The State of Venture

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

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of May, I've got the month of May, I've got the month of May, I've got the month It may not be, but the news, you know, news tends to focus in on tipping point moments. And I think there's a tipping point moment. The information had a story about funds seeking to sell their entire portfolios in order to raise capital to return to limited partners. And then the RAISE conference, which is one of the better conferences in venture capital, they published a thing saying searching for DPI. And DPI is an acronym that means cash given back to limited partners rather than, you know, paper gains that they can't spend. So there's an obsessive focus this week in the news on cash. Cash is king. And it was the week that Y Combinator showcased the next 200 and something startups, all of which are seeking cash. And TechCrunch put an article in saying investors were turning a blind eye and not attending the event, which I think is probably an exaggeration, but making the point that the Y Combinator startups are overpriced. So they're looking for cash and not getting it because they're overpriced. Funds are looking for cash, selling their investments, but can't sell them. And limited partners want the cash because they can't invest in the next cohort unless they get money back from the last one. So it's all about searching for cash this week. And I'm guessing, I mean, you tend to be fairly counterintuitive. The best VCs are. Does this suggest that there are some really good buys these days in terms of paying for things, whether it's funds or startups? You know, that's the funny irony. It's almost like the January sales that we know about in England, like what's it called here, the Amazon Day, Prime Day. The January sales are on in startup land, but nobody's got any money to take advantage as a result of which the bargains turn into failure. What do you mean nobody's got any money? I mean, everyone, these VCs are swimming in. We even had a show about that a few months ago. These VCs, if they want cash, they can easily get it. Actually, that's not true. They're swimming in promises to give them cash. The way venture works is you promise to give a venture fund cash and then they call on it every time they need it. But the word on the street now is don't call for it because we haven't got it to give you. So they're not making the calls. So this being a washing cash is a fictional number in a way. It's not a real number. And, you know, that's represented in the numbers. When you look at my wife's report this week on European venture, there's nothing that is up. Everything is down. And it's because of the lack of cash. Cash is not flowing and cash oils the system of venture capital. And we've talked about this before. Is that really mostly because of the rise of interest rates? Is that funds can earn a lot more and more securely by just putting the money into banks? I think that's only true in the public markets. I think in private markets, it's literally lack of cash. So, you know, you invest a billion dollars in venture in 2020. And by 2023, you would expect to get some of it flowing back to you in returns. And it isn't. So the whole cycle has come to a halt. I used to I've called it blockage in the system. It's like the pipes are blocked. And until some cash starts returning, it won't flow again. Well, now that's landed on the doorstep of venture funds. We talked about Tiger Global trying to sell parts of his fund a few weeks ago. The story this week is a lot more funds are trying to do that and some of them smaller funds. So it's becoming pervasive. And of course, there are no buyers. There's no price at which these assets can be bought. So it's going to fail. So I think we can predict that companies are going to close down, but also a lot of funds might close down. Well, that doesn't include your new fund, Keith. It does not. Stig Norand, you seem to be well positioned. So I'm not giving up on this. Things change fast. One of the interesting pieces that you link to in your essays of the week is one by Professor Galloway. Professor Scott Galloway. I was going to say Dalloway from Virginia Woolf, but it's Scott Galloway from NYU. What's Galloway? You haven't always been a big fan of him. You said you'd linked him for the first time. What's Galloway saying this week that's interesting? And it's a money related piece. Yeah. Look, I think he's a super interesting guy. I think I react emotionally against his demeanor because he's kind of cocky and aggressive. And it doesn't feel like you can sit down with him and have a conversation. You'd have to have a monologue coming in your direction. But actually, I find him super interesting. I admire his tenacity, his abstract thinking. He's prepared to crack eggs when he speaks on topics. And de-dollarization is is a pet subject because in the land of tech podcasts, his opposition is the all in podcast with David Sachs and Calacanis and Chamath and Freeberg. And they've been talking about de-dollarization a lot, especially Sachs. And of course, Kara Swisher and Casey Newton and Professor Galloway are on the other side. So this is a kind of a picking a fight topic. And it's a very long piece with lots of graphs. So basically, what's the argument? What are they? The argument is the US is not going to be replaced by China or anyone else anytime soon. And therefore, de-dollarization is a myth. He calls it fantastical. And he goes to great lengths to show that America is winning still by far and is unlikely to stop winning anytime soon. Which I tend to instinctively or intuitively agree with him. I just back from DLD and lots of talk in Europe, not a lot of action, not a lot of money. We've already talked about that. But America, for all its dysfunctionality, for all its political malaise and all the rest of it does still seem to have a pretty viable economy in broad terms, even outside tech, doesn't it, Keith? Well, look, you only have to travel in America to realize it's decrepit. America is decrepit from just from an abstract investment point of view. Or from an infrastructure point of view. But that decrepitude doesn't necessarily translate into broader economic terms. I mean, San Francisco is decrepit, but it's still enormously innovative. Actually, it does translate. I mean, if you look at Chinese, just Chinese GDP and they measure it by something called PPP, which is producer pricing, which is how much can you buy for your money? Chinese GDP is very close to American now and has caught up every single year for the last 20 years, rapidly catching up. The domestic market in China has as many buyers as America has in terms of consumers who have the cash to be able to spend on things like cars and less expensive things. So China's a growing part of the world economy. Now, you add into that BRICS, which is Brazil, Russia, India, China and South Africa. They've just had their conference and added six more countries. And when you add together the GDPs of those six, it's more than 50 percent of world GDP. Not just American, but world GDP. So it is wrong to be lethargic or, you know, kind of turn a blind eye to the fact there's a lot of change happening economically. Well, that goes without saying, but you tend to be on Galloway's side in terms of dollarisation. You're likely more confident about the US. Yeah, it's a question of timing. I mean, the end is inevitable of American domination as all empires come to an end. Why? Because of lack of new investment. It's a very simple. It's the innovator's dilemma. Another piece that you link to, which is self-serving from your point of view and my point of view, but also reassuring, is by May Gavir, a French investor, entrepreneur. She's been on my show before. She finds in a LinkedIn piece that founders who are 50 years old and above are more likely to bring radical innovation to the market than younger business owners. I'm guessing, Keith, you love that one. You know, I meant to... You're not over 50, are you? Yeah. You're in your late forties. Yeah, exactly, Andrew. Absolutely. In dog years, even. So, yeah, I meant to write about it in the editorial because I was pleased to see it. You know, there's been a meme in the Valley now for the best part of 20 years that only young people can innovate.

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Ron Conway in Silicon Valley Angel had a whole conference about it once. And he's about 80 years old, Ron Conway. No, he's still a young man. He's got lots of energy. You can be 80 and have a lot of energy. And you can be 20 and have no energy. Exactly. But anyway, the meme was very strong, and it was pretty impossible to get funded if you were over 30, and very easy if you are under 25 for a period of time. So I thought when she wrote this, of course, we all know it's true that experience and, you know, the ability to conceptualize change are correlated. The benefit of being young is that you don't believe you can fail. And that is correct. And I believe in that. The benefit of being over 50 is you understand how to win. And understanding how to win is very different to thinking you can't fail. And I think she's right. You know, I feel at the top of my human powers at my age. Why? Because I've seen and done a lot. I've failed a lot. I've succeeded a lot. I understand the ecosystem very well. I know who to talk to, and I usually know them. Those things are massive advantages in building a startup. Yeah. I mean, I think I'm slightly less bullish than you. On the other hand, I think the one thing you learn is not to waste time. And I try not to waste too much time. Moving forward, speaking of time, that was the week without AI. Some interesting pieces. There seem to be more and more futurists, political writers, and VCs teaming up. Last week, you had Ian Bremmer and Mustafa Suleiman. This week, it's Himant Taneja. He's been on the show before. And Fareed Zakaria, one leading VC, another leading political writer. AI and the new digital Cold War. What are these guys saying? So, you know, Fareed Zakaria is the guy on CNN. And there's an accompanying video of him talking about some of this in this week's issue as well. And Fareed is really leading the charge here, talking about the dangers of AI, whilst also trying to indicate the benefits. Eric Schmidt is part of his video. But this particular piece, is it Foreign Policy or the Harvard Business? I think it's Harvard Business that published this. Yeah, Harvard Business Review. This is a bit different. It's crossing over into the same theme as Galloway, which is de-globalization. They both believe in de-globalization. And in Zakaria's case, he believes that AI is going to become a weapon in a digital Cold War, especially with China. And they're weaponizing AI in global politics. Now, I don't know about you. I think that's super dangerous as a narrative. Well, I mean, if they're observing reality, as I said, I just came back from DLD, the AI summit. And I managed a panel with the CEO of the Munich Security Conference. And we talked about the same issues. I mean, they're realities, whether or not, I mean, you've got to address them, whether you like them or not.

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I think the minute that tech is reduced to a weapon between nation states, the whole human project of progress gets put on the back burner. Yeah, but that's garbage talk, Keith. What do you mean? I mean, it's a reality. People use technology for weapons. They always have done. There's nothing wrong with talking about it, whether you like it or not. But don't we have the choice to refuse to play that game? You're not a politician. As a journalist or as a VC, you have to acknowledge it. I'm talking about technologists. Well, technologists. I mean, that's why Christopher Nolan said that this AI moment's the Oppenheimer moment. We talked about that at DLD. It's terrible if that's accepted as being OK. I don't think anyone thinks that. It's just a reality. I mean, the Chinese are going to use it. The Americans have to. It's as if Oppenheimer said, well, I'm not going to play the nuclear game, but the Russians will. Well, saying something is a reality. You would never say that in a different context. I mean, you would never say, well, child abuse is a reality. Therefore, let's just... Well, it is a reality. Yeah, but you do something to change it. It doesn't mean you approve of it. Yeah, exactly. Well, all I'm saying is I don't approve of it. I don't approve of characterizing AI as primarily a weapon for nation states to use against each other. I think AI is... I don't think they're just observing. That's the reality. AI will be. They're not just observing. In the way they jump out there. No, they're not. They're accepting a narrative. Yeah. I mean, you have a choice to reframe things in a different light, and I would choose to reframe AI as an enormous human benefit, which, by the way, he does do in his video. Yeah, but that goes without... Everybody knows with these major new technologies that they can be used for good or bad, right? I mean, that's just... A five-year-old knows that one, that these technologies can be used in a good way or a bad way. It's like a... Right. Well, so I don't... I mean, look, the Biden administration is as clueless about AI as a guy next door whose door I could knock on. So the idea that nation-states are, in any kind of driving seat, even a backseat passenger in this AI thing is a lie. Well, Solomon, Mustafa Solomon was on my show. He thinks that we need to use, and I think he has an interesting point here, is that he thinks we should use AI to strengthen the nation-state. Not to make war, but to strengthen it in terms of challenging movements of disaffection. So... Yeah, I don't disagree. I mean, look, not movements, but the nation-state is decrepit. And so if you could use AI to direct resources to, let's say, for example, public transport, great. That would be fantastic. Is anyone doing that? No, because the nation-state is so removed from seeing itself as its primary goal to enhance our lives. It doesn't do that. Its primary goal... Well, I think it's a very... I mean, the nation-state in America is different from elsewhere. Anyway, this is a tech show, Keith. No more politics. Well, Stephen Levy, probably still tech's biggest star when it comes to writing about tech, has an interesting piece in Wired. What open AI really wants? What do they really want? What does Sam Altman and his superstar management team also look as if they've just walked out of a Hollywood movie? What do they really want, according to Levy and Wired? The interview just came out, but actually it was conducted quite a while ago when Sam Altman was touring the world meeting world leaders. And it's interesting, at the start of this interview, he's just met Macron in France, and the interview starts with him, Altman, acknowledging that Macron seems like a nice guy. So the interview is really part of Altman's world PR tour to tell the world what open AI is, and therefore the message that comes through is a few months old, but it basically is saying open AI wants to be a tool to enhance our capability to get stuff done. Well, that's news, isn't it? What is he going to say? That open AI is to destroy the world, to create more weapons? Yeah, but Levy gets a lot of access, a lot of time, and extracts out of Altman some genuine stuff. Anything interesting, Levy? I mean, I like him as a person. He tends to be a bit of an apologist for big tech. Well, he's the last apologist. He's the only guy who still believes in these big companies. He's a bit like Walter Isaacson. His living depends on having access to movers and shakers. Walter Isaacson's new book on Elon Musk comes out this coming week, and that's, I think, the third book in a row where he's doing a biography of somebody still important. So, you know, you've got to understand the context when you read Stephen Levy. But he's an astute observer. He's got a massive amount of experience. He can contextualize people in tech. So I think the interview is very good, and Levy, I still think, is very good. A couple of other interesting pieces. The end of Airbnb in New York City, is that a big deal? The truth is I'm not sure, but the story certainly suggests that it is now virtually impossible for somebody to rent out their place in New York City without breaking the new laws. And if that's true, you know, I'd love to unpack that with some people who know about this space, but New York has always been a town where favors are done and self-interest is pursued. I remember my first experience there was being told I needed an expediter to get a license for something, and I needed to get the union involved. So New York is very much traditional in... Yeah, and it doesn't seem to have... I mean, I know Airbnb is under pressure in Europe, in Paris, in Barcelona. I think it's illegal to use it in Iceland. But it doesn't seem to have affected the Airbnb stock price. I wonder why. Probably because New York's a small percentage. Did you notice that Paris banned the electric scooters this week as well? Yeah, well, Paris bans everything. You and I will be banned from Paris, not that I particularly want to go there. But, you know, you've got to wonder what New York... I think New York is probably the loser of this emotionally. It's good for hotels. I'm sure there are lots of institutional interests against Airbnb, particularly hotels, who probably are reasonably powerful. But large numbers of people like Airbnb, so they're kind of damaging the tourists who might... Are there local Airbnb-style alternatives? Or is Airbnb almost now like Kleenex? Or Uber? It's become an adjective. There's VRBO, Vacation Rentals By Owner, which predates Airbnb, actually. Speaking of Europe, Keith, you had a piece from the FT. UK pulling back from clash with big tech over private messaging. So the UK is... It's a big deal. ...stepping back from a big fight with big tech. Not the first or the last time that UK talks big and when it comes down to it, doesn't do anything. It's a big deal, and it's another illustration that the nation-state discussion is not irrelevant. Encryption is bigger than nation-state. I don't think I'm going to ban any discussion of the nation-state on this show. But just think about tech. Encryption is now a global standard. Messages across borders are not readable by governments. They are not, as long as you know the tools to use. They can't read your messages. They can't listen in to your voice calls. They can't watch your video streams. Because of encryption. And the UK was threatening to change that and enforce either back doors, ways that governments could get in. And they got a massive backlash, and now they've backed down. And I think you're going to see that more and more, that technical innovation will not be able to be stopped. Well, the one thing you missed this week, I don't know why you didn't include it, maybe your sensitivity to my wife, but a massive case now in the US. It's starting next week. Antitrust investigation of Google. Massive pieces in the Journal and the New York Times today. Focusing on Ken Walker, who is the senior legal honcho at Google. Any thoughts on this, Keith? You went through it in the 90s with Microsoft. Is history going to repeat itself? And if it does, in what sense, do you think? I think the answer is no. I think the department responsible for these kind of antitrust measures... It's your old friend. What's her name? The grad student. Lina Khan. Actually, I don't think it is her, but she's somehow involved. But I don't think they'll win. Because I don't... Who? The government? The government. For a number of reasons. One is, I don't think Google is a monopoly at all. The argument is that they've conspired with Apple to make it almost impossible to avoid the Google search engine, particularly in mobile. Yeah, but the Google search engine is only responsible for a tiny fraction of Google's income. It's the AdSense network that... Well, I mean, as a consequence, that's where they get their revenue from. No one pays for it. Yeah. But that's not the argument. Yeah, but think about it. I mean, we can probably collaborate on this. How many times do you use search now compared to how many times you used to? I'm going to guess it's a lot less. No, although I have noticed that Google is becoming increasingly annoying in the sense that the top searches are always sponsored now, and I don't want sponsored searches because it's just advertising. Well, so I use ChatGPT for information-related retrieval, which is way better than Google. You know, I use Amazon for searching for products. I use Netflix and Apple TV for searching for shows. Google used to be 100% of my searches. I'd be shocked if it's more than 10% now. I blame the nation state, Keith, for this. Yeah, I'm always a few steps behind you. You're in the avant-garde, the tech avant-garde, when it comes to using these things. I have to admit, I wouldn't know how to use ChatGPT for search. I still use Google. It's a little clunkier. It's two steps rather than one step, but I don't see Google going away in that sense. But this case is maybe next week we can talk about a little bit more. Yeah. Let's get to our startup of the week, which is one that you seem to use all the time. I mean, you're so reliant on this AI-generated art, and your startup of the week is a company called MidJourney, who are bucking the trend in every sense because, as you say, the VCs are queuing up to invest in them. You even have a piece about one VC who took the founder of MidJourney to what somebody describes as a rustic Italian cafe, Cotogna in San Francisco. I went there a couple of weeks ago. It didn't seem very rustic. Trying to get them to invest, and they said no. So what's so special about MidJourney? Why are they the ones turning down money and no one else can find any? So the founder of MidJourney was also the founder or at least one of the founders of Magic Leap, which attracted very large sums of money from venture capital and then failed. It hasn't yet closed down, but it hasn't produced a product that's a killer product yet. And this guy left, started MidJourney, and decided not to take venture capital. So he's bootstrapped the whole thing. Which I think is very smart. I mean, isn't that a no-brainer? Wouldn't you do that? You hate raising money and dealing with these VCs. Yeah. I think I pay $20 a month to use it, and I get all my front pages from it. I have to say, though, and don't take this personally, Keith, that this art is not very good. It all looks the same after a while. It's like elevator music. No, but that's because of what I asked for. You should criticize me. I'm the same when I use that tool. But the way you use MidJourney is it's integrated into a chat app called Discord. If you install Discord and go in and try to create art, you can create almost any style or thing you want. Wow. It's based on you. It's called the prompt. So you create a prompt that starts with the word imagine, and my prompt this week was imagine somebody searching for money. Use your imagination. That's all I said, and it gave me the image you just showed. But in all seriousness, Keith, isn't this, again, it's not really news. The really good companies don't need the money, and most companies that aren't really good are desperate for money. Why is this any different from any other time? Actually, no one's trying to make the case that it's different. It's just this guy's been highlighted because he represents somebody that can do that. By contrast, by the way, OpenAI, which has got to a billion dollars in revenue, according to rumors, has raised tens of billions of dollars. So MidJourney, which I'm pretty sure its revenue will be getting up there, hasn't raised billions of dollars, and so the founder owns most of the company still. So is he the equivalent, the 2020 version of Craig Newmark? That's the claim. That's the claim in the article. So this is the Craigslist version, which never really went anywhere. In retrospect, Craig Newmark might have been better off turning it into a real VC-backed company, and he might be Google now. I actually think Craig Newmark made a very large amount of money from Craigslist because he could do whatever he wanted with the revenue. Yeah, and he's invested it. I mean, he's one of the good men in tech, one of the unambiguously good men. He's poured the money back into journalism startups. Yeah, and AI, as I said, I was just in Munich for DLD's AI. You chose my, very kindly, Keith, you chose my interview with a German venture capitalist, Ludwig Enstaller, who's a GP at the Berlin-based 468 Capital, about a year that changed the world. People at DLD, and particularly Enstaller, are very bullish on open AI and chat GPT. I mean, I'm not sure how much of it is actually going to wash off on the European economy, but they nonetheless see this as for real. It's completely for real, Andrew. I've spent the last month upgrading the SignalRank algorithms, and in order to do that, I needed to introduce some concepts into the code that involved time-based thresholds for scoring that was way beyond my programming capability, but I could describe it. And I gave chat GPT my earlier code, explained what I was trying to achieve, and it was able to write code quickly as well, and accurately, that did exactly what I wanted. And now the SignalRank code base is completely upgraded to a new version. And I'd say, if you look at the code, I probably wrote 20% of it. I was 100% of the inspiration, and chat GPT could execute where I couldn't. It was like having an expert sitting next to you. It is phenomenally good. Yeah, and it's only going to get significantly better, which was the word out of Munich this week. Finally, startup of the week, a little company that I actually hadn't heard of. Keith, who's your startup of the week this week? No, we've done startup of the week. You're talking about X of the week. Oh, X of the week, yeah. Dealing with a little company I hadn't heard of. Who are they? Apple. Why Apple? Because it's their big show on Tuesday when they're going to release the new iPhone and probably lots of other things. So I made them my startup of the week, my X of the week, because they use Twitter or X for advertising, which kind of puts the lie to the idea that X is being avoided by advertisers. This clearly is a good illustration that it isn't. By the way, you followed the whole Anti-Defamation League thing with Musk. No, I haven't been following that, but perhaps the most interesting thing for the Tuesday will be the new iPhone will have a major change because of a European activist challenging Apple on that. I don't think that the new phone is going to be particularly interesting, is it? It always is. But you're the only one who buys it. I'll tell you why. Nobody else buys it. I buy it for the upgraded camera always because I take a lot of... Like I was at my kid's football game last night and I videoed a touchdown with an iPhone and I was sitting 50 yards away. They had touchdowns in football.