Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wistful and I'm Tracy Allaway. So, Tracy, the
Speaker 1: last month in markets has been pretty interesting, wouldn't you say? Uh,
Speaker 1: interesting is definitely one way of putting it. It's been
Speaker 1: massively volatile, and I'm sure quite stressful for quite a
Speaker 1: few investors. Definitely stressful for several investors. But also I
Speaker 1: would say, you know, as it often is, unfortunately good
Speaker 1: for us in the financial media business, because some very
Speaker 1: good stories to write about, talk about and dive into. Right,
Speaker 1: there's been no shortage of headlines, that's for sure. One
Speaker 1: of the big things that we've been writing about has,
Speaker 1: of course been the massive sell off that we saw
Speaker 1: in technology stocks. Yeah, that's exactly right. Like lots of
Speaker 1: things have happened in the last month and really all year,
Speaker 1: with many global markets selling off. But I do think
Speaker 1: what's really striking and what felt different about this past
Speaker 1: month is how violent some of the selling has been
Speaker 1: in technology companies that heretofore have seemed really maybe bulletproof.
Speaker 1: And you know, I'm thinking of companies like Amazon, which
Speaker 1: was at one point of worth over a trillion dollars
Speaker 1: and then very quickly lost about a quarter of its
Speaker 1: market cap. Others like Netflix and Google and Facebook, which
Speaker 1: had been struggling since the summer. Very much a different
Speaker 1: tone to the trading of these companies, And of course
Speaker 1: it might just be a blip, but maybe it's a
Speaker 1: sign that just sort of that pure optimism that people
Speaker 1: felt towards these companies have started to fade, right. And
Speaker 1: I think that's one reason why the month felt so stressful,
Speaker 1: because you saw these stalwarts not just of the technology sector,
Speaker 1: but really of the entire market, uh suffer during this downturn.
Speaker 1: So you know, think about the major components in the
Speaker 1: SMP five hundred the thing stocks like Facebook and Amazon
Speaker 1: and Google really make up a big proportion of that. Yeah,
Speaker 1: exactly right. And and and you know, not to be
Speaker 1: labor this point, but these were also incredibly important stocks
Speaker 1: for hedge funds, and many of the successful long short
Speaker 1: managers were successful because they made big bets, concentrated bets
Speaker 1: on these companies. So when they fell apart, or when
Speaker 1: the stocks fell apart, is really wreaked havoc. Now, the
Speaker 1: other thing that's interesting to me is we live in
Speaker 1: a time where there are a lot of really big
Speaker 1: tech companies that are not public or their tech ish companies.
Speaker 1: So whether it's Uber, Airbnb, we work a lot of
Speaker 1: these tech or tech adjacent companies that are gigantic, much
Speaker 1: bigger than many of the public companies out there, that
Speaker 1: have sort of feasted on, you know, incredible growth and
Speaker 1: incredible access to private market money. And of course, one
Speaker 1: of the questions that rises in light of the tech
Speaker 1: sell off is if the public market is turning more
Speaker 1: negative on tech, then what does it mean for these
Speaker 1: companies that people are very obsessed with, but that you know,
Speaker 1: haven't really proven themselves to be durable businesses yet, right,
Speaker 1: because they've all been sort of lining up with the
Speaker 1: expectation that if they wanted to I p O there
Speaker 1: would be this huge amount of demand, and then suddenly
Speaker 1: the recent market route kind of puts that into question. Although, well,
Speaker 1: I have a lot of thoughts about this, so I'm
Speaker 1: sure whatever we're about to discuss it'll be a good conversation.
Speaker 1: Joe Great, I think it will be too. So all
Speaker 1: that being said, I wanted to introduce our guest for
Speaker 1: this week's episode. We're going to be speaking with Bill Janeway,
Speaker 1: the legendary economist Himond Minsky characterized him as a theorist practitioner.
Speaker 1: He spent thirty five years in venture capital affiliated with
Speaker 1: Warburg Pinkus, and he is affiliated member of faculty at
Speaker 1: Cambridge University. And I recently read his book Doing Capitalism
Speaker 1: in the Innovation Age, which really speaks to what I
Speaker 1: think is the sort of question of the moment about
Speaker 1: the relationship between entrepreneurship and financial markets and speculative activity.
Speaker 1: He's a rare voice that can sort of combine firsthand
Speaker 1: experience with how the investing world actually works with a
Speaker 1: sort of economists academic perspective. So in light of that,
Speaker 1: and in light of his experience, I want to bring
Speaker 1: in Bill, Bill Janeway, thank you very much, Joe, it's
Speaker 1: great to be here. And Tracy, good to meet you. Yeah.
Speaker 1: The unicorn bubble is an extraordinary phenomenon, So let's let's
Speaker 1: first put it into a more general context. One part
Speaker 1: of that context, of course, is the maturation of the
Speaker 1: digital revolution. The fact that, as Facebook and Google have demonstrated,
Speaker 1: it is possible to adjust markets numbered in the billions
Speaker 1: of users with extraordinarily little friction, little expense. So the
Speaker 1: notion that limitless growth may be available for other digital
Speaker 1: service businesses is plausible. But second, there's also a more
Speaker 1: narrow context, and that is that for nine years from
Speaker 1: the global financial crisis until just within the last twelve months,
Speaker 1: the financial markets, the financial system, and investors but operating
Speaker 1: in an unprecedented environment, an environment in which the risk
Speaker 1: free real rate of interest has been effectively zero or
Speaker 1: even less. That has pushed institutional investors principally mandated and
Speaker 1: chartered to invest in liquid public markets to behave in
Speaker 1: a way that my view is fundamentally unsustainable. They have
Speaker 1: been paying premium valuations relative to what's available in the
Speaker 1: public market to buy and this is the key to
Speaker 1: buy illiquid secureties, securities they can't sell. Now. I'm not
Speaker 1: a great fan of business schools, but finance one on
Speaker 1: one at any business school in the world will tell
Speaker 1: you that there is a value to liquidity for an
Speaker 1: investor to be able to change her mind when she
Speaker 1: believes that circumstances have changed. But these investors from the
Speaker 1: public market world who have been piling into the new
Speaker 1: unicorn want to be digital giants, have been have been,
Speaker 1: as I say, paying premium values to buy illiquidity now
Speaker 1: before we dive further into that. And I love that
Speaker 1: sort of framing of that in the central tension there,
Speaker 1: because you put it much better than I was. I
Speaker 1: just want to take a quick step back because I
Speaker 1: characterized you, or it wasn't actually me, but I you're
Speaker 1: characterized as a theorist practitioner, so you spent several decades
Speaker 1: in tech venture capital. We're also an academic economists, and
Speaker 1: I think that's rare because you often hear, you know,
Speaker 1: sort of investors claim that economists don't really understand how
Speaker 1: their world works, and maybe that's true in many cases.
Speaker 1: Tell us a little bit about your academic background and
Speaker 1: how it has informed your view of the investing game.
Speaker 1: Delighted to so, I I took a martial scholarship to
Speaker 1: Cambridge way way back back in the mid sixties, and
Speaker 1: I did a doctorate in economics under the students of
Speaker 1: John Maynard Keynes, and I I, how shall I say,
Speaker 1: I internalized a set of pretty fundamental lessons, one of
Speaker 1: which is that in the world of finance and of economics,
Speaker 1: we are all doomed to be making decisions under conditions
Speaker 1: of uncertainty. We cannot know the full consequences of the
Speaker 1: decisions that we make that involve investing money, resources, time, energy,
Speaker 1: and therefore there is an in powerful incentive to construct hedges,
Speaker 1: ways to protect ourselves when what we hoped wouldn't happen
Speaker 1: does happen. This is where it links to my life
Speaker 1: as a practitioner. I learned in the trenches of venture
Speaker 1: capital investing in I t at the frontier from the
Speaker 1: late nineteen seventies right through the great tech book bubble
Speaker 1: that peaked in two thousand. I learned two basic lessons.
Speaker 1: I call them the two fundamental theorems of venture capital.
Speaker 1: The first is corporate happiness is positive cash flow. A
Speaker 1: business that is generating more cash because it's customers give
Speaker 1: it more cash than it costs to deliver them, the
Speaker 1: product and service has achieved a kind of liberation from
Speaker 1: dependence on the problematic access to external capital when needed.
Speaker 1: That's from the point of view, if you like, of
Speaker 1: the how shall I put it, the rational, practical, common
Speaker 1: sensical entrepreneur, which not all entrepreneurs are. The other the
Speaker 1: other lesson is from the point of view of the investor.
Speaker 1: It's what I call cash and control. The only joint
Speaker 1: hedge against the fundamental uncertainty of investing in early stage
Speaker 1: companies at the frontier of technology. Cash means you have
Speaker 1: unequivocally access to enough cash to buy the time to
Speaker 1: find out what's going on when what is going on
Speaker 1: is bad, and control means you have enough control to
Speaker 1: shift the parameters of the problem. In my personal experience,
Speaker 1: that usually not always, usually began by firing the CEO. Okay,
Speaker 1: let's switch back to the unicorn bubble. Here we have
Speaker 1: a set and there are many, I think globally now
Speaker 1: it's considered there's something like to hundred and fifty to
Speaker 1: three hundred unicorns who are characterized by burning billions of
Speaker 1: dollars of cash per year in pursuit of limitless growth.
Speaker 1: The notion of actually working to deliver positive cash flow
Speaker 1: from operations is seen as a kind of needless constraint
Speaker 1: on the pursuit of that limitless growth. And on the
Speaker 1: other hand, the investors, motivated as we all know by
Speaker 1: that famous phrase fomo fear of missing out, have have
Speaker 1: not just been providing the cash on extraordinarily attractive financial terms.
Speaker 1: In many cases, they've been yielding control, governance ownership to
Speaker 1: the founders of the company, no matter how much money
Speaker 1: those founders raise from investors. So, Bill, I already have
Speaker 1: a bunch of questions, but I guess my main ones.
Speaker 1: You were talking about liquidity earlier and this idea that
Speaker 1: investors maybe under paying for illiquid assets that they're assuming. Um,
Speaker 1: I guess that means you think that they might have
Speaker 1: difficulty exiting their tech investments. And then secondly you're talking
Speaker 1: about the value of cash flow in a company, and
Speaker 1: I guess my question is why are investors so comfortable
Speaker 1: continuously pouring more money into unprofitable unicorns uh such as uber.
Speaker 1: You know you mentioned the fear of missing out, but
Speaker 1: I guess the question is, at what point does the
Speaker 1: fear of missing out transform into the fear of not
Speaker 1: making any money ever, So, just to be clear, Tracy,
Speaker 1: I was saying that these public market oriented investors have
Speaker 1: been overpaying for ill liquid securities and that consequently they
Speaker 1: don't have the opportunity to change their minds if they
Speaker 1: decide that maybe the future isn't quite as bright as
Speaker 1: it's supposed to be or as they hoped it would be.
Speaker 1: I do think that it's not just the existence proof
Speaker 1: of the facts of this enormous potential for establishing global
Speaker 1: or near ex China global franchises, particularly in the consumer
Speaker 1: the digital consumer economy. As I said at the beginning,
Speaker 1: I also think the broader financial context really matters, with
Speaker 1: risk free real rates of interest essentially at zero and
Speaker 1: and even going out on the both the credit spread
Speaker 1: and term spread in pursuit of greater returns. Having had
Speaker 1: since two thousand and eight very marginal opportunity to make
Speaker 1: any kind of positive real return, I think investors have
Speaker 1: been reaching for risk. They've been able, they've been going
Speaker 1: further out onto the risk spectrum, which when it comes
Speaker 1: to the to the unicorns, has to be extreme uncertainty
Speaker 1: about what the outcome will be for whether it's it's
Speaker 1: it's Uber, which has challengers in many markets, which is
Speaker 1: facing regulatory frictions, which has the opportunity to see how
Speaker 1: the same social media that enables Uber to grow extraordinarily
Speaker 1: also enables the drivers to establish some countervailing market power
Speaker 1: in terms of the the conditions under which they work.
Speaker 1: These are really big economic uncertainties which the investors have
Speaker 1: chosen to ignore. If there's any catalyst for shifting that mindset,
Speaker 1: I expect it will be the same catalyst that has
Speaker 1: had such an impact on the broad public tech stocks,
Speaker 1: and that begins with the return of access to real
Speaker 1: positive rates of interest, as treasuries move up, as the
Speaker 1: tenure I think is now up around three point two percent,
Speaker 1: as we see credit spreads open up for liquid junk bonds,
Speaker 1: and you know typically they sell in double digits. If
Speaker 1: you have ten twelve percent available in a liquid more
Speaker 1: or less liquid junk bond market, I think that's likely
Speaker 1: to dampen then perceived need to go way out on
Speaker 1: the risk spectrum and behave in the way they have
Speaker 1: been so Ultimately, just to clarify, now, if the if
Speaker 1: what we've seen in the month of October turns out
Speaker 1: to be just a blip and tech stocks continue to rally,
Speaker 1: then maybe this is all sort of an academic discussion.
Speaker 1: But at some point, the divergence between what public markets
Speaker 1: are telling us and the kind of access to capital
Speaker 1: that private markets depend on, it can't last for too long.
Speaker 1: Eventually there has to be some convergence. Yeah, look, the
Speaker 1: definition of a bubble and this is some really great
Speaker 1: academic work. This is where I love to move back
Speaker 1: and forth from the world of the practitioner to the academic,
Speaker 1: there's some great work to first world class economists Jose
Speaker 1: Shankman at Columbia un Shin at the Bank for International
Speaker 1: Settlements have have defined in a way a signature of
Speaker 1: a bubble. That's when the price rises, demand goes up.
Speaker 1: When prices rise, demands supposed to fall. Right. But when
Speaker 1: in a financial bubble, when the price of the securities
Speaker 1: go up, demand increases, and we've certainly seen that in
Speaker 1: the world of the unicorns. What that means is that
Speaker 1: the price of the securities are being decoupled from any
Speaker 1: concern with cash flow past, present or future. Sooner or later,
Speaker 1: all bubbles burst sometime. They leave behind really productive assets
Speaker 1: like railroad railway lines, or electricity grids or internet fiber.
Speaker 1: But they all bust. Now, the good news about this
Speaker 1: unicorn bubble is first, as it when it busts, there's
Speaker 1: no leverage. The economic consequences are going to be very limited. Second,
Speaker 1: no doubt out of these two hundred and fifty or
Speaker 1: three hundred wanna be fangs, there will be several that
Speaker 1: established themselves as long term, sustainable, valuable businesses. You know,
Speaker 1: back at the in the tech bubble, Amazon raised five
Speaker 1: and sixty million bucks in the end of the first
Speaker 1: quarter of two thousand, about two weeks before the then
Speaker 1: old time peak of the nastac. If it hadn't raised
Speaker 1: that money under bubble conditions, it would have gone bankrupt
Speaker 1: within six months. Jeff Bezos learned the lesson. He's got
Speaker 1: multiple levers for forcing gobs and gobs of positive cash
Speaker 1: flow whenever he wants to, whenever the market tells him
Speaker 1: he needs to. In the meantime, he can invest for
Speaker 1: maximum continued growth. Given that he has, he can generate
Speaker 1: positive cash flow whenever he chooses. My view is that
Speaker 1: the Unicorn boards and their entrepreneurs are going to be
Speaker 1: challenged to demonstrate that, like Jeff bezas, they have plausible
Speaker 1: path to positive cash flow that are within their own control,
Speaker 1: that don't depend on limitless access to the kind of
Speaker 1: capital that for a time has been available. So is
Speaker 1: there anything special about tech in particular that makes it
Speaker 1: more of a target for easy money or for capital
Speaker 1: just you know, trying to find anything to invest in.
Speaker 1: Because this easy money story, the search for yield, We've
Speaker 1: heard people talk about it across a variety of financial assets,
Speaker 1: right corporate bonds, being um. Probably the most prevalent example.
Speaker 1: People talked a lot about the shale oil story is
Speaker 1: actually a capital market story. Is there something about tech
Speaker 1: here that makes it unique? Sure, it's growth, And the
Speaker 1: thing that makes it un in this environment is that
Speaker 1: when you're investing in growth, the rate at which you
Speaker 1: discount the future really really matters. And when you can
Speaker 1: discount the future at rates that reflect the FED and
Speaker 1: for that matter, the Bank of England's the European central
Speaker 1: banks commitment to very very very very low to negative
Speaker 1: interest rates in the nine ten years after the global
Speaker 1: financial crisis, it means that that future value, however speculative,
Speaker 1: it may be just as much much larger. And you know,
Speaker 1: it's exponential. This is not a kind of linear exercise
Speaker 1: and arithmetic. If the rate at which you're discounting the
Speaker 1: future rises by one percent ten years from now, the
Speaker 1: value of something of a buck ten years from now
Speaker 1: declines by a lot. And that's the biggest threat I think.
Speaker 1: I think there are two threats. Actually, One is this
Speaker 1: financial threat, this shift in the financial environment that differentially
Speaker 1: penalizes high growth investment opportunities. The second is the growing
Speaker 1: recognition or the increasing inability to ignore the frictions that
Speaker 1: do affect even these extraordinary new companies with their potentially
Speaker 1: billion user markets. I mean the regulatory frictions, the political
Speaker 1: frictions which have been emerging around the world, not just
Speaker 1: in the United States, city by city, country by country
Speaker 1: over the last year or two. Before we go too
Speaker 1: much further, I want to go back something I've been
Speaker 1: thinking about listening to when you talked about um your
Speaker 1: sort of academic history and having studied under the students
Speaker 1: of Canes, when you talk about the lessons you've internalized,
Speaker 1: I have to say, in a way they seem obvious. Okay,
Speaker 1: companies should have access to positive cash flo I mean
Speaker 1: I think that that would not surprise people. Control matters,
Speaker 1: the future is uncertain. None of these things strike me
Speaker 1: as being particularly controversial. But how in your view do
Speaker 1: these insights differ from, say, what economists elsewhere may have thought.
Speaker 1: Well here that that's a great question, Joe, because the
Speaker 1: fact is I went on my thirty five years sabbatical
Speaker 1: from the academy because in the early nineteen seventies it
Speaker 1: became clear that mainstream academic economics and mainstream academic finance
Speaker 1: had kind of drunk the kool aid, the kool aid
Speaker 1: of the where the building mathematical models that could be
Speaker 1: solved logically, and they were based on in both areas,
Speaker 1: both fields based on the concept the fantasy of what
Speaker 1: has been called in the literature too much, the rational
Speaker 1: representative agent, the agent in the market who has an
Speaker 1: omniscient view of the future, not just of what's going
Speaker 1: to be the result of her actions, but of the model,
Speaker 1: a model which accurately explains how her and remember she's
Speaker 1: the representative agent. She represents all investors, all consumers, all firms,
Speaker 1: how those decisions will play out. This came to be
Speaker 1: known as the rational expectations hypothesis. It was dominant, it
Speaker 1: has been dominant for generation, with the models in the
Speaker 1: central banks and the treasuries of the world, not just
Speaker 1: in academia, based on this view. Now, there are a
Speaker 1: couple of aspects of this that are pretty obvious when
Speaker 1: you stand back and assert that the power of that
Speaker 1: most rare resource common sense. First of all, if you
Speaker 1: have one rational agent, one represent of of agent, that
Speaker 1: means that she is her own creditor and debtor. You've
Speaker 1: just excluded a financial system by construction. Nothing that happens
Speaker 1: in the stock market, the bond market, or the banking
Speaker 1: system can have any effect on the real economy. That
Speaker 1: is the central reason why all of the authorities were
Speaker 1: so caught by surprise in two thousand and eight. It
Speaker 1: does sound like common sense, as you say, to put
Speaker 1: it the way I put it, in terms of uncertainty
Speaker 1: about the future, need for ability to provide effective hedges
Speaker 1: against that uncertainty. But as I say, for a generation,
Speaker 1: and not just from the University of Chicago, the doctrine
Speaker 1: the dogma that markets will be self correcting as rational
Speaker 1: agents exercise their omniscient knowledge in a world that they
Speaker 1: fully understand you. It was it was Alan Greenspan in
Speaker 1: the hero in the Hearings in two thousand and nine,
Speaker 1: after Lehman went bust in the World pros, who said
Speaker 1: that he found a flaw in his thinking. The floor
Speaker 1: in his thinking was his belief that those rational, self
Speaker 1: interested bank bosses and private investors would all behave for
Speaker 1: their own best interests, as if they knew what their
Speaker 1: own best interests actually would be. And instead, of course,
Speaker 1: what we saw was everybody running for the exit to
Speaker 1: protect themselves, with a consequence that was catastrophic for the world.
Speaker 1: The good news. The good news is that for those
Speaker 1: academic disciplines of economics and finance, two thousand and eight
Speaker 1: and the great recession that followed are the gifts that
Speaker 1: keep on giving. They have motivated a return to empirical
Speaker 1: study of markets, of economies of finance, a chuill systems
Speaker 1: with a much more realistic view, which is beginning to
Speaker 1: emerge in the literature. And you know, it took a
Speaker 1: generation for the economics that failed us so badly in
Speaker 1: two thousand and eight to become dogma. It'll take a
Speaker 1: generation to undo it. It It won't happen overnight. But there
Speaker 1: is good news out there for the for the longer
Speaker 1: term and how we think about this world we're all
Speaker 1: trying to survive in So we're talking a lot about
Speaker 1: two thousand and eight. If we fast forward to now,
Speaker 1: as Joe and I were discussing in the intro, over
Speaker 1: the past month or so, we've seen a lot of
Speaker 1: angst amid the tech stocks and amongst tech investors. Does
Speaker 1: the wobble in the public market in particular, does that
Speaker 1: suggest that the whole edifice of tech funding starts to
Speaker 1: fall down, that the vcs and the private markets aren't
Speaker 1: going to be able to depend on an exit through
Speaker 1: I p O s and that begins to sort of
Speaker 1: create a downward spiral invaluations. Do you see that happening? Well,
Speaker 1: I certainly see exposure to it now. You know, as
Speaker 1: we all know, it's very hard to predict, especially the future,
Speaker 1: but I think we can see that there's a link
Speaker 1: from the movement towards quote normalizing interest rates to feedback
Speaker 1: and impact on the value of assets whose future returns
Speaker 1: dominate their current returns. And of course there's no set
Speaker 1: of assets more of that category than the unicorns. Second,
Speaker 1: institutional investors will find that there are adequate returns available
Speaker 1: at much lower risk than buying into the digital wannabes
Speaker 1: at at super supervaluations with no guarantee of an exit
Speaker 1: path through a public market or any other way. So
Speaker 1: I think we have to expect that the world is
Speaker 1: going to look a lot more fragile over the next
Speaker 1: period of months and years going forward. And as a
Speaker 1: final point, um, you know, my work is very definitely
Speaker 1: deeply involved at the interface between the financial and economic
Speaker 1: markets on the one hand and the political process on
Speaker 1: the other and the other lesson Another long lesson that
Speaker 1: goes way back in our history is that markets ultimately
Speaker 1: depend on the credibility and plausibility of the political underwriting
Speaker 1: as and when bad things happen. We sure learned that
Speaker 1: in two thousand and eight, and I think we I
Speaker 1: think it's legitimate to have a concern going forward about
Speaker 1: the quality of political underwriting in the United States today.
Speaker 1: I'm glad you brought this up because I before we go,
Speaker 1: I want to hit on sort of another major theme
Speaker 1: of your writing, which we haven't talked about at all.
Speaker 1: And again I suspect it's another area where uh lot
Speaker 1: of investors might bristle at this. But something you point
Speaker 1: out is that the areas where venture capitalists have been
Speaker 1: most successful have all been areas in which there has
Speaker 1: been an extraordinary amount of government spending to invest in
Speaker 1: basic research, the sort of expensive capital investment that often
Speaker 1: early stage private money isn't forthcoming for. And you point
Speaker 1: out examples throughout history. So I'm curious, like a can
Speaker 1: you sort of clarify that point? But be these days
Speaker 1: we seem to have this sort of extreme dichotomy in
Speaker 1: which everybody wants to invest in VC, from soft bank
Speaker 1: to universities. I saw an ad on the subway this
Speaker 1: week saying invest in startups for as little as ten
Speaker 1: dollars like it's at the same time as government, particularly
Speaker 1: in developed economies, don't seem to be very good at
Speaker 1: marshaling the resources for that core, core investment. So I'm
Speaker 1: curious if you can talk about this an incredible interest
Speaker 1: in investing in VC at the same time, according to you,
Speaker 1: a crucial component of VC's success, and not forthcoring. Let's
Speaker 1: let's bring this real down down to the real direct.
Speaker 1: My my personal experience was that in the course of
Speaker 1: the nineties, seventies, eighties, I realized that I had all
Speaker 1: my peers as investors, adventure guys, and the entrepreneurs we
Speaker 1: were backing. We were all dancing on a platform that
Speaker 1: had been constructed by the United States Department of Defense,
Speaker 1: from silicon to software and onto the Internet. It was
Speaker 1: the not just funding research there was the d D
Speaker 1: was the first customer for the stuff that wasn't ready
Speaker 1: for commercial prime time, and for the biotech guys. The
Speaker 1: National Institute's of Health was doing the same thing. When
Speaker 1: you got outside of those two sectors, there's been no
Speaker 1: record ever a venture capital success, investing in the products
Speaker 1: of material science for example, nanotechnology for example, for that matter,
Speaker 1: outside outside of silicon where the government was underwriting it
Speaker 1: to a the digital revolution doesn't need government subsidy and support.
Speaker 1: On the contrary, it's matured to the stage where it's
Speaker 1: it's attacking the authority of the government, from from cryptocurrencies
Speaker 1: at the at the global level to uber at the
Speaker 1: at the city level. But the next revolution, the next
Speaker 1: needed technological revolution, the clean tech green tech response to
Speaker 1: climate change US is nowhere. We haven't invested anything like
Speaker 1: the kind of resources that we did in computing or
Speaker 1: that we did in biotech in order to be able
Speaker 1: to convert this economy and shift the demand and supply
Speaker 1: curves for carbon. China's doing it, for sure, and this
Speaker 1: is the biggest open question in my mind as to
Speaker 1: whether and how China might succeed in this phenomenally difficult
Speaker 1: transition from being an effective follower to the frontier of
Speaker 1: technology to become an innovative leader there. The U s
Speaker 1: did it in the twenty century. It did take two
Speaker 1: World wars and inspired political leadership, genuine political entrepreneurship, which
Speaker 1: we seem to have run out of over the last generation,
Speaker 1: Phil Janeway, fascinating stuff. Thank you very much for joining
Speaker 1: the Outlaws. I couldn't be happy to be here. Maybe
Speaker 1: even the return visit would be more than welcome on
Speaker 1: my side, definitely, Tracy. I really enjoyed that conversation when
Speaker 1: I read Bill's book recently, Doing Capitalism in the Innovation Economy.
Speaker 1: That was prior to the volatility that we had seen
Speaker 1: in October. But in addition to, of course the volatility
Speaker 1: that we saw um, we also saw concerns around Saudi Arabia,
Speaker 1: which is of course a major funder of tech companies
Speaker 1: and tech investors like soft Bank. So I really thought
Speaker 1: there was an incredibly timely conversation because it feels like
Speaker 1: a lot of these companies really are at a crossroads,
Speaker 1: right And if you want to think about an example
Speaker 1: of the importance I guess of of reliable financing when
Speaker 1: it comes to unicorns and various tech start of Saudi
Speaker 1: Arabia is a really really good sort of microcosm of that. Because,
Speaker 1: of course, with all the drama and controversy surrounding the
Speaker 1: murder of the journalist Jamal Kashachi, people are talking about
Speaker 1: whether or not Saudi is still going to be spending
Speaker 1: money as freely on tech investments. And if the Saudi
Speaker 1: money goes, there are some crazy estimates out there saying
Speaker 1: that hundreds of startups could be affected. Yeah, I wouldn't
Speaker 1: be surprised at all about that. And just in general,
Speaker 1: I do think that this link between what we see
Speaker 1: in public markets and the volatility that we see between
Speaker 1: public markets and private markets is probably not appreciated enough,
Speaker 1: and that at some level you can't just do business
Speaker 1: ignorant of what's going on in the markets that we
Speaker 1: see quoted every day. And I think that's a really
Speaker 1: powerful point. And I suspect that a lot of these uh,
Speaker 1: you know, a lot of these unicorn c e O
Speaker 1: s will be surprised when they realize the degree to which, okay,
Speaker 1: maybe they're private, but they're not as insulated as they
Speaker 1: might think, right. And it sort of gets back to
Speaker 1: that expectation point, right, like, what exactly are your original
Speaker 1: investors expecting from their original investment, And usually there are
Speaker 1: a lot of assumptions impeded in those expectations, many of
Speaker 1: which might not actually come to fruition, right, Exactly many
Speaker 1: of them won't because, as Bill pointed, out. We live
Speaker 1: in a permanent state of extreme uncertainty, and we might
Speaker 1: have a guess about something that's going to happen in
Speaker 1: the future, but we really have no idea. And when uh,
Speaker 1: the future starts to deviate from any expectation which will
Speaker 1: happen one day, whether it's now or in the future,
Speaker 1: people are going to want actual cash to hold onto. Yeah,
Speaker 1: it's all about the cash, All about the cash, all right.
Speaker 1: This has been another edition of the Odd Lots Podcast.
Speaker 1: I'm Tracy Alloway. You could follow me on Twitter at
Speaker 1: Tracy Alloway, and I'm Joe Wisenthal. You can follow me
Speaker 1: on Twitter at the Stalwart. And you should follow Bill
Speaker 1: on Twitter. He's at Bill Janeway and be sure to
Speaker 1: follow our producer on Twitter tofur Foreheads He's at foreheads
Speaker 1: t as well as the Bloomberg head of podcast, Francesco
Speaker 1: Levie at Francesca Today. Thanks for listening.