Bloomberg Businessweek Weekend - October 19th, 2019

because it has become quite a hot spot. You know, Carol, I told people in Atlanta. I wasn't just being flattering that if you want to get a look at the American economy sort of where it is and where it's going, what a future city of America looks like, you really need look no further than Atlanta. As you say, the academic element, the tech element even talked a little bit about Jamba. Yeah, exactly. And of course we've got insights from the magazine. It's a double issue, so we continue on.

Among those stories is one called Faked Alaska. It's the promise of a trans Arctic data a cable that would speed up the web for much of the planet. It raised hopes, it created dreams and attracted investors, and created a company that was just Jason built on fraud. We're also going to look at the world of fees going way down, really down to zero when it comes to your brokerage account. But how are those firms making money. We're going to tell you the secret they're making money

on you. And we've got a company called Suited No Jason. It's not about a cool company that's making nice jackets and pants, sorry, but it's actually about a company that's using AI and algorithms to recruit for Wall Street. And we're also gonna have some of those fun conversations I had down in Atlanta. But first we got to talk about the global economy and when you try to understand where the US may be going, where other major economies are going. One of the cautionary tales out there is Japan.

So we talk often about the low rate and negative right world that we live in what happens after it. So we've got a country that really ernear to all of this to look to. Yeah, it's probably not something that you want to brag about necessarily, but Japan has been in this state for quite some time, and where they go next may portend what the rest of the

world does next. Christina Lyndblad is here with us. It's a great story in this week's edition of Business Week, all about Japan Mr Kuroda and what he may end up doing next. What's going on there? Well, I kind of think of Banko Japan now is a center of desperate innovation because it's sort of like by necessity, they're leading the world, um, you know, into this new area

and trying to basically, you know, nudge up growth. And so this is a country that brought us negative interest rates and QUI quantitative easing UM and now they're doing

something that some people say may actually be impossible. Well, don't tell us that yet, because just remind us about how long Japan has been why they are the poster child for negative rates and kuwi, because they're they've been doing this for a long time, right, So they tried uh sending the UM sorry rates negative, you know, and then when they didn't succeed, they did QUIE in two

thousand one, right, so way ahead of everybody else. Right, And remind us also because I think it's important the economic backdrop for Japan because you know, when we think back, you go back to the early nineties, the late eighties, early nineties, I mean, this was an economic beheamoth that Americans were terrified of in many ways, and the intervening couple decades have been ugly economically, right. I mean there was a big property bubble that burst, and acid bubble,

and then you know, deflation set in. And basically, I mean they've been fighting deflation and it's not just deflation, but the country is aging rapidly, so it's basically kind of downshifted. Growth has down shifted in a permanent way. Um. So they've been trying into you know, kind of you know, sort of juice the economy by any means possible. Uh. And they've succeeded somewhat. I mean there used to be sort of this pattern of falling into recession you know,

every other year almost um. But um. So this latest attempt, you know, basically is designed to to attack a problem that is basically is twofold. One is confidence, the confidence of the consumer, consumer and business. So the issue is that yields on low on long term bonds have fallen to a level where basically the message that that's that that gives you know, to the market, to consumers. Is that out in the long term, we still don't see any inflation, we don't see much growth. So Bank of

Japan wants to nudge up long term meals. Also for another reason, there are forty million pensioners in Japan and that number is only going to keep growing. So those people are being penalized in their savings by those very low low yields. The question, though, is how can you nudge up long term yields on long term you know, um maturities well at the same time telling the markets that you are, you know, in a stimulus position and

you want to keep short term rates low. So it's an experiment, it is, but some people believe that it really cannot be done because the thing is that so by O j has said they're willing to even stop buying certain kinds of bonds with twenty maturities of twenty years or and over. But the feeling is though when when they do that, though, other actors may step into the market to buy so then basically that will be just foiling their attempts, you know, to sort of you know,

have prices go down and you'ld go out. I mean the concern is too that by keeping long term rates so low, the signal or message that sends to the world at large and certainly to their folks in their economy that the outlook is not great. So they tend to be savers rather than spenders. Which that's right. You can't jump start the economy there. Yeah, if you feel like the economy's can't flat on its back for that long, you're going to think, like, you know, is my retirement safe?

Like you know, I shouldn't be spending. But everybody's watching, right, because I think about how often we talk on our show about this low rate or negative rate world in places we never thought would happen. The US hasn't quite gotten there yet, but we do wonder how do we come out of this period of either negative rates or low rates and how what what's the outcome? And I guess we're all watching Japan. Well, I think what you said is we all used to be afraid of Japan

as a competitor. I think now we're all afraid that we will become Japan. And that's Christina Lynn lad talking about Bank of Japan Mr Kuroda. We talked to Kathleen Hayes about him a lot. He's got a tough job. Yeah, he absolutely does. But when we're looking for maybe what does it mean to come out of a low rate or negative yield environment, we're all kind of keeping an eye on Japan to see how they do. I want to make sure our investors get the best deal passable,

and that's called free free trade. And so I've been on that pursuit a mission basically for almost forty years because I cut the commission's way back when when the regulation was permissible. And I've been on that quest for now forty years. So now we finally made it happen in zero commission for transactions. Now you might have to pay for other thing, but for transactions it's zero. And that's Charles Schwab. We caught up with him earlier this week.

He's a pioneer clearly in the discount brokerage space, and now there are some questions about how they make money going forward. For more on that fee fight, we bring in Mike Reagan to talk about his story and what the elimination of fees really means. So Mike break it down for us. No one was shocked here, but there are some big implications. Yeah. I mean it certainly has been trending towards zero for years. I mean, when you think back to the seventies, it costs twinter bucks and

commissions to trade of stock. I mean it's mind boggling when you think of it today. And Schwab came in. There was start it with a really a regulation change in the seventies that sort of ended this what they called fixed commissions, you know, fixed price commissions, and it allowed brokerages to set their own commissions. So Schwab said, I'm gonna cut mine. Uh. He was a newsletter writer

by then, he was running a brokerage. He said, I'm gonna cut mine a seventy dollars, and the discount brokerage era was born. Obviously, when computers took over later in the nineties, it just chiseled away at those fees. I think it's like thirteen bucks to trade on Schwab in two thousand and five is less than five bucks most recently. But on the margins, new startups were coming in robin Hood.

The robin Hood app allowed investors to trade for free. Uh. Some of the brokerages started allowing certain ETFs to be traded for free. So it's clear that this pressure was building. UM to me, I think that the interesting thing if you're a customer of one of these firms is the important thing to ask is, well, how are they making money exactly if they're not charging me a commission. So that's a little bit of what we get into in the story there. Well, I think that was the question

everybody asked when it first hit. We did definitely see their stock prices, you know, go down, but it's like, okay, so how are they making money? They do have other ways that yeah, don't worry. Don't worry about them, they're not you know. And the sort of line we use in the story is that if you don't know how company is making money, chances are you're the product. Right. It's what's been true of Facebook and Google, you know, free services, but it's you, your eyeballs and your personal

data that is valuable to the companies. So for Schwab, one of the most and for all the discount brokerages UM, one of the most important ways they make money is on the cash that you currently do not have invested in the stock. They make money with your money they make money with with your spare money, your cry powder

as they called on the wall streets. So Swab has something like three point seven trillion dollars in client assets on its platform as of August, that is, and you know, about two sixty five billion of that is just cash. It's not invested in the markets, so a small chunk of a huge pie that allows job to to invest

it out um and make money off of that idle cash. UM. And they do pay the customer client's interest on that cash, but it's a it's a relatively low as much as about half of one percent for big balances, is low as about zero point one percent, so one tenth of one percent. Obviously, yields are low. Um. You can make better return on your cash elsewhere and money market funds in traditional bank deposit accounts um. But it's not convenient

then for a trader. So um. You know, people will keep some amount of cash in there in case they see a stock and all of a sudden they want to buy, and Schwab is happy to take it and reinvest it. UM. And there's other ways. Uh. They make money when they make loans to write to folks who want to do trades too, if that part is right. Yeah, marginal lending. Uh. You know, if you if you want to lever up, there's services like that. If you want a short at stock, they will loan you the securities

and charge you a percentage on on that. UM. But what are the really interesting ways that all these companies make money? UM. And it's been somewhat controversial in the industry, but it's called payment for order flow. So basically what they do is if if you or I place orders to buy and sell certain stocks. UM. There are companies like Citadel, like Virtue Financial, financial electronic market makers or wholesalers they call them. Uh. A few years ago, they

would be referred to more as high frequency traders. They will basically buy up the order flow from these companies and match it internally, so they don't even take it to the stock market. Uh. Say Jason, you want to buy a stock for ten dollars and Caroline you're selling it for. Well, they'll internalize that trade and they'll make a cent per share. Uh. It doesn't sound like a lot, but if you do it enough over and over again,

it at those pennies add up. You see something like that, you start thinking about flash bullys, and you started thinking about all these different sort of elements of Wall Street that are a little bit more mysterious to the everyday investor, less mysterious to you because you know so much about the markets. But play this out for us, I mean, where does this end and does it lead to a different kind of collection of of firms that have the

most power on Wall Street? Well, it certainly is a super competitive industry right now, um, And it's that sort of electronic market making is very much a black box. It's hard to understand exactly what's going on it, but you have to sort of, you know, step back and compare it to again back in the days when it costs two dollars to trade, and stocks were quoted in UH fractions rather than decimals, so you were paying a

much bigger spread than one cent. You know, where you're paying the difference between an eighth and a quarter or whatever the quotes were UH price. And so the overall trend I think has been great for the average show for the investor. There are still questions on the margin about how this all works. Um. But again, if you if you're paying zero dollars for a service, um, how much can you really complain? Uh, there is a question on Uh, Like I said, how are they making money?

And think it's just important for the users to know to understand how the companies are making money off of them, and that's what we try to set out to do

in the well. And I do think especially the comparison you make with Facebook and Google and others probably does make people set up a little straighter these days, sort of knowing what we know about candidly how our data is being used and listen to you talk and I feel like this is totally a lesson in scale and users, right, the Amazon model, right, for how long did they not make money? But look at all of the users they now have and can tap into them for so many

different things. And that's what this is about, right. It's it's making a little bit of money on a large chunk assets, which is you know, that's why it's so competitive. They want to have They want to gather all those assets as much as they can, and their power is in having as many users and as much assets, right, Absolutely, And sort of one interesting angle as up as a result of this is all of a sudden if it costs, uh, someone zero to trade of stock is not going to

influence on the trade more. Right, then that than that order flow that they're selling to these other firms gets bigger, they make a little bit more money on that. A lot of financial planners will say, you know, being a sort of hyperactive trader isn't necessarily the best thing for your long term results. That's Mike Reagan. He keeps a watch on the financial markets, equities, in particular for us here at Bloomberg. He wrote this story with Annie Massa

and Uh. I think it's fascinating to kind of look at what's going on in the digital social world to get an idea of maybe what these online brokerages are up to. Yeah, I really understood the business more after talking to him, and where they're going to be able at least they think make some money. It probably won't come as a surprise. It has more Wall Street firm stress diversity and inclusion in hiring that someone has come up with an app for that. Well, it's not really

an app, but it is an AI powered recruiting tool. Well, it's bringing the world of online dating to hiring bankers. Eric Shatzker joins us from London with this story. It spans the globe, as you do, Eric, but really taking technology to a very human centric business. Tell us about suited. Well, it's about time, you might say, Jason and Carol, that somebody brought artificial intelligence to the Wall Street recruiting process.

Because this industry, for all its efforts to become more diverse and to become more inclusive, UH is still dominated by white men who are typically elite, college educated, and that's going to need to change. It needs to change not just because we live in changing times, but because these firms, like so many other companies, recognize that the bigger your talent pool, the better the quality of your recruiting, and ultimately the better your employees. We're talking about investment bankers.

Here are people who do mergers and acquisitions, people who do capital markets, people who do restructuring. But the same ladge, because I say that applies the companies worldwide, applies to Wall Street. The challenge, of course, is volume. It's very difficult to fan out across hundreds of universities in the United States and open up the recruiting process to the degree that it can capture everybody unless you put technology to work. And that's what this tool is designed to do.

It's a screening process that surfaces candidates regardless of their skin color, background, or any other traits that might sway a campus recruiter. So what specifically tell us a little bit more eric about this algorithm? I mean, all right, as you said, it takes out um any kind of

you know, what color, their ethnic backgrounds, what sex. But what conscious Biascious is the word that's used in the recruiting industry because if you sit down with someone, you might find that person appealing for reasons other than qualifications. That person may sound like you, that person may enjoy some of the same things you enjoy. That person may have played lacrosse, and if you played lacrosse, then you might be more inclined to want to hire that person,

to want to work with that person. But that person may not have all of the right attributes to become a top performing banker. He or she might just be appealing to you as a human being, and that's not really a good way to recruit. And so you bring artificial intelligence into the process by designing a model, and the model is built using the characteristics of the top performing employees at each firm, having candidates fill out comprehensive

profiles and then running those profiles against the models. That is the algorithm in action, and it spits out a score. The higher the score, the better the fit the candidate is for that individual firm, and the models vary by firm. Not every firm is looking for the same things, not every firm values the same things. Not all bankers at one firm do the same things as bankers at another firm, and so you need to customize it to make it effective.

And so Eric tell us about some of the founders here and where they came from, because it feels notable that these folks are coming from firms who are trying to be competitive, maybe with some of the bigger bulge bracket banks, trying to get an edge, which is how so many good ideas come about. Right, that's a very

good point. We know that firms like JP Morgan and Goldman Sacks and Bank of American City Group have gigantic recruiting operations, but the smaller firms, firms, like more specialized investment banking firms like Mulis and Company, for example, or PJT Partners or Hulahan Loki Uh need to find different ways to compete, uh, in order to win those you know, M and A mandates or corporate finance mandates away from

the bulge bracket banks. And so that's why they've embraced this artificial intelligence powered recruiting tool, perhaps sooner than some of the larger firms might have. They're a little more nimble, they're a little more creative. We've seen that, and that's how they've been successful in taking market share away from

the big banks. And now they're taking this leap perhaps a little earlier than others might, in an effort to be that much further ahead of the game and to raise their talent game so that so that they are in fact as good as they want to be. There are nine firms in total on the Suited platform. It's likely to grow, but all of them qualify as independent investment banks. There aren't any bulge bracket firms. They're just yet. You know what's interesting about this, Eric, and I think

how often Jason nine, I know you do too. We increasingly talk about the role of technology in the financial community on Wall Street, whether it's trading algorithms, you know, having a bigger, bigger role. But when it comes to investment banking, you still need people involved, right, So what you want is you want the best people that hopefully are doing the biggest deals that ultimately bringing the most fees to the firm. This is a human capital business.

There is no killer app, there's no shiny new product. You know. The tantalizes the client. The client is persuaded uh to do business with a firm and ultimately to do repeat business with the firm by the quality of the advice that that company gets. And that's Eric Schatzker talking about suited, really taking us inside how Wall Street is thinking about a really important issue, which is how

not to be a bunch of old white dudes. Yeah, exactly, create diversity, bring diversity into the recruiting pool, and potentially maybe get a better return when it comes to some of those investment bankers. The promise of a trans Arctic data cable that would speed up the web for much of the planet raised hopes, attracted investors, and made a company that was built on dreams and fraud. This is a story that will come blow your mind a little bit.

It will, and it's pretty complicated, to be honest. Austin Carr wrote it. He's here, he has traveled the globe in many ways the story have gone to places that probably none of the rest of us have been. Are very few the rest of us have been. But let's start with a very basic question, Austin, which is what's this cable all about? What's the dream that everybody is pursuing. So I think that's one of the biggest misconceptions about the web is that everything is in the cloud. It's

actually all underwater. The vast majority of the Internet, anything you're streaming on Netflix or YouTube, it all goes underwater from different servers around the planet. So all these massive companies like Google and Facebook and Amazon have spent billions building undersea fiber optic cables that connect Asia to the America's to Europe, and that's how all the data gets around the planet. They also all go along similar paths. They go through the Atlantic, in the Pacific, places that

are easier to construct. This company that I'm writing about, called Quintillion, came up with this idea to build through the Arctic, just like Shackleton wanted to build through the Northwest Passage, because that's actually shorter than other routes around the planet. Um and that would speed up web speeds way fast than than what you see from traditional route. So that was a big opportunity. And it sounds really logical, but you're dealing with the Arctic. You're dealing with the Arctic.

And and and so I spend time up in Barrow, Alaska, which is the northernmost community in the US. Um like it's freezing up there. I mean it's ice for year round. In fact, that one of the only reasons you can build this cable through the Arctic is because of climate change, which is unfortunate, but you know, it warms open a little bit longer in the year. So they have a couple of months to actually build this thing. But they have to use massive ships. It took fifteen ships of

fourteen ships to build this thing. They have this plow that's fifty five tons that they had to trench under underwater bury a cable four meters deep into the seabed, which was quite difficult to make sure that fishing boats and and icebergs don't disrupt this thing. And and you're also dealing with blizzards and freezing temperatures, and you don't want to get stuck, right, don't want to get stuck. Yeah, it's called pancake ice. Essentially, when it looks like a pancake,

it starts forming in the seabed around the boat. And that's how Shackleton got got crushed in there on his ship a hundred years ago in the Arctic. Was ice formed around his boat, and that creates a prison of white you can't get out. Wow. So to do something like this, it's quite an audacious goal. Usually need an entrepreneur with a big vision. There was one, but again it's a complicated story. Tell us about Elizabeth Pierce. Elizabeth

Pierce is an unlikely founder for a company. She had a background in Alaska telecom companies UM, but she was also working in HR. She wasn't necessarily the someone who had a lot of executive experience who had done startups before.

But she saw this opportunity and she went after. And if there's one thing that I talked to about three dozen people for the story who know her, they say that she's incredibly tenacious, just works around the clock fourteen hours a day, to the point that she would get frequently sick because she was working so much UM at the same time. It doesn't just take a tenacious entrepreneur. It takes hundreds of millions, if not more than a billion dollars to build this network through the Arctic, to

connect the America's to Asia to Europe um. And that was the one thing that she didn't have going into this. She had to raise upfront about two hundred and seventy billion dollars just to build the Alaska segment of this subsee Internet cable alone. And I think that's really where this story begins, all right, But she did get the money. How did she get the money? Through Forge contracts? You could say basically what happened was for a couple of years,

she was just really staking her career on this. She really just wanted to build this network, but couldn't find the funding. UH, they'd partner with larger companies. They had sought funding from smaller Alaska telecoms, but never enough that that would reach a major capital level, you know, hundreds of millions dollars of injected capital. At the same time, a New York investor comes along, Cooper Investment Partners, which are is backed by Ukrainian oligarch named Len Blotton vic Uh.

It's it's run by Stephen Cooper, who is the CEO of Warner Music Groups, so pretty high profile investors, and suddenly they're taken by Elizabeth And what is the reason for that? Because she starts showing them contracts that are worth hundreds of millions of dollars six hundred million dollars in aggregate, a billion plus of guaranteed revenue for ring revenue stream of just people feeding off this network and

what the r o I would be. And suddenly you have these massive investors funneling tens and hundreds of millions of dollars into the startup. But for two years it seemed like it was real. I think that was the thing. Basically, Elizabeth Pierce, in addition to being tenacious, she's also incredibly protective and defensive of her business. Uh. There's a wonderful scene in the story where at a telecom conference someone raised doubts. They joked at Elizabeth pierce project sound like

it was out of a Jewels Verne novel. And Elizabeth heard this through the grapevine and ran up to this attendee and just really ripped him apart. And and and that was the type of defensiveness that both people admired but also came to raise a lot of doubts about what this project was really about. And so ultimately it was kind of a good old fashioned scam. I mean she was literally forging the signatures and then facts and in these contracts and saying, hey, we won the deal,

amazing exactly. And this went on for several years where no one had any idea. This is a small team in Alaska, but they even the other employees at Quintillion, the startup, did not know anything was going on. She really she was the only one talking to investors. She would keep all her documents and a private filing cabinet, which one employee was scolded for one's opening. She used her personal Google Drive to share all these contracts with their investors in New York, and no one else had

the password to it. Um so she very much was secretive about this at the same time that secrecy is very common at companies like Tesla and and and Apple.

You know, this hasn't raised too many eyebrows. It's just a it's a fast moving, fast paced move fast and great things startup that Elizabeth Pierce was broughtuct part of, and no one had really realized anything was awry until the bills start going out, all right, and I want to get into that, but I do think about the big or wider like kind of internet telecom industry watching this happening, and I'm just wondering if there was a lot of scrutiny about what she was doing from the outside.

You know that that's the most insane part of this because if you look at the different communities that they were serving in Alaska. You know, the place that I went to and Barrow, this is a tiny place. They have basically two or three restaurants. Um. You know, one's called Arctic Pizza, and it's just that that's right. It's

very expensive, I will say, for the quality of pizza. UM. At the same time, you know, they somehow convinced these investors that there was massive tens of millions of dollars from these tiny native communities that was going to be poured back into the network before was built out the larger Asian Europe pipeline UM and and for some reason, this didn't raise doubts with investors. With competitors that did.

I talked to a lot of competitors, including g c A, which is one of the massive telecoms there, and Martin Carey, who runs the VP of business there. He just said the math made no sense. They thought it was crazy. How could you justify spending hundreds of million dollars to service essentially six or seven tiny Arctic communities in the

North slope of Alaska. It just made no sense of them. Well, and that leads to another interesting element to this, which is this was not a classic, you know, big institutional investors kind of getting hoodwinked. There were a lot of people who you know, put part of their life savings into this that Elizabeth Pierce also took advantage of company. Right.

There was at least two individual investors. These are not you know, high profile institutional investors, but just you know, people who knew Elizabeth Pierce, who were family friends or there was one former uh we use a pseudonym in the story, Erica Blair, who had basically she doesn't have a lot of money, but she cobbled it together for family and friends. She really believed in this Alaska pipeline for closing the digital divide in Alaska, and she invested

about forty dollars. Elizabeth Pierce promised that she that that would be enough for to get her two and five shares in the company. It turns out those shares just never existed. She just deposited in her personal bank account. If actually you do, you might There's just one part of the passage which I really love in the story,

which is this other investor that she took advantage of. Uh. On the same day that he wrote a check for a hundred thousand dollars to Elizabeth Pierce, she opened up, according to court documents, a Wells Fargo account in her own name, her own retirement account. So she took his retirement savings and just made it her intention. She invested ten thousand dollars in her own, uh, you know, construction business that she ran on the side, paid off her

credit card bills. At one point, wrote her adult son a check for five hundred dollars and put in the memo just because so where is miss Pierce. Well, the jig was up after these bills went out. There's there's only so long you have on paper. Hey, this this telecoms is gonna pay us a hundred million dollars. This Telecom's gonna pay us six hundred million dollars. And so all these investors at a certain point say, all right, well, we're gonna turn on this network. Let's get it ready.

Let's start sending out these invoices. They were building out this thing in Alaska. They actually got it built, and so another employee, unbeknownst to him that this was actually a fraud, starts sending out the invoices. Suddenly customers get them and they think, what we never signed for this. There was one company in Alaska called m t A that got hooked into this, and Elizabeth had committed them two hundreds of millions of dollars in revenue commitment that

would have bankrupted the company. So you can imagine that the shock of these small little teleco's that many some of them are nonprofits, suddenly getting these bills thinking whoa wa, whoa what? Where did this agree to this? To this? Did I actually sign this? Um? And that's when her plot starts to really unravel, and very quickly. And yet this is still a company that exists. It's got a new CEO, guy with the military background. Uh I believe,

pretty serious individual. Absolutely. Um. So, basically, once the FBI got involved, they arrested Elizabeth Pierce, she tried to cover up her crime. Court document show she actually that Google a drive account that she shared. She dragged all of the contract files to the trash overnight, and so when they logged on to see where the contracts were, it just said Elizabeth Pierce has deleted seventy eight files, which

is a pretty bad paper trail. Um. But after she went away, they did bring aboard this new CEO, George tron Su, who was a former Army vet very season telecom executive, who I got to spend time with, and I was super impressed. I mean, for as much as difficulties as they have to deal with. He he came aboard just days after she. She resigned from the company

and was later arrested. UM and essentially had to complete the fiber Arctic network in Alaska, which took a ton of ships and you know, all that laying of the cable underground, and then get all their customers back, go out to them and say, look, I know this is complicated. This has been terrible pr for you. We've gotten you embroiled on a lot of legal issues, but like, please believe in this network. It actually does work, and for what it's worth, it does work. That's Austin Carr. I

love Jason when he does a story. Because it's such a deep dive, we tend to send him to a lot of cold places around the world, and that included for this story, but not something that we had heard a lot about. Uh and it and the story really isn't over right because they are starting to provide internet service for those folks in Alaska. We'll see where it ultimately goes. It's such a fascinating tale, clearly a very strong character at the center of it all. But it's

not a story that's over yet. Still more to come for sure, all right, So continuing my little road trip here to my hometown Atlantat this is a special interview in part because I grew up rooting for Georgia Tech and admiring the school. My dad went there low those many years ago. And we've got the new boss with us, uh Dr President I should say President Uncle Cabrera. He is the president of Georgia Tech, the Georgia Institute of Technology here with me in our Atlanta bureau. And not

a far commute for you. You're just across uh um and new in the job, coming back to the place where you did your graduate studies. You had been the president of George Mason, and so, what have you learned one month into your new job. I thought I knew a lot about Georgia Tech having graduated from here. I have a son who just graduated in UH in May

from in computer science. I've been involved with the Georgia Tech Advisory Board for years, and what I realized is that there is a lot more than I even imagine. Every week I find out a new thing and you lay your research project, student activity that just blows me away. It's been unbelievable this last six weeks. I've been just phenomenal.

So a lot of moving parts. And I do think when you're president of a prestigious you know, institute university, UM like yourself, how do you prioritize, um, what needs to take up kind of you know what, what really gets your time? Especially when you come into a position. It is indeed a very intense job with multiple pressures

that pulled you in many, many different directions. UM. But that's why this year and that one of the most exciting things that I'm working on is to produce a new vision and a new strategic plan for the school. So I'm having a lot of fun. I'm having meetings with deans, with faculty members, with students, with elected officials, with business leaders, to say, Okay, what do we all want to detect to become over the next decade. So in a way, I have given myself the most part

of this year to to answer that question. And uh, it's funtime, stick because I'm getting to learn a lot more about the institute that I that I knew and I'm getting people quite excited. So, President Carbara, when you first came into the studio here, you and I were talking about literally where we're sitting. You know, our bureau is relatively over the past years recently relocated to this Midtown area and this is your neighborhood in a lot

of ways. And one of the things that Georgia Tech has done is really expanded eastward into this part of Midtown and really helped revitalize it. Talk about what you're hearing from business leaders here about what they need from Georgia Tech. So we are so close that I actually rode my bike from my office to to come see you. And this is something that when I was a grad student here I would have not done. Not a chance,

not a chance. And really the impact that Georgia Tech has had in Midtown and in Atlanta at large has been phenomenal. Even when when I was in Virginia, I would send some of my colleagues here to see what was happening uh in in Atlanta. And it's a combination of not just urban development and really triggering a revolution in what's going on in this area. But it's a

revolution grounded on innovation and entrepreneurship. A beautiful piece of what happened in Midtown, in the area we called texts where was driven by some of the biggest employers in Atlanta who decided to open their innovation labs right there to tap the the the innovation that was happening at the institute. And how do you convince students to stay in Atlanta? I mean, how what what do you have

to do? I know, you have a co op program that sort of gets them into those companies earlier, But you must worry a little bit about a little bit of brain drain after they graduate and go off to Silicon Valley or somewhere else. Right, I have a perspective on that which is not necessarily shared by a lot of people, which in my view, even when many of our graduates leave and go work in London or in the Silicon Valley or in in Boston. That is a

net gain for Atlanta. Try the social capital that we're developing, personal connections that can translate into business connections in unforeseen ways. But the reality is that more and more of our graduates choose to stay in Atlanta. Atlanta has become an incredibly fun place to be in a place where many of our of our graduates, even the entrepreneurially inclined, would

prefer to have their new ventures here. The cost of living, the cost of hiring talent in Atlanta is far superior, exactly lower than what you would find in places like Silicon Value or New York City. So so it's actually it's actually becoming a much better choice for many of our students. This whole college admission scandal, um, I'm just curious your perspective on it, uh I. It is It is sad that the you know that that people go

through through that level of of even misconduct. There's this obsession with with getting their kids into a number of a number of schools. You know, this country is blessed with hundreds and hundreds of wonderful institutions with very different profiles. There is a school virtually for everyone, and people who go to all sorts of institutions can end up doing very very well. So I think it's a little bit of a reflection of an unhealthy aspect of the culture

that we have created. And hopefully this will come down to UH to a much better place in the future. And that's Dr Unheld Cabrera. He is the president of Georgia Tech, Carol. We're lucky to get him, literally five six weeks into the job. He's not unfamiliar with the institution. He earned his graduate degrees here, but back from being the president of George Mason and learning a lot. One of the things that really captured a lot of what's going on in Atlanta. He actually rode his bite over

from the Midtown campus to our office in Atlanta. I love that part start all right, So when you think about Atlanta increasingly, Carol, you're thinking about the tech scene and tech Square Labs. The co founder and partner, Dr. Paul Judge is with me. He and I were talking before we got started about the rich history of security, especially security related technology startups and beyond startups here in Atlanta. So give us, give us the scene because you're right

in the middle of it. You have been involved in some incredibly successful companies. I was telling you that when we interviewed the CEO of a verdi Um yesterday, he was named checking pin Drop. You were the executive chairman, uh there, helped create that company very well known named Cipher Trust is another well known name here that you were involved in. What are you trying to do now, because now you've got the next generation on your mind? Absolutely?

Do you know? After I co founded pen Drop with DJ, I sat around and looked around the block and said, at Georgia Tech alone, there's another twenty VJs, meaning a lot of bright individuals that want to go take the chance to bring their own dream and idea of life. And so I really set at a mission of how do we really encourage and support these aspiring entrepreneurs to

go take that chance. You know what I said to Jason earlier, what I love about talking to individuals like yourself when you're making investments, because you invest as much in the company, if not more so, in the entrepreneurs themselves. But you see trends that will be dominant down the road. What do you see? You know, one of the biggest trends I'm excited about in in Atlanta is just really

all of the raw ingredients that we have here. Right, I mentioned Georgia Tech, but more broadly, when we look at more House and Spellman and Emory, there's two college students here that are bright minds that want to go change the world. And then you look right down the street, right there's over twenty five four to one thousands in town. And those real companies have real problems, and we could take those problems, we could spend them out into real startups,

and so we've been doing that. And then the third thing that we've been chasing is Atlanta is known for his music history and his film history, the culture. And so if you look at these I called in the three cs, the companies, the colleges, and the culture. Right as those three worlds come together and start to do so around technology and innovation, it unlocks like, really the future, what the next decade of technology looks like here? All right, Well,

I want to ask you about a different letter. It's M, and that's money and VC and venture capital because that historically I know just enough to be dangerous about the scene here and that for a while at least, was something that was lacking here, certainly the homegrown venture capital. You've got some inbound from Boston or Silicon Valley. How is that element coming along not just from a seed stage, but from those investors who can really take it through.

You Know what has happened is, after you know a number of successful companies started to grow here, uh vcs start to call and say, hey, can we come to town? I want to meet more companies here. Right, So just last week I had you know, Chris Lyons from Andresan harrowz and and Kolbe from Upfront and Low from uh Plexo Capital here speaking at a conference called a three

C that we did. This week, there's another hundred investors in town for Venture Atlanta, and so people are starting to make the journey and even do so on a monthly basis. Uh and even starting to have their companies that are based on the West Coast open second offices here because of how fertile the talent pool is here. UH. Now, we still don't have a called a top desktile, top quartile billion dollar fund as based in Atlanta. So we're

working on that as one of our next missions. But there's certainly much more interest for investors to come to town to participate in ecosystem. Well, Paul, you know what's interesting too, is and I feel like when you talk to mayors or governors, um, everyone always talks about trying to create another Silicon valley, right or another startup community. Everybody says they're doing it, but it does sound like you guys actually are doing it, and there's it's having

an impact. What's necessary for really a VC and a start up community to take off. What's necessary is I think, you know, real entrepreneurs. It starts, you know, really with your build companies that solve a real problem and create value, right, and create returns and create wealth, and then you make

the next generation. Jason was just talking about, you know, some of my good friends Chris Clause and Tom Noon and who created I s S right, j Chaudry, who created Cipher Trust, and you know those individuals continue to give back, UH, invest in the next generation of entrepreneurs, not just go retire into the sunset. Uh. And then you need a rich pool of talent in which we're

blessed with here in Atlanta, right. We have this younger generation always coming up with new ideas, and so as long as you continue to support them, invest back in them, and open up the doorways. I think that's what it comes down. Two is not Yeah, well, I was gonna say, you know what. The other interesting element and I've really seen this being on the ground here Carol, and I'd be interested in Paul's take on this is this notion that this I keep referring to it as this collision

of industries. You know, the entertainment industry really come coming up, the music industry, which has been very strong for a long time. I mean Atlanta used to be and I say, this is a long time Atlanta like a little bit sleepy. But you know, you look at Midtown, you look at this area where we are. It's happened, you know, and you've got people who are living in town and they don't all look the same. You've actually got some real diversity of talent here. It feels like that's an element

that maybe attracting more and more people. Do I have that right? Absolutely? I mean you could have a very multifaceted life here, all right. I find myself in a room the other day and you got at one moment, I can be talking to Halo, who's the CEO of the Metro Chamber, and twenty minutes later talking to two Chains, and twenty minutes later, you know, talking to the president

of Morehouse. And you know, when you have those types of intersections happening, Yeah, it's it's an environment not only to kind of work, but to sort of create a family and have a good balance life. I gotta say, Carol, I think that is the first time we've had a two Chains name drop on this show. So that's I'm checking that box. It's sort of like you know when you popped up one John Oliver the other night, Like the things are happening here on this show and this

is a big moment. But you're totally right. I mean, it is amazing when you start to see this sort of critical mass that it feels like it's happening here. So what's missing, what's next? What's next? I think it's

really bringing those three worlds together. They exist here. Uh, we're rich in each one of them, but they're still kind of on the opposite sides of the dance floor, like at a high school dance, right, And so as they start to integrate more and you know, the large companies do more business with the startups, and the startups do more business with the you know, the the entertainment leaders.

Those are things that are gonna unlock the future. I mean, if you think about how much culture drives consumer behavior and draws consumer technology acquisition. When those come together, I think that unlocks Atlanta's next part of his journey. That's Paul Judge, the co founder of tech Square Labs. And I love talking to these kinds of individuals because you get an idea of, you know, where investor money is going, what might be some of the technologies, the companies, the

individuals that are really going to be shaping our future. Well. And it's interesting too because this is literally, in figuratively at the core of where Atlanta is going. It sits right in midtown, but it also has a bead on where future growth, future jobs, really the future of the local economy is coming from. Alright, So Carol, I have got the best variation on sipper sweat going on. This is like a hybrid because Jeff Henry is here. He's the president of Jomba back with us. He's here in

Atlanta because that's where he's based. The last time Jeff was with us. As you recall, Carol, we were talking about I mean essentially a reboot or a really a renovation maybe of the whole Jamba bread. Tell us where you are in that process. Yes, So we were together about four months ago and it's been in an exciting summer. We are well into our kind of rebranding process. It's kind of a threefold process. One is kind of updating our menu in many regards to increase the number of

plant based offerings as well as reduced sugar offerings. Uh. And we updated our menu in June, and then we updated again two weeks ago featuring oat milk, and oat milk again is a great plant based alternative milk lower in sugar, lower in cholesterol, and it's we've got a number of smoothies you can swap it in. So that's just one example of kind of where we're going on that kind of lower shirt so on the oat milk front, because as you know, as you learned last time, I'm

a little bit obsessed with this. Do I have it right that it's like a little bit better for the environment to some would say that for sure, yes, But also we just think that just from an overall nutrition standpoint that it's just it's delicious tasting. It's a great plant based alternative, and again it's lower in sugar, So if you're looking to kind of cut back on the sugar in your diet, it's a great option. Hey, Jeff, what's really guiding you in terms of product innovation? Is

it nutritional? Is it caloric? Like? What are the metrics that really drive what you guys want to offer on your menu? Yeah, So we're certainly our innovation is certainly science based. So we have in house culinary experts, we have in house registered dietitians. Uh. And so we are kind of pulling together a variety kind of insights and data to make those decisions. Um. Certainly it's about making sure that we have a great breadth of offerings because

everyone's you know, in different places in their own wellness journey. Uh. And so we just want to make sure that we have the right offering to reach as many people with a delicious product that we can. All Right, So tell us about what you're learning Visavi the consumer, And I'm

especially interested in what you're learning here in Atlanta. You know, we're sitting here in midtown Atlanta, which I feel like and Carol, I'm sure it's just sick of hearing me say this, but it's it's a little bit of a microcosm I feel like of America in many ways of consumer days. You've got a bunch of companies big and small. You've got a big university, George Tech right around the corner. This has got to be an interesting lab for you.

What are you learning? Yeah, it's Atlanta is a great marketplace. Again, I've been a resident of Atlanta for about thirteen years. But for us in john but you know, JOHNBA has about eight hundred stores in the US, uh and over four hundred of them in California, So our presence in the East is actually a lot less. And so we're looking at at Atlanta as a great opportunity to re enter a market in a new way and doing that through both company owned store a few company owned stores,

as well as franchise ease. We're actually now franchised organizations. So we're heavily franchised UM and we actually are opening up a couple of stores here in Atlanta. We actually opened up one three weeks ago at Tech Square, and we're actually opening up one in three weeks right near the belt line, which is also a big major redevelopment here in Atlanta. Uh sorry, no, no no, no, go ahead. But what I'm curious about too, And I know we've talked about this, I think previously, but I do think

about this space in general. Um, people are jumping on and rightfully so I feel like the wellness you know, bandwagon. So there are more and more choices out there for consumers. What do you make of the competitive landscape? Yeah, I think it's good to be in a competitive category. We certainly respect and appreciate our competitors. I think we differentiate our brand through kind of also our operations. Because we make great tastings movies, we can also do it in

uh with great speed. And I think Jason, you mentioned you'd like to go to Jamba in the airport, so you probably see three four people online and you're starting to wonder do I want to get in that line? Right? So speed of service is critically important for us. Again, great tasting products are critically important for us. And just that the brand's positioning, I mean, Job has always been fortunate as the leader in the category. Next year will

be our thirtieth year. We've been fortunate to always kind of get picked up in pop culture, be it you know, Hollywood movies or kind of music, and it gets a out of brand recognition to help us stand out in the crowd and help us differentiate ourselves. I want to just follow up, because you guys do Jamba at home, right, Yes, we do have a few licensed products as well, and certainly with focused brands now as our kind of parent

corporation will continue to look at that space. But there are a couple of products for Jomba both at home as well as kind of fruit snacks on the go. Is that a big Is that big opportunity though for you guys, because I just think if you get people at home too, it just kind of translates back and forth to you know, your retail stores and so on and so forth. Yeah, we we definitely think it's an opportunity, and I think it depends upon kind of which category

you're you're talking about. Is its smoothies, is it juices? But certainly helping build the brand outside the four walls of the store or the kiosk in the airport is definitely a big opportunity for us. All right, So geographically, where do you go next? So again we're fortunate to have, you know, a strong, strong brand presence in the western US. We've got about six hund stores or in the West coast or kind of southwest, with about two hundred here

in the eastern US. So we are looking to kind of both grow store units in fill locations in the West and then a number of markets here in the east. Certainly Atlanta is one of them, but certainly the southeast. There's a lot of opportunity for JOHNBA to grow. And that's Jeff Henry, the president of JOBA, in such an interesting position, Carol, relatively new to the job, with some big vision. It's private equity backed for where this market could go. I mean, I love their smoothies, but he's

gotten much more on his mind, all right. You know, Carol, Sometimes I really do get the best assignments, and I do wish you were here, because Jim Chestein is here with me. He's the CEO and this is the best title ever licensed bootlegger for a s W distillery. He's here with me in our Atlanta bureau. Jim, great to meet you. Thank you so much. Thanks for having me, Carol.

It's a pleasure, all right. And I have to say, Carol, shout out to Dennis Kelly, my dad, who is a local here and he was the one who actually introduced me virtually to Jim because he tasted some of his whiskey and he's a fan. And as you know, Carol, Dennis Kelly has a discerning pallet. So Jim, tell us what you're up to, because this is super cool man.

We have had just an awesome time. I'm I'm a former finance guy, used to be securities licensed and uh, my partner Charlie Thompson and I were roommates at Georgia and uh we uh allegedly had a little hobby making whiskey, and um we kind of figured out a way to turn it into a career and and just ended up at the apex of just a lot of trends that very candidly are much larger than us, that we we didn't see coming but have benefited from. You know, the

rise in the craft movement. You've had craft beer and now craft spirits are coming along on the tail of that, the foodie culture, agriculture. Everybody cares where their foods coming from, and so the experiential nature of you know, meeting your dad and coming into a distillery and showing him how you make things and show them too beautiful hot stills here in the middle of downtown Atlanta. You would not have seen that if you were asking a distiller a

hundred years ago. If that was possible, no way, not a chance. So the progress that's been made on these trends and just we've benefited from a ton of that stuff. Uh, well, that's a long answer. I mean, you've just got a lot of history in the South. Um, you know, it's kind of what we're known for. Is the people are very nostalgic about the forty forwards running from uh you know, the revenuers here. I mean that was a dirt road

called Piedmont back in the day. I mean this was all happening yards from our current distillery where you had the trippers coming down from the mountains sending booze here, and now we're sending booze the opposite way, which is amazing.

And so tell us about that that sort of megatrend that that you referenced, which is we are at this moment, and Carol, you and I talked about it so much, whether it comes to food or fashion, like we want to know where stuff comes from at this point, and we really value you understanding the story of our guests to our tour because they care about what we do. There's a something. It's just a big old chemistry set

down the road. You know. We have a ton of Georgia tech folks in town that you know, took chemical engineering. We have a ton of ad guys from Georgia that want to come in and see how we you know, become alchemists and spend uh, you know straw in the gold Um. So yeah, I just think it's what people

you know in the South is cool right now. People are watching what we're doing here and saying, man, the trends here food, beverage, restaurant in the South is just you know, really on a global stage right now, and we've benefited from that tremendously. Jim, how do you get noticed? So because I feel like there are a lot, like you said, kind of the craft trend that we're seeing when it comes to all kinds of alcohol. And how do you get yourself noticed in what is increasingly becoming

a crowded space. Same thing we do in any you know, you get to distinguish yourself with quality. Um, it's a little bit overwhelming right now. But people lump us in with beer, but we're we're literally twenty five years behind craft beer. So there are a lot fewer distilleries out there, and uh you nationally, we entered uh these spirit competitions. The biggest by far in North America is the San

Francisco World Spirit Competition. Uh. Last year we came home with five medals, including a double gold for our duality double malt whiskey, which, as you know robust as the Georgia spirit making tradition is, that was actually the first time in Georgia whiskey had ever received that honor in

San Francisco, which was huge for us. And then this year we came home with another five medals, including a gold medal for our single malt Burns Night, which is a traditional barley single malt, uh, similar to a Highland style whiskey. And you know too for a tiny little distillery, you know, under five year old distillery in Atlanta, Georgia, to win a gold medal for a single malt in the single malt category got us a little bit of

attention and that was huge. So talk about distribution because I've slee if you want people to be fans of it, they gotta drink it, they gotta be able to find it. How do you pull that off? Well, Uh, the brewers and distillers a couple of years ago in Georgia got the laws change so we can now sell direct We were the last state and the union that couldn't sell directly out of a tasting room, and that is by far our biggest mouthpiece. If your dad's already brought friends in,

you know, to show them that. And we look at at as it is a way to make money, but it's really more of a marketing strategy for us to bring people in. We love on them, We teach them something we never talked down to anybody. And that that I think from the laid back tradition of spirits has really been away that we've distinguished ourselves. As you know, we understand there are a lot of new spirit drinkers

that need to learn something. And you would never walk into our tasting room and have somebody, you know, poo poo on something you said or a question you asked, or something like that. They would We're gonna try to emulate with the craft beer guys did an awesome job of which is to bring new consumers into the market by educating them and becoming fans. Part of the part of what you're selling. I think in some ways, and what's going on in Atlanta is it's a different lifestyle

in many ways. And I've heard it, you know, and I think we've heard this all day long. There's something kind of special going on here where people are living kind of a different life. I agree with that, and this is purely just you know, me speculating, but I believe as a city we lost a lot of identity after the Olympics. There's so much of an influx of people from all over and we have benefited a ton from people moving here, but it kind of deluded the culture.

And now what you're seeing is it fight its way back through the food community, through this beautiful nature that we have. I mean, you are in bag Land, you know, twenty or thirty minutes outside of town in in Atlanta, Georgia, and I do think that ties really well into our story. That's a sw distillery CEO Jim Chestein. Listen, I love talking to these individuals, Jason that have created um Spirits business. As he said, We're continuing to see so many different

companies get into this business. I mean he's a financial guy, right, Yeah, he was. He had a financial background, and it's interesting to see all these different industries collide. Ilace. All right, So this is the perfect follow on, I feel like in many ways to the conversation we were having because this is next level in a lot of ways. The gathering spot. Ryan Wilson is the founder and CEO. He's here with me in our Atlanta of your run. Great

to have you with us. All right, So I've wanted to talk to you since I started reading Atlanta Magazine and Fast Company. I believe sort of about what you're up to. This is the members only a set up, no jacket required. Uh. In a lot of ways. Um, but you're really, I think, an emblem of what's going on in this city right now, this collision of all

these different industries. How did you get this idea? So the entire thing started when I was in college, right I there was a community that was there that I really didn't appreciate while I was in undergrad Buona went to law school. I really missed everything about the experience, and if you think about it, when you have people that are from all over the world that are studying different things, that network kind of just goes away immediately.

And so with one of my college roommates, we started talking about that problem and the gathering spot was what resulted in the conversations. So tell us a little bit about how it works and who can be right because it's not just open to everybody, right, tell us a little bit about who gets to be a part of that community because it is still kind of selective. Right, it is selective, but I mean the litmus test for us is really not just what you do, but who

you are. The most important question that we ask in our interview process is what animates you outside of the office, and like we really care about the answer to that question. You'll see a little bit of everybody in the club. The youngest members twenty three, the oldest members eighty eight. And so I tell people all the time, we are

in the community business, not the space business. Um. We're looking for opportunities to bring the membership together for professional reasons and then a lot of times socially as well. And that's been part of the secretive success well. And part of what you do is you bring in interesting folks from you know, your broader network Stacey Abrams. Uh, you know, obviously someone very familiar to our listeners and

certainly familiar to folks here uh in Atlanta. What are you trying to give them with those types of programs. I think it's important to explore what's going on in the city and going along on our nation, I mean the club. Because we're not tied to any particular industry, we have the ability to really explore any and every topic. And so absolutely right, Leader Abrams will come and give a conversation and then the next day we might be

doing a midnight brunch. And for us, that's that's how communities are formed, both business reasons, but then also for social ones. Well. And it's interesting and you know, Jason, I spent so much time Ryan talking about the importance of diversity and whatever you do, diversity of thought, uh, and how important it is to really improving the operations and the outcome and the results of any institution. And it sounds like that's certainly a driving mission within you guys.

I mean the future of communities for us, I mean they look different, um, and it's important for us as a as a business to make sure that we're super intentional about making sure that everyone really feels at home inside of the club. One statistic that I'm really proud of is that six of our membership based or women. To us, that's what the future of private clubs should

look like. Um, these these spaces have not in spaces that traditionally've had an overrepresentation of women, and so we we go really out of our way to make sure that when there are groups, um even professions. We we look last year and found that we didn't have enough educators in the space and went out and made sure that there were there were more people that represented that space in the city inside of the club. And so that mix is a part of what again makes the

club special in the day to day basis. And that's Ryan Wilson, CEO of the gathering spot Proud Hoia. He and I caught up about that are shared history at Georgetown University. Carroll, but such a great idea that he has and when you hear about all the different types of people who are intersecting at this place, you get a really good sense of what Atlanta is all about. Right, And he's coming to d C in l a so he's expanding. And that wraps up Bloomberg Business Week's weekend podcast.

Thanks so much for joining us. I'm Jason Kelly and I'm Carol Mass. Be sure to tune into Bloomberg Business Week Radio Live Monday through Friday, starting at two pm Wall Street Time. And if you can't catch us live, get our daily podcast for the ride home. You can get that an iTunes, SoundCloud, and of course at Bloomberg dot com. And of course you can get this week's edition of the magazine. It's a double issue and it's on newsstands now. We'll be back right here next week

at the same time. This is Bloomberg