Speaker 1: From the heart of We're Innovation of Money and power.
Speaker 1: Collie in Silicon Valley, NBR. This is Bloomberg Technology with
Speaker 1: Caroline Hyde and Ed loved Love. I'm Caroline Hyde of
Speaker 1: Bloomberg's World take quarters in New York, and I'med Lovelow
Speaker 1: in San Francisco. This is Lindberg Technology. Coming up. We
Speaker 1: will break down the latest inflation print, what it means
Speaker 1: for tech stalks in the environment for investing in startups.
Speaker 1: And now she surmires with us. A Goldman Sachs MG
Speaker 1: Volpi of indexpensures fast we'll get a read on the
Speaker 1: health of the banking system in the wake of Silicon
Speaker 1: Valley banks collapse. Aaron Kleine of the Brookings Institution joins
Speaker 1: with perspective an Elon Musk. He's back in the spotlight,
Speaker 1: this time with a two hour long Twitter spaces that
Speaker 1: played out before millions of listeners. We're bringing the takeaways
Speaker 1: and why American Notprofit Media MPR's quit the platform that
Speaker 1: has so much coming up throughout this hour. First has
Speaker 1: checking on what's happening in the public markets, you know,
Speaker 1: the catalysts from a macro perspective. The CPI print inflation
Speaker 1: data actually some soothing of concerns, maybe pulling back a
Speaker 1: little bit, but not enough to actually really put some
Speaker 1: fire beneath these stocks. And the moment, we're flat on
Speaker 1: the Nasdak but bouncing off of the loads of the day,
Speaker 1: as we still think that the Federal Reserve will have
Speaker 1: to hike by twenty five basis points come the next month,
Speaker 1: but maybe there's more appetite for some of those risk assets.
Speaker 1: Two year yield flat on the day. For the two
Speaker 1: year We've been moving around throughout the trading day, but
Speaker 1: at four percentage points. I'm looking at Goldman and in
Speaker 1: particular the Nasdack Golden Dragon. This is just showing that
Speaker 1: some of the heats coming out of those Chinese stocks
Speaker 1: today Ali Baba's on the downside. We're seeing JD off
Speaker 1: as well, some key movement out of Chinese stocks on
Speaker 1: the day. From their American depository receipts perspective, we're off
Speaker 1: by three percent. Moving on, let's look at what's happening
Speaker 1: in the world of crypto. All eyes on the upgrade
Speaker 1: movement on some months from the merge. We look at
Speaker 1: what's happening with the lights of the Shanghai upgrade. I'm
Speaker 1: looking at what's happening therefore, with E up more than
Speaker 1: a percentage points, so not that much wire nerves ahead
Speaker 1: of what could be a bit of volatility around six
Speaker 1: thirty pm today. Yet, yeah, there are some single tech
Speaker 1: names moving on cell side sentiment. Netflix actually flat but
Speaker 1: kind of slightly outperforming the NASTAC one hundred city saying
Speaker 1: forget the noise around earnings and the stock volatility. This
Speaker 1: is a long term by Microsoft price target upgraded at
Speaker 1: Wedbush durable cloud growth on the horizon for that name.
Speaker 1: And then Cyrus Logic a number of analysts of concern
Speaker 1: about this Apple supplier because of a potential redesign around
Speaker 1: iPhone fifteen that could hurt a name like Cyrus that
Speaker 1: stock down twelve percent. Elsewhere, you look at some of
Speaker 1: the biggest points movers on the NASTAC one hundred, there
Speaker 1: are names like Tesla that are markedly lowered now or
Speaker 1: down one point three percent on Tesla as an example.
Speaker 1: That's a stock that jumped in premarket after the CPI print.
Speaker 1: And that's where we want to go with this, right.
Speaker 1: I think Goldman I saw a headline crossing the terminal
Speaker 1: was sticking with that twenty five basis points call for
Speaker 1: the upcoming meeting. But the psychology here changed really quick
Speaker 1: when the data was on estimates. Yeah, and I think
Speaker 1: it's on estimate. We're still seeing inflationary pressure, it's obvious,
Speaker 1: but it is daling back in certain areas. Ed we
Speaker 1: know it's dialing back perhaps on the price of rent,
Speaker 1: the price of housing, particularly the grocery prices. I saw
Speaker 1: that eggs perhaps aren't going to be such an inflationary
Speaker 1: pressure going forward. But really this is all about the
Speaker 1: moon music around risk assets, all around whether or not
Speaker 1: you want to be holding growth stocks in particular. Right,
Speaker 1: and it's not just public markets. Right. When you have
Speaker 1: that narrative around higher rates, that impacts the cost of
Speaker 1: capital for startups of all sizes. So let's think about
Speaker 1: the private markets as well and where the impact is there.
Speaker 1: Perfect guest maasally some eyes with us to talk about
Speaker 1: all of that. Just appointed a senior leadership role at
Speaker 1: Goldman Sachs Private Wealth Unit. SMIs now the global head
Speaker 1: of wealth management private banking lending in deposits. I've most
Speaker 1: recently been the cohead of Growth Equity also with us,
Speaker 1: and we thank her for bringing this interview, as Shinali Bassek,
Speaker 1: friend of the show, she would an extraordinary environment we
Speaker 1: all live in, and let's just talk a little bit
Speaker 1: about the macro perspective. And I want to go back
Speaker 1: to your previous role, the fact that you were such
Speaker 1: a star at raising funds for still a companies startups.
Speaker 1: Is it good time? Is it still very difficult to
Speaker 1: raise funds? So I'd say for private companies, particular growth
Speaker 1: equity space, there's obviously been a huge dislocation. You've seen
Speaker 1: public market stocks drop by circus seventy percent, and I
Speaker 1: think the challenge for these companies is accepting in the
Speaker 1: private market space that valuations need to need to move
Speaker 1: along where be reflective and where public markets are, and
Speaker 1: many companies don't want to raise in a depressed valuation environment. However,
Speaker 1: you know, there's a notable exception with Stripe, as have
Speaker 1: been much talked about, and I think it was very
Speaker 1: interesting that Stripe was able to raise six and a
Speaker 1: half billion dollars of funding, which would say that there's
Speaker 1: plenty of money still available to growth companies in that
Speaker 1: asset class with for strong talented management teams who are
Speaker 1: able to utilize transformative technology to continue to scale as
Speaker 1: long as they're realistic about the valuation environment or in NI.
Speaker 1: It's so interesting because you are stepping into this role.
Speaker 1: This is a business that had two point five billion
Speaker 1: dollars in revenue last year at Goldman Sachs, a lending
Speaker 1: business in the private wealth arm where a lot of
Speaker 1: people are founders, like the ones you've worked with when
Speaker 1: you were the growth equity head. And so I'm really
Speaker 1: wondering with Silicon Valley Bank and the struggles that they've faced,
Speaker 1: what kind of opening does that create for Goldman Sacks.
Speaker 1: How much will Goldman be taking on a lot of
Speaker 1: clients that are maybe being turned away in a market
Speaker 1: like this. Yeah, this is a really exciting time for
Speaker 1: the private bank in many ways. I mean, we have
Speaker 1: what I think is an unparalleled origination channel for this business.
Speaker 1: If we think about, in particular, the founders that you're
Speaker 1: referring to from the growth equity space, the capital markets
Speaker 1: are essentially closed to them, as we just talked about,
Speaker 1: and if they don't want to take these depressed valuations
Speaker 1: and the private markets, you know, life happens for individuals,
Speaker 1: for entrepreneurs who they may have a tax bill upcoming,
Speaker 1: they may have a house purchase, they may be going
Speaker 1: to a divorce, and to create that liquidity, then there's
Speaker 1: only really one solution, which is to go down the
Speaker 1: private banking route and try to get leverage against the
Speaker 1: collateral that they have or the stakes that they have
Speaker 1: in their own companies. I think we're very uniquely positioned
Speaker 1: to pre able to provide that sort of one stop
Speaker 1: solution for those clients, given we know how to underwrite
Speaker 1: those companies. We understand those risks, and we have great
Speaker 1: relationships with these founders, both from our Alternatives investing franchise,
Speaker 1: my old business, but also from our world class banking franchise.
Speaker 1: Now it's interesting. I know this business is much broader
Speaker 1: than the growth business, but when you think about growth
Speaker 1: in particular, a lot of these founders they're already highly
Speaker 1: levered to the point they're learning against assets that are
Speaker 1: still fluctuating a price even in private markets. What are
Speaker 1: the risks that you at Goldman are not willing to
Speaker 1: take what is too risky to leign too. I think
Speaker 1: it really is very situation specific. So, as you rightly mentioned,
Speaker 1: we're very focused on leverage embedded within the companies themselves,
Speaker 1: So if you're looking to the company to take as collateral,
Speaker 1: we're very focused on shallow preference stacks, so where there
Speaker 1: isn't a lot of leverage on those companies. Also really
Speaker 1: sustainable unit economics, so a lot of that is driven
Speaker 1: by stage of company and the ability to sort of
Speaker 1: navigate through dis cycle. And there'll be things where be
Speaker 1: looking to have the company cost appropriately, Is there a
Speaker 1: path to profitability over time? Is there an exit on
Speaker 1: the horizon within a near term timeframe. I think those
Speaker 1: are some of the types of things will be looking
Speaker 1: for when we have these conversations. And interesting that you
Speaker 1: say what you're looking for in terms of strength of
Speaker 1: business and really strength of founder and ability to navigate
Speaker 1: these turbulent times. What about strength of sector? At one
Speaker 1: point it was all about crypto. No, it's all about
Speaker 1: artificial intelligence. Are you that specific or do you actually
Speaker 1: step back and say, no, we cannot be as grand
Speaker 1: nearer as which particular area of technology, which particularly area
Speaker 1: of innovation or indeed just business building that your founders
Speaker 1: are in. Yeah. Historically, in the growth equity franchise in particular,
Speaker 1: we really place a huge emphasis on recurring revenue types
Speaker 1: of businesses which were really primarily in the enterprise software space.
Speaker 1: There's a nice visibility of revenue stream that comes with
Speaker 1: those types of businesses, and so I think those are
Speaker 1: always preferred from a lending perspective, because you want that
Speaker 1: visibility for every news, but it's not always. You know,
Speaker 1: we're going to have to service our clients needs wherever
Speaker 1: they come, and so I think we'll be flexible and
Speaker 1: open minded around that nicely. Hello from San Francisco. I
Speaker 1: wonder how you, in your former role and your new
Speaker 1: role past the data and the FED. If you're underwriting
Speaker 1: a private market deal right now, how much pressure are
Speaker 1: you specifically under to seek a lower valuation. I think
Speaker 1: we saw the headline that Goldman's sticking with that twenty
Speaker 1: five basis points call for the next meeting. But if
Speaker 1: this inflation and FED regime stays in place, how do
Speaker 1: you balance that return against the risk of operating in
Speaker 1: private markets in that environment? Yeah, I mean, obviously, when
Speaker 1: we're looking at lending, we have to take our own
Speaker 1: view on what we think the business is worth on
Speaker 1: a spot basis. Part of the reason many of these
Speaker 1: entrepreneurs might be looking for this alternative source of liquidity
Speaker 1: is because they don't want to take that valuation risk
Speaker 1: in the private markets. So we will obviously be factoring
Speaker 1: our own views around what a spot capital markets valuation
Speaker 1: may look like, maybe even be taking a discount to that.
Speaker 1: But we only need a shortain amount of coverage for
Speaker 1: our loan to be whole, as it were, so we
Speaker 1: do sort of overlay our own valuation methodology within the
Speaker 1: private bank on these companies that we're looking at. I'm
Speaker 1: really interested in the client base as well, which I'm
Speaker 1: sure you now have a pretty broad understanding of where
Speaker 1: does the demand come from. You know, I've broken a
Speaker 1: lot of news over the last few years on Rivian,
Speaker 1: for example, these kind of late growth stage companies. Rivan
Speaker 1: did go public, but you see names like t row Price,
Speaker 1: Goldman Fidelity coming in alongside traditional venture capital. Where does
Speaker 1: Goldman sit in that landscape and where are its clients
Speaker 1: pushing for more access to those private companies. So from
Speaker 1: a private company perspective, I mean our entire growth equity
Speaker 1: franchise and platform is built around sourcing those companies, investing
Speaker 1: in them, hopefully scaling them along the way, and creating
Speaker 1: liquidity events with strategic takeouts. Which where our banking franchise
Speaker 1: can be very helpful. So we are, and you know,
Speaker 1: I would say what we've really seen over the past
Speaker 1: eighteen months is a bit of a retrenchment of the
Speaker 1: growth equity tourists, and in fact, this is a great
Speaker 1: time as a growth equity investor if you have dry
Speaker 1: powder and have some patience. We think that this will
Speaker 1: be a great opportunity to be able to continue to
Speaker 1: invest in world class companies given the valuation environment is
Speaker 1: so rapidly changing. I want to talk about valuations a
Speaker 1: little more here because you did work on Stripe that
Speaker 1: was pretty fascinating four billion dollar fundraise and a lot
Speaker 1: of money came from Goldman's own private clients, high net
Speaker 1: worth individuals, But there was a down round that was
Speaker 1: associated with a lot of this have we hit rock
Speaker 1: bottom when you look across the industry, have do we
Speaker 1: have more to go? When you look at these growth
Speaker 1: names and how much further down the valuations are headed.
Speaker 1: I think Stripe's just a fascinating example because I think
Speaker 1: they really bit the bullet and did the right thing
Speaker 1: for the capital structure. They recognized the environment we were
Speaker 1: in and they wanted to be able to create enough
Speaker 1: incentives for retention for the employees to be able to
Speaker 1: continue this journey, this growth journey, even at reduce growth rates,
Speaker 1: which perhaps you could argue more durable than the hyper
Speaker 1: growth that they've been experiencing at the peak of the
Speaker 1: pandemic in terms of actual valuations. I think what you're
Speaker 1: seeing as many companies hoping to survive this period by
Speaker 1: managing costs and expenses and just preserving as much cash
Speaker 1: as possible at the expensive growth to not have to
Speaker 1: test the valuation environment. And so I think as an investor,
Speaker 1: you're hoping that's what Stripe will do is unlock more
Speaker 1: down round so that you can actually help we capitalize
Speaker 1: these companies on the next leg of their journey. We
Speaker 1: haven't seen that yet. Do you think also that we
Speaker 1: are indeed in a credit crunch from somebody that's entering
Speaker 1: this lending business here? The reality is it's not just
Speaker 1: a Silicon Valley bank. The reality is is that they're
Speaker 1: investors that are under pressure. Some of the folks that
Speaker 1: would have gotten into things like strife, they are under pressure.
Speaker 1: Do you think that there's going to be a lot
Speaker 1: more pain when companies go out there and look for
Speaker 1: more capital ahead. Yeah, I think there's no doubt that
Speaker 1: we are in a much more challenging macro environment, and
Speaker 1: you know, you're seeing credit contraction, as you rightfully said,
Speaker 1: but we're at the very early innings of the credit cycle.
Speaker 1: You know, you're seeing pockets of pain, most prevalently right
Speaker 1: now in commercial real estate. There's been a lot of
Speaker 1: press about that office buildings in particular, So I think
Speaker 1: we're paying particular focus to clients sort of large exposure
Speaker 1: debt exposures to that as a class. But I think
Speaker 1: this is going to be an environment with as huge opportunities.
Speaker 1: I mean, you're already seeing in public fixed income markets
Speaker 1: you're able to earn yields wider than I've seen for
Speaker 1: the last fifteen years for the same credit risk. That
Speaker 1: will reflect in private markets too. All Right, Nishi Samayer
Speaker 1: of Goldman Sachs, thank you, and of course thank you
Speaker 1: to our own Shhali Bassett for bringing us that conversation
Speaker 1: going from growth equity deployment to Goldman's banking. That was
Speaker 1: an in depth conversation. We're all talking about it. Last night,
Speaker 1: Elon Muskok to Twitter to talk about Twitter during a
Speaker 1: two hour long spaces conversation with a BBC that played
Speaker 1: out before millions of listeners. Musk reaffirmed that Twitter is
Speaker 1: operating and about break even and actually could become cash
Speaker 1: flow positive as soon as this quarter. Yeah. Look, he
Speaker 1: dodged a lot of questions, pretty simple direct questions, most
Speaker 1: of them about how he felt about laying people off,
Speaker 1: but he reiterated this point that if he had not
Speaker 1: done that, then Twitter would be in a precarious financial situation.
Speaker 1: He did say the advertisers have started to come back
Speaker 1: and X is the future of the everything at But
Speaker 1: beyond that, there wasn't a lot new that we learned, Carrot.
Speaker 1: What was interesting is the aftermath, right, and the fact
Speaker 1: that the BBC was conducting this interview. NPR, which itself
Speaker 1: is very much an independent media which is not government funded,
Speaker 1: as they would say, is eventually quitting Twitter today, right
Speaker 1: because of the concern over labeling. Yeah, and over the
Speaker 1: two hours, NPR did not specifically come up, to the
Speaker 1: best of my memory, BBC did and must discuss about
Speaker 1: the idea that a more appropriate label might be publicly
Speaker 1: funded rather than its current label, but didn't sort of
Speaker 1: commit to when that change would be made. So I
Speaker 1: don't know if you had any other key takeaways carry
Speaker 1: what just the length of it and the matter the
Speaker 1: manner in which it all occurred. But what's interesting is
Speaker 1: the competitive threats, right, he's seen the key takeaway was, Look,
Speaker 1: people are coming back to the platform advertisers even though
Speaker 1: they lose a key Twitter, which is MPR. But what
Speaker 1: about that competitive threat in particular coming from new places
Speaker 1: like substack. Yeah, so subtacts interesting because it's also emerged
Speaker 1: as this challenger to Twitter because it's a news let
Speaker 1: the platform. But it's announced this new product that looks
Speaker 1: remarkably similar, right, called substack notes. Remember what the CEO
Speaker 1: Chris Bess had to say on the show about that.
Speaker 1: So I think all of on my media is basically
Speaker 1: either going to have to turn into TikTok or is
Speaker 1: going to have to turn into substack in the next
Speaker 1: little bit. And substack notes is sort of our way
Speaker 1: to bring the easy sort of sharing a short form,
Speaker 1: the ability to recommand anything to the subscription network that
Speaker 1: is substack, and we're tremendously excited about it. So substack
Speaker 1: fancies itself as a competitor. What I would say is
Speaker 1: that must said, you know, user hours are just surging
Speaker 1: user uses up. He was pretty bullish about the health
Speaker 1: of the Twitter platform. We'll have to wait and see.
Speaker 1: Coming up there, Caroline, We're going to dig him more
Speaker 1: into the impact of the Silicon Valley bank collapse on
Speaker 1: the banking system at large. We have Brooking's fellow and
Speaker 1: economists Aaron Klein on the program. Coming up, this is Bloomberg.
Speaker 1: Deposits at JP Morgan, Wells Fargo, and Bank of America
Speaker 1: are expected to have tumbled twenty one billion dollars from
Speaker 1: a year earlier, the biggest drop in a decade that
Speaker 1: according to the analyst estimates compiled by Bloomberg, the coming
Speaker 1: first quartered disclosures from big US banks could intensify concerns
Speaker 1: about deposit mix and should lend. This mis expectation set
Speaker 1: off more inquiries about the health and future of the
Speaker 1: industry in the wake of Silicon Valley banks collapse. More
Speaker 1: on the topic, let's bring in Aaron Klein, economic senior
Speaker 1: fellow at the Brookings Institution and an expert in financial
Speaker 1: regulatory reform. You know, immediately following that SVB collapse weekend,
Speaker 1: Caroline and I were there. We all talked about the
Speaker 1: winners who took deposit outflows. Now we're talking about the
Speaker 1: health of this sector. Which is it where they're winners
Speaker 1: in the banking sector or is the whole industry as
Speaker 1: serious risk here? Well, look, I think one of the
Speaker 1: big problems here is that a lot of the money
Speaker 1: loved the banking system to money market mutual funds. And
Speaker 1: you say, why money market mutual funds. They're less guaranteed
Speaker 1: than bank deposits. Part of the problem here is the
Speaker 1: Federal Reserve and the Treasury Department have built out money
Speaker 1: market mutual funds twice, once during COVID and once during
Speaker 1: the two thousand and eight financial crisis. So there's a
Speaker 1: bit of a feeling from investors that there's an implicit
Speaker 1: guarantee in these money market mutual funds, and then they're
Speaker 1: searching for yield. So I think in some ways the
Speaker 1: banking sector is going to contract further as a result
Speaker 1: of prior government bailouts offer having a lingering effect. Let's
Speaker 1: just look at some of your writing now, Aaron, and
Speaker 1: I've given my production team no help to tell them
Speaker 1: that we're going to bring up one of the key
Speaker 1: focuses of your writings from Brookings is the dirty secret
Speaker 1: about bank holding company regulation. And I think we think
Speaker 1: about the repercussions of what time to SVB on amount
Speaker 1: of deposits and who's winning, who's losing, but who didn't
Speaker 1: come off well as the regulators here perhaps, do you
Speaker 1: think there's been enough of a feedback yet to decide
Speaker 1: on the way in which well, ultimately the FED needs
Speaker 1: to be think about the way it chanalyzes these banks. Yeah,
Speaker 1: America has a really strange banking system and a bank
Speaker 1: regulatory system that corresponds. The Federal Reserve regulates a bank
Speaker 1: holding companies, which are the top level parent that have
Speaker 1: subsidiary banks and other companies. Sometimes that bank is regulated
Speaker 1: by the FED, as in the case of SVB, other
Speaker 1: times it's not. There's the occ the FDIC. We have
Speaker 1: too many bank regulators, in my opinion in the US.
Speaker 1: But the feed is a rare case where you have
Speaker 1: this holding company and the bank, Silicon Valley Bank. So far,
Speaker 1: all the conversation has been focused on the bank. I'm
Speaker 1: interested in this venture capital arm, this other arm of
Speaker 1: SVB and what their relationship were to the depositors, to
Speaker 1: the companies, the tech companies that were at SVB. Why
Speaker 1: did the FED allow a bank like SVB to be
Speaker 1: ninety five percent uninsured deposits? Was there some relationship where
Speaker 1: when the vcs invested through Silicon Valley Bank or one
Speaker 1: of their other partners, that it forced the tech companies
Speaker 1: to stay and so they wouldn't move out. And I
Speaker 1: don't think we focused enough nearly on the FED role
Speaker 1: as a bank holding company regulator. And in my writing
Speaker 1: you'll see I point out not just SVB, but they
Speaker 1: are all these other little smaller bank holding companies that
Speaker 1: seem to not be regulated at all. Meanwhile, they're focused
Speaker 1: heavily on JP Morgan, Chase, Boa, maryl So what about
Speaker 1: a First Republic or some of the other lenders that
Speaker 1: have been tainted with a right yal wrong me? Because
Speaker 1: it felt like in many ways Silicon Valley Bank was
Speaker 1: pretty idiosyncratic. But still we see so much pressure on
Speaker 1: some of these small lean enders. Yeah. So I think
Speaker 1: there've been problems at a wide number of lenders through
Speaker 1: the holding company and the FED just hasn't done anything.
Speaker 1: I can't explain to you why a company like Dickinson
Speaker 1: Financial out of Kansas City, which runs a series of
Speaker 1: banks who do nothing other than milk people for overdraft
Speaker 1: fees has been allowed to exist. This is a regulatory
Speaker 1: strategy that they have at the holding company level because
Speaker 1: they're all these little banks, armed Forces, bank, Academy bank,
Speaker 1: all these things do or overdrafts their check cashers, yet
Speaker 1: the Federal Reserve keeps giving them a clean bill of health.
Speaker 1: I don't know what it's going to take to stop
Speaker 1: this and have more serious bank holding company regulation, because
Speaker 1: so far Congress has not yet held the Feds accountable.
Speaker 1: Aaron will go to those banks for comment that you
Speaker 1: say in your opinion and milking depositors for overdraft fees.
Speaker 1: Let's end it here very quickly. What's the net result
Speaker 1: of this regulation, government intervention? What happens? Well, I think
Speaker 1: the net result is twofold number one. The government's found
Speaker 1: itself in an untenable situation of having bailed out the
Speaker 1: uninsured depositors at these handful of banks, and the question
Speaker 1: is what are the uninsured depositors in other situations. There's
Speaker 1: mounting pressure and Congress to raise a deposit insurance cap,
Speaker 1: which I think would be a mistake, a big transfer
Speaker 1: of wealth. But that political pressure seems to be snowballing.
Speaker 1: And the other question is the real economy, and the
Speaker 1: real economy is going to experience some level of credit
Speaker 1: crunch because as money moves out of the banking system
Speaker 1: into other things like money market mutual funds, it doesn't
Speaker 1: get recycled the same way. Think of credit like the
Speaker 1: lifeblood of the economy, and the heart of the system
Speaker 1: is kind of fluttering. Well, heart of the system that
Speaker 1: you've been trying to put out four leadership pieces on
Speaker 1: particularly on why perhaps the FDR limit that ensured deposit
Speaker 1: limit shouldn't be extended higher. Aaron Klein. Great to have
Speaker 1: him in the house this time, Economic Senior fellow at
Speaker 1: Brookings Institution. It's very important for the regulators to have
Speaker 1: a deep understanding of the industry, and I can say,
Speaker 1: without offending anybody, I think that today most regulators don't
Speaker 1: have industry experience. If you look at the banking sector,
Speaker 1: many regulators have worked in banks. Today, most regulators have
Speaker 1: not worked in a crypto company. Before I'll come back
Speaker 1: to Bluemo technology. It's very important for the regulators to
Speaker 1: have a deep understanding of the industry, and I can say,
Speaker 1: without offending anybody, I think that today most regulators don't
Speaker 1: have industry experience. If you look at the banking sector,
Speaker 1: many regulators have worked being backed today, most regulators had
Speaker 1: not worked in a crypto company before. We'll come back
Speaker 1: to newber technology. I'm Karine Hide in New York. That
Speaker 1: was binarce CEO CZ speaking at the Web three festival
Speaker 1: over in Hong Kong, and a stick with some Hong
Speaker 1: Kong related stocks. Right now in the public marko, I'm
Speaker 1: looking at the Golden Dragon China Index at the moment,
Speaker 1: off by three percent. In fact, US listed Chinese stocks
Speaker 1: falling the most well since at least three weeks now.
Speaker 1: We've got pressure on key names. Ten Cent, a key
Speaker 1: investor is perhaps offloading some stock. Will have more on
Speaker 1: that in a moment about Ali Baba's down five percent
Speaker 1: JAD to coompdd trip, dot com, you name it. They're
Speaker 1: on the lower side, even though it's an USA one
Speaker 1: hundred managers to tread water. Even though there was up
Speaker 1: higher after the inflation print came in, showing some hope
Speaker 1: of some curtailment in those inflationary pressures. Therefore, well, the
Speaker 1: Fed probably still going to have to hike twenty five
Speaker 1: basis points in the next meeting, but for now, maybe
Speaker 1: some optimism. That's that one hundred only up by less
Speaker 1: than a tenth of a percent, though, and chip stocks
Speaker 1: on the downside after we see maybe some of the
Speaker 1: profit daking, after we see him run up in Micon
Speaker 1: yesterday and some of the other key names in the
Speaker 1: chip industry. We're off by four tenths of a percent.
Speaker 1: But we're also keeping close eye on crypto. I want
Speaker 1: to keep an eye on not only what's happening in Bitcoin,
Speaker 1: which has been up, as you said at a moment
Speaker 1: ago above thirty thousand, but getting a bit into eighth.
Speaker 1: This is notable because we've got all important upgrade happening
Speaker 1: about six thirty pm New York time tonight. We expect
Speaker 1: it to occur, and actually people anticipating maybe a bit
Speaker 1: of volatility. Interesting to see a bit. I think everyone
Speaker 1: is always anticipating volatility when it comes to crypto, so
Speaker 1: let's stick with it. Venture capitalists have been pulling back,
Speaker 1: actually from investing in crypto startups and industry that's frankly
Speaker 1: been plagued by scandals and regulatory uncertainty. Private funding in
Speaker 1: the first quarter of the year fell to two point
Speaker 1: four billion dollars an eighty percent declined from it's all
Speaker 1: time high during the same period a year ago. This
Speaker 1: according to data from research firm pitch Book. Now joining
Speaker 1: us with her insights on VC funding for the crypto
Speaker 1: space is Kate Lawrence, CEO and founder of Bloccelerate VC.
Speaker 1: There is a dichotomy. Oh, you're very welcome to the program.
Speaker 1: There is this dichotomy k between the trajectory of bitcoin,
Speaker 1: ether and the backward looking data VC money going into
Speaker 1: crypto related startups. Why the trajectory of the bitcoin and
Speaker 1: ethereum has been primarily up this year, Bitcoin is up
Speaker 1: eighty percent, Ethereum is up sixty percent, Yet the venture
Speaker 1: capital ins are pulling back investing in Web three, as
Speaker 1: you said, eighty percent down. It's a really good question.
Speaker 1: I think that everybody is waiting on the sidelines for
Speaker 1: the regulators to come in and set clear rules. There's
Speaker 1: a lot of risk associated with lack of regulatory clarity.
Speaker 1: And for the most part, when we look at the
Speaker 1: venture capital data, we're not specifically looking at the Web
Speaker 1: three funds. We're looking at the traditional Web two funds
Speaker 1: investing in Web three. From my experience, we are are
Speaker 1: Web three fund. We haven't pulled back investing. In fact,
Speaker 1: we're executing nine deals right now, the record breaking number
Speaker 1: for US this year, and that's what I'm seeing consistent
Speaker 1: with other venture funds focused on the Web three specifically
Speaker 1: right now. Okay, if you're a VC that's backing crypto
Speaker 1: and blockchain related companies, do you therefore by default have
Speaker 1: to be a bitcoin maximalist. No. Bitcoin is an important innovation.
Speaker 1: Bitcoin is the first use case to the blockchain, similar
Speaker 1: to email being the first mainstream use case to the Internet.
Speaker 1: But email is not the last use case to the Internet,
Speaker 1: and bitcoin is not going to be the last use
Speaker 1: case to the blockchain. What Ethereum is doing is creating
Speaker 1: the TCPIP layer for this new Internet economy. And on
Speaker 1: top of that TCPIP, we're seeing an explosion of innovation
Speaker 1: that is happening where developers are coming in and building
Speaker 1: innovative applications on top of it. And that's where value
Speaker 1: the crew is happening. So kay still writing checks to
Speaker 1: this explosion of entrepreneurs who want to build on top
Speaker 1: of these Absolutely, we are long term mission driven investors.
Speaker 1: We started the fun with a fundamental vision. The blockchain
Speaker 1: is one of the most fundamental technologies that is going
Speaker 1: to bring trillions of dollars worth of value over the
Speaker 1: next five to ten years. And we've been through these
Speaker 1: cycles before. This is not the first cycle that we're experiencing. Yeah,
Speaker 1: So in fact, we're doubling down on the companies because frankly,
Speaker 1: it's a better time to invest now. Okay, it's interesting
Speaker 1: some are anticipating perhaps more institutional interest in eth after
Speaker 1: this ending of the upgrade shall we call it. We're
Speaker 1: hearing its chappella to some Shanghai upgrade to others. But
Speaker 1: ultimately the moving of proof of workedproof of stake for
Speaker 1: the ethereum blockchain. How important is today's upgrade the finishing touches.
Speaker 1: How much could it attract more people too? Eighth and
Speaker 1: indeed is more staking protocols will stop. It is very important.
Speaker 1: It's say, a very important day for the industry. In
Speaker 1: the entire community is watching this upgrade very closely. Because
Speaker 1: only fifteen percent of total ethereum in circulation is currently staked.
Speaker 1: It's thirty billion dollars worth of ethereum, which seems like
Speaker 1: a big number, but in the grand scheme of things
Speaker 1: with ethereum market cap being two hundred thirty billion, that's
Speaker 1: to drop in the bucket. So what this upgrade opens
Speaker 1: the floodgate forward is de risked proof of work mechanism,
Speaker 1: where now not only are you able to stake and
Speaker 1: generate yield, you can also withdraw the ethereum that you
Speaker 1: would have stakes. So institutions are waiting for this moment
Speaker 1: because they've the large part are holding a large amount
Speaker 1: of ethereum and circulation today. ED is interesting that many
Speaker 1: holding their breath, many anticipating not much volatility, many hoping
Speaker 1: that it will start to bring in more money. Shanghai, Chapella,
Speaker 1: you name it. They love a good branding of something
Speaker 1: that keeps the outsiders feeling like they're outsiders. Well, you
Speaker 1: get this feeling carry that everyone's gonna have a watch party.
Speaker 1: They kind of all get together digitally or in a
Speaker 1: living room somewhere and kind of count down the clock
Speaker 1: like it's New Year's Eve. I mean, Kate, you can
Speaker 1: tell us whether that's your plan. I guess how closely
Speaker 1: do you track technological developments like this? You know, Kara
Speaker 1: and I talk about the volatility in the market, the
Speaker 1: regulatory scrutiny or lack of but it just seems like
Speaker 1: everyone's just waiting for tech upgrades. To answer your first question,
Speaker 1: I don't have a party plan, but I think that
Speaker 1: a lot of my fellow Ethereum holders are gathering. I'm
Speaker 1: watching the upgrades pretty closely. I've been in Ethereum backer
Speaker 1: for many years of actually mind Etherium in twenty sixteen
Speaker 1: twenty seventeen in my apartment in Seattle, taking advantage of
Speaker 1: the cost efficiencies at the time. But I think what
Speaker 1: we can expect is the frequency of upgrade disceller reading
Speaker 1: after this mean shin high upgrade because Ethereum is becoming
Speaker 1: a large amountalytic chain where each upgrade actually sends the
Speaker 1: sharp waves, if you will, to the rest of the
Speaker 1: development community, which is what we would have expected from
Speaker 1: a mature protocol like Ethereum. All right, Kate Lawrence, the
Speaker 1: block celerat V see taking it easy for the big
Speaker 1: watch party tonight. Thank you. Let's talk a little bit
Speaker 1: about artificial intelligence. Open AI, the maker of AI systems
Speaker 1: like chat GPT, says it could use some more help
Speaker 1: from its users to spot and report any bugs or
Speaker 1: unusual glitches on its programs, or even offering as much
Speaker 1: as twenty thousand dollars to people that find bugs. Bloomberg's
Speaker 1: resident AI reporter Rachel Metz joins me now in San Francisco.
Speaker 1: I want to go into the details of what they're doing,
Speaker 1: but what I see on Twitter is people saying, hold on,
Speaker 1: weren't you all about AGI artificial general intelligence. You're supposed
Speaker 1: to have tools that do all this anyway, do you
Speaker 1: just not? Or what I mean? I think it's a
Speaker 1: little bit harder than that, right, I mean where we
Speaker 1: are now is not there. And what they're trying to
Speaker 1: do is do what a lot of tech companies have
Speaker 1: already done, which is say, hey, we can be better
Speaker 1: at finding our security issues if we have more sort
Speaker 1: of eyes on it, looking for different weaknesses in our
Speaker 1: different products. The APIs that they offer They just started
Speaker 1: doing plugins for other services like open Table, for instance, Expedia,
Speaker 1: and people can look for security vulnerabilities in their various products.
Speaker 1: This is a bug bounty. Yes, I guess is there
Speaker 1: anything from chat? GPT is one example that's kind of
Speaker 1: jumped out as an issue with the platform, A common
Speaker 1: report on difficulties that uses are having. Well, see, there's
Speaker 1: like two different things happening there. One would be like
Speaker 1: issues that people might have with the models, those actually
Speaker 1: aren't part of the bug bounty program. So like jailbreak
Speaker 1: models that people have been using and that we've reported on,
Speaker 1: those wouldn't be considered things that people are gonna be
Speaker 1: getting a bounty for or anything that the model makes
Speaker 1: up for instance, there are ways to report that, but
Speaker 1: it's not part of this. When this story hit the
Speaker 1: Bloomberg terminal after our show yesterday, it made me think,
Speaker 1: we're back to the discussion about how nascent this technology
Speaker 1: is really. Yeah, even though it's been in our hands
Speaker 1: for several months and everyone feels that they interacted with it,
Speaker 1: and everyone always amazes me, Rachel, with just how unique
Speaker 1: and creative people can be with using chat, chpt and
Speaker 1: other products for that end. What about these bounty hunters though,
Speaker 1: because there's some great writing on jailbreak prompt enthusiasts in particular,
Speaker 1: and how are these two things dovetailing together. I mean,
Speaker 1: you may see some people that are interested in jailbreak prompts,
Speaker 1: they might also be interested in looking for security vulnerabilities,
Speaker 1: which they would then report to the company. I mean,
Speaker 1: just in the last barely twenty four hours, a handful
Speaker 1: of people have submitted bugs to open AI through bug crowd,
Speaker 1: which is the partner program or a partner company rather
Speaker 1: that they're working with and gotten paid out too. I
Speaker 1: think over six thousand dollars was one of them. They
Speaker 1: assign them different priorities depending on a rubric that bug
Speaker 1: crowd has long established, and according to that you get
Speaker 1: different amounts of money. Is this in some way either
Speaker 1: making them community more involved and in also some way
Speaker 1: trying to fight back against the concerns around ethics of AI,
Speaker 1: around the way in which is developing at such a pace,
Speaker 1: and perhaps bringing in more individuals and humanity to an
Speaker 1: ultimately computer driven enthusiasm that we will have at the moment.
Speaker 1: In a sense, perhaps, I mean this is as I said,
Speaker 1: this is a program that's pretty common, and as you
Speaker 1: guys have seen in the past, it's a pretty common
Speaker 1: thing for tech companies to do. It's also like it
Speaker 1: can be a very tech effective it could be a
Speaker 1: very cost effective way to find security issues. And you
Speaker 1: also could have more eyes on these things than you
Speaker 1: might otherwise have if you are trying to do all
Speaker 1: of it in house, which with a product like this
Speaker 1: that's being used in more and more are ways by
Speaker 1: more and more companies can be really difficult. Rachel Matts.
Speaker 1: It's a great story. Got a lot of pick up
Speaker 1: across dot com and on Twitter as well. We thank
Speaker 1: you so much for breaking it all down. I mean,
Speaker 1: we're coming up more on THESVV fallout and it's impact
Speaker 1: on startups, but also well the AI investment opportunity. Just
Speaker 1: talking about open Ai. What are the other areas you
Speaker 1: can be putting money to work? Mike Volpy, You know,
Speaker 1: of course of Index Venture is going to be up next. Listen,
Speaker 1: bloom Bag all right, Time for the VC roundout. Soft
Speaker 1: Bank is selling its early stage vcarms soft Bank Ventures
Speaker 1: Asia after its suffers billions of dollars of losses from
Speaker 1: failed startup bets. It will be sold to an entity
Speaker 1: led by Tizo Sun, the younger brother of so Bank
Speaker 1: founder Masayoshi's son, and shares of Japanese moonlander maker I
Speaker 1: Space went untraded on a glut of by orders on
Speaker 1: their market debuts. Investors bet on the startup and the
Speaker 1: country's space development effort. Shares were quoted it more than
Speaker 1: twice the offering price at market close on Wednesday, According
Speaker 1: to the Tokyo stock exchange. Caroline, what a novel thing
Speaker 1: ed an IPO or the glutt of a bye orders?
Speaker 1: What sort of an environment is this at the moment
Speaker 1: for startups that want to go public? Feels like the
Speaker 1: market is shot. Mike Volpi is the perfect person to
Speaker 1: be asking in today's a VC spotlight. He's, of course
Speaker 1: general partner and Index Ventures holds three point two billion
Speaker 1: dollars across its latest funds, and these are IPOs are
Speaker 1: rare and the moment people are trying to raise funds
Speaker 1: to stay in business, how much are you seeing an
Speaker 1: ability a desire to write checks at the moment to
Speaker 1: the startup community you look at Yeah, Caroline, thanks for
Speaker 1: having me again. I would say that generally the climate
Speaker 1: is falling right now. Twenty twenty two was a really
Speaker 1: slow year and venture partly because the public markets took
Speaker 1: a big step back with the higher interest rates and
Speaker 1: the desire for companies to achieve profitability multiples compressed. We're
Speaker 1: still generally in that climate, but I think the venture
Speaker 1: community has found a few green shoots, and in particularly
Speaker 1: you've talked in the earlier segment about AI. That's definitely
Speaker 1: an area where we're seeing a lot of green shoots,
Speaker 1: but you are seeing some dollars begin to move. Okay,
Speaker 1: let's talk about the green shoots in AI, perhaps the
Speaker 1: hype cycle that someone cool it. Where in the area
Speaker 1: of AI generative AI, where the building blocks do you
Speaker 1: want to invest at the moment? Yeah, I'd say broadly
Speaker 1: three categories. One are these so called foundation models. This
Speaker 1: was what Rachel was talking about earlier. But it is
Speaker 1: essentially these generative models that are very large, very complex,
Speaker 1: and they generate texts. They can help you search and retrieve,
Speaker 1: they can summarize, and so forth. That's a key area
Speaker 1: of investment. There's open AI cohere, and he's like that.
Speaker 1: A second area is is what we generally call picks
Speaker 1: and shovels for AI. These are basically tools, operational tools,
Speaker 1: training tools that manage large banks of semiconductors GPUs and
Speaker 1: so forth, labeling or data enhancement technologies. All of these
Speaker 1: are used to create foundation models or maybe to help
Speaker 1: The third category, which is aipowered applications. So these are
Speaker 1: applications like Notion or Gong, which essentially use pieces of
Speaker 1: AI inside them to make the application better. All three
Speaker 1: categories are very interesting and all of them are drawing
Speaker 1: reasonable amount of venture capital towards them, and you've already
Speaker 1: allocated to that space scale AI, of course one of them.
Speaker 1: Mike met ed, What's interesting is AI just seems to
Speaker 1: be an outlier here at the moment. Yeah. You know,
Speaker 1: you go back to the Pitchbook data, the Venture Capital
Speaker 1: Association data first three months of this year, you have
Speaker 1: to go back thirteen quarters or so to get to
Speaker 1: that low level of venture backed funding for startups. And
Speaker 1: so I guess my question to you, Mike is why
Speaker 1: do you go for an industry that's an outlie. What
Speaker 1: is it that catches your eye when the debt crosses
Speaker 1: your desk, that thinks tough environment, a better invest in
Speaker 1: this though? Just in case, Yeah, I think our experiences
Speaker 1: index is that there are a few moments in the
Speaker 1: history of technology where you see something that is truly
Speaker 1: transformational and has a long term impact. I remember early
Speaker 1: in my career when I first saw web browser connected
Speaker 1: to the Internet, I had that feeling, Or when the
Speaker 1: iPhone came out, I had that feeling, And it is
Speaker 1: that sense of like, this technology has a very broad reaching,
Speaker 1: deep impact, and we better get in early. Sometimes we
Speaker 1: might not know what the winners are, but we better
Speaker 1: get in early to take advantage of the consequential significant
Speaker 1: changes and impacts and transformations that technology is going to have.
Speaker 1: And that's certainly what AI feels like today. One player
Speaker 1: bringing impact and energy to the private markets is Saudi Arabia.
Speaker 1: And I bring that up because this week we've been
Speaker 1: talking about its pledges of investments in the video game space.
Speaker 1: For example, what is Index's attitude towards Saudi You know,
Speaker 1: I think a sixteen QUA two. They all count Santa
Speaker 1: Bill as an LP for example. They seem ready to
Speaker 1: deploy big dollars right now in private startups. Yeah, they've
Speaker 1: been around in the business for a while. At Index,
Speaker 1: we've chosen not to take Middle Eastern money as an LP,
Speaker 1: and that's an important value for us for an assortment
Speaker 1: of reasons. Others I think particularly want they want to
Speaker 1: raise large funds, find that the deep pockets available in
Speaker 1: the Middle East are useful to them. They are a player.
Speaker 1: I think fundamentally, though, the venture business is constituted by
Speaker 1: Western venture capital firms at least in our market, that
Speaker 1: focus on early stage and growth investing, and I think
Speaker 1: that's going to be the core of the business for
Speaker 1: a while, Mike, I mean ed brings up there for
Speaker 1: a global story of flow of money. You're a global
Speaker 1: VC investor. We know you're from Europe too, how much
Speaker 1: so you looking at opportunities in Europe? How much is
Speaker 1: the regulatory environment enticing in places like Europe? For our
Speaker 1: Index ventures, about forty to forty five percent of our
Speaker 1: dollars that we invest go to Europe. Europe is a
Speaker 1: very different kind of a market. It's much more distributed
Speaker 1: than what you experienced in the US. We have a
Speaker 1: bit of a concentration around the Bay Area and New York,
Speaker 1: and so it requires a different style of investing. But
Speaker 1: we do see continued very interesting entrepreneurship. And you know,
Speaker 1: at least in Index's history, we'd seen fantastic stories like
Speaker 1: Adien for example, or far Fetch, which have all come
Speaker 1: out of Europe and produced fantastic returns for our LPs. Mike,
Speaker 1: we go back to that data lowest level for thirteen quarters.
Speaker 1: In the first three months this year, crypto investments dropping.
Speaker 1: Are we bottoming out? Though? To your mind and your
Speaker 1: experience looking at these private markets broadly and in the
Speaker 1: crypto space, I would separate the crypto from the mainstream
Speaker 1: VC market. I would say that this whole AI phenomen
Speaker 1: and represents a coming out of the bottom for VC investing.
Speaker 1: I don't know that we will return to the peaks
Speaker 1: of twenty and twenty twenty one, those from pretty astronomical years,
Speaker 1: but I think we're beginning to see a pullout from
Speaker 1: that bottom. Crypto is a very hard one to predict
Speaker 1: because at the end of the day, it is an
Speaker 1: up and down market. It has dynamics of its own,
Speaker 1: and I don't think it's actually representative of the rest
Speaker 1: of the VC business as much, whereas I see some
Speaker 1: of the investing that's happening, particularly in AI, but all
Speaker 1: the other categories that we talked about, a return to normalcy,
Speaker 1: all right, Mike Volp, General partner in day. It's giving
Speaker 1: us that global view. When it comes to Denchach Caroline time.
Speaker 1: Now we're talking tech ten Cent shares in Hong Kong.
Speaker 1: They tumble by the most in over two months on
Speaker 1: signs that it's larger shareholders. Netherlands based Process may extend
Speaker 1: the selling them it's Chinese tech firms. Stop Process planned
Speaker 1: to deposit an additional ninety six million dollars in shares
Speaker 1: into the city's stock clearing systems, typically a precursor to selling.
Speaker 1: Job cuts Meanwhile, at Amazon's Twitch division are raising some
Speaker 1: concerns among former employees and content monitors about the popular
Speaker 1: live streaming SIT's ability to police abusive or illegal behavior
Speaker 1: issues that have plagued the business. In fact, the layoffs
Speaker 1: at Twitch has eliminated about fifteen percent of the staff
Speaker 1: responsible for monitoring such behavior. An Apple supplier, Cyrus Logic,
Speaker 1: fell in training today as analysts highlighted risks to the
Speaker 1: company's bottom line from a reported design change to the
Speaker 1: iPhone fifteen. Now the Austin, Texas based company derives eighty
Speaker 1: eight percent of its revenue from Apple. That's according to
Speaker 1: supply chain data are compiled by Bloomberg. One analyst saying
Speaker 1: that higher end iPhone fifteen pro models will abandon them
Speaker 1: closely watch solid state button design instead using the classic
Speaker 1: volume bottom design due to manufacturing challenges. Then another Apples
Speaker 1: supply chain story with Caroline. That does it for this
Speaker 1: edition of Bloomberg Technology. You set your alarms for that
Speaker 1: big ethereum technology upgrade coming this evening wherever you are
Speaker 1: in the world, and a lot to recap in the
Speaker 1: show as well. Carrow, don't forget to check out the
Speaker 1: podcast wherever you get your podcast, Apple, Spotify, iHeart on
Speaker 1: our Bloomberg platforms. Three days into the week, tech firmly
Speaker 1: and focus. This is Bloomberg.