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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Yeah, this is difficult and worse some analysis. So two

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Speaker 2: of the big movies to the downside within the technology

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Speaker 2: sector are Alphabet, the parent of Google, and Meta. Meta

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Speaker 2: having its worst day since the end of October. October

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Speaker 2: of twenty twenty five last year. The morning started with

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Speaker 2: mag seven under pressure because of the belief by the

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Speaker 2: market that the war in Iram will be prolonged. But

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Speaker 2: there was a big piece of news in the last

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Speaker 2: twenty four hours, a jury verdict finding Meta and Google

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Speaker 2: liable for harming a young social media user with products

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Speaker 2: that the court decided were deliberately or negligently designed to

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Speaker 2: be addictive. This was the first social media addiction trial.

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Speaker 2: Let's bring in bloombogs legal reporter Madlan Meckelberg, who was

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Speaker 2: in the courtroom for that verdict, and let's start with

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Speaker 2: the very basics the jury decision, what that decision was

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Speaker 2: based on, predicated on, and we'll go from there.

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Speaker 3: Madelin Right, So, a jury in Los Angeles spent about

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Speaker 3: nine days deliberating on evidence that they heard over a

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Speaker 3: roughly four week trial. They heard from people including Meta

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Speaker 3: CEO Mark Zuckerberg, Instagram head Adam Aseri. But then they

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Speaker 3: also heard from people within the life of this young

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Speaker 3: woman who brought the suit, who were able to speak

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Speaker 3: about the harms and suffering that she experienced as a

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Speaker 3: result of using these platforms. But these cases, as you mentioned,

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Speaker 3: are about this claim, this central idea that these companies

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Speaker 3: knowingly and intentionally designed their platforms to be addicted and

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Speaker 3: should have known that they would cause farm to young users.

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Speaker 4: There in lies the crux Madeline, because before the arguments

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Speaker 4: have been about the content from what in many ways

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Speaker 4: they are shielded. But this is about how we are

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Speaker 4: served said content. More broadly, what is it that is

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Speaker 4: deemed to be harmful? And all we already expecting the

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Speaker 4: business model changes are going to be interpreted from this

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Speaker 4: because things have changed. Companies have responded to stain extent,

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Speaker 4: but they were deemed in many ways negligent because there

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Speaker 4: weren't warnings to younger people.

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Speaker 5: Right.

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Speaker 3: That's why you've heard this case be referred to as

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Speaker 3: a landmark case, because this really is a novel legal theory.

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Speaker 3: As you know, these companies have been shielded from immunity

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Speaker 3: from suits alleging harm by users due to content on

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Speaker 3: their platform. But this is about the design. So jurors

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Speaker 3: heard a lot about the algorithm itself, and then they

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Speaker 3: heard a lot about features that these companies use that

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Speaker 3: they had experts come in to say are designed to

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Speaker 3: be addictive. They called it addiction by design. That's being

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Speaker 3: peppered with notifications that endless scroll, being able to pick

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Speaker 3: up your phone and scroll to through the social media

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Speaker 3: feeds and not really reach an end of content. It's

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Speaker 3: about videos that automatically play once you finish watching one,

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Speaker 3: and so they say that all these features cumulatively are

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Speaker 3: designed to hook you and keep you on the platform

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Speaker 3: as long as possible, and that children are particularly susceptible

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Speaker 3: to those kind of features.

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Speaker 2: We just showed statements on the screen, But in summary,

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Speaker 2: both companies disagree with the verdict. Metas looking at its

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Speaker 2: legal options. Google plans to appeal, and as we said

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Speaker 2: at the start of the segment, both stocks are under pressure.

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Speaker 2: Later in the show, we'll get into the kind of

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Speaker 2: business and what the side and why the stocks under pressure.

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Speaker 2: But you set out that what happened Bluebags. Madeline Meckelberg,

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Speaker 2: who was in the courtroom in Los Angeles, thank you

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Speaker 2: joining us now with more on the implications of the

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Speaker 2: case is Eric Goldman, Associate Dean for Research at Santa

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Speaker 2: Clara University School of Law. And Eric, you've joined us

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Speaker 2: throughout this process. We now have a jury verdict. I

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Speaker 2: think to start just your response to the outcome of

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Speaker 2: this specific case.

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Speaker 6: The whole point of the jury trial is that we

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Speaker 6: needed an answer from average Americans about how they viewed

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Speaker 6: the culpability of social media services, and we got unanswered.

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Speaker 6: It's an answer that I think the defendants don't like.

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Speaker 6: The planners I think are happy with it, but it's

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Speaker 6: just one answer of what is expected to be multiple

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Speaker 6: answers coming from additional trials.

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Speaker 2: Again, the companies do not agree with the outcome. Google

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Speaker 2: plans to appeal. We know Meta is looking at his options.

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Speaker 2: One of the things that you're cited as looking at

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Speaker 2: is the level of damages awarded in this specific case.

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Speaker 2: And I think we discussed in prior conversations the context

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Speaker 2: that there are other legal proceedings going alongside this, in

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Speaker 2: parallel with this case. But why focusing on the damages?

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Speaker 2: Why is that important?

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Speaker 6: It allows the parties to start to estimate how much

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Speaker 6: money are we even talking about? And until we got

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Speaker 6: a data point like the jury verdict. Really the parties

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Speaker 6: couldn't even imagine any agreement.

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Speaker 5: They work so far apart. Now it can start to

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Speaker 5: quantify the number.

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Speaker 6: So if there's three thousand plaintiffs that are currently pending,

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Speaker 6: we're talking about roughly close to twenty billion dollar. Now

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Speaker 6: those are numbers that are huge, and yet there are

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Speaker 6: numbers that Google and Meta might think that they can afford.

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Speaker 6: So now that we know how much money might be

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Speaker 6: in play, there's new grounds for discussions about settlement.

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Speaker 4: It's not just the consumer protection angle though, but there's

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Speaker 4: also the public schools.

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Speaker 1: There's a states eric.

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Speaker 4: But I want to go to what happened earlier in

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Speaker 4: the week on Tuesday in New Mexico because actually a

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Speaker 4: much larger summer money was being demanded of Meta after

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Speaker 4: it was deemed not to have protected teenagers in that

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Speaker 4: particular state when it came to sexual predators.

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Speaker 1: Now, can you weave in that particular.

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Speaker 4: Legal strike on Meta and what that means more broadly

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Speaker 4: in this context, Yeah.

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Speaker 6: It's a reinforcement that again, a different jury was asked

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Speaker 6: essentially the same set of questions, how response on our

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Speaker 6: social media for the harms that their user suffer and

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Speaker 6: the jury came back with functionally the same answer.

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Speaker 5: Now, in that case, they were limited.

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Speaker 6: In in terms of how many damages they could assign

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Speaker 6: to any particular victim. Really know how that number might

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Speaker 6: have looked if a different set of legal theories were used.

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Speaker 6: But it is the sign that we have two juries

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Speaker 6: saying we will impose substantial damages on social media.

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Speaker 5: Those are two really key data points.

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Speaker 4: And Eric, of course, as we've mentioned, both companies disagree

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Speaker 4: and Google is coming out strongly saying you.

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Speaker 1: Misinterpret our very business model.

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Speaker 4: YouTube is not a social media platform, it's a streaming platform.

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Speaker 4: Whereas Meta is looking at its own arguments, but more broadly,

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Speaker 4: its argument has been there is so much more to

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Speaker 4: mental health than one particular platform, one particular app, And

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Speaker 4: they actually had some evidence from various doctors showing that

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Speaker 4: in some ways certain of these social media platforms offered.

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Speaker 1: Positive narratives to that.

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Speaker 4: It was indeed a woman called Kaylee we understand who

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Speaker 4: brought up the particular court case in this hearing.

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Speaker 1: Eric, what do you make of those arguments?

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Speaker 6: I think that it's we're so easy to focus on

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Speaker 6: the parties in the courtroom. We have Kayleie the victim

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Speaker 6: and telling her story, and we've got the social media

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Speaker 6: services telling their story. But there's a whole bunch of

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Speaker 6: other individuals who are affected by the discussions taking place

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Speaker 6: in that courtroom. There are many users who benefit extensively

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Speaker 6: from social media, who make it an intual part of

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Speaker 6: their day and often the best part of their day.

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Speaker 6: And if there were any changes in social media, either

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Speaker 6: due to the financial pressure or due to legal compulsion,

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Speaker 6: those benefits for those other users might reduce or go away.

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Speaker 5: And none of that was really relevant to the trial.

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Speaker 5: And as a result, there's a lot.

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Speaker 6: Of people who are going to be affected by these

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Speaker 6: cases who don't even have a voice in the proceedings.

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Speaker 1: Well said Eric Olman.

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Speaker 4: Appreciate you coming on Santa Clara University School of Law.

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Speaker 1: Really deep dive.

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Speaker 4: Then now coming up, we've got more on the wider

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Speaker 4: market implications to tech. After the landmark social media addiction

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Speaker 4: verdict against Meta and Google from New York and San

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Speaker 4: Francisco discipluembog Tech.

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Speaker 7: We're looking at Meta and Google.

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Speaker 2: Meta in particularly on track for its worst day since October.

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Speaker 2: The summary of the cell side is that there is

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Speaker 2: going to be an overhang on this name a headwind,

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Speaker 2: a risk relating to social media addiction because the Landmark

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Speaker 2: jury verdict holding Google Meta liable for harming a young

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Speaker 2: user is being compared to the groundbreaking cases that force

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Speaker 2: changes for Big Tobacco that could have an impact on

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Speaker 2: social media firms, advertising businesses.

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Speaker 7: Let's get out to bloemas Kirk.

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Speaker 2: Wagner, who leads our coverage of social media as an industry,

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Speaker 2: this is what you've been writing about, that Meta and

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Speaker 2: Google risk a Big Tobacco like response because of the

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Speaker 2: outcome of yesterday's trial. What's the reporting telling.

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Speaker 8: Us, Yeah, well, you know, the jury found that these

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Speaker 8: products can be a right. You think of other consumer

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Speaker 8: products over the years that have been found to be addicted,

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Speaker 8: Big tobacco is probably top of that list, and you

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Speaker 8: see the tarnish on an industry like that, and you

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Speaker 8: have to sort of think, is this the same kind

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Speaker 8: of thing that's going to be happening to the social

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Speaker 8: media platforms. You know, Eric was just talking with you

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Speaker 8: guys in the last segment about the fact that there

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Speaker 8: are thousands of other cases looming with similar arguments. This

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Speaker 8: is just the first. Obviously each case is different, but

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Speaker 8: if you sort of look at what's happened this week

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Speaker 8: between New Mexico and the trial in LA and say, okay,

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Speaker 8: juries are buying this argument. Juries are believing that these

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Speaker 8: companies and platforms are responsible. And you extrapolate that out

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Speaker 8: thousands of times over the next couple of years, you

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Speaker 8: suddenly are looking at a very different industry with a

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Speaker 8: very different reputation.

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Speaker 4: And Kurt, this comes with the current context that already

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Speaker 4: the landscape has shifted. Australia has a ban on sixteens

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Speaker 4: anunder we're looking at as you're replicating, Europe is discussing,

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Speaker 4: even California thinking about it. And at the same time,

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Speaker 4: we've actually seen the companies try to respond with changes,

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Speaker 4: and we're certainly telling us about the changes and the

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Speaker 4: protections that certain parents and kids have.

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Speaker 1: Will business models have to change?

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Speaker 8: I think that's the ultimate question, because if they just

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Speaker 8: simply have to write a check and this problem goes away,

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Speaker 8: what's the incentive. These are trillion dollar companies. They're not

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Speaker 8: going to clock at writing a six million dollar check.

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Speaker 8: If Congress, especially in the US, sees these types of trials,

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Speaker 8: sees these verdicts, sees the momentum that's being built around

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Speaker 8: the child's safety sort of movement here and says, hey, look,

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Speaker 8: this is sort of what we've been talking about but

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Speaker 8: been dragging.

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Speaker 7: Our feet on.

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Speaker 8: We're going to pass a law that changes some of

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Speaker 8: these features and forces the companies to change their products.

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Speaker 8: Now it gets really interesting because if these companies can't

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Speaker 8: get people to come, spend as much time, spend as

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Speaker 8: much time scrolling, obviously that's going to affect, you know,

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Speaker 8: how much money they can make from revenue. These are

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Speaker 8: attention based businesses and so anytime the attention is not

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Speaker 8: on them, it could hurt.

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Speaker 2: In the report that you did with Alex on the

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Speaker 2: possible product changes, what are they? And they're you know,

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Speaker 2: part of those that are taking legal action against the companies.

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Speaker 2: They are pushing for specific changes or features on those platforms.

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Speaker 7: And what are they.

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Speaker 8: So the individual plaintiffs, like what we saw this week

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Speaker 8: in LA, those are personal injury cases. They're not seeking

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Speaker 8: changes to the product. But the school districts that are

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Speaker 8: suing these platforms are seeking changes. I spoke to one

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Speaker 8: of the lead lawyers who's going to be representing the

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Speaker 8: school district yesterday. She talked about notifications as being a

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Speaker 8: big one, right, bringing people and sometimes in the middle

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Speaker 8: of the night, to open up their phone and go

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Speaker 8: on these services.

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Speaker 7: She talked about parental controls.

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Speaker 8: Age verification is a big one, making sure that young

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Speaker 8: kids that aren't supposed to be on these services are

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Speaker 8: not on them. So those are the types of things

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Speaker 8: they're going to be pushing for, and you know, those

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Speaker 8: also aligned with what we see members of Congress talk about.

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Speaker 8: They just haven't really gotten anything over the line in

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Speaker 8: terms of a law.

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Speaker 4: Here, I most Kat Wagner, who's been across this story.

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Speaker 1: We thank you so much.

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Speaker 4: Let's get more of what this means for the business model,

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Speaker 4: what means in the market. Minusmiley senior analysts covering social

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Speaker 4: media and E Marketer, it joins us. Now, minda, do

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Speaker 4: you anticipate significant changes to revenue these companies off the

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Speaker 4: back of these landmark cases?

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Speaker 9: Yeah, I mean, I don't think we're going to see

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Speaker 9: any big changes happen overnight, right. I think I'm going

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Speaker 9: to I'm going to draw a pairallel of TikTok here.

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Speaker 9: You know, whenever we saw a lot of uncertainty around

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Speaker 9: the bin and we didn't know exactly what was going

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Speaker 9: to happen to the app in the US, we actually

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Speaker 9: didn't really see a lot of advertiser pullback or even

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Speaker 9: user pullback. So you know, that's all to say that,

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Speaker 9: I think in these moments that are very you know,

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Speaker 9: headline grabbing and whatnot, even though they are big news,

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Speaker 9: it doesn't necessarily mean that we're actually seeing marketers pull

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Speaker 9: back quoite yet users pull back quite yet. Now that's

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Speaker 9: not to say that in the long run that you

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Speaker 9: know that that won't change. I think, ultimately, as Kurt

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Speaker 9: was saying, if we do see these products or these

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Speaker 9: apps and these platforms significantly change in terms of how

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Speaker 9: people can use them, what features are on them, then yeah,

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Speaker 9: that's the moment I think we would definitely see see

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Speaker 9: a larger pullback from marketers and users and men.

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Speaker 4: Is so interesting that, of course you reference TikTok, because

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Speaker 4: we should remind the audience that TikTok and Snap settled

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Speaker 4: ahead of this trial, But they too are implicated in

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Speaker 4: a lot of the other cases. And this isn't just

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Speaker 4: a meta and a Google issue or broadly, so how

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Speaker 4: far and wide could this not be cast?

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Speaker 9: Yeah, it's a great question. I mean, obviously, in this

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Speaker 9: exact case. Like you said, it was just meta and YouTube.

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Speaker 9: But this is just the very beginning, and I think

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Speaker 9: ultimately we could see a world where yeah, all of

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Speaker 9: the major all of the major social network Snapchat, Instagram, Facebook,

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Speaker 9: you know, are the ones that continually come up in

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Speaker 9: these conversations could be implicated.

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Speaker 2: I mean, there's i thing I think that you guys

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Speaker 2: at e Marketer recognize is that away from that specific case, broadly,

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Speaker 2: the social media industry is facing change. Young people and

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Speaker 2: I don't use that term to aldi or lightly don't

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Speaker 2: consume as much or spend as much time on social media.

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Speaker 2: That's a kind of conscious thing. Equally, you know, the

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Speaker 2: landscape is a battle for ibles. You know, you have

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Speaker 2: a choice of where you spend your screen time. Where

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Speaker 2: does best factor into that broader landscape.

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Speaker 9: Yeah, it's a great question to me that That's something

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Speaker 9: I've been talking about a lot lately, is that none

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Speaker 9: of this is happening in a silo. I mean, these

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Speaker 9: verdicts are our landmark cases for sure, but we are

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Speaker 9: seeing just generally, social behaviors evolve and shift as they

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Speaker 9: always do. I mean, we are seeing time spent on

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Speaker 9: social media in the US kind of hit a wall.

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Speaker 9: To be clear, if people still spend incredible amounts of

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Speaker 9: time on these platforms, which is why these cases are

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Speaker 9: happening in the first place, but we are kind of seeing,

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Speaker 9: you know, that major growth that it's been happening for

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Speaker 9: years now it's starting to hit a wall. And we

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Speaker 9: also are seeing the beginnings of sort of a backlash

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Speaker 9: to social media, especially among younger people who are really

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Speaker 9: you know, they kind of know that they they are

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Speaker 9: addicted to these platforms, and yet they also want to

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Speaker 9: get off of them. They feel quite disillusioned by them.

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Speaker 9: There is this push to be more mindful of how

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Speaker 9: much time you're spending on social media. That's why we're

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Speaker 9: seeing companies like Brick come up and just this push

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Speaker 9: to really get off of screens in general and get offline.

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Speaker 9: So these social media companies, they're dealing with these verdicts,

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Speaker 9: but they're also just dealing with like larger behavioral issues

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Speaker 9: that are having an impact.

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Speaker 2: Minda big tech more specifically social media having a big

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Speaker 2: tobacco moment. That's not you we've heard that before. It

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Speaker 2: kind of comes and goes. This time, is it any different?

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Speaker 9: Yeah, I does feel like this time is going to

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Speaker 9: be different.

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Speaker 1: I do think so.

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Speaker 9: I mean again, I don't think we're going to see

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Speaker 9: massive changes overnight, but the you know, these are being

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Speaker 9: called landmark cases for a reason, and the fact that

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Speaker 9: these juris are not coming out, you know, in the

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Speaker 9: favor of these social media companies is not a good

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Speaker 9: look for them. And I do think even you know,

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Speaker 9: I was talking earlier about how you know, I don't

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Speaker 9: think we're going to see like a massive hips to

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Speaker 9: ad revenue or anything like that, but I do think

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Speaker 9: it's going to you know, marketers and users are like parents,

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Speaker 9: you know, all kinds of stakeholders are going to be

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Speaker 9: a real you know, further thinking about how they show

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Speaker 9: up on these platforms, and I think there is an

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Speaker 9: element of like reputational damage that is already happening in

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Speaker 9: terms of, like, you know, do we want to be

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Speaker 9: showing ads on these platforms that are increasingly just looking like,

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Speaker 9: you know, don't don't have a great reputation right now.

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Speaker 9: And I think, you know, for a while, the reputation

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Speaker 9: hasn't been great, but it's certainly not getting better at

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Speaker 9: this point, so we could see some shifts happening there.

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Speaker 2: For sure, Meta is down more than five percent, having

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Speaker 2: its worst day since October. Minda smiley senior analyst that

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Speaker 2: E marketered, thank you very much. We have got a lot

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Speaker 2: more on this topic. Our own original investigation can't look away.

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Speaker 2: The case against social media is available.

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Speaker 7: On all Bloomberg platforms. Now coming up.

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Speaker 2: Regulators in Europe are also stepping up scrutiny of online platforms.

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Speaker 7: We have more on that next. This is Bloomberg Tech.

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Speaker 4: It's time now for talking tech and first up. China's

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Speaker 4: food delivery leader, that's Mate one posted a modest four

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Speaker 4: point one percent increase in sales. The company's expansion efforts

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Speaker 4: outside of China helped offset price wal pressures from Alibaba

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Speaker 4: and JD dot Com. Still, that rivalry has weighed on

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Speaker 4: the stock, which is had forty five percent over the

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Speaker 4: past year plus. Moonshot Ai is in early stages of

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Speaker 4: considering an IPO in Hong Kong.

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Speaker 1: Now That's according to sources.

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Speaker 4: The company behind the Kimni chatbot has reportedly held talks

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Speaker 4: with China International Capital and Goldman Sacks, though deliberations are

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Speaker 4: still ongoing. And in Europe, more regulators are stepping up

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Speaker 4: scrutiny of online platforms now the EU has launched an

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Speaker 4: investigation into Snapchat, focusing on how it verifies as users

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Speaker 4: sages and addresses risks like grooming criminal activity. At the

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Speaker 4: same time, it's advancing a separate probe at the moment

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Speaker 4: into pornography platforms the sober concerns it failed to adequately

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Speaker 4: block miners from accessing its sites.

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Speaker 1: Ed.

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Speaker 2: Just taking another quickly at Metacarra because the stock is

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Speaker 2: down severely two standard deviation move on track for its

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Speaker 2: biggest drop since October, and actually that drop is deepening.

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Speaker 2: Remember a jury verdict finding both Meta and Google liable

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Speaker 2: of harming a young user with negligible, deliberate products designed

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Speaker 2: to make social media addictive.

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Speaker 7: Okay, Coming up on the.

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Speaker 2: Program, Rachel Holt from Construct Capital is going to join

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Speaker 2: us to discuss early stage investments in startups, modernizing critical industries,

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Speaker 2: venture capital, startups, and the private markets. It is halftime

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Speaker 2: from San Francisco and New York. This is Bloomberg Tech.

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Speaker 4: Welcome back to Bloomberg Tech. Let's check in on a

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Speaker 4: specific set of movers right now, because we're on draw

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Speaker 4: attention to memory makers and the chip sector. More broadly,

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Speaker 4: we are down by seven percent. If you looked at

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Speaker 4: Asian trading of sk Heinez so Samsung it was off

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Speaker 4: by six percent as well at Micron. Here in the

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Speaker 4: United States it's or by four percent. We are going

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Speaker 4: even lower. And this is all sparked by well, a

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Speaker 4: new algorithm coming from alphabet Google really talking up on

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Speaker 4: x something actually they discovered a year ago.

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Speaker 5: Ed.

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Speaker 4: But this is about the fact that you perhaps need

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Speaker 4: less memory when running large language models, to a factor

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Speaker 4: of six fold less. But if I hear Jevins paradox

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Speaker 4: talked one more time they're an analyst, I need to

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Speaker 4: start getting some money for each time I read it

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Speaker 4: ed because there is this view that if you can

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Speaker 4: do more with less, well you keep doing more.

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Speaker 2: Yeah, that's the basic sum of it. Turboquont is an

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Speaker 2: algorithm that, in the context running an NLM has an

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Speaker 2: up to factor of six x less memory requirements. The

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Speaker 2: market's taking that and saying that just means the piper scalers,

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Speaker 2: those building out infrastructure.

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Speaker 7: Will buy less memory.

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Speaker 2: And that kind of went round the clock US Asia

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Speaker 2: back to US.

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Speaker 4: And now though we're still sort of having that knee

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Speaker 4: joke reaction more broadly, because these focks will run up

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Speaker 4: so far so fast. Look, some of the names in

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Speaker 4: Asia are up seven hundred percent. Micron was up about

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Speaker 4: what's three hundred percent in the previous fiscal year in

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Speaker 4: terms of share prices. Maybe it's a bit of profit

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Speaker 4: just coming off the table as we do assess what

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Speaker 4: our memory needs are and what the bottles really are.

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Speaker 2: It is one of the top most read stories on

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Speaker 2: the Bloomberg terminal on dot com couragees go get some

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Speaker 2: of the detail. In private market, shield Ai has announced

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Speaker 2: its raise two billion dollars, hitting evaluation of twelve point

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Speaker 2: seven billion dollars, more than double from a year ago.

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Speaker 2: The defense tech startup raised one point five billion dollars

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Speaker 2: in Series G funding led by Advent International. Blackstone is

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Speaker 2: putting in an additional five hundred million in preferred equity financing.

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Speaker 2: Shield says it'll be using part of the funding to

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Speaker 2: acquire tactical simulation software maker Hlon Technology, and the terms

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Speaker 2: for that one disclosed. Shield last raised two hundred and

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Speaker 2: forty million out of five point three billion dollar valuation

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Speaker 2: in March for twenty twenty five. That, by the way,

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Speaker 2: included Bloomberg Beta, the venture firm backed by Bloomberg LP,

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Speaker 2: the parent company of this organization, Cara, I mean.

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Speaker 4: Look, defense tech, we've been talking about it all week

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Speaker 4: ed and that was after we were course at Heilen

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Speaker 4: Valley Forum and we talked also about reindustrialization more broadly.

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Speaker 4: And one venture firm that's been focused on exactly that

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Speaker 4: is Construct Capital, which recently raised three hundred million dollars

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Speaker 4: in a vehicle to back early stage startups focused on

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Speaker 4: foundational industries. Well, Rachel Holt is co founder managing partner

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Speaker 4: at Construct and peaces say you join us and you

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Speaker 4: were also in DC with us when Hill and Valley

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Speaker 4: Forum was upon us and Rachel this waive this movement

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Speaker 4: into a realization of real industrialization of.

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Speaker 1: Defense technique in the US. Are you seeing enough?

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Speaker 4: Were buyer activity, the government realizing this and allocating money

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Speaker 4: for you to put your money to work in an

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Speaker 4: early stage Yeah?

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Speaker 10: Well, thank you so much for having me, Caroline. It

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Speaker 10: is so interesting to see what has happened in a

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Speaker 10: really short period of time. We launched construct Capital early

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Speaker 10: in twenty twenty pre COVID twenty twenty with this belief

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Speaker 10: that we needed to see productivity technology enter what we

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Speaker 10: describe as foundation industries. Areas like manufacturing, supply chain logistics,

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Speaker 10: certainly defense tech, because when you look at the numbers,

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Speaker 10: productivity was declining in these spaces. It was literally taking

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00:22:10,080 --> 00:22:13,040
Speaker 10: longer to do the work. One hundred hours of work

443
00:22:13,119 --> 00:22:16,560
Speaker 10: was taking longer than it had ten fifteen years ago.

444
00:22:16,600 --> 00:22:19,720
Speaker 10: And of course in other sectors we've seen tremendous growth

445
00:22:19,720 --> 00:22:23,520
Speaker 10: from a productivity standpoint, so we really felt like now

446
00:22:23,680 --> 00:22:26,920
Speaker 10: was the time to focus on these spaces. But as

447
00:22:26,920 --> 00:22:30,840
Speaker 10: you point out, you know, there's a tremendous amount of interests,

448
00:22:30,880 --> 00:22:34,040
Speaker 10: a tremendous amount of investor interests coming into these spaces.

449
00:22:34,240 --> 00:22:37,080
Speaker 10: There's been a twenty x increase in Series B dollars

450
00:22:37,119 --> 00:22:40,080
Speaker 10: going into these spaces since twenty twenty when we launched

451
00:22:40,080 --> 00:22:43,560
Speaker 10: the fund to today, and certainly Hill in the Valley

452
00:22:43,560 --> 00:22:48,280
Speaker 10: Forum was a knockout event, sold out, you couldn't get

453
00:22:48,280 --> 00:22:52,840
Speaker 10: anywhere near the space. If you really didn't, you know,

454
00:22:52,880 --> 00:22:56,280
Speaker 10: you hadn't really been building something legitimate in this space.

455
00:22:56,320 --> 00:22:59,359
Speaker 10: And so we're very excited, we're very encouraged by the

456
00:22:59,359 --> 00:23:03,120
Speaker 10: amount of interest, but the contracts have to follow, and

457
00:23:03,720 --> 00:23:06,399
Speaker 10: you know, but these spaces are big, they're important, and

458
00:23:06,760 --> 00:23:08,639
Speaker 10: we're convinced, you know that there are a set of

459
00:23:08,640 --> 00:23:10,200
Speaker 10: companies that are really going to break out here.

460
00:23:10,520 --> 00:23:13,000
Speaker 4: You and Dana Grayson have, as you mentioned, been doing

461
00:23:13,000 --> 00:23:16,240
Speaker 4: this since twenty twenty, let's say, before for a cool

462
00:23:16,720 --> 00:23:19,520
Speaker 4: and now everyone piling in. How have you distinguished yourselves

463
00:23:19,520 --> 00:23:21,679
Speaker 4: with LPs? How have you managed with were looking at

464
00:23:21,680 --> 00:23:24,880
Speaker 4: your pol potio companies? The growth in Hadrin, for example,

465
00:23:25,160 --> 00:23:27,000
Speaker 4: is that what's brought people forward to want to back

466
00:23:27,080 --> 00:23:27,639
Speaker 4: the next fund?

467
00:23:28,920 --> 00:23:30,600
Speaker 10: Well, I think, first of all, we didn't turn our

468
00:23:30,640 --> 00:23:33,200
Speaker 10: attention here. You know, we were in a crypto investor

469
00:23:33,359 --> 00:23:35,880
Speaker 10: Web three investor in twenty twenty, twenty twenty one, when

470
00:23:35,880 --> 00:23:39,120
Speaker 10: that was cool. We have been dedicated our entire careers

471
00:23:39,160 --> 00:23:42,360
Speaker 10: really to investing and operating in and around these spaces.

472
00:23:42,800 --> 00:23:44,800
Speaker 10: I joined Uber in twenty eleven when they had just

473
00:23:44,880 --> 00:23:47,159
Speaker 10: had a Series A. Everyone told me I was crazy

474
00:23:47,200 --> 00:23:50,080
Speaker 10: to go join a taxi company their words, not mine.

475
00:23:50,240 --> 00:23:52,240
Speaker 7: But it was slow moving.

476
00:23:52,080 --> 00:23:54,840
Speaker 10: Heavily regulated, high caf X, and of course Uber is

477
00:23:54,880 --> 00:23:58,960
Speaker 10: none of those things. Dana similarly investing at a ne EA,

478
00:23:59,560 --> 00:24:02,119
Speaker 10: you know in around the earliest SaaS in the cloud,

479
00:24:02,200 --> 00:24:05,080
Speaker 10: the earliest three D printing companies, these companies that were

480
00:24:05,119 --> 00:24:09,080
Speaker 10: not seen as venture scale outcomes. When you know when

481
00:24:09,160 --> 00:24:12,840
Speaker 10: we made those moves, and I think founders LPs certainly

482
00:24:13,240 --> 00:24:17,080
Speaker 10: recognize that there.

483
00:24:15,560 --> 00:24:18,640
Speaker 2: Is a distinction between an effort to reindustrialize and what's

484
00:24:18,640 --> 00:24:22,159
Speaker 2: happening in defense technology. And there is a distinction on

485
00:24:22,200 --> 00:24:25,560
Speaker 2: the policy side with artificial intelligence. But what broadly connects

486
00:24:25,560 --> 00:24:29,520
Speaker 2: all of those is this administration focusing on cutting red tape,

487
00:24:30,080 --> 00:24:35,080
Speaker 2: expediting permitting, and basically giving political will to bring more

488
00:24:35,119 --> 00:24:39,240
Speaker 2: things back to America at the early stage, how does

489
00:24:39,280 --> 00:24:40,520
Speaker 2: that present an opportunity.

490
00:24:41,800 --> 00:24:44,719
Speaker 10: Yeah, that's a great point, and I really see you know,

491
00:24:44,760 --> 00:24:47,399
Speaker 10: we many of these companies are dual use companies, and

492
00:24:47,440 --> 00:24:50,200
Speaker 10: I think that's important to distinguish. There are a lot

493
00:24:50,280 --> 00:24:53,480
Speaker 10: of amazing companies in the defense tech space, but companies

494
00:24:53,520 --> 00:24:57,280
Speaker 10: like Hadrian didn't start just selling into governments. And I

495
00:24:57,280 --> 00:25:00,800
Speaker 10: think particularly at the early stages, it's as sale cycles

496
00:25:00,800 --> 00:25:03,159
Speaker 10: are still long. You need to have a lot of

497
00:25:03,160 --> 00:25:07,320
Speaker 10: different compliance requirements. Getting into one of these government contracts

498
00:25:07,440 --> 00:25:12,119
Speaker 10: is can be critical, can be company moving, But fundamentally,

499
00:25:12,400 --> 00:25:15,520
Speaker 10: you know what excites us about about these companies is

500
00:25:15,800 --> 00:25:20,080
Speaker 10: half the GDP sits within foundational industries. These are massive spaces.

501
00:25:20,280 --> 00:25:24,000
Speaker 10: There has been almost no technology incumbents and when you

502
00:25:24,040 --> 00:25:27,280
Speaker 10: think about AI and you think about sort of what

503
00:25:27,440 --> 00:25:30,440
Speaker 10: can what we can do, we can really leap frog forward.

504
00:25:31,400 --> 00:25:33,439
Speaker 10: We are never going to be as good as China

505
00:25:33,920 --> 00:25:37,040
Speaker 10: or other countries that sticking a large number of people

506
00:25:37,080 --> 00:25:41,040
Speaker 10: doing repetitive tasks over and over, and software can change that.

507
00:25:41,119 --> 00:25:43,359
Speaker 10: Software is what we are excellent at. Innovation is what

508
00:25:43,400 --> 00:25:46,520
Speaker 10: we are excellent at. And I think there's broad recognition there.

509
00:25:47,320 --> 00:25:50,960
Speaker 2: Do these companies have a future that's more focused on

510
00:25:51,080 --> 00:25:55,920
Speaker 2: selling to government and the public sector or is there

511
00:25:56,520 --> 00:25:59,800
Speaker 2: an addressable market where all of these different companies are

512
00:25:59,840 --> 00:26:02,000
Speaker 2: doing business with one another. I think there's a real

513
00:26:02,080 --> 00:26:03,680
Speaker 2: distinction there too.

514
00:26:05,320 --> 00:26:05,560
Speaker 1: Yeah.

515
00:26:05,640 --> 00:26:08,600
Speaker 10: I think Look, I think you need volume, you need

516
00:26:08,640 --> 00:26:12,919
Speaker 10: the supply chains you need, and those things happen in

517
00:26:12,960 --> 00:26:14,359
Speaker 10: a very symbiotic way.

518
00:26:14,600 --> 00:26:14,800
Speaker 8: You know.

519
00:26:14,840 --> 00:26:16,800
Speaker 10: What we see is there are a lot of companies

520
00:26:16,840 --> 00:26:21,199
Speaker 10: that are using maybe their commercial non government contracts to

521
00:26:21,240 --> 00:26:24,919
Speaker 10: sort of build up initial capabilities, to build up supply chains,

522
00:26:25,000 --> 00:26:29,800
Speaker 10: to start developing the relationships they need, and then you

523
00:26:29,920 --> 00:26:32,920
Speaker 10: get one of these massive needle moving contracts like Hadrian

524
00:26:33,080 --> 00:26:35,320
Speaker 10: just announced last week with the Navy, and that can

525
00:26:35,359 --> 00:26:38,280
Speaker 10: just completely accelerate a company's trajectory.

526
00:26:38,760 --> 00:26:42,080
Speaker 4: Rachel, how do you get that confidence before that contract

527
00:26:42,119 --> 00:26:43,960
Speaker 4: is signed. There has been a lot of hype dare

528
00:26:43,960 --> 00:26:47,240
Speaker 4: I say it, around certain defense tech names, and many

529
00:26:47,240 --> 00:26:49,720
Speaker 4: people worrying that actually the proof point really isn't there.

530
00:26:51,560 --> 00:26:54,800
Speaker 10: Look, I think, first and foremost it comes down to

531
00:26:54,880 --> 00:27:00,080
Speaker 10: backing the most exceptional founders. Exceptional founders find ways to

532
00:27:00,520 --> 00:27:02,800
Speaker 10: make things happen in ways you know, you and I

533
00:27:02,880 --> 00:27:06,159
Speaker 10: can only dream up. And I think what we what

534
00:27:06,200 --> 00:27:09,200
Speaker 10: we see is those founders are finding a way to

535
00:27:09,560 --> 00:27:09,840
Speaker 10: do that.

536
00:27:09,960 --> 00:27:12,320
Speaker 4: Today I have to jump in, but we so appreciate

537
00:27:12,359 --> 00:27:14,520
Speaker 4: you joining us today. Rachel Holt, a co managing partner

538
00:27:14,560 --> 00:27:15,280
Speaker 4: at Construct Capital