From Mahard.
We're Innovations Money and Power Collie in Silicon Vallet NBN. This is Bloomberg Technology with Caroline Hyde and Ed Ludlow.
I'm Caroline Hyde of bloomgg's world headquarters in New York, and I'm Ed.
Lovelow in San Francisco. This is Bloomberg Technology coming up.
We have got the latest on the held of the banking system and of course the state of fundraising, which are in by some kvcs from viet Ventures and Costanoa Ventures.
Plus Coinbase weighing the United Arab Emirates for its international hub. We hear from Coinbased CEO Brian Armstrong on what's driving that decision, and we'll have.
The latest on meta as of the social media giant may end Facebook and Instagram news content in Canada and as the company vows to fight back against the ftc.
Of children's data.
Now, as we dwell on that story around a publicly traded company, let's go more broadly across the indices right now because.
Some caution in today's trading.
Even though we've got to lift in European trading and Asian trading, today we just pull back a little bit. The nastack off six points. We're basically flat on the day, coming off of our lows. We're really though, seeing some pressure on the bond market. This is we not more focus on the FED, but we actually focus on supply, on corporate bonds being sold ultimately and a whole hef to them. We're expecting some thirty five billion dollars towards the rest of the week. So we're up by five
basis points as we see a supply pressure coming. Two year yields currently creeping up to three point ninety six percent, and I'm looking at the vics.
Just starling back a little bit.
So even though we see this cautious trading volatility is low, we're still well below that twenty handle at seventeen. Moving on, that's not what's happening in the world of crypto because we have seen volatility there no surprise in many ways, not by three and a half percent.
We're going to dig in ed to the stories.
Around finance around some of the ability to be able to trade the og in the crypto space. Interestingly, some new means coming onto that particular well ecosystem basically, and it's clogging up.
Yeah, two holts in the twenty four hour period or twelve hour period on Binance. The operational update is that Binance says those pending Bitcoin Tracs transactions were process bottom of this board, you see crypto related stocks in the equity space also.
Moving to the downside.
Very closely link to that story up here as the scaler twenty one percent gain biggest jumps at September, at one point on track for its biggest jump since the end of December twenty twenty. There's a lot of feel good in the cyber space after its prelim results came in far above expectations. If you see energy in the cybersecurity space, that is why regional banks again a story. We're seeing a rebound, particularly in pac West, following on
from what we saw on Friday. You know, we were also asking ourselves again, Caroline, what is the rationale here? There's been a lot of fighting talk from PacWest about its operational health. I remind myself for this program Bloomberg Technology that when it was founded in nineteen ninety nine, it was with a remit to serve Venture act companies. Really important for our audience because many of them have some sort of banking service, even with these regional banks.
Yeah, it is important to think about.
Also the more broad risks taking that people do and don't want to do, is we're still slightly cautious around the ultimate safety of the banking system. Let's talk about pack Uess and so much more with our one and only Sali bus second Sally. It feels as though anxiety levels dialed back a little bit today, but through any fundamental reason.
Here Westen these stocks have sold off pretty dramatically, and if you look through Friday evening, we had a lot of tenuous news, for example Fitch placing pack West on a negative ratings watch. But to the point that you're making fundamental reasons, it's not because of the deposit base they did that, and it's not because of the holdings the bond holdings that have hurt many of these banks. The reason they put them on a negative watch is
because they're worried about the strategic direction moving forward. There are stories last week about potential strategic asset sales. What is a business model of pack Wes moving forward? I would also to Ed's point here that a few of these banks that are still under pressure, not beyond First Republic, pack West, Western, Alliance has been the worst performer on
the KBW Bank Index. Here a lot of banks that are based out West, and what is it about these firms that really bring these deposit base and the risks tied to the lending altogether that have investors spooked at this moment?
So notally, if there's anything that the market's cheering, it seems to be a dividend cut. Why is that such a significant factor with this stock.
It's interesting because typically when you see a dividend cut, you don't see investors reacting positively. But in this instance, the reason that there might be a little bit of relief is because investors are looking to pack West to do everything it can to keep its capital based strong, and that means some tough decisions in the meantime. It doesn't need to be the case that these banks fall into deeper and deeper concern after we've seen such big
issues already. But again, there are longer term worries here ed and you really see it reflected in the bond prices of Western Alliance and pack West which have their bonds trading the ones maturing in twenty thirty one trading at sixty or forty cents on the dollar. Still, when I talk to investors on the sidelines as well, there's a hesitancy to get in until some of these existential questions are cleared.
Up in Invectionali Bassekat in New York, thank you. Let's stick with a story and bring in FIAT ventures Managing partners Marcos Fernandez, Marcos, what is uniquely relevant to the VC community that you're a part of and venture bank startups in this scenario with the regional banks? Why are you paying such close attention?
Absolutely so, banks like First Republic, like Silicon Valley Bank and pac West. As was mentioned, they cater towards the venture community, both venture capital funds and the founders that we back the startup community as a whole, And it's not just the deposits that they hold, but it's venture debt solutions that help them expand out their runways. For those founders in particular, it's loans that help them be able to do things like purchase homes when a lot
of their values tied up in private equity. So we pay a big attention to it, certainly, and work very closely with our founders to help them seek alternatives, especially as markets continue to be more violatle.
This is the biggest two day jump in pack weest on record. But from your perspective, I guess you're not lying awake at night thinking about that. I mean, what is the ongoing consideration for vcs like you and your portfolio companies.
Yeah, so, unlike Silicon Valley Bank, which sprung about really quickly, you know, the news broke on a Thursday, and even going into the weekend, we didn't have certainty. The FED did a great job this time by coming out first thing Monday morning making sure that there is both certainty around.
The deposits as well as a suitor. So it really did help us sleep a little bit better at night.
And also for a lot of the startups that we've been working with, we've been helping them seek alternatives over the last several weeks.
As this continues to unfold.
So the short answer is, no, we haven't lost too much sleep behind it. What I will say is there's.
Phenomenal people at the PacWest Banks of the world, as First Republic and Silicon Valley Banks, and so I think mostly we want to make sure that we're good to our partners those institutions.
As well, you know, Caroline, the reason I ask those questions is that if you're a startup founder or a VC, you're kind of uniquely not liquid, right. Think about all of your net worth that's tied up in the equity valuation of your private company. The other thing we've learned is that now you're if you're a founder, you've got to find options. You've got to diversify, you've got to modernize your banking.
And maybe start tapping FinTechs, other solutions, ones that don't actually have a banking license but certainly have an offering.
And this is.
Where Marcus, your experience comes so into play.
You've backed the likes of Brex personally over the years.
You're someone who's worked at other FinTechs so far as well as well in the crypto ecosystem.
Tell us about fintech whether this is a moment for.
It to outperform or whether actually there's more worry around more newer entrants.
Absolutely, Caroline, I hate to say that my glass is always half full, but in this case, one.
Of the early winners is certainly FinTechs.
So you mentioned Brex, others like Mercury Bank, they've seen a lot of influx of deposits for two big reasons.
First as they built tech stacts.
On top of legacy infrastructure, which helps them onboard and open up more accounts more easily. And then second is they work with multiple financial institutions and banking partners, So not only does that allow for them to see more diversity behind those deposits, it allows them to extend out
the federal protections that fall within that for their consumers. Now, while a lot of companies and individuals have gone back towards these pillarbanks the Wells Fargo, b of A's JP Morgans during these uncertain times, it's also exposed a lot of the inefficiencies behind these institutions that rely on a lot of individuals, time and processes to be able to open up accounts.
So again, this is just another issue, an instance.
Of why fintech and a lot of digitization behind traditional financial services is so important.
What do you want to see built this moment, when you are so uniquely focused on fintech, on the future of fintech, on backing new startups and founders and visionaries, what is the problem you want most salted at the moment?
Absolutely so, I think the first wave of financial technology innovation people focused on direct to consumer businesses. We think of the sofar as the chimes the money lions of the world. But the next wave is certainly much more embedded, so in some cases you actually won't know that there's a fintech at play behind these traditional institutions that you're
bringing your money to and your deposits to. And that's really important because over time, every company under the sun has some sort of financial aspect with their business, and so that next wave is really going to be led by those that are building the picks and shovels in infrastructure that allow both large traditional financial service firms to become more efficient, but also those in adjacent industries like healthcare, mobility, climate, future of work.
And that's what gets us really excited.
When I hear picks and shovels, I immediately start to think of those who are saying talking about the mining ed of crypto in particular, and just fold in. I suppose that on a day where we really keep an eye on what's happening in crypto, there's a read across with Cosmarkos having worked at Ripple for a while.
Yeah, I think if you're going to draw some commonality what we're talking about. I guess it's the want for decentralized systems. That also the same cycle we went through in crypto, we saw play out in banking to a certain extent. I mean, Marcos threat those two together for us when you are looking at what's happened in the banking sector, the hype and boom cycle as well around what happened with crypto, do you sort of have the same systemic concerns that apply to both.
In some cases you see a lot of correlation between the two.
Right, it's individuals get really.
Excited about the potentials of a technology, but it takes time for that to become something that we can adopt over a large scale. Fintech for example, a lot of neobanks came in and got people excited, but during this market volatility, we're seeing them go back to these traditional pillar banks.
Same thing with crypto.
Right, the idea of decentralized systems is still really exciting, has a ton of use cases and applications, but it takes time to build that underlying infrastructure at a scale where millions and hundreds of millions of global individuals can actually take it advantage of that. So certainly there's correlations behind the two. But what I'd say is it's not
to use a sports metaform. But we're not just in the early innings, like I don't even know if we started the game yet for both fintech and for cryptocurrencies, because there's so much potential to be had here and we're finally seeing a market where people can go back to building the fundamentals behind it, so building out the businesses that will help us scale to those hundreds of millions of consumers, both in the US and on global markets.
That leads us very smoothly onto our next conversation.
We thank you for that.
Fat Ventures managing partner Marcus Fernandez great to has some time.
In the.
Crypto exchange.
Coinbase is weighing the United Arab Emirates for its international hub. CEO Brian Armstrong says the UAE is leading the way regionally in crypto. He spoke to Bloomberg at the Dubai Fintech Summit earlier.
Have listened.
Coinbase our mission is to increase second our freedom in the world, so that means we really need to do that in many many countries. Obviously, We started in the US and took a very compliance focused approach and became a listed company there and that's been a big piece of our revenue still, but we've increasingly expanded into other
major markets around the world. Now what we're doing is we're looking for a home to set up an international hub that could serve the long tail of countries in the world, you know, the Middle East, Africa, maybe parts of Asia as well. And from that point of view, the UA is very attractive. I mean, the UA deserves
a ton of credit. They're the first country in the world I'm aware of that created a dedicated new regulator to crypto and they've published a clear rule book and it's very business forward and protecting of consumers.
So they head by a country mod here relative to the UK and relative to the.
US, well, I would say they are ahead of where the US is. You know, the EU has actually published comprehensive crypto legislation already. The UK is on their way there. But I would say the UAE is their approach has been more forward thinking than the US so far.
So we spoke to your CFO, you're the CEO the West Notes everybody, you know, we sort of digging around for news here and I sat down and what is the as well as noticed, is it an armageddon moment potentially for coinbase in the United States of America.
I think this.
Moment is really an opportunity for us to finally get some regulatory clarity in the United States, and we're happy to do that. By the way, it's I think it's a great role for us to play in the industry and for America.
You going head to head with the SEC.
Well, that's true.
I mean, look, we don't relish the opportunity to be in litigation with one of our primary lob regulators. We've sought out regulation all over the world and tried to be proactive when there wasn't clarity. But if there's no clear rule book in the US, we created our own best practices to evaluate you know, over one thousand assets and we rejected eighty percent of them the two hundred
and twenty percent that we list. We believe our commodities and there's been no clear rule book, and so if we receive it well, as notice, I feel like we have a duty to take a push back and go see a case law that will help bring this clarity to the US.
I mean I fitted a rhyme with this question for about two hours. Sec CFTC. What is the question you asked the CEO, And here's the question. Are these regulators fit for purpose?
Well, I think there's certainly a role, yes, because crypto is many things. Crypto is has commodities. Crypto has some bitter securities. We don't list them, but there are some out there. We think there should be a robust, healthy market for that. There's also stable coins, which are more like currencies. There's artwork, you know, with NFTs, and so crypto is going to have a number of different regulators. It probably is going to need new legislation to be
passed in the US. And the good news isn't there's broad BIPARTI isn't supporting Congress for that exactly to happen.
Could you see a day of a troop side I'm gone from the US.
We're not going to leave the US.
You know, we do have a choice of where to invest our dollars around the world in any given moment, but we're not going to leave the US. It's an important market. And the good thing about the US is there's rule of law, and so we do reach the right outcome eventually.
Coinbase CEO Brian Armstrong with her own menace Cranny, Caroline one.
And any manus.
Meanwhile, let's stick with crypto a little bit more. You reference the earlier ed the finance situation. How it's we started the drawals of bitcoin itself a slighting congestion on the tokens book chain. After two holts in less than twelve hours, the suspensions had weighed in the cryptocurrency markets. More broadly, it seems like we can go to our own Katie Lines out there in Washington to just discuss what are these new mean coins that are getting on.
What is the original of the cryptosphere. Before we sort of associate NFTs meme coins with ethereum, But.
Why are we now associating it with Bitcoin.
Well, you can trace it back to the new Ordinals protocol that was introduced earlier this year, Caroline, which as you are alluding to, allowed now non vegeible tokens meme coins to be minted on the Bitcoin network, which primarily
they usually were just based on ethereum. The fact that they have now come to be part of this network, this ecosystem, has meant that it is more congested, congested, and as result, fees have gone higher as well, and Finance says that is really what the problem was here, that this wasn't as was speculated earlier about people pulling money from their exchange, that this really was just a congestion problem.
And as a.
Result, to address this, to make sure that it doesn't happen again, they have raised fees to make sure all of those pending transactions actually will be mined by bitcoin miners. But that's ultimately what it comes down to here' Stz, the CEO of Byance, saying that some of those fees are up eighteen times over just the last month that we've seen more and more activity taking place on this blockchain.
I think that the data point to call my eye from the Bloomberg reporting is that five billion dollars worth of transactions happened in that twenty four hour period. From a volume perspective, makes you realize that bitcoin is kind of everything from a volume perspective, right, that it was the volume of transaction is trying to ram through that caused.
All of this.
Yeah, that's exactly right.
Again, a congestion problem, but you are speaking to the kind of volume that binance is seen here. This is also why this exchange in particular is so critical in terms of driving sentiment for the broader ecosystem, because it is by far the largest in the world, especially after the collapse of FTX. So really people look to binance as kind of a bell weather for what is happening in the wider system. So the amount of activity there when they do see disruptions like this is reason why
you start to see some market participants getting concerned. But yeah, it's a great point ed. When we are talking about the broader crypto ecosystem of coorse, bitcoin really is the not monolith, but really just the dominant cryptocurrency in this ecosystem. Maybe all of these mean coins that are now clogging things up are really just kind of a distraction at the end.
Of the day.
Yeah, I mean, before we dive into the world of Pepe and some of the other exuberant rising coins that are basically like what a couple of cents or dollars
and suddenly rise ever higher. Talk to us a little bit more about the international focus we had had anxiety around finance, what more about just more broadly global interaction with crypto at the moment, we're still seeing desire to be training here in the US, whether it's over there in certain parts of Asia, what happens in China at the moment, because I mean, what is it still was thinking about how China is interacting with cryptom worldly well.
Especially as China it seems likes looking to kind of build up Hong Kong as another center for this activity. And it really comes down to the differences in the regulatory environment, right Caroline. I mean when you're looking at Finance in particular, in theory binance US is supposed to operate independently and it's kind of owned silo. But we know that the CFTC earlier this spring sued Finance for
violating US derivatives rules. It's been under a lot of regulatory scrutiny here in the US, and the same ghost for other players as well. We were just hearing how coinbase wants to have a wider footprint internationally because at the end of the day, these regulations what activities people can actually engage on do differ country by country, So that is a huge factor in here. And I would note as well, and part of this regulatory landscape, what has happened with the bankings here in the US is
when the liquidity picture comes into the conversation. I've had a lot of guests on Bloomberg Crypto in recent weeks and months talking about how liquidity really is just so thin and that exacerbates the price moves to the upside, sure, which is what God is north the thirty thous, but also to the downside, which we're obviously seeing play out and really broad based selling in crypto today.
Bloomberg's Katie Lines adding Washington d C. Thank you very much. Now coming up, China's bay Doo, known for its line with smart home devices, is adding a new product to its AI operated roster and entering of an already crowded arena.
Talking tech coming up, Carot.
Yeah, another key story we're going to keep covering is we'll see ed shares of the company over in Asia trading had absolutely rocketed more than seven percent.
We'll talk about why perhaps.
We're seeing some more optimism coming from the leader of that business from New York.
The a's a Bloomberg.
Time for talking tech.
First up, China limiting access by foreign entities to its after a series of reports published by US researcher firms spooked government officials. This according to The Wall Street Journal, the mover's expected to make it harder to analyze.
What's going on inside China.
There's tensions between Beijing and Washington mount Speaking of China, Chinese tech firm Baidu is entering the mobile phone market, adding a smartphone to its portfolio of gadget similar to the likes of Amazon's Alexa division. The device will be unveiled next week and will utilize its artificial intelligence software plus C. The ten Cent bank self East Asia internet company boosting pay for most of its workers this summer. Workers who joined on or before March thirty first will
get a five percent salary bump. CEO Forest Lee says the company has reached quote self sufficiency after taking dramatic measures to slash costs Caroline.
Yeah, what a different tack from a few months ago for that particular company. Meanwhile, well, coming up, we've got to dive into what's happening to meta today. International stories are bound a vow to fight back against here in the US the FTC as it faces some pretty stiff reviews of its privacy policies. We'll also be discussing what it's doing about Canada too. Let's just check in on how the shares are moving. Let's check in on how
more broadly the tech market is moving. Meta actually managing to hold up about We're down in tenth of a percent.
That's in line with the rest of the market.
There's caution out there at some big tech heavyweights are just dragging some of the industries a little bit lower today after what had been a lot of exuberance following a few of their earnings from New York and San Francisco. This is Bloomberg. Welcome back to Bloomberg Technology. I'm Canon Hide in New.
York and our med love Loo in San Francisco. Carey, let's go to check on the market. That has to be honest, there's not a huge amount of energy in financial markets this Sunday morning. You look at the NAS that one hundred, we are completely flat. Although some slight wood downward pressure across the majority of names outperformance slightly in the SOXSORL although.
Modest up to tens to one percent.
It's interesting to note that a lot of the AI related chip names, your AMDs and videos actually as well as Alphabet are moving to the upside during Monday's session, some movement in bonds are up five basis points on the US ten year three point four to nine one point three point five percent, and then kind of risk
off when it comes to crypto. We talked about that story all throughout the show, the pause on the finance platform in terms of bitcoin transaction, but that has had an impact with below twenty eight thousand US dollars per token.
Some individual movers.
That are interesting z Scale are really outperforming and actually carrying a number of cybersecurity stocks with it. It posted prelium results far ahead of expectations. Kind of puts to rest this idea that spending on cybersecurity was under question. Alphabet as I pointed out, an AI related name up one and a half percent, and then to the downside. You see Microsoft and Meta actually has paired some of its losses. But those were two big point drags on the major indices.
Let's dig into one of them, I mean point drags lower. We've got volume sin, but there is a lot of news to digest when it comes to Meta at the moment, in particular, let's talk about it here in the United States. The company really fights back saying it's going to oppose an FTC plan to look at banning it from profiting
off of children's data. For more, we want to bring in Blie Meg's Emny Burnbound and the backstory to this is what the FDC is really analyzing some mistakes made in the messenger part of the offering to children, but trying to sort of read that across to a broader implication for how they make money from children more broadly.
Yeah, So the FTC is looking back to an agreement
that they came to with Meta in twenty twenty. So alongside a five billion dollar civil penalty, which is record breaking in the agency's history, they had Meta agreed to a series of privacy pledges, and they say that Facebook has not adhered to the promises that it made, and that gives them the right to go back, revise that agreement that they came to with Facebook in twenty twenty and put all these new standards and these new processes in place for ensuring that they are actually protecting the
privacy of US users.
Emily, what's Meta's arguments in all of this?
Meta says that the agency is vastly overstepping on its authorities. That they are trying to take a mechanism that the agency does have, which is revising old agreements, and they are going too far in you know, banning them from monetizing children's data, putting all these new restrictions that would force them to submit to privacy reviews before they launch any new products. They say this is too sweeping. They intend to fight it in court, and that it shows the FTC is biased against Meta.
All right, Bloomberg's Emily Burnbaum at in DC, thank you. Let's stick with this story for more META and bring in Diana Moss, President and CEO of the American Antitrust Institute. Dan, how much does this test the boundaries of the FTC's ability to shape privacy policy but through enforcement?
I think that's a great question. I think we're seeing right now a real tension between the FDCs mandate to promote consumer protection but also to promote competition. They've had a bit of a rough go and some of the competition cases involving big tech, and of course now we see the moves on privacy.
But I think the.
Important thing to remember here is that user data is the fuel, the gasoline that powers the digital platforms and collecting that data, harnessing the value of it through AI and machine learning is really core to the value proposition of attracting users and locking them into a particular platform.
Diana, you heard what Emily had to say about Meta's arguments in this dispute. Do you think that Meta fighting FTC on this will bring them success, that this is an example we're actually pushing back will fall in metas favor.
I actually don't you know. I think what we're seeing here is a natural evolution, sort of a growing recognition that the FTC alone cannot, through its authorities, address both the competition and the privacy issues, and as I just said, they're both integrally related. Using data, potentially abusing data is the way to recognize or realize that value proposition. I think what we're seeing is going to be a series of violations and pushback because that is the value proposition.
You're talking about, very strong incentives for the digital platforms to use and potentially abuse data to realize that value proposition. And I think where we might be going is the need for a broader system of regulation in the United States, much like in the UK, both on competition issues but on privacy issues as.
Well, and you reference the UK the what about more broad regulation, just more globally and more joined up approach.
Well, I think that's where it's going. The problem is we have a lot of jurisdictions and we don't have any sort of international authorities, but there is a tremendous amount of cross fertilization and collaboration on international regulatory approaches. And I think the other thing to realize here is what's going on with META and the data in this particular case is going to be no different than other platforms use of data to power the e commerce and
the social media platforms and advertising on their platforms. So a regulatory infrastructure would address not only these concerns with Meta, but also other digital platforms that are very powerful.
And to be fair, I mean metas already limited kind of information that informs certain ads, particularly when it relates to teens on its apps. They withdrew the ability for advertisers in particular to sort of target teams and their interest in their activities. You basically only know location data in an age, but they're going to have quite a pr feet on their hands because anything saying no, no, no, we need to be able to make money by advertising
directly to children. How do they manage to make that nuance? With your years and decades of experience in this, can companies make a case for themselves that this is in line with you know, ultimately what's good for the company, but also not detrimental to society More broadly.
I think that's a hard line to walk, given how integral data collection and data processing and harnessing the value.
That data is for the digitals.
And I think the.
US is getting to a point where the comfort level in accepting promises and reassurances from the companies about how they will not misused data, it's beginning to where it's thin. And what we see here with the FTC, to their credit, is a strong enforcement action, but it's really this case by case approach when this problem is so systemic amongst the digital platforms use and potential abuse of data that that warrants a broader regulatory system like we see elsewhere elsewhere in the world.
Meanwhile, Meta called the FTC's latest preceding a political stunt. Diana Moss, we thank you so much, President and CEO of the American Anti Trust Institute. And in fact, it's another focus under the day, with Meta the company saying well, it might end news content on Facebook and Instagram. Over in Canada, then as if lawmakers pass a bill requiring social networking platforms to pay media publishers to feature their work. Meant to describe the bill as fundamentally flawed, but supporters
say it addresses a marketing balance. Is that more people turn to digital platforms for newsed something that we think about on the daily.
YEP coming up, how startups can keep up with big tech in the Aii.
That's next.
We've cost No Adventures partner Martina Lauchenko, who gives us.
Her view of the landscape. This is Bloomberg.
This is a global story that caught my eye. Japanese firm MUFG planning to start two debt funds alongside tech lender Liquidity Capital.
The funds will be established.
Under a joint venture MARS Growth Capital, and provide as much as four hundred million dollars in financing for middle and later stage startups in Japan and Europe. The move is the latest by Japan's biggest banks to ramp up startup finance, where they increasingly see potential for new business.
Caroline fascinating giving the timing aird and look at all us big tech companies like Microsoft, like Google dominate the conversation surrounding investments in artificial intelligence, but that VC's there too. They're flagging house startups can perhaps so get lost on the battlefield. Here's on what some of our recent guests are saying about the AI ecosystem.
We are in the middle of an incredible revolution in AI.
I would say there's many more bad AI startups than good startups, and it's very hard to differentiate if you're not experienced with AI.
If you're a company today and you're not embracing the changes that are taking place with AI, you're going to be behind.
Let's take actions to help form it safely.
I think it's too early to regulate the AI. We don't know enough about it.
I think the companies that are building this recognize that regulation is needed.
There's so much to get into with our next guest, Martina Lachenko, of course as Christinoa Ventures, and I'm interested Martina in well, the view points there around regulation a thick and fast, but ultimately about how you sought the wheat from the chaff. You heard that from Vanokoza saying there's far more bad AI startups outla then they're all good. How do you discern which one's are good on the marketplace right now?
Well, at Costanoa, we invest in really early stage startups and so at that point you really have to assess the founder and the fundamentals of their idea. And we are absolutely seeing this wave of companies that we call generative AI native where they are clearly built on top of generative AI from the start, and you recognize it immediately.
So just in the last two weeks, I.
Saw two startups same category. One was more like the AI remodel or it was glamped on, and the other was clearly built on top of the large language models and the generative AI that everybody was talking about on your show, And you immediately notice the difference just in how they're built, what the interface is like, and how they talk about what their product vision is.
So there is a distinction and.
That's absolutely what early stage venture capitalists are looking to invest in now.
It was interesting last week suddenly the open source versus wall garden conversation came in to bear, particularly.
Around artificial intelligence.
What are you seeing in terms of who's going to eat who's lunch, Because it felt as though certain over at Google are saying, look.
Really, it's open source.
It's no one owning a particular large language model that's going to ultimatenyone out here.
Well, I think you need both. I think both feed each other.
The vibrancy of the ecosystem requires the open source side of the house where everyone can contribute.
But the wild garden aspect is.
The thing about generative AI is you have to be an expert to recognize when it's going off of the rails and how to put in place the guardrails to make it safe so that when it's used anywhere else it makes sense. And it tends to need to be more purpose built for a company or for what is being used for for it to do its job well.
And that's where you might need a combination of built on top of the open source foundation but the world garden, making it more purpose built and intentional for whatever it's purpose.
Let's take an example from your portfolio. Quizlet how long has that been in your portfolio?
It's been our portfolio for almost eight years.
Almost eight years.
Okay, So to Caroline's point, you know, Vinocosa's point everyone is now trying to discern what is it, what is a viable AI related or AI adjacent company, and what is not? How has your thinking changed from when you first made that Quizler investment almost eight years ago to when you're confronted with a deck right now.
So Kosteno has been around for about ten years, and the way we have always looked at AIAI has been around for quite some time, and it's really about what is the infrastructure that enables AI. And you need large sums of data, and you also need great machine learning. You need great machine learning algorithms, and so it's companies that have been around for some time that have the data set that let them build and train those models so that at this point in time they can actually
provide that level of AI that everyone's experiencing. So a company like quiz it's a great example. We have a monstrous data set, the largest user generated data set of learning tools in the world, and they've been training this data for years and so now they're able to use that on behalf of users and creating this generative AI approach To how what people are.
Expecting in this environment?
Where does the balance of power lie with the vcs or the AI driven founders.
I think it's always a partnership. I think with the best VC firms that's always going to be. The founders have great ideas, they have wonderful talents that they're bringing to bear. But when the VC is really genuinely additive and a great partner, it only makes them better. So our startups, our founders tend to be technical, either product or engineering based, and so they need more of that go to market partner.
That's what we spend time with them on.
Because you need the Steve jobs to the Steve WOSNEYAC combination. And if they don't bring it, then who backs them actually needs to help them with that.
So that's what we focus.
On, Caroline.
Irrespective of the application or where in the data preer, deep learning inference part of the cycle you lay, I think everyone agrees on one thing, which is we need to have some parameters and some regulation in place, and whether it's.
Self regulation or whether it's coming from the government. Martina, to that point, are you on the optimistic front and are you nervous about how quickly we're advancing without formal guardrails in place?
Well, I'm both.
I'm super optimistic, and I'm also nervous. I don't think the government has a good idea of what they can do to help regulate this, and so I really think it's going to be incumbent on companies themselves to be responsible in how they're taking advantage of this technology and
putting in place those guardrails I mentioned before. We're going to have sort of a before times and then after times of those generative AI native companies, or at least in how they think and that they are putting in place those guardrails that you don't have to be an expert to recognize that it's going off the rails, and that's going to have to come from the companies themselves. The government's not going to be able to regulate that.
Thanks to Martina Laschenko partner of course, with costs and no Adventures, the thing they call my Eye Caroline. Over the weekend, Warren Buffett and Charlie Munger hold court during
the Berkshire halfway and your meeting on Saturday. Of course, they talked about things you'd expect like Apple and Elon musk and guess what else Ai and Charlie Mungers like, well, I'm skeptical, and Warren Buffett comes out with what was a pretty profound statement of the parallels of what we're seeing in AI and human history.
What was it? An atom? Mom?
He referenced, I mean extraordinary language amazement. He also seemed to demonstrate when it came to chatchipt other AI tools, what they're already doing, how they're already upending things. But ultimately it feels as though he said, what was it? He compared it to splitting of the atom as potentially
dangerous advance and technology. And that's It's interesting the way we just had Martina articulate that, yes, I'm optimistic, but I'm also nervous about really the advance is the swift nature of it and how it's going to upend basically every industry, particularly when you know there is Charlie Munger and Warren Buffett salt in the middle of energy industry, of banking industry.
Of all sorts that are going to be upended by AI.
Yeah.
One thing I point out is that, you know, is it relates to Elon Musk. Is very praising of Elon Musk and Tesla and entrepreneurial ism, but he said, you know, for them but have away. They need certainty and visibility on returns, and in the field of AI or whatever Elon's doing with Tesla and Twitter, that's not the sort of certainty and visibility that they're going to get. Apple selling debt in the US blue chip bomb market, borrowers flooding in looking to raise cash before two key pieces
of data later in the week, Caroline CPI, PPI. But this is something that Apple does annually, right, and you think for me shareholder returns. They use those funds for buybacks and dividends.
Yeah, this is all often what happens after earnings. We saw it with Meta already tapping the bond market. They come out, they decide that they're going to be raising funds and look diversify the way in which that they have money to hand. But it does feel though that maybe we're gravitating towards the safer areas the credit markets.
I was just looking at how the Dish chairman, of course, the company that's slightly under more pressure at the moment, is saying that the debt market really isn't open to us at the moment with these financial worries, with the macro headwind that is upon us, no wonder the big juggernauts like Apple, like Matter, with a lot of cash on their hands, are able to sell and sell easily, but not for everyone.
It would feel like.
Yeah, look, five billion dollars in up to five parts. According to a Bloomberg sauce, at the long end, thirty year bond could yield one hundred and thirty five basis points over comparable treasuries. So that's what we're waiting on.
Yeah, why we saw a bit of a sell off in the bond market more generally today in terms of US treasuries. But let's focus in on the Apple part of all of this right now, because after its earnings we did hear it's turning its attention really to what feels like emerging markets right now to get their growth. Montgam and please to say that after the calm of the earning storm, you join us to really digest from LA. It seems like Indias front and centered is all about international.
Growth right now.
I've never heard Apple talk about emerging markets in India, Indonesia, the UAE more than they did on the earnings call last week. And it's pretty clear why these messages that they talk about on these earnings calls. They're very carefully crafted, they're very deliberate in what they say, and they don't say we're about to enter our third quarter, or I should say, we're in our third quarter where Apple is likely to announce its third annual revenue decline in a row.
It's very clear that they've plateaued, at least for now in the US, the larger Americas, Europe, Asia, China specifically, and so investors in Wall Street they want to see where's the future growth. So Apple has a new pitch for them, Like you said, it's emerging markets.
Right.
They talked about how this was one of the best quarters ever for emerging markets. They talked about how they have very low market share in India and other low emerging markets like Mexico, like Brazil, like Indonesia, And that might be bad on the surface, but the reality is that means there's big untapped markets for Apple to grow into.
Right.
They make you know, between fifteen and twenty billion dollars per quarter in China. Right, Imagine if Apple could find another market, maybe it's India, where they can add another
five ten billion dollars per quarter just in that one country. Right, that's a massive opportunity, and over time, if they are able to tap into these emerging markets properly, if people decide to buy their products, if they make key new devices and services geared towards those markets, it's very possible that Apple revenue could grow exponentially just from those new regions.
I mean, while some exponential growth of your own writing. The Power On is on the discord now I understand markam and brilliant to have you on to discuss all things Apple. It's a great story. You've got to go and read it on his daily weekly Power On. Meanwhile, we look at that does it with this edition of Bloomberg.
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