Why US Capitalism Crushes Europe and China | Steve Lord
Summary
Everyone worries AI will take their job. Steve Lord thinks we’ll hit a bigger wall first: power. Lord is COO of Burkland Associates, …
Transcript
We have startups that have gone from their seed financing to being acquired in eight months. No one is really even thinking about an IPO. Hi, I am Ed D'Agostino, and today we take a look at how AI is upending the world of venture capital. My guest is Steven Lord, chief Operating Officer at Burkland Associates, providing fractional CFO services. To hundreds of VC-backed firms. If you wanna know more about the world of venture capital, its impact on our daily lives and where capital is flowing today. This episode is for you. Stick around to the end where Steve gives his best advice for company founders and for anyone thinking about making a venture capital investment. Thanks for joining us here this week at Global Macro Update. Steve, Lord, old friend of mine. It's great to see you. Thanks for taking some, uh, some time outta your busy venture capital packed day. Absolutely. I'm glad to be here. Let's start with that, right? What is the state of venture capital today? Is it is, is it raining money? Are deals still getting done? Uh, where are we at? So it's not raining money deals still are getting done. Uh, but I would think if there's a way to characterize it, it's a little bit more of the same. Uh, we've been in a bit of a pattern for the last couple years really, where, uh, deals are harder to get done unless you have AI in your business plan somewhere. Uh. Valuations are pressed. You know, founders have a harder time raising successive rounds. Uh, existing portfolio companies are under a profitability pressure, which is different than it was maybe pre pandemic. Uh, and there just seems to be a general, I don't know, lack of velocities, perhaps the right way to put it. Um, startups used to be able to go from, you know, seed to series A to series B, maybe a b plus, maybe a little venture debt in there along the way. All within 24 or 36 months. And that timeline has stretched and it remains stretched, uh, which is why a lot of these startups are really struggling to, to bridge gaps from one funding ground to the other. Why is that? Is, is it cyclical or is it, uh, a reflection of the market? Tightening up the, the, the public market tightening up a little bit around tech. There's not one particular answer to that in my view. I think there's a lot of things contributing to it. The IPO market, being a little quiet is obviously, or a lot quiet is, is a big factor in that. There just also isn't the exit velocity that a lot of these companies, um, would've maybe had in prior eras. There is definitely a cyclical element to it. Um, when you actually chart it out, VC and interest rates are fairly well correlated, right? So we did have a bit of a spike in rates, relatively speaking, and everybody hearkens back to the good old days of 20 14, 15, 16. And say that was this heyday of vc. But what they forget was we had zero interest rates, then capital was free. So of course there was a lot of deals getting done 'cause money needed to find a a home. Now, even though it's low, even the 10 year treasuries at, you know, 4%, you and I remember back in the day when treasury bonds were seven or 8% right. And we thought that was low, but it is still a competitive capital market. Alternative maybe from the VC particularly, and even the growth PE markets where you have to expect capital's gonna be stuck for several years before you see a return. When you and I were in college, right, like everyone wanted to be a, wanted to grow up to be 18 20, 18 30, when everyone wanted to be a hedge fund manager, right? Correct. When they grew. And, uh, and some of our buddies were, and it's interesting what's happened to that industry. I'm wondering if there's, if there's a parallel, right? Like today, from what I understand, in the hedge fund world, it's really, really hard to raise money and all the money goes to the biggest firms. You know, if you're Steve Cohen, no problem. But everyone else, uh, it, it's almost impossible to get sponsorship. Is is that happening in the VC world as well? Yeah, it is. A lot of capital's going to the biggest firms. I think there's a little bit of a wider distribution than maybe in hedge. Again, because the capital is locked up so much longer. Private equity is largely the same, and we, we have more of a window into growth. Pe these are the sort of smaller deal sizes from private equity, but they're not. Liquid hedge funds tend to be operating in much more liquid environments, right? So in that case, you've got this sort of reverse psychology effect going on where the, the less liquid of a, of an investment tends to create in some ways, almost like less trepidation. So it has happened, but it isn't, I don't think, quite as extreme as it is in the hedge fund. How many investments would you say the biggest firms have? Like in Andreesen? How many? How many companies? F Are they invested in any given time? Hundreds and hundreds. I mean, they have so many different sleeves, so many different practice areas. They have specialty areas. They have a whole FinTech division that's just focusing on FinTech. They have an, obviously, any good VC these days, they have an AI team. Um, so they're pretty aggressive and they've got, I mean, I don't know the number, but I have. No doubt that it's in the hundreds. Your firm berkland. You service hundreds of VC-backed firms. We do, yeah. So you've got a, and so a really big window to see this, this world through. Yeah, and I think what's interesting is it is like a lot of these kinds of sectors, it is. A network effect that happens there. We work with a new VC firm. When we do really well, we put a fractional CFO aboard, you know, the, the fractional CFO thing. The best way to sub that up is basically a VC firm writes a check into a company and they would like an adult in the room. That's the sort of easy way to summarize having a fractional CFO there. So if we do well and we try very hard to do very well, then obviously we're a known quantity to that VC firm, and the next time they have a portfolio company that they want, you know, strong accounting and strong finance, strategic advice, then they call us up. Most of our relationships generate our referrals. That's, um, one of the, the key facets of our business is that. Probably 70 to 80% of our inbound clients are from word of mouth from other VCs, so it is pretty clubby. That said, though, you know, you mentioned Andreessen. We work pretty closely with Andreessen and we are one of many firms that they use. Like it is, it is a, at that level, it is a pretty wide net. Then to also put the other side of the, um, the curve there. There are a lot of smaller firms with maybe four partners and a couple support staff. They have no way the bandwidth to help their clients or their portfolio companies with finance and so. We're a good option for them or people like us. If you see that big of a swath of, of the VC funded world across multiple firms as well, that that's, that, that, that's pretty unique. You, you mentioned ai, right? But buzzword number one that we're gonna work into this interview ai, so. What's happening? What's the appetite for, for, is AI backed companies, are they sucking up all the oxygen in the room? How's it playing out? What do you see happening there? They're definitely sucking up the oxygen in the room. They are, uh, or, or rather, that oxygen, um, effect is beginning to, in my opinion, see, we're beginning to see something that we experienced in another life. Where even companies that are not really AI in the sense of like a chat GPT or a, you know. Gemini are one of these other ones, but they're trying to capitalize on that buzz or trying to work AI into their business any way they can. So even if it's probably maybe just machine learning or maybe it's just some sort of programmatic routine now it's suddenly ai. Right? And, uh, we saw this back in the day with the internet and all these other razzes that we've lived through. The, the difference here. And I'm one of these folks that is usually pretty skeptical of spectic skeptical, thank you. Of anyone you know saying it's different this time. Right? Um, in this case, what I feel is a cardinal difference between the two is. The compressed time, the iterative nature of the true AI startups is what's different. There is not this normal business cycle that we've experienced with other things like take the internet. We had the internet, but internet was gated by bandwidth, right? So it wasn't really gonna go anywhere until bandwidth improved. Computer technology was accessible. There was this sort of downshifting to a more egalitarian internet versus the the folks that could put a T one phone line into their. They're building, they've, AI is coming from the other angle. It started out egalitarian. You can go on to chat GPT and use it for free. And every day it's learning and learning and learning and learning. So it's almost a reverse, the reverse of the internet. Right. So it is to me, a cardinal difference. The, the speed with which these startups are moving. Um, and, and you read a lot about that, but we see it with the startups. We have startups that. Have gone from their seed financing to being acquired by a, you know, meta scaler in eight months. Wow. The intensity is there. The capital is there. Um. Firms are willing to write big checks for just the teams. There've been a couple aqua hires in this space as well, where you just have a team lifted out of another one. And, uh, lots of, lots of money. Lots and lots and lots of money. And an interesting thing about this too, different from back in the day, at least from what we can see, very few people are even talking about going public. There is no. No one is, at least in our, what our, what our view is what we see. That's a distant conversation. No one is really even thinking about IPO. Um, it is all about capturing the brains, capturing the real estate in ai. Is the exit strategy abandoned, or is it, is it, has it just changed completely. It's become strategic versus financial. So, you know, you may have a private equity exit, you may have folks trying to. You know, set something up to be acquired by a KKR or one of these other really, really large PE firms. But by and large, I think many of the folks that we work with have their sites set on being bought by an industry strategic. So someone who's in that industry, a dominator perhaps in that industry who isn't going to innovate as quickly in AI as a startup is, and instead of trying to build it out, they're just kind of tuck it in. Um, there was a crypto, there's a crypto, uh, parallel here too, a lot in the early days of crypto. A lot of companies were saying very much the same thing, and in many cases it's exactly what's happened. Well, and let's face it right. Being public sucks, right? It's just miserable. Being public is hard. I ran a public company years ago, as you know, and, and I, I, I totally believe in the saying that when you run a public company, you go from spending 80 time, 80% of your time running your business to 80% of your time talking to investors. Um, the, the focus is off. Everything has changed. Nothing is what it used to be. It's very. Different. Different. That's a, that's a very politically correct. Political diplomatic. You're very diplomatic. Is AI disrupting the venture capital industry itself? I think what it's doing, um, partially yes. Operationally. Sure. Uh. Companies are able to do a lot of due diligence faster. They're able to crunch a lot more numbers quicker. They used to have to maybe hire in MBAs and, you know, uh, junior analysts to run numbers and spreadsheets and all of that, and they can do an awful lot of that now programmatically, or using age agentic routines, right? They can have a little sort of, um. Labor arbitrage there where they don't need as many costs on the gp. They can do a lot of the same work, run a lot more companies through the funnel. But where I think the real vc, uh, use for AI is in the portfolios. So there is really not many. Companies or startups that we see that if they are not an AI company themselves will be using it or will be disintermediated by it in the near future. Um, and you know, Andreessen Horowitz, they, they had a saying several years ago that. Every, this is back when FinTech was all the rage. Every company is a FinTech. They just didn't necessarily know it yet. Right? But every company was gonna be using Stripe or using QuickBooks online for a lot of their work. You know, there everybody was a FinTech. They were gonna clear through a Neobank, right? Same thing here. It, you are gonna be in one of these three camps. Either you are an AI company, you are using AI to dramatically change the way your company does what it does, or you're gonna be one of these folks that gets disintermediated by the people who are, that's it, right? So it's factoring into how VCs are making portfolio decisions. 'cause remember, every time you think about a VC, um, structure, you have to think that the horizon is. Seven to 10 years. That's the outcome, right? These are not trades, these are investments, and they really want to make sure that they're putting their money in the right place. What kind of impact do you see a company like NVIDIA having on the space? Right? I mean, via, Nvidia has its own venture capital arm. They deploy. Billions and billions and billions of dots that they did over a hundred deals already this year. Um, like are, are they taking deals away or are they careful to sort of. You know, just be one of the guys at the table. How does that look? They are similar to, and this can change. Okay. 'cause we are still early in all out of this, so I don't wanna, um, this is not necessarily going to be static, but they're, they're taking a similar tack that a lot of the industry folks do, like in Intel or Google Ventures or any other, they do end up having a lot of excess cash. They do end up having a lot of use for these innovations. Right. But what we've learned, what I've seen, and it's just me, right? But what I've seen is a lot of times the industry VC firms have a bit of a soda straw view of where that capital can go, what it can do, and who should they be talking to. And it makes perfect sense. They're coming from a very particular point of view on the industry. Take Nvidia, there are hardware, their chips, they're all over this, right? But that's only one facet of the overall. Revolution if you, if you will, um, using crypto again. You know, back in the day we had a lot of finance firms that were starting up venture arms to go out and invest into crypto. Well, turns out most of them were doing what they were trying to figure out a way to make crypto do what they were already doing. Right? Say MasterCard, it's a good example, right? So the risk is potentially that, well, it's not a risk. The, the factor that may play a role there is that they don't have as wide of an aperture. You know, in terms of what deals they're gonna look at, where they're gonna play and where they're not gonna play. Um, you know, you, you have a company like an Nvidia, it's unlikely that they're going to go now and invest in a firm that uses AI for sound effect optimization for movie studios, right? I mean, they might, I'm not saying they won't do that, but their worldview is, is probably not starting out there. You brought up crypto a few times. You earlier than anyone else that I know probably 10 years ago. We have proof like we have you on video. At Malin Economics saying, get your Bitcoins. That's right. I think Bitcoin was like 200 bucks a coin. 300 bucks, something like that. I mean, coulda, shoulda would've. I'm still working today, Steve, 'cause I didn't listen to you. Um, well, I'm one of these folks that if I'd kept all of crypto, I had at one point you and I probably also know, or I'd be calling you from my island, you know? But, um, we are also of a generation. When you got 3, 4, 5, 6 times your money, you tended to take it. Yes. Right? Yes. Um, so yes. A lot of it's all right. The therapy will help both. Well, you know what? Our generation, gen X was scarred. From, yeah, that's right. From, from, from the great financial crisis. And, and prior to that, just as we were coming into the workforce, right? Was the tech, the, the.com bubble. the.com crash. Yeah. So yeah, you, you, you're steering a five or six bagger in the face. Uh, you take it, you tended to take it. Yeah. Especially at the age we were at. Yeah. Crypto has been obviously a huge rollercoaster and there are still significant corners of that market, which, which need, you know. Advancement or I guess, um, iteration, maybe, uh, maturation. Um, but it's definitely here to stay. It's been shown, uh, resiliency. It's, it's getting its teeth kicked in right now at the moment. But I'm pretty confident that that will be a, a phase, like all of this tends to be one of the things, 'cause we were talking about macro earlier. One of the things that I think is so fascinating with crypto is it was born out of that financial crisis. It was born out of a. Desire to create something that was immune to macro swings and, you know, centralized finance banks going outta business and all that. I mean, that's what it was created to avoid. And now we've, we've advanced quote to a place where. Macroeconomics is impacting crypto probably more than anything else, right? It's become an asset class. Institutional investors are all over it now. People are trying to use it to hedge things. It's still not liquid enough to really do that, but people are trying to do that anyway, super volatile. So in a way it's become the thing it was trying to replace. Right. Um, which is fascinating to me. Has it evolved in a way that you feel it's starting to touch? Everyday life for, for, for a non crypto bro, you know, so to speak. Yes. But I think that that adoption has been slower than a lot of people thought. Most people have been touched by it because they've tried to speculate in it. That's, I think probably if we could take a very unscientific poll, that would be what most interaction has been. Um, for a while there was a real push in, in startup land, which Berkland was working on to. Utilize blockchain technology to do something in the back office faster and more accurately. Right. Which to me, back in the day when we were on the, uh, back in the original crypto interview, that was always the use case I thought was going to happen. I never really believed that people were gonna use Bitcoin to buy coffee at Starbucks. Right. But that Starbucks might clear that cash. Instantaneously using a blockchain of some kind. I felt like that was a fairly reasonable use case. That has taken longer than I think anybody thought. Um, you have a lot of very robust blockchains out there. You have a lot of merely, you know, much more capable ones than the Bitcoin blockchain. But they, and they do exist in the back end of an awful lot of companies that are trying to use blockchain to do, you know, um, candidate screening and, and processing payments. Right. So how is it touching people? I think it's, like I said, it's taken longer than we thought, but where it is beginning to become apparent is, you know, if you're using an a TS, if you're trying to apply for a job, if you are, you know, using a, uh. Like a gift card to buy something online. There is a chance at least that the payment processor that firm or that site is using is going into a blockchain and then back out again to process the cash. Right. Um, some of the sort of nirvana things that I thought would've happened by now is, you know, like equities, you know, securities trading still settles. Very slowly relative to what the blockchain could be or a blockchain could be doing for them. Um, and it's a mix of things. It's a lot of entrenched interests. It's a lot of cost that's keeping a lot of people's houses warm in the winter. You know, I just, I don't think there's been the firepower there. I literally just wrote down interests question mark, because, you know, you think, you look at things like title insurance, right? Like. Why does that industry still exist? That should, that should all just happen instantaneously on a, on a blockchain should be an immutable ledger. You can't hack it. You can't fake it. It's either there or it's not. Yeah. Um, and, you know, look, crypto also, it, it's the best and the worst of people. Right. Because it's also still sh struggling with this. Reputation of illicit money and, you know, manipulation, fraud, all sorts of stuff. And we struggled with that. Even at Berkland. We had founders coming to us and, you know, not wanting to use their real name on their tax return. And we would have to be like, yeah, that doesn't really work here. You know? Um, and so, yeah. Uh, you wouldn't believe some of the conversations. That has obviously not helped, um, in any way. You know, the adoption of what could have and may still be a very. Capable leg of the stool, just functionally leave all the speculation out of it. Just getting things done more accurately, more quickly. Um, is is still the promise there? I think so. What do you think is the next big thing? You know, you're, you're, you're at the cutting edge, literally the bleeding edge of technology development is. Is it quantum computing? Is it humanoid robots? Like what, what do you see coming down the pike that, uh, maybe isn't, isn't in the general conversation yet? You mentioned quantum. I think that's an interesting area because now at least since I've been paying attention to it, there is actually something that could use the firepower, right? Um, you know, we, we are going to have. A power problem with AI long before we have an uh, you know, terminator type scenario where the robots are shooting us, right? We are not going to be able to generate the power necessary to put all this stuff into motion. Right? So that's where I think some of this needs. Real thought and real investment and quantum computing offers, if I understand it, which I don't profess to really being able to do, but if I understand it right, um, almost an exponential step up in computing power, right? Which is we will need that if we even hope to do what we want to do with ai given the power constraints we have. Um, so actually I think before AI really becomes a. It, you know, ubiquitous, sort of like the internet has become, uh, we're gonna have to solve that power problem and quantum might be one of the ways to do it. It's the equivalent of the T one line that you mentioned with, uh, you know, the internet. And I think it's the only way that you're gonna get the real. You know, curve steepening, um, because we will have capacity problems. I mean, we're already talking to firms that are trying to, you know, get into the micro nuclear reactor business. There's several already out there doing this. DOD is looking at it, right, because. The there, you know, chat, GPT, you know, tell me the best way to say happy birthday in my, to my mother, that use of chat GPT is not even close to the real action, right? The DOD, the Chinese, the, you know, there are a lot of geopolitical folks that are looking at rivals really, that are looking at this too, all of whom need power. Um, and interestingly, you need it to be. Uh, secure power. Right. And you know, anyone who's looked at the US power grid knows that that's kind of not there yet. So DOD looking at some of these micro reacts and even commercial firms, Amazon, Microsoft, looking at captive micro reacts makes sense when you realize what they're trying to run. When you say micro reacts, are you, are you going one notch below small modular reactors or are we talking about the same thing? No, I think we're saying the same thing. The small modular ones? Yeah. Yeah. Um. And I may not get this right. So for everybody who's gonna look this up after I say it, I apologize. But I think I saw some statistic fly by that. I think I read that the AI power farms, the AI firms, um, or the server farms in, I think it was Wyoming. Already account for more power than the people who live in the state of Wyoming. That's a problem that I have to think is going to get fixed at some point, right? I mean, go Google's shot across the bow recently that, you know, AR chips use a lot less power than NVIDIA's. Uh, I mean, I. That when your problem is that big, someone's going to fix it. Right, right. And it probably won't be one thing, like you said, it could be a combo of the chip design, it could be the, the power, it could be quantum computing that gives us a lot more bang for our bucket. It may be all three, you know, but I, I do think that one of the everyone's, you know, worried, yeah, it's gonna take my job and we're all gonna be, you know, in the matrix in two years. I, I think we're gonna have to solve this stuff first before we can get there. We will get there rather. I agree. At some point people are going to rise up and say, um, my electrical's gone up 10 x and uh, I could care less about ai. Um, I just lost my job and I'm angry. Right. Like, that's, that's gonna come if we don't figure this out. That is actually, when you look at the societal impacts of innovations like this, we've seen versions of this movie before and that's also in the cards if we aren't careful. Right. Um, 'cause there's an awful lot of middle tier. Executive talent that is going to have a problem. Um, and you know, we talk a lot about this internally. If you are not, if you are in a service industry and you say Bill by the hour, or you are in some sort of like, you know, deliverable type industry as a professional service and you are not on your front foot with this stuff, you are in trouble. So you don't want to be the, the horse and buggy maker watching the cars drive by. Right. So it, and, and, and in a way for, for the economy, this is an important thing too, since we're talking macro, every one of these innovations, and you can count even things like email in them, right? Because we both remember the day when, you know, you didn't have that, it wasn't a thing. I do remember that sadly. Um, is the gain, and this is actually really important, the gain in productivity. That will start to appear if we know if we're measuring it right. And the, you know, the bl s is open and all that stuff. Um, the, the gain in pro productivity that AI offers is, is off the charts and that will have implementations, implications for monetary policy, for tax policy, for social programs, social nets, all of that. Right. Um. I'll give you an example. In our world, we do a lot of pivot tables in, in Excel and in Google Sheets, right? And the AI that Google has now embedded in sheets. I was playing with it a couple weeks ago, and, uh, it could, it created a pivot table that would've, and I'm pretty good in, in that domain. Um, it did a pivot table for me in 10 seconds. That would've probably taken me an hour or two. To actually get correct, right, to remember the formulas, to put 'em in, right to, is it double quotes, is it single quotes? Is there a space there? Right. That, that is a big deal, and so I'm hopeful. The optimist side of this is the productivity gains will be massive. And every time that has happened in the past, all the way back to the steam engine, it has related in a better, bigger, higher tide that everyone benefits from the pie gets bigger. So Correct, correct. You move, that's the circle outward a little bit more. Right. And we have a lot more time to think about all these innovations, like how do we get the cost of the chips down? So do you think the United States still has an edge? In all of this, you know, is, is Silicon Valley still the secret weapon of the us You know, this, this ingenuity engine and this, this almost infinite bucket of money that seems to be able to fund new ideas, or do we still have that edge? Or, or, or, or is there, are there models out there that are threatening? The US is dominance. I'll answer the first one with a bit of an anecdote. I am never more encouraged and my faith in the country's future is never more restored than when I'm working with the startups that we have as clients at Brooklyn. These are super smart folks. They're working on really cool stuff. They are changing the world. They're trying to create a better. World for themselves and all of us every day. So I am usually, that's the best part of the job is actually hearing and and dealing with that kind of energy and optimism and integrity and all of that is really, really, really encouraging. And what I think we risk the most is that the capital and things like AI allow it. Allow this, this ingenuity to be emulated quickly and easily. You know, you take a country like China, which I know is a topic all the time, right? They, they, they actually copy really well. Yes. So what we see is, you know, before it used to take 'em four or five years to copy something really, well, now it might take 'em six months to copy it really well. Right? And so I think the ingenuity here, the innovation here, the capital infrastructure and, and this is an important point, the efficiency with which we insist that capital is utilized is also a competitive advantage for the United States, right. Um. Is there, I am firmly convinced in that I would never, ever, ever bet against that. And the, the distance or the gap between us and the next guy is getting smaller because of the ability for other countries to throw money at things and emulate. What they're seeing being done here. Yeah. And it's not just China, right? I mean, you're seeing, uh, the Middle East getting in on, on AI in a big way. Um, you know, in, in any country that produces more engineers than attorneys, uh, probably has, you know, and I say this as a father of an attorney, but, but like, you know, the reality is we've got a lot of them. Um, uh, we probably need more engineers. I think we should be all careful too, not to discount the, the systems in which these. These things are swimming, right? So when you're flying an airplane, you're going down and you, you are a product of the air around the plane, right? For good or for worse, it's really nice out. It's great if it's not, it's bumpy, but whatever. You are being impacted by the ecosystem around you, and that plays a role in what you just said. Middle East is a good example, right? These are places where they got all the money in the world, but they don't have an entrepreneurial culture. Yet, right? They have a very top down. China's the same way, very top down, very command line, almost environment, right? Still that does not generate the kind of, I use that word again, velocity like we have in the states. As you recall, I lived overseas a long, long time, right? And I lived in Germany and I tried very hard to start three different companies there. And when I was there, I realized that you can start a company in Germany any day of the week you want, as long as you had $50,000 in capital, you had a notary sign off on your formation documents, you had all this work done. You had to have this, this many employees and this much there you had to have an address, right? All of these things were in the way of you starting a company. But we did it and then we put an ad in the newspaper that said our prices were cheaper than those guys. And those guys at the time were Deutsche Bank. And the next morning we were sued for unfair competition by Deutsche Bank because we were a three man startup, literally using a computer on a door. That culture is, that is what I mean when I'm saying that the ecosystem matters. You can have the most environmentally. Conducive or, uh, thing in the world and a good idea will still get traction if you don't have a conducive environment. The most brilliant entrepreneur on the planet will probably stay with Siemens and give his idea to the, you know, to the company they work for versus start their own. And that I think, plays a big role in places like China, in the Middle East, even in Europe to some extent still. Yeah, I have lots of European friends who. Are trying to come here for that very reason. It's hard. I lived it. It is very hard to start a company over there and it's hard to even keep it going. It's hard to be a consumer. There are all these things in the way now. The flip side of that is people say, well, yes, but it's a very socially aware area and the healthcare is good, and, and all of that is true. But when you look at it just through the soda straw of entrepreneurialism, entrepreneurialism, and you know, the, the velocity of startup creation, there's no place on the planet like America. Not yet. Okay, so let's wrap this up. Couple of advice points. What is your advice for a founder? Today given, given the backdrop that we just covered over the last 40 minutes, what, what would you say to a founder looking to raise money right now? Start early. Don't be discouraged. You may need to knock on 200 doors, but don't be discouraged. Keep. Going, just don't stop. There is money out there. The last thing I would say is make sure your story is tight. Make sure you're realistic in what valuation you think you're going to get. Your idea may be the most important thing in the world to you, and it may be the thing that changes the world, but no one knows that's really gonna happen yet except you. So don't expect the world to give you a hundred million dollars valuation when it's you and your best friend. Right? Be realistic in what the VC is going to want in return. For their capital. And like I said, be, have your act together. Don't, don't try to bro it. You know, sometimes we have founders that are trying to bro it and they're trying to be cool and they don't wanna seem like that guy. Well, you know what? VCs care a lot about how put together you are and whether or not you can actually put your vision into reality. So be buttoned up, have answers to questions, think about it. Don't just go and, oh look man, I really look to raise some money, man. You know? Um. You know, some of the guys can get away with that, but even the ones, I'll say this too, even the ones that profess to be super chill, in my experience with those founders, you scrape that away a little bit and those are some pretty wired down, pretty intense, pretty buttoned up, very, very smart people, right? So the three things right. Be realistic in how long it is taking you to raise money in this environment. You are probably not gonna start from scratch and raise 10 million bucks in a month. It's not gonna happen, right? You're gonna have to knock on a lot of doors and don't be discouraged then have your act together. Okay. Make sure you've got answers to questions and have thought through your thing. And then, you know, like I said, I think the, the final thing is just be realistic in what you're asking for. Doesn't mean give away the store. It just means, you know, VC's not gonna write you a check for 5 million bucks and walk away with 2% of the company. It's not gonna happen. And some founders spin their wheels a long time before they get to the realization that, you know, capital means it's a ticket to the table. Yeah. You're selling part of your company. That's right. And um, you know, and I say all that too with. With the knowledge that it can be discouraging for founders to have to go into that environment. So, you know, utilize the people around you. Utilize friends, utilize founders that you know who have raised money. Like talk to them, find out who they knew. Don't be afraid to ask for help and ask for connections. 'cause it, it does work. What about the other side of the table? Or may, maybe not even, not the sophisticated VC side, but what's your advice for somebody who's. Always wanted to invest in VC or has a chance to invest in a fund, you know, as a as maybe just as an individual investor, what, what would you say to them? What should they know? You have to be patient. Right. So VC is a patient strategy. You, it is not a liquid strategy. You cannot use money that you're gonna need, right? But it can be very rewarding. You can be part of something that grows to become a big deal. The other piece of advice is don't put all of your eggs in one basket. Don't make one investment. Make. Or if it's into a fund, make sure that fund is making many investments because the hit rate on these is not very high. You know the ones that do hit might return 50 x your money, but there's gonna be nine outta 10 that did. So you need to diversify and make sure that you're using capital that you don't need. Right. Then the other thing I'll say is do try to do it if you can through, um, a vehicle, you know, some kind of pool, um, whether it's, you know, through a standing VC firm or even some accredited investors create an angel pool and they form an LLC for that. Right? And the reason why that's important is later on when the, the company is doing successive VC rounds. The, the, the folks that are gonna write those larger checks down the road after the company's growing and has got revenue and 50 employees and all that, they, they don't really love lots and lots of individuals on the cap table. They would prefer four or five entities. It's much easy and it's purely out of self-interest. They're not, they don't care about anybody, right. They just, they want make it easier to raise successive rounds of capital. So. What they really want is a simple cap table, four or five entities on it with which they can deal when they might need to cram down or they might need to do a follow on or some other round that requires, you know, consensus amongst the group. Alright, great advice, Stephen. Lord Berkland Associates. Good to see you, my friend. Let's get together in person soon. You too, man. Thanks for having me Aboard. Before you go, please take a minute to subscribe to the channel and leave us a comment. I'm Ed. See you next week.
Why US Capitalism Crushes Europe and China | Steve Lord
Summary
Everyone worries AI will take their job. Steve Lord thinks we’ll hit a bigger wall first: power. Lord is COO of Burkland Associates, …Transcript
We have startups that have gone from their seed financing to being acquired in eight months. No one is really even thinking about an IPO. Hi, I am Ed D'Agostino, and today we take a look at how AI is upending the world of venture capital. My guest is Steven Lord, chief Operating Officer at Burkland Associates, providing fractional CFO services. To hundreds of VC-backed firms. If you wanna know more about the world of venture capital, its impact on our daily lives and where capital is flowing today. This episode is for you. Stick around to the end where Steve gives his best advice for company founders and for anyone thinking about making a venture capital investment. Thanks for joining us here this week at Global Macro Update. Steve, Lord, old friend of mine. It's great to see you. Thanks for taking some, uh, some time outta your busy venture capital packed day. Absolutely. I'm glad to be here. Let's start with that, right? What is the state of venture capital today? Is it is, is it raining money? Are deals still getting done? Uh, where are we at? So it's not raining money deals still are getting done. Uh, but I would think if there's a way to characterize it, it's a little bit more of the same. Uh, we've been in a bit of a pattern for the last couple years really, where, uh, deals are harder to get done unless you have AI in your business plan somewhere. Uh. Valuations are pressed. You know, founders have a harder time raising successive rounds. Uh, existing portfolio companies are under a profitability pressure, which is different than it was maybe pre pandemic. Uh, and there just seems to be a general, I don't know, lack of velocities, perhaps the right way to put it. Um, startups used to be able to go from, you know, seed to series A to series B, maybe a b plus, maybe a little venture debt in there along the way. All within 24 or 36 months. And that timeline has stretched and it remains stretched, uh, which is why a lot of these startups are really struggling to, to bridge gaps from one funding ground to the other. Why is that? Is, is it cyclical or is it, uh, a reflection of the market? Tightening up the, the, the public market tightening up a little bit around tech. There's not one particular answer to that in my view. I think there's a lot of things contributing to it. The IPO market, being a little quiet is obviously, or a lot quiet is, is a big factor in that. There just also isn't the exit velocity that a lot of these companies, um, would've maybe had in prior eras. There is definitely a cyclical element to it. Um, when you actually chart it out, VC and interest rates are fairly well correlated, right? So we did have a bit of a spike in rates, relatively speaking, and everybody hearkens back to the good old days of 20 14, 15, 16. And say that was this heyday of vc. But what they forget was we had zero interest rates, then capital was free. So of course there was a lot of deals getting done 'cause money needed to find a a home. Now, even though it's low, even the 10 year treasuries at, you know, 4%, you and I remember back in the day when treasury bonds were seven or 8% right. And we thought that was low, but it is still a competitive capital market. Alternative maybe from the VC particularly, and even the growth PE markets where you have to expect capital's gonna be stuck for several years before you see a return. When you and I were in college, right, like everyone wanted to be a, wanted to grow up to be 18 20, 18 30, when everyone wanted to be a hedge fund manager, right? Correct. When they grew. And, uh, and some of our buddies were, and it's interesting what's happened to that industry. I'm wondering if there's, if there's a parallel, right? Like today, from what I understand, in the hedge fund world, it's really, really hard to raise money and all the money goes to the biggest firms. You know, if you're Steve Cohen, no problem. But everyone else, uh, it, it's almost impossible to get sponsorship. Is is that happening in the VC world as well? Yeah, it is. A lot of capital's going to the biggest firms. I think there's a little bit of a wider distribution than maybe in hedge. Again, because the capital is locked up so much longer. Private equity is largely the same, and we, we have more of a window into growth. Pe these are the sort of smaller deal sizes from private equity, but they're not. Liquid hedge funds tend to be operating in much more liquid environments, right? So in that case, you've got this sort of reverse psychology effect going on where the, the less liquid of a, of an investment tends to create in some ways, almost like less trepidation. So it has happened, but it isn't, I don't think, quite as extreme as it is in the hedge fund. How many investments would you say the biggest firms have? Like in Andreesen? How many? How many companies? F Are they invested in any given time? Hundreds and hundreds. I mean, they have so many different sleeves, so many different practice areas. They have specialty areas. They have a whole FinTech division that's just focusing on FinTech. They have an, obviously, any good VC these days, they have an AI team. Um, so they're pretty aggressive and they've got, I mean, I don't know the number, but I have. No doubt that it's in the hundreds. Your firm berkland. You service hundreds of VC-backed firms. We do, yeah. So you've got a, and so a really big window to see this, this world through. Yeah, and I think what's interesting is it is like a lot of these kinds of sectors, it is. A network effect that happens there. We work with a new VC firm. When we do really well, we put a fractional CFO aboard, you know, the, the fractional CFO thing. The best way to sub that up is basically a VC firm writes a check into a company and they would like an adult in the room. That's the sort of easy way to summarize having a fractional CFO there. So if we do well and we try very hard to do very well, then obviously we're a known quantity to that VC firm, and the next time they have a portfolio company that they want, you know, strong accounting and strong finance, strategic advice, then they call us up. Most of our relationships generate our referrals. That's, um, one of the, the key facets of our business is that. Probably 70 to 80% of our inbound clients are from word of mouth from other VCs, so it is pretty clubby. That said, though, you know, you mentioned Andreessen. We work pretty closely with Andreessen and we are one of many firms that they use. Like it is, it is a, at that level, it is a pretty wide net. Then to also put the other side of the, um, the curve there. There are a lot of smaller firms with maybe four partners and a couple support staff. They have no way the bandwidth to help their clients or their portfolio companies with finance and so. We're a good option for them or people like us. If you see that big of a swath of, of the VC funded world across multiple firms as well, that that's, that, that, that's pretty unique. You, you mentioned ai, right? But buzzword number one that we're gonna work into this interview ai, so. What's happening? What's the appetite for, for, is AI backed companies, are they sucking up all the oxygen in the room? How's it playing out? What do you see happening there? They're definitely sucking up the oxygen in the room. They are, uh, or, or rather, that oxygen, um, effect is beginning to, in my opinion, see, we're beginning to see something that we experienced in another life. Where even companies that are not really AI in the sense of like a chat GPT or a, you know. Gemini are one of these other ones, but they're trying to capitalize on that buzz or trying to work AI into their business any way they can. So even if it's probably maybe just machine learning or maybe it's just some sort of programmatic routine now it's suddenly ai. Right? And, uh, we saw this back in the day with the internet and all these other razzes that we've lived through. The, the difference here. And I'm one of these folks that is usually pretty skeptical of spectic skeptical, thank you. Of anyone you know saying it's different this time. Right? Um, in this case, what I feel is a cardinal difference between the two is. The compressed time, the iterative nature of the true AI startups is what's different. There is not this normal business cycle that we've experienced with other things like take the internet. We had the internet, but internet was gated by bandwidth, right? So it wasn't really gonna go anywhere until bandwidth improved. Computer technology was accessible. There was this sort of downshifting to a more egalitarian internet versus the the folks that could put a T one phone line into their. They're building, they've, AI is coming from the other angle. It started out egalitarian. You can go on to chat GPT and use it for free. And every day it's learning and learning and learning and learning. So it's almost a reverse, the reverse of the internet. Right. So it is to me, a cardinal difference. The, the speed with which these startups are moving. Um, and, and you read a lot about that, but we see it with the startups. We have startups that. Have gone from their seed financing to being acquired by a, you know, meta scaler in eight months. Wow. The intensity is there. The capital is there. Um. Firms are willing to write big checks for just the teams. There've been a couple aqua hires in this space as well, where you just have a team lifted out of another one. And, uh, lots of, lots of money. Lots and lots and lots of money. And an interesting thing about this too, different from back in the day, at least from what we can see, very few people are even talking about going public. There is no. No one is, at least in our, what our, what our view is what we see. That's a distant conversation. No one is really even thinking about IPO. Um, it is all about capturing the brains, capturing the real estate in ai. Is the exit strategy abandoned, or is it, is it, has it just changed completely. It's become strategic versus financial. So, you know, you may have a private equity exit, you may have folks trying to. You know, set something up to be acquired by a KKR or one of these other really, really large PE firms. But by and large, I think many of the folks that we work with have their sites set on being bought by an industry strategic. So someone who's in that industry, a dominator perhaps in that industry who isn't going to innovate as quickly in AI as a startup is, and instead of trying to build it out, they're just kind of tuck it in. Um, there was a crypto, there's a crypto, uh, parallel here too, a lot in the early days of crypto. A lot of companies were saying very much the same thing, and in many cases it's exactly what's happened. Well, and let's face it right. Being public sucks, right? It's just miserable. Being public is hard. I ran a public company years ago, as you know, and, and I, I, I totally believe in the saying that when you run a public company, you go from spending 80 time, 80% of your time running your business to 80% of your time talking to investors. Um, the, the focus is off. Everything has changed. Nothing is what it used to be. It's very. Different. Different. That's a, that's a very politically correct. Political diplomatic. You're very diplomatic. Is AI disrupting the venture capital industry itself? I think what it's doing, um, partially yes. Operationally. Sure. Uh. Companies are able to do a lot of due diligence faster. They're able to crunch a lot more numbers quicker. They used to have to maybe hire in MBAs and, you know, uh, junior analysts to run numbers and spreadsheets and all of that, and they can do an awful lot of that now programmatically, or using age agentic routines, right? They can have a little sort of, um. Labor arbitrage there where they don't need as many costs on the gp. They can do a lot of the same work, run a lot more companies through the funnel. But where I think the real vc, uh, use for AI is in the portfolios. So there is really not many. Companies or startups that we see that if they are not an AI company themselves will be using it or will be disintermediated by it in the near future. Um, and you know, Andreessen Horowitz, they, they had a saying several years ago that. Every, this is back when FinTech was all the rage. Every company is a FinTech. They just didn't necessarily know it yet. Right? But every company was gonna be using Stripe or using QuickBooks online for a lot of their work. You know, there everybody was a FinTech. They were gonna clear through a Neobank, right? Same thing here. It, you are gonna be in one of these three camps. Either you are an AI company, you are using AI to dramatically change the way your company does what it does, or you're gonna be one of these folks that gets disintermediated by the people who are, that's it, right? So it's factoring into how VCs are making portfolio decisions. 'cause remember, every time you think about a VC, um, structure, you have to think that the horizon is. Seven to 10 years. That's the outcome, right? These are not trades, these are investments, and they really want to make sure that they're putting their money in the right place. What kind of impact do you see a company like NVIDIA having on the space? Right? I mean, via, Nvidia has its own venture capital arm. They deploy. Billions and billions and billions of dots that they did over a hundred deals already this year. Um, like are, are they taking deals away or are they careful to sort of. You know, just be one of the guys at the table. How does that look? They are similar to, and this can change. Okay. 'cause we are still early in all out of this, so I don't wanna, um, this is not necessarily going to be static, but they're, they're taking a similar tack that a lot of the industry folks do, like in Intel or Google Ventures or any other, they do end up having a lot of excess cash. They do end up having a lot of use for these innovations. Right. But what we've learned, what I've seen, and it's just me, right? But what I've seen is a lot of times the industry VC firms have a bit of a soda straw view of where that capital can go, what it can do, and who should they be talking to. And it makes perfect sense. They're coming from a very particular point of view on the industry. Take Nvidia, there are hardware, their chips, they're all over this, right? But that's only one facet of the overall. Revolution if you, if you will, um, using crypto again. You know, back in the day we had a lot of finance firms that were starting up venture arms to go out and invest into crypto. Well, turns out most of them were doing what they were trying to figure out a way to make crypto do what they were already doing. Right? Say MasterCard, it's a good example, right? So the risk is potentially that, well, it's not a risk. The, the factor that may play a role there is that they don't have as wide of an aperture. You know, in terms of what deals they're gonna look at, where they're gonna play and where they're not gonna play. Um, you know, you, you have a company like an Nvidia, it's unlikely that they're going to go now and invest in a firm that uses AI for sound effect optimization for movie studios, right? I mean, they might, I'm not saying they won't do that, but their worldview is, is probably not starting out there. You brought up crypto a few times. You earlier than anyone else that I know probably 10 years ago. We have proof like we have you on video. At Malin Economics saying, get your Bitcoins. That's right. I think Bitcoin was like 200 bucks a coin. 300 bucks, something like that. I mean, coulda, shoulda would've. I'm still working today, Steve, 'cause I didn't listen to you. Um, well, I'm one of these folks that if I'd kept all of crypto, I had at one point you and I probably also know, or I'd be calling you from my island, you know? But, um, we are also of a generation. When you got 3, 4, 5, 6 times your money, you tended to take it. Yes. Right? Yes. Um, so yes. A lot of it's all right. The therapy will help both. Well, you know what? Our generation, gen X was scarred. From, yeah, that's right. From, from, from the great financial crisis. And, and prior to that, just as we were coming into the workforce, right? Was the tech, the, the.com bubble. the.com crash. Yeah. So yeah, you, you, you're steering a five or six bagger in the face. Uh, you take it, you tended to take it. Yeah. Especially at the age we were at. Yeah. Crypto has been obviously a huge rollercoaster and there are still significant corners of that market, which, which need, you know. Advancement or I guess, um, iteration, maybe, uh, maturation. Um, but it's definitely here to stay. It's been shown, uh, resiliency. It's, it's getting its teeth kicked in right now at the moment. But I'm pretty confident that that will be a, a phase, like all of this tends to be one of the things, 'cause we were talking about macro earlier. One of the things that I think is so fascinating with crypto is it was born out of that financial crisis. It was born out of a. Desire to create something that was immune to macro swings and, you know, centralized finance banks going outta business and all that. I mean, that's what it was created to avoid. And now we've, we've advanced quote to a place where. Macroeconomics is impacting crypto probably more than anything else, right? It's become an asset class. Institutional investors are all over it now. People are trying to use it to hedge things. It's still not liquid enough to really do that, but people are trying to do that anyway, super volatile. So in a way it's become the thing it was trying to replace. Right. Um, which is fascinating to me. Has it evolved in a way that you feel it's starting to touch? Everyday life for, for, for a non crypto bro, you know, so to speak. Yes. But I think that that adoption has been slower than a lot of people thought. Most people have been touched by it because they've tried to speculate in it. That's, I think probably if we could take a very unscientific poll, that would be what most interaction has been. Um, for a while there was a real push in, in startup land, which Berkland was working on to. Utilize blockchain technology to do something in the back office faster and more accurately. Right. Which to me, back in the day when we were on the, uh, back in the original crypto interview, that was always the use case I thought was going to happen. I never really believed that people were gonna use Bitcoin to buy coffee at Starbucks. Right. But that Starbucks might clear that cash. Instantaneously using a blockchain of some kind. I felt like that was a fairly reasonable use case. That has taken longer than I think anybody thought. Um, you have a lot of very robust blockchains out there. You have a lot of merely, you know, much more capable ones than the Bitcoin blockchain. But they, and they do exist in the back end of an awful lot of companies that are trying to use blockchain to do, you know, um, candidate screening and, and processing payments. Right. So how is it touching people? I think it's, like I said, it's taken longer than we thought, but where it is beginning to become apparent is, you know, if you're using an a TS, if you're trying to apply for a job, if you are, you know, using a, uh. Like a gift card to buy something online. There is a chance at least that the payment processor that firm or that site is using is going into a blockchain and then back out again to process the cash. Right. Um, some of the sort of nirvana things that I thought would've happened by now is, you know, like equities, you know, securities trading still settles. Very slowly relative to what the blockchain could be or a blockchain could be doing for them. Um, and it's a mix of things. It's a lot of entrenched interests. It's a lot of cost that's keeping a lot of people's houses warm in the winter. You know, I just, I don't think there's been the firepower there. I literally just wrote down interests question mark, because, you know, you think, you look at things like title insurance, right? Like. Why does that industry still exist? That should, that should all just happen instantaneously on a, on a blockchain should be an immutable ledger. You can't hack it. You can't fake it. It's either there or it's not. Yeah. Um, and, you know, look, crypto also, it, it's the best and the worst of people. Right. Because it's also still sh struggling with this. Reputation of illicit money and, you know, manipulation, fraud, all sorts of stuff. And we struggled with that. Even at Berkland. We had founders coming to us and, you know, not wanting to use their real name on their tax return. And we would have to be like, yeah, that doesn't really work here. You know? Um, and so, yeah. Uh, you wouldn't believe some of the conversations. That has obviously not helped, um, in any way. You know, the adoption of what could have and may still be a very. Capable leg of the stool, just functionally leave all the speculation out of it. Just getting things done more accurately, more quickly. Um, is is still the promise there? I think so. What do you think is the next big thing? You know, you're, you're, you're at the cutting edge, literally the bleeding edge of technology development is. Is it quantum computing? Is it humanoid robots? Like what, what do you see coming down the pike that, uh, maybe isn't, isn't in the general conversation yet? You mentioned quantum. I think that's an interesting area because now at least since I've been paying attention to it, there is actually something that could use the firepower, right? Um, you know, we, we are going to have. A power problem with AI long before we have an uh, you know, terminator type scenario where the robots are shooting us, right? We are not going to be able to generate the power necessary to put all this stuff into motion. Right? So that's where I think some of this needs. Real thought and real investment and quantum computing offers, if I understand it, which I don't profess to really being able to do, but if I understand it right, um, almost an exponential step up in computing power, right? Which is we will need that if we even hope to do what we want to do with ai given the power constraints we have. Um, so actually I think before AI really becomes a. It, you know, ubiquitous, sort of like the internet has become, uh, we're gonna have to solve that power problem and quantum might be one of the ways to do it. It's the equivalent of the T one line that you mentioned with, uh, you know, the internet. And I think it's the only way that you're gonna get the real. You know, curve steepening, um, because we will have capacity problems. I mean, we're already talking to firms that are trying to, you know, get into the micro nuclear reactor business. There's several already out there doing this. DOD is looking at it, right, because. The there, you know, chat, GPT, you know, tell me the best way to say happy birthday in my, to my mother, that use of chat GPT is not even close to the real action, right? The DOD, the Chinese, the, you know, there are a lot of geopolitical folks that are looking at rivals really, that are looking at this too, all of whom need power. Um, and interestingly, you need it to be. Uh, secure power. Right. And you know, anyone who's looked at the US power grid knows that that's kind of not there yet. So DOD looking at some of these micro reacts and even commercial firms, Amazon, Microsoft, looking at captive micro reacts makes sense when you realize what they're trying to run. When you say micro reacts, are you, are you going one notch below small modular reactors or are we talking about the same thing? No, I think we're saying the same thing. The small modular ones? Yeah. Yeah. Um. And I may not get this right. So for everybody who's gonna look this up after I say it, I apologize. But I think I saw some statistic fly by that. I think I read that the AI power farms, the AI firms, um, or the server farms in, I think it was Wyoming. Already account for more power than the people who live in the state of Wyoming. That's a problem that I have to think is going to get fixed at some point, right? I mean, go Google's shot across the bow recently that, you know, AR chips use a lot less power than NVIDIA's. Uh, I mean, I. That when your problem is that big, someone's going to fix it. Right, right. And it probably won't be one thing, like you said, it could be a combo of the chip design, it could be the, the power, it could be quantum computing that gives us a lot more bang for our bucket. It may be all three, you know, but I, I do think that one of the everyone's, you know, worried, yeah, it's gonna take my job and we're all gonna be, you know, in the matrix in two years. I, I think we're gonna have to solve this stuff first before we can get there. We will get there rather. I agree. At some point people are going to rise up and say, um, my electrical's gone up 10 x and uh, I could care less about ai. Um, I just lost my job and I'm angry. Right. Like, that's, that's gonna come if we don't figure this out. That is actually, when you look at the societal impacts of innovations like this, we've seen versions of this movie before and that's also in the cards if we aren't careful. Right. Um, 'cause there's an awful lot of middle tier. Executive talent that is going to have a problem. Um, and you know, we talk a lot about this internally. If you are not, if you are in a service industry and you say Bill by the hour, or you are in some sort of like, you know, deliverable type industry as a professional service and you are not on your front foot with this stuff, you are in trouble. So you don't want to be the, the horse and buggy maker watching the cars drive by. Right. So it, and, and, and in a way for, for the economy, this is an important thing too, since we're talking macro, every one of these innovations, and you can count even things like email in them, right? Because we both remember the day when, you know, you didn't have that, it wasn't a thing. I do remember that sadly. Um, is the gain, and this is actually really important, the gain in productivity. That will start to appear if we know if we're measuring it right. And the, you know, the bl s is open and all that stuff. Um, the, the gain in pro productivity that AI offers is, is off the charts and that will have implementations, implications for monetary policy, for tax policy, for social programs, social nets, all of that. Right. Um. I'll give you an example. In our world, we do a lot of pivot tables in, in Excel and in Google Sheets, right? And the AI that Google has now embedded in sheets. I was playing with it a couple weeks ago, and, uh, it could, it created a pivot table that would've, and I'm pretty good in, in that domain. Um, it did a pivot table for me in 10 seconds. That would've probably taken me an hour or two. To actually get correct, right, to remember the formulas, to put 'em in, right to, is it double quotes, is it single quotes? Is there a space there? Right. That, that is a big deal, and so I'm hopeful. The optimist side of this is the productivity gains will be massive. And every time that has happened in the past, all the way back to the steam engine, it has related in a better, bigger, higher tide that everyone benefits from the pie gets bigger. So Correct, correct. You move, that's the circle outward a little bit more. Right. And we have a lot more time to think about all these innovations, like how do we get the cost of the chips down? So do you think the United States still has an edge? In all of this, you know, is, is Silicon Valley still the secret weapon of the us You know, this, this ingenuity engine and this, this almost infinite bucket of money that seems to be able to fund new ideas, or do we still have that edge? Or, or, or, or is there, are there models out there that are threatening? The US is dominance. I'll answer the first one with a bit of an anecdote. I am never more encouraged and my faith in the country's future is never more restored than when I'm working with the startups that we have as clients at Brooklyn. These are super smart folks. They're working on really cool stuff. They are changing the world. They're trying to create a better. World for themselves and all of us every day. So I am usually, that's the best part of the job is actually hearing and and dealing with that kind of energy and optimism and integrity and all of that is really, really, really encouraging. And what I think we risk the most is that the capital and things like AI allow it. Allow this, this ingenuity to be emulated quickly and easily. You know, you take a country like China, which I know is a topic all the time, right? They, they, they actually copy really well. Yes. So what we see is, you know, before it used to take 'em four or five years to copy something really, well, now it might take 'em six months to copy it really well. Right? And so I think the ingenuity here, the innovation here, the capital infrastructure and, and this is an important point, the efficiency with which we insist that capital is utilized is also a competitive advantage for the United States, right. Um. Is there, I am firmly convinced in that I would never, ever, ever bet against that. And the, the distance or the gap between us and the next guy is getting smaller because of the ability for other countries to throw money at things and emulate. What they're seeing being done here. Yeah. And it's not just China, right? I mean, you're seeing, uh, the Middle East getting in on, on AI in a big way. Um, you know, in, in any country that produces more engineers than attorneys, uh, probably has, you know, and I say this as a father of an attorney, but, but like, you know, the reality is we've got a lot of them. Um, uh, we probably need more engineers. I think we should be all careful too, not to discount the, the systems in which these. These things are swimming, right? So when you're flying an airplane, you're going down and you, you are a product of the air around the plane, right? For good or for worse, it's really nice out. It's great if it's not, it's bumpy, but whatever. You are being impacted by the ecosystem around you, and that plays a role in what you just said. Middle East is a good example, right? These are places where they got all the money in the world, but they don't have an entrepreneurial culture. Yet, right? They have a very top down. China's the same way, very top down, very command line, almost environment, right? Still that does not generate the kind of, I use that word again, velocity like we have in the states. As you recall, I lived overseas a long, long time, right? And I lived in Germany and I tried very hard to start three different companies there. And when I was there, I realized that you can start a company in Germany any day of the week you want, as long as you had $50,000 in capital, you had a notary sign off on your formation documents, you had all this work done. You had to have this, this many employees and this much there you had to have an address, right? All of these things were in the way of you starting a company. But we did it and then we put an ad in the newspaper that said our prices were cheaper than those guys. And those guys at the time were Deutsche Bank. And the next morning we were sued for unfair competition by Deutsche Bank because we were a three man startup, literally using a computer on a door. That culture is, that is what I mean when I'm saying that the ecosystem matters. You can have the most environmentally. Conducive or, uh, thing in the world and a good idea will still get traction if you don't have a conducive environment. The most brilliant entrepreneur on the planet will probably stay with Siemens and give his idea to the, you know, to the company they work for versus start their own. And that I think, plays a big role in places like China, in the Middle East, even in Europe to some extent still. Yeah, I have lots of European friends who. Are trying to come here for that very reason. It's hard. I lived it. It is very hard to start a company over there and it's hard to even keep it going. It's hard to be a consumer. There are all these things in the way now. The flip side of that is people say, well, yes, but it's a very socially aware area and the healthcare is good, and, and all of that is true. But when you look at it just through the soda straw of entrepreneurialism, entrepreneurialism, and you know, the, the velocity of startup creation, there's no place on the planet like America. Not yet. Okay, so let's wrap this up. Couple of advice points. What is your advice for a founder? Today given, given the backdrop that we just covered over the last 40 minutes, what, what would you say to a founder looking to raise money right now? Start early. Don't be discouraged. You may need to knock on 200 doors, but don't be discouraged. Keep. Going, just don't stop. There is money out there. The last thing I would say is make sure your story is tight. Make sure you're realistic in what valuation you think you're going to get. Your idea may be the most important thing in the world to you, and it may be the thing that changes the world, but no one knows that's really gonna happen yet except you. So don't expect the world to give you a hundred million dollars valuation when it's you and your best friend. Right? Be realistic in what the VC is going to want in return. For their capital. And like I said, be, have your act together. Don't, don't try to bro it. You know, sometimes we have founders that are trying to bro it and they're trying to be cool and they don't wanna seem like that guy. Well, you know what? VCs care a lot about how put together you are and whether or not you can actually put your vision into reality. So be buttoned up, have answers to questions, think about it. Don't just go and, oh look man, I really look to raise some money, man. You know? Um. You know, some of the guys can get away with that, but even the ones, I'll say this too, even the ones that profess to be super chill, in my experience with those founders, you scrape that away a little bit and those are some pretty wired down, pretty intense, pretty buttoned up, very, very smart people, right? So the three things right. Be realistic in how long it is taking you to raise money in this environment. You are probably not gonna start from scratch and raise 10 million bucks in a month. It's not gonna happen, right? You're gonna have to knock on a lot of doors and don't be discouraged then have your act together. Okay. Make sure you've got answers to questions and have thought through your thing. And then, you know, like I said, I think the, the final thing is just be realistic in what you're asking for. Doesn't mean give away the store. It just means, you know, VC's not gonna write you a check for 5 million bucks and walk away with 2% of the company. It's not gonna happen. And some founders spin their wheels a long time before they get to the realization that, you know, capital means it's a ticket to the table. Yeah. You're selling part of your company. That's right. And um, you know, and I say all that too with. With the knowledge that it can be discouraging for founders to have to go into that environment. So, you know, utilize the people around you. Utilize friends, utilize founders that you know who have raised money. Like talk to them, find out who they knew. Don't be afraid to ask for help and ask for connections. 'cause it, it does work. What about the other side of the table? Or may, maybe not even, not the sophisticated VC side, but what's your advice for somebody who's. Always wanted to invest in VC or has a chance to invest in a fund, you know, as a as maybe just as an individual investor, what, what would you say to them? What should they know? You have to be patient. Right. So VC is a patient strategy. You, it is not a liquid strategy. You cannot use money that you're gonna need, right? But it can be very rewarding. You can be part of something that grows to become a big deal. The other piece of advice is don't put all of your eggs in one basket. Don't make one investment. Make. Or if it's into a fund, make sure that fund is making many investments because the hit rate on these is not very high. You know the ones that do hit might return 50 x your money, but there's gonna be nine outta 10 that did. So you need to diversify and make sure that you're using capital that you don't need. Right. Then the other thing I'll say is do try to do it if you can through, um, a vehicle, you know, some kind of pool, um, whether it's, you know, through a standing VC firm or even some accredited investors create an angel pool and they form an LLC for that. Right? And the reason why that's important is later on when the, the company is doing successive VC rounds. The, the, the folks that are gonna write those larger checks down the road after the company's growing and has got revenue and 50 employees and all that, they, they don't really love lots and lots of individuals on the cap table. They would prefer four or five entities. It's much easy and it's purely out of self-interest. They're not, they don't care about anybody, right. They just, they want make it easier to raise successive rounds of capital. So. What they really want is a simple cap table, four or five entities on it with which they can deal when they might need to cram down or they might need to do a follow on or some other round that requires, you know, consensus amongst the group. Alright, great advice, Stephen. Lord Berkland Associates. Good to see you, my friend. Let's get together in person soon. You too, man. Thanks for having me Aboard. Before you go, please take a minute to subscribe to the channel and leave us a comment. I'm Ed. See you next week.