Web 2.0 came along. Right. So I was thinking Web 2.0. And I guess Google already had its funding. Most of the few Web 1.0 companies that became successful in Web 2.0 already had their cash. Yeah, but around 2005, seed funds started to emerge and seed investing kicked off at some scale eventually. And you had the aftermath of the bubble bursting and the beginning of something new, which became very big and drove a lot of value. That is happening now, except closer together. And it isn't just AI, by the way. It's biotech, it's medical diagnostics, it's quantum computing is beginning to happen. There's quite a lot of things happening that will attract capital. I think fintech will still attract capital. Look at the post Silicon Valley bank emergence of competing banks like Mercury and Brex are growing very fast. So like always, more than one thing is happening at once. And the headlines tend to gravitate to the negative. In my editorial, I start with the negative, but I end with all the good things that are happening. And I think there's a lot of good things happening. And honestly, I think that if you're an angel investor or a seed investor or an ARAM investor, this is probably the best 12 months that you've seen for 10 years.

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What about, Keith, the other thing that seems to be happening this week, which you have a lot of connections with, is all this news about Saudi money. Are the Saudis and outside investors, maybe from China as well, are they going to be able to take advantage of this opportunity because they have huge amounts of capital? Yeah, I included the Saudi stuff. There's two articles about Saudi Arabia because there was a conference in Miami that the Saudi PIF fund attended. And Driesen was interviewed, for example, and made the point that the Saudis is more of a startup country than America is. And Keith Raboi, who lives there, made the statement. He lives in Saudi or Florida? Maybe they're the same place, increasingly. In Florida. I mean, how can Andriesen say such an absurd thing? Well, there's a very specific backdrop to that statement. About a year and a half ago, we covered it. Andriesen launched this initiative, like American Growth Initiative or something like that, that was very focused on the US's benefits. And his point was that the Saudis have invested in that, but the American government... Right, they led it, I think, with a web piece or a blog about being ready to build. Yeah, exactly. And his point is Saudi money has come into that initiative, but the American government has largely ignored it, which to him demonstrates that at the government level, not really at the entrepreneur or investor level, but at the government level, America is not a startup country. And there is some merit to that. We've talked about the anti-big tech. Yeah, I mean, Chris Schroeder has written about the Saudis on this front, but I've done some shows on Saudi human rights and the nature of this new city neon, which is surveillance capitalism perfected. It's a chilling thought, isn't it, Keith? Especially for libertarians like yourself to have such an authoritarian government driving innovation. Actually, libertarians ignore governments. Authoritarian... It's all very well for you to ignore governments, but if you lived in Saudi, the government wouldn't ignore you. Well, I can tell you I have a fairly robust relationship to neon. I speak to the people at neon quite often. And my perception of neon is that it's a little bit like when a medieval society emerges into capitalism and overthrows the vestiges of that medieval feudal thing. Neon represents kind of the next stage of Saudi Arabia to some extent. And I think it would be foolish to see it as more of the same. I think it's actually something quite different. And it shows the evolution of that society.

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Obviously, it's a complex issue. Saudi Arabia has definitely got standards that we would recognize as being medieval. But that's true of most of the former colonial world. Well, you can argue as well, given inequality in America, when you walk around San Francisco, there's something very medieval about it. What about the other story that you noted? Keith Raboi, formerly of PayPal, one of the right-wing ex-Silicon Valley people.

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His warning about American investors shouldn't be arming the enemy by helping China create its own version of open AI. What do you make of this, Raboi, as the new digital cold warrior? You know, it's worthy of a longer conversation, Andrew. The reason I put it in, and the Saudi ones, is there's clearly a dichotomy right now between globalist-thinking investors and nationalist-thinking investors. The idea that AI should be part of the Cold War with China is a very nationalist point of view and is kind of quite alien to Silicon Valley culture. And Keith Raboi, to that extent, represents a kind of a militaristic, I'm-an-American point of view that most people in Silicon Valley would be alienated from. Maybe that's why you had to go to Florida. Is Peter Thiel in his camp? They're old friends. On that topic, I don't know. But they certainly work together. Whereas Andreessen went the opposite way. They're very globalist. And the embracing of Saudi Arabia and Sequoia's China fund investing in Chinese-based AI, which is what the crux of the argument's about, they're very globalist. And globalism and humanism, I think, go together. I don't think you can be a humanist and a nationalist. Because you pride yourself on being a globalist, and by definition, you think of yourself as a humanist. Isn't Andreessen just essentially a hardcore, for better or worse, technocrat? He just doesn't care about politics, one way or the other. That is less and less true. If you follow him, he's an avid reader. He's got one of the most critical brains, I think. You can be critical and an avid reader and still be a technocrat. What is a technocrat? Someone who believes that technology is always the solution, that we don't need to fall into political ideologies of one kind or another. Every problem, we can engineer our way out of every problem. Actually, my good friend Norman Lewis wrote a piece this week. He works for a think tank in Brussels, and he wrote a piece saying that open AI, or AI in general, ChatGPT in particular, is anti-human, and that the positive response to it is indicative of a distrust of humans. I thought it was the opposite, that ChatGPT is the most human tech that we've ever invented, because it is a supplement to humans, created by humans, learning from human knowledge. I guess, as you say, in spite of a longer conversation, what you mean by humanism. Finally, on your Essays of the Week, you had one that I suggested you put in, Why Journalists Can't Quit Twitter by Casey Newton. You have an interesting explanation. It seems as if, for all their criticism of Musk and Twitter, they're all still on it. Yeah. My view is that they're still on Twitter because they want to impress their peers and be acknowledged by their peers, and that you can only do that in a forum where your peers are there with you. If you were to disengage from Twitter, even Jeff Jarvis this week did some tweets, and he's a strong Mastodon fan. I didn't think Jeff Jarvis was still alive. He's still alive, yeah. He's a professor at New York University still. I kind of like Jeff. He's very thoughtful. I don't always agree with him, but that goes with the territory. Is he more or less alive than Jimmy Carter, do you think? Oh, way more. Way more? But I would say that Twitter is like a drug you're addicted to if you're a journalist. Why would you possibly not want to be seen as an influence on Twitter if you're a journalist? It would seem to be de rigueur that you have to be on Twitter. So it's super hard for them to leave. And why wouldn't they pay for it? I mean, the amount that you would pay for Twitter compared to The New York Times is nothing. You'd pay way more for The New York Times, but on Twitter you've got every newspaper on earth. Well, let's move to news of the week. Introducing Substack Notes. You have a soft spot for Substack. It seems as if, and I'm beginning to agree with you actually, Substack may be a real alternative to Twitter. At some point in the next few months, probably that will become obvious. But for the moment, only you and I see that. What's Substack doing to take advantage of this void in the Twittersphere? Well, it coined the phrase this week, the subscription network. So that kind of combines both parts of what Substack wants to become. On the one hand, it's subscription-based, so writers and producers can earn money. And on the other hand, it's a network, so you can cross-post, cross-reference, mention, and so on. And what Substack Notes is doing, although it hasn't been released yet, so this is a provisional assessment based on some screenshots, is it's creating a feed or a stream of contributions from Substack writers and readers that is very Twitter-like. Except, unlike Twitter, there's no advertising and there's no kind of forced algorithm making you see stuff you're not interested in. It's all to do with what you're doing. Shouldn't we be doing more on Substack? That was the week. Well, you know we do First Dot. If you join Substack, get an account, and you go to inbox.substack.com, you will see there's a section of chats and there is a chat section to That Was The Week where you can come and ask us questions for next week's show or whatever you want, really. Gilmore Gang has moved from Telegram to Substack this week to do exactly that. So if you go to gilmoregang.substack.com, you'll see everyone who appears on the Gilmore Gang is posting content for the next show and discussing it as well, by the way, in the chats. So that is beginning to happen. We need to get more people. Maybe, Keith, if we promise that everyone who comes to our Substack spot can hit our bottoms, will that... I knew you were going to say that. It was either that or crystal balls, but... Well, if you go on Substack, Keith might let you hit his bottom, although I can't... You realize that there's a strong danger you're going to get a backlash to your line of questioning in today's show. Yeah, well, backlash is what we're looking for. What about AI, Keith? There's no week these days without news about AI. You have a whole section on that, too. In fact, you've invented a new section. We have News of the Week, Essays of the Week, and now we have AI of the Week. You know, the reason I did that is because if I didn't, AI was either going to dominate Essays of the Week or it was going to dominate... AI is ubiquitous and insatiable. It takes everything over. But there's a lot of really good writing. Stanford University produced over 300-page report. Key takeaways from Stanford's report has been written by a TechCrunch author. Only Stanford University is capable of a 368-page report. Who actually reads that? I'm tempted to go and read it. Aren't you? No. I hope you read it and you can summarize it in three or four words. Well, that's what Devin does, so that's good. I mean, look, generally speaking, most institutions are positive about AI's potential. The negatives, which includes Gary Marcus, who I also published this week, even though I disagree with him for the most part, because I think critical thinking requires oppositional thinking as well. You've got to read people who disagree with you. You know, I think for the most part, everyone sees the potential. I don't really think most people are focused on the fear in the world, but Americans, 65% believe that bad things will happen. It's the only country in the world. They believe bad things will happen to everything. And whatever you poll Americans on, they have a negative. I mean, it seems to me as if AI means that someone wrote a book about this a few years ago, the average is over. You can't be an average writer anymore because the quality of the AI is average. It's never going to be much more than average. They're never going to be able to reproduce the quality of our show, Keith. But for most average journalists or average people, AI, GPT, or whatever other these platforms, whatever other algorithms they use, average is over, isn't that right? Well, I think that might be a difficult framing because it implies replacement of humans by AI. I think AI is an enhancement technology, not a replacement technology for the most part. I think it's going to be both. I agree. But for some average people, AI means they're afraid their skill is over. But for others, it can enhance it. Yeah. For example, if you're a researcher and you employ copywriters and script writers, those three jobs probably end up being one job with AI instead of three, where basically chat GPT plays the role of the researcher and plays the role of the copywriter. You still write the script and choose what to take and what not to take. Even that ultimately might be done by AI. But I think it's mainly creative endeavors that rely on knowledge that need human oversight to check the knowledge. It's a fantastic tool. It's just a great tool. Keith, noted for its emission from your AI of the Week essays, nothing about Google and its launch, its announcement, the CEO, that their version of chat GPT would now be integrated into the search engine. Do you think this is not that big a deal? It didn't give me confidence that there's a there there yet. I think everyone's standing back and watching Google and assuming that something will happen. But Google is so economically tied to ads on search results, it's super hard for them to put anything excellent that replaces searches. Now, I don't think for the most part AI is a search tool, but I think people use search for things that don't need a search tool. And I think all those uses of search where search is really a bad tool, a lot of those times chat GPT will be a very good tool, and so will Google's AI. And that damages Google economically unless they can figure out how to monetize it. It's not obvious how you would monetize AI other than through subscription, as chat GPT is doing. And that's not Google's call. So is it conceivable, and history always seems to repeat itself with tech, that open AI is to Google what Google was once to Microsoft? I think it's what Google was to newspapers and libraries. That's probably a closer analogy. I mean, how often do you go to the library now? How often do you buy a newspaper now, even a magazine for that matter? It's rare. So Google basically was the replacement for other modes of discovery and learning. I think that chat GPT will be the replacement for search for a lot of endeavors where search was never the best tool anyway. And what about the Microsoft Play? You've been critical in the past of that. Is there any news on how they are playing this out? They must be really enjoying the crisis at Google, if it is indeed a crisis. Yeah, it's hard to gauge what the impact is of their decisions yet, but they have embedded their version of chat GPT into Windows 11, which obviously has a big user base, not as big as Android or iOS, but big. They have embedded it into the Bing search engine, which doesn't have a huge user base, and they've embedded it in the browser they have called Edge, which is their version of Chrome. So I'm guessing that they must be getting a lot of usage. They're trying to embed it in their search interface that means they can display ads around it, but that is a very uncomfortable marriage, so I don't see that lasting. I would predict failure for Microsoft still, although they're very much in the game. I'm not getting the sense that they're really going to own this. I don't think they're going to own this. I think the other things that happened in the last couple of weeks are more indicative. Expedia embedded chat GPT in beta. Open table did. Things like book me a flight, get me a table, and book me a hotel room are all going to be able to be done by telling chat GPT to do it through existing services that exist to do those things. That feels more like the future to me than everyone going to Bing. What about get me a wife? What about the dating site? There's probably going to be some interface there, I would imagine, because anything that involves selection and recommendation or acting to spend on something that was recommended is in the sweet spot of this AI. Then investing? I guess you're doing that. Have you integrated chat GPT into SignalRank? I can't really talk about it. No one watches this, so you can talk about it. There will soon be SignalRank.ai. In SignalRank.ai, we are working on an interface that's chat GPT-like called Ada. After the famous British woman who invented computing as we know it. Ada Lovelace. Exactly. I don't know if that will ever see the light of day. It's very early in its life right now. We'll see. Certainly, it should be possible to say to it, I have $5 million to invest over the next 12 months. Can you tell me which companies at the A-round stage are the best companies doing, for example, biotech in the USA? It should be able to tell you that. Is there any coincidence, Keith, that the Google original search engine was called PageRank and you're called SignalRank? PageRank counted inbound links to a page. We count signals from an investing round. An investing round scores based on its signals. We don't expose what those signals are, but they're very correlated to good outcomes. There is a similarity. It's all counting and statistics leading to intelligent predictions. Good outcomes. Maybe next week we can announce you've been bought by Google or Microsoft, or even OpenAI.