Keith Teare on THAT WAS THE WEEK in tech

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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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August the 25th, 2023. If it's a Friday, late afternoon, East Coast time, I've got sunshine on a cloudy day. If it's a Friday, late afternoon, East Coast time, evening Europe, it must be that was the week, my weekly roundup of tech and investment and financial news with my old friend Keith Teer down in the peninsula. We've spent the last few shows focusing on the crisis of the venture capital industry. This week, though, we are focusing on a different kind of crisis, a moral crisis of one particular venture capitalist, a man called Chamath Palapatiya, a very wealthy ex-Facebook man who has been accused of, at least according to Keith, in a hit job, accused of, I don't know if it's dishonesty or fraud or just moral dodginess in his association with SPACs. What's happening with Chamath and SPACs, Keith? It's interesting because this was like a non-subject, but suddenly this week, Eric Newcomer, who writes what is typically a very good newsletter called Newcomer, decided to have a go at Chamath, his involvement in SPACs. He calls it the scam in the arena. The scam in the arena, which is coming because Chamath's defense was at least he's in the on things. It's a very vicious piece, actually, I think. I don't know if Eric thinks it's balanced, but I definitely don't. It's a vicious piece attacking Chamath for the fact that people lost money investing in SPACs, whereas Chamath made money. And that's because he played the role of what's known as a sponsor. Sponsors typically are the first money in and the first money out in a SPAC. And for some reason, Eric Newcomer took umbrage about that. You may recall Chamath was involved with SoFi, with Open Door, with Virgin Galactic. We all knew at the time, or some of us knew, I always made it clear that I thought SPACs, if not were a formal scam or incredibly dodgy. The photo that you include, was he called in front of someone? Was he having to defend himself publicly? Or is this just a, excusing the pun, a spat on SPACs between Chamath and Newcomer Online? That's a mid-journey characterization. That is not Chamath, by the way. Chamath is both older and I would argue less attractive than this gentleman.

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You're relying on AI, Keith, for your own. I am. I am. And I told mid-journey to produce a characterization of Chamath as answering questions from a journalist, waving his hands furiously in his attempt to answer. That's what it produced. I thought it's quite good. It did a good job. No. So look, he didn't have to answer other than the fact that he chose to on Twitter, on now X. And there's a long-term. So in very simple terms, was Newcomer saying that Chamath knew what he was doing? It's pretty much the implication of everything he says. He accuses Chamath of knowingly leading an effort that would lose money for the investors. And he uses a lot of flowery language. He makes fun of the fact that Chamath just had a flamboyant wedding in Italy, that Grimes and Elon Musk attended. It's very personal. It's a very personal attack with a lot of rancor. I don't know what Eric's motivations are, but, you know, it reads as if he's jealous and angry. I don't think that's it. Any time anyone criticizes wealthy, successful tech people, people say they're jealous. I think that's it's a very easy and unprovable. Yeah, that's why I'm not trying to prove it. I mean, it's hard to imagine. But look, the only accusation really is that Chamath made money and others lost money. That's the core of it. So what's your take? You defend Chamath in the newsletter. You argue that SPAC was a good idea for a company. You say you were associated. But even at the time, I remember you and I used to talk about this all the time. I said, I don't buy this stuff. Actually, you misread the words. It says, I don't believe. I never believed that a SPAC was a good idea. Well, that's wrong because there were times where you had some faith in the early days. Well, I go on to explain that the SPAC as an instrument is separate from the companies that use it or the sponsors that sponsor them. SPACs have been around for decades. They're not new. And they've worked very well in all kinds of circumstances. So you have to get a little bit specific. The 2019-2020 SPACs were rapidly put together to benefit from a market that was highly overpriced and paying very high prices. And that attracted companies that needed a lot of capital. Now, the interesting thing is the public markets are really a pretty crappy place for companies that need a lot of capital normally, like space companies, for example. There's a reason SpaceX is not a public company because the public markets just aren't very good at that. But for that brief moment between 2019 and 2020, the public markets were a good place for that. So companies that needed capital like Virgin Galactic or Opendoor that buys homes or SoFi that finances loans and so on, they went through the SPAC route. The question is, were they acting rationally in the belief that it was a good choice? And my answer is, yes, they were. There was no scam. It was a totally rational choice at the time. And I've always argued that. They did raise money, those three. It's in their bank and they're alive today because of it. What then happened is the markets corrected in 2021 and the SPACs went down massively, massively. But so too did non-SPACs. All right. Well, Newcombe includes this chart that you cite. It does look a bit fishy, Keith, doesn't it? Well, I use the phrase reading history backwards. Look, if you look at the Titanic at the bottom of the ocean, you can say it looks a bit fishy.

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Everything looks fishy if you look back where it had a bad turnout. And by the way, where it looks good, it looks like genius if you look back. And both are wrong. Both are. What's that quote about? Both are fakes. Genius and idiocy are both fakes. But coming back to Chamath and SPACs, what's Newcombe's argument? That he knew what he was doing. He implied that he knew what he was doing. He got in early. And that he's basically destroyed his reputation because of the desire to make money. It's just a pylon, to be honest, Andrew. There's no coherent analysis, really. It's an angry pylon. And that's why I took it on. Because the reality of anyone in 2019 who was in a position to create a SPAC and find a merger partner was that it made complete sense and financially seemed like a good decision for everybody. It was one of those win-win-wins where the sponsor wins, the investors win and the company wins. How things change, Keith, between then and now. I mean, it's inconceivable that, I mean, obviously SPACs have failed, so we're not going to have SPACs 2.0. But in today's economic environment, things are so dramatically different, aren't they? Yeah. By the way, Andrew, there was a SPAC yesterday, two days ago. I mentioned it in the editorial. I wrote, I put it in after I sent it to you, so you probably haven't seen it, but Better.com did a SPAC two days ago. Five hundred and thirty-five million dollars is now in its bank account. It lost 95% of its stock value on the first day. It always seems to me to be the actions in this. I don't know enough about the Better.com, but it always seems the actions of a desperate company. All companies are desperate until they're profitable. I mean, that's the whole thing. The idea that there are these pristine startups that are not desperate and don't lose money is a myth. Your Series B stuff that you follow on, which you focus on, on SignalRank, the ones that are backed by blue-chip venture companies, I mean, they're in a stronger position. They're not going to fall back on SPACs. Actually, these SPACs were backed by just exactly those quality of investors. That's why they became attractive to Chamath. So who lost money, Keith? Who are the people who got burned? The people who got burned are the people who stayed in the SPAC after the initial listing. And are they retail investors? A lot of them are retail investors. A lot of them are original SPAC investors. Like that 535 million, which is in the bank account of Better.com, was provided by SoftBank. So today, SoftBank's half a billion is worth 95% less. The value of Better.com today is $19 million. So SoftBank has lost 95% of half a billion. Not for the first or the last time we, as one of the pieces you suggest, were in the early days of AI and AI hype cycles. How similar do you think the AI hype is to the SPAC hype, or are they incomparable? No, they're very comparable. I think you should think of venture capital as a repeating series of bubbles driven by rational behavior. So not an irrational bubble, but a rational bubble. And that's because whenever a new technology promises to transform everything, people want to be part of it. And the demand to be part of it is way in excess of the need for the money. So the price gets driven up, and everybody is trying to get in. And AI is at that stage. In reality, the money hasn't really started to flow yet, which is why Gilad Gill is so right to say it's the early stages. But over the next 10 years, we are going to see probably hundreds of billions of dollars invested in AI at prices that will make your eyes water. Many will say that that is putting money into loss-making companies, that it's a Ponzi scheme of some kind. But it actually is rational actors trying to own a piece of the future before it's too late. And that will happen over and over again because venture capital was designed to do that. It's by design that it does that. And everything seems to be timing. I mean, Chamath, like so many of these ultra-wealthy tech people, is a master of timing. What about the NVIDIA news today, this week, on its rocket ship year? They've been in a number of headlines. Their stock is incredible. Are we going to look back at that as hype, or is it for real? Both. It's definitely for real. The revenues were up over 100% quarter over quarter. Quarter over quarter, not year over year. And they are predicting that next quarter's revenues will be up 170%. And that's all driven by the demand for what's known as GPUs, which are the brains that allow AI to pass lots of data. Yeah, I mean, they are the foundations of this new AI economy. It wouldn't be possible without the NVIDIA chips. NVIDIA and a couple of other companies. Arm is about to do an IPO. They certainly play in that space as well and are undervalued, actually, I would say. So NVIDIA is the leader, however, the flagship AI computing power company now. And it's real. What's happened to Intel, by the way? Why is Intel never in these conversations? Intel does not have a powerful GPU. It has CPUs, which are the chips that run the computer's logic, but not the chips that pass all of the heavy lifting on data analysis. They do have a new GPU that is now in the market starting this year, which is somewhat equivalent. So do AMD. But NVIDIA is the leader by far, just because of quality. So where's the next level up? As the NVIDIAs of the world boom, what's the next sector to become a rocket ship in this AI ecosystem? I think cloud AI is going to be huge. That is to say, instead of you buying GPUs from NVIDIA, somebody else will buy them and provide all the software interfaces for you to use them. So is that Microsoft, Google, and Amazon, or other companies? There's other companies as well. There's a lot of new investments in the last couple of months in infrastructure companies for AI. So that's going to be big. And then I think vertically integrated AI, AI that is able to be really good at a specific thing. So this week, OpenAI went back to the previous version of Chat GPT called 3.5, and they opened it up to what's called Turbo, which means you can train it on your own data. And so you're going to get lots of vertically specific AI coming out of that. And increasingly, OpenAI will be an infrastructure company that other people's products sit on top of. So we're not going to see consumer-facing companies for a while. We will, because I think Amazon and Apple and Google will all abandon their previous efforts at assistants like Siri and the like and replace them with better versions. I think that will happen over the next year or two. But there isn't a lot of money in that. That's kind of a commodity. I think consumer-facing AI is really more to do with learning and having an assistant. I think there'll be lots of digital assistants. I'm still waiting for my digital assistant. And what does SignalRank tell us in terms of where the smart money is going? What's Chamath doing with his money these days? He's certainly not going into SPACs. Chamath actually published yesterday. He thinks the venture market may have bottomed. So he's going to start reinvesting, I would imagine. But he's investing at the early stage, the seed stage. Funnily enough, Vinod Khosla just tweeted a few minutes ago that lots of high-value jobs are going to be replaced by AI, and he listed a few of them. He didn't list venture capitalists, so I replied to him to say that venture capitalists doing late-stage investing should also be on the list. And Chamath thinks that too. So he's going early stage. And I think early-stage investing is going to see a renaissance. A lot of money is going to go into early-stage investing. Do I sense in this late summer of 2023, Keith, a little bit of a tiny glimpse of optimism for you? A spring in your voice that I haven't heard the last few weeks? Are you beginning to think, like Chamath, that we've reached the bottom? There's a whole section of this week's newsletter on IPOs. And two IPOs filed today. Clavio and Instacart both filed today. And I do think that I'm never pessimistic or optimistic, actually, Andrew. What I think is there's more than one thing happening at the same time. And the trick is to see everything and understand it in its right context. There's a lot of reasons for optimism. And Series B rounds are one of them, which is what my colleague Rob writes about in his ecosystem analysis. You write it's hugging faith. It's a $4 billion valuation. What is hugging faith? It's using AI in the CRM space. And so Salesforce Ventures led the round. And Mark Benioff announced the round on Twitter. And a $4 billion valuation for a company that is very early in revenue, by the way. So that reinforces my point about SPACs. Companies that are losing money is the norm in venture capital. And it's not a negative signal when they're losing money, unless they're losing money and not growing a business. Then it's a negative signal. Well, Keith is a Yorkshireman, so he's never that cheerful. But I do sense he's not willing to acknowledge, confess his own cheerfulness. I do note a slight shift in his attitude. We're going to take a brief break, Keith. We're going to thank our sponsor, the key non-sponsor, Liberties, a quarterly journal of culture and politics. Run a short ad, and then we'll be back, Keith, with my two favorite features of the week, startup of the week and X of the week. You're still using this word Twitter and tweet, Keith. It's old-fashioned. It's finished. Why are you still using that word? Age. I'm just old. I cling on to the past.