WEBVTT - ICYMI: Banking on Silicon Valley 

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. You're listening to Bloomberg

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<v Speaker 1>Business Week with Carol Masser and Tim Steneveek on Bloomberg Radio.

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<v Speaker 2>All right, So, as you know, it's a busy Thursday,

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<v Speaker 2>a lot going on, and that includes in the IPO market.

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<v Speaker 2>IPO is definitely having a moment. We talked about Chime

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<v Speaker 2>and Financial earlier today, surging as much as sixty six

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<v Speaker 2>percent on the company's first day of trading. The IPO

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<v Speaker 2>priced at twenty seven dollars to share. Circle Internet surged

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<v Speaker 2>one hundred and seventy percent on its first day of

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<v Speaker 2>trading last week. And then you had the cryptocurrency exchange

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<v Speaker 2>Bullish Global confidentially filing paperwork with the SEC for an

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<v Speaker 2>IPO in recent weeks. There's a lot going on that filing,

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<v Speaker 2>according to a report last week, Tim in the Ft.

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<v Speaker 1>Yeah, So the IPO is the culmination for a lot

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<v Speaker 1>of venture capitalists. The question we have is how are

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<v Speaker 1>things looking for them earlier in the process, for companies

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<v Speaker 1>that are raising money right now. For that, we check

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<v Speaker 1>in with Bob Curley, CEO Bridge Bank. It's the tech

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<v Speaker 1>division of Western Alliance. Bob Curley is Deputy Chief banking

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<v Speaker 1>Officer of Regional Banking at Western Alliance. The bank has

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<v Speaker 1>more than eighty billion dollars in assets kind of the

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<v Speaker 1>market cap of around eight billion dollars. He joins us

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<v Speaker 1>this afternoon from San Jose. Bob, your focus at bridges

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<v Speaker 1>on every stage of the life of a startup, So

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<v Speaker 1>you focus from them raising money all the way to

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<v Speaker 1>IPO and you go past that. Tech in life sciences

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<v Speaker 1>is your specialty. How would you characterize the environment right now?

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<v Speaker 1>We know IPOs are pretty hot, but what about earlier

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<v Speaker 1>on in the stages.

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<v Speaker 3>Yeah, there is a mix of things going on in

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<v Speaker 3>the industry, most of them good. There's robust capital available

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<v Speaker 3>to founders these days, and so a lot of people

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<v Speaker 3>are making choices today whether they go public. It has

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<v Speaker 3>that window, as you covered earlier, is wide open. No

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<v Speaker 3>telling how long that will last, but it does look

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<v Speaker 3>like this will be a nice run. But alternatively, in

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<v Speaker 3>the old days, IPOs and M and A were your solution.

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<v Speaker 3>Today you have a third option, which is to stay

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<v Speaker 3>private for longer, and there are plenty of sources of

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<v Speaker 3>capital to be able to do that, and of course

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<v Speaker 3>Bridge Western Alliance is one of the sources for that,

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<v Speaker 3>So talk.

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<v Speaker 2>To us about in terms of activity and what you're seeing.

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<v Speaker 2>I think we love talking to different aspects of financial

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<v Speaker 2>markets and kind of our business world, including anything to

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<v Speaker 2>do with certainly startup company companies and entities in terms

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<v Speaker 2>ofbo of what it tells us about the environment more

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<v Speaker 2>a beat or not, certainly when uncertainty has really been

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<v Speaker 2>the narrative and the watchword for all of us. And

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<v Speaker 2>I think it's safe to say I remember hearing somebody

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<v Speaker 2>on surveillance this morning that you know, the one thing

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<v Speaker 2>we know that is a very effective tool of this president.

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<v Speaker 2>I don't think i'm speaking out a turn here is

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<v Speaker 2>that ability to catch people off guard, and so uncertainty

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<v Speaker 2>will probably be with us until the end of his

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<v Speaker 2>turnure in his second term. So give us an eye

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<v Speaker 2>idea of what you are seeing and how you would

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<v Speaker 2>describe kind of the environment when it comes to startups,

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<v Speaker 2>the capital raise and everything around them.

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<v Speaker 3>Well, I think you're dealing with a couple of things.

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<v Speaker 3>One is, you have a whole cadre of companies that

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<v Speaker 3>raise money at very high valuations during the zero interest

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<v Speaker 3>rate environment, the ZERP period. Those folks are trying to

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<v Speaker 3>figure out where they go from here. A lot of

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<v Speaker 3>them were priced to perfection, and obviously, with the increase

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<v Speaker 3>in rates among other things, they're finding sometimes that fundraising

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<v Speaker 3>is more challenging. What those folks have been focused on

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<v Speaker 3>is bringing the burned down, getting themselves to be more sustainable,

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<v Speaker 3>and now addressing whether there's a growth story behind it.

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<v Speaker 3>They will go in one of two directions that will

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<v Speaker 3>resume a growth story, or they will manage the company

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<v Speaker 3>for cash. The third option is if neither of those

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<v Speaker 3>paths are available, they will have to look for a

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<v Speaker 3>soft landing for the company. Those are the companies that

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<v Speaker 3>were funded in the i'll call it the helcyon days

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<v Speaker 3>of the of the post pandemic period. Then you have

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<v Speaker 3>a whole other group of companies that are up and

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<v Speaker 3>coming that I think could be some of the most

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<v Speaker 3>exciting companies we have ever seen. Those include very popular

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<v Speaker 3>AI companies, but a whole lot of companies that benefit

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<v Speaker 3>from the formula of the formative technology developed by AI,

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<v Speaker 3>which would lead you into robotics, in the defense, into space, etc.

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<v Speaker 3>So I think we're entering a whole new area of

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<v Speaker 3>great returns, great opportunities on the new front. While we

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<v Speaker 3>also contend with or deal with the companies that we're

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<v Speaker 3>left behind.

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<v Speaker 2>Is there enough money out there to kind of keep

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<v Speaker 2>these companies private for longer. It seems to be the

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<v Speaker 2>mode as of late, or certainly what we've seen the

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<v Speaker 2>last few years. And sometimes that can be great in

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<v Speaker 2>terms of giving company the space to do what they

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<v Speaker 2>need to do. It also, though, can keep alive companies

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<v Speaker 2>that probably shouldn't be kept alive. So give us an

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<v Speaker 2>idea of how liquid it is out there and the

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<v Speaker 2>money that are chasing startups at different stages of their

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<v Speaker 2>lif life right now.

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<v Speaker 3>They're absolutely right, Carrol. The amount of capital of being

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<v Speaker 3>deployed into the space today is a multiple of what

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<v Speaker 3>we've seen before. Put in perspective, sixty billion dollars in

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<v Speaker 3>venture debt was done this past year. The next highest

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<v Speaker 3>year was in twenty twenty one, where it was forty

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<v Speaker 3>one billion dollars, So it gives you a sense for

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<v Speaker 3>the growth in that period of time. It is almost

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<v Speaker 3>double last year what it was in twenty twenty three.

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<v Speaker 3>So we're seeing all different sources of capital. I think

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<v Speaker 3>the most important thing if you're a founder, you want

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<v Speaker 3>to align with investors who have been there, done that,

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<v Speaker 3>who have been through the cycles. We've been doing this

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<v Speaker 3>for twenty years. We've seen a lot of people come

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<v Speaker 3>in and go referred to as the tourists. But I

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<v Speaker 3>would say at this point in time, there are more

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<v Speaker 3>options on the table, and I think it's also becoming

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<v Speaker 3>more accepted in the boardroom that people will consider debt

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<v Speaker 3>because of its non diluted nature or less diluted nature.

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<v Speaker 3>But as an alternative.

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<v Speaker 1>It's an alternative, but it's an alternative that comes out

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<v Speaker 1>of price because of the and look the entire businesses

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<v Speaker 1>that are made up of venture debt and entire public

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<v Speaker 1>trading companies that really just focus on venture debt. But

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<v Speaker 1>what are we talking rates rates here in an environment

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<v Speaker 1>such as this.

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<v Speaker 3>Yeah, so the old prime rate or reference rate is

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<v Speaker 3>the rate. And depending on how early a stage, you

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<v Speaker 3>may also have a little bit of warrants I at

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<v Speaker 3>warrant in a warrant upside. However, tim you've got to

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<v Speaker 3>compare that to equity dilution where ownership is being given up.

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<v Speaker 3>And the primary tool of using venture debt in the

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<v Speaker 3>earlier stage companies is to defer that next capital raise

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<v Speaker 3>so that you can knock down milestones and or attract

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<v Speaker 3>customer bases that you wouldn't otherwise be able to do,

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<v Speaker 3>which obviously has a positive impact on the valuation that

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<v Speaker 3>you're able to drive for the company. So in a sense,

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<v Speaker 3>it's a way of staging. When I raise the amount

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<v Speaker 3>of equity capital, I think the need the business needs

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<v Speaker 3>over time.

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<v Speaker 2>I want to get into, in particular, what you're seeing

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<v Speaker 2>in terms of AI and where the money's going. We

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<v Speaker 2>just came off of an event on TIM and I

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<v Speaker 2>at in San Diego on Tuesday at Cisco Live twenty

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<v Speaker 2>twenty five, and we talked to a lot of their

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<v Speaker 2>key executives in terms of what they are doing in

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<v Speaker 2>AI strategy in particular, They've got a lot going on

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<v Speaker 2>and it seems like they are working aggressively to pivot

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<v Speaker 2>to the AI infrastructure build. But it's been fascinating right

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<v Speaker 2>to watch over the last two years where it was

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<v Speaker 2>all it seemed like Nvidia and open AI. But it's

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<v Speaker 2>branching out to power needs and software and so on

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<v Speaker 2>and so forth. But where are you seeing capital deployed,

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<v Speaker 2>be it debt or equity, you know, in terms of

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<v Speaker 2>capital raises when it comes to AI, what's interesting what

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<v Speaker 2>are the trends that maybe aren't being talked about as much.

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<v Speaker 3>Sure well, certainly, you're absolutely right. There's a huge amount

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<v Speaker 3>of money being deployed into the infrastructure for AI and

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<v Speaker 3>pure compute power. You need to accomplish that. Those tend

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<v Speaker 3>to have very large investors, very large dollar amounts involved,

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<v Speaker 3>and hence you tend to have mega funds that are

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<v Speaker 3>focused on that. I think what's particularly interesting is I

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<v Speaker 3>call it, I would call it applied AI, and that's

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<v Speaker 3>companies that are taking AI capabilities and focusing it on

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<v Speaker 3>functional areas, solving a single problem, for example, or a

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<v Speaker 3>group of problems, or applying it to a particular vertical

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<v Speaker 3>which is using AI technology, but then applying it to

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<v Speaker 3>real problems that clients have today and solving them very

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<v Speaker 3>much the way application software would have years ago, but

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<v Speaker 3>ever more efficient with the AI capability.

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<v Speaker 1>In terms of where venture capital is flowing, it does

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<v Speaker 1>seem like, you know, a lot of the big money

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<v Speaker 1>is going toward the lms, but on sort of the

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<v Speaker 1>more the smaller side, the deals that we don't hear about. Bob,

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<v Speaker 1>I'm wondering where where you're seeing in the layer that

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<v Speaker 1>you're seeing built on AI, where the money is going there?

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<v Speaker 1>What can you tell us about where where, What's what's

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<v Speaker 1>being attracted where within the valley?

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<v Speaker 3>Yeah, so a little more than half of what we

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<v Speaker 3>see is somehow AI deployed. I think we have to

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<v Speaker 3>be a little bit careful now. Uh. I was around

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<v Speaker 3>for the whole Internet craze and everyone put a dot

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<v Speaker 3>com after their name, and so there are different levels

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<v Speaker 3>of AI involvement and AI capability. But having to put

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<v Speaker 3>that in place, what I would say is we're seeing

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<v Speaker 3>the ability to take AI and get great amounts of

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<v Speaker 3>information and create, create, create quick learning where someone's able

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<v Speaker 3>to develop what would have tend over over weeks, maybe

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<v Speaker 3>even months, they can have a summary of data very quickly.

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<v Speaker 3>And so we're seeing it applied in security situations. We're

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<v Speaker 3>seeing it applied in cyber We're seeing it applied clearly

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<v Speaker 3>in defense, uh, and we're seeing it apply in healthcare.

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<v Speaker 3>So again, I view of the greatest opportunity for mid

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<v Speaker 3>sized funds is in these applied AI categories.

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<v Speaker 1>You mentioned that you saw you were around for the

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<v Speaker 1>dot com boom and busts, So I got to get

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<v Speaker 1>your take on if you think there's a there there

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<v Speaker 1>right now with the rise of AI versus sort of

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<v Speaker 1>what we saw in the late nineties early two thousands

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<v Speaker 1>with the bust of dot com. Are you seeing similarities?

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<v Speaker 1>There is this completely different.

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<v Speaker 3>Well, we said the bust of dot com, and certainly

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<v Speaker 3>there were a number of casualties associated with that. That's

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<v Speaker 3>because I think investors knew at the front end it's

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<v Speaker 3>going to be a huge change in our economy and

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<v Speaker 3>the way we look, the way we do things, and

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<v Speaker 3>so there was a frenzy to make sure I got

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<v Speaker 3>in at any price, and as a result, a lot

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<v Speaker 3>of business models were funded that probably shouldn't have been,

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<v Speaker 3>but that was all in an effort to be associated

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<v Speaker 3>what would turned out to be one of the greatest

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<v Speaker 3>developments in technology. I think we're at a similar turning point.

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<v Speaker 3>I think we're at a point where our official intelligence

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<v Speaker 3>is that enabling technology but I don't. But I believe

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<v Speaker 3>there will only be a few winners of it, and

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<v Speaker 3>there's probably much many more companies getting funded, particularly on

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<v Speaker 3>the lum side.

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<v Speaker 2>Bob just twenty seconds here, Silicon Valley Bank and all

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<v Speaker 2>that that entailed. Andy worried about the future of Western

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<v Speaker 2>Alliance at that time. Everything back to normal after that

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<v Speaker 2>or at least back to where you were before and

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<v Speaker 2>again just got about fifteen seconds.

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<v Speaker 3>It really has. We leveled out a little bit for

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<v Speaker 3>a quarter or two, but with the backing with Western

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<v Speaker 3>Alliance track record and bank for all seasons, we've resumed

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<v Speaker 3>on growth and we're now stutting records.

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<v Speaker 2>All right, Bob Curly, thank you so much. Toeo Bridge Bank,

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<v Speaker 2>Deputy Chief Banking Officer of Regional Banking at Western Alliance