E374 | Dan Bowyer & Mads Jensen: Election Drama, Big Tech’s AI Monopoly, Buffett’s Cash Strategy, Starmer’s Slow Reforms, and Founder Burnout

0:00So what is happening this week? We've got, well, as of recording, it's Tuesday the 5th of November, which is not only Guy Fawkes night, but also the biggest fireworks session in the States there could be. And so I think we should just kick off with that, Mads. I mean, how can we not talk? I know it's the European VC and it's UK and Euro stuff, but how can we not talk about the American election? So where and how the heck do we start here? I mean, let's just say it's pretty, you know, it's a very important election, right? It's going to determine lots of things. We've unpacked some of them previously.

0:38You know, what's going to happen in tech M &A, what's going to happen with inflation, interest rates, spending, what's going to happen geopolitically, what's going to happen to Ukraine, what's going to happen in the Middle East. So much will sort of revolve around the outcome of today's election. I wish it was just a show because it's actually quite exciting. You know, unfortunately, there are real world consequences too. I'm addicted. I'm addicted to the drama. I cannot imagine a world without Trump headlines. Whether he wins or he loons, I just can't imagine. And at some point, we will have to move into a world where the news cycle isn't Trump-tastic.

1:14Even this side of the pond is just nuts. Yeah, that's a very good argument for not wanting Trump to win is that hopefully the Trump headlines will then go away. But who knows? I hope so. Well, I mean, this has been the most expensive election campaign ever. I mean, between congressional and presidential, there's been$16 billion spent to produce what is effectively a dead heat tie in the polls. Nearly half of all voters have already voted, which is really, really interesting. since COVID, obviously there was a big COVID non-attendee voting activity, but this is a massive turnout for a non-day, so pre-voting day voting.

2:01And I think it'll come down to the seven swing states. So who's your money on? Well, you know, because we made the bet, and I put money on Trump, especially because I think the last couple of weeks he has looked stronger, and right up until yesterday he was ahead in Pennsylvania. which I think is going to be the deciding state. I think he's going to take North Carolina. I think she is going to take North Carolina. Possibly. I think Harris is going to take North Carolina, and I think she'll pip Pennsylvania. I do. I think she'll take four of the seven. And there is your market, right? Because that's really what it all stands and revolves around.

2:40It may be a little bit tragic when you think about it. Most important country in the world, this huge democracy, biggest economy, so much money spent and at the end of the day it comes down to probably a few tens of thousand voters in a few key states and it all feels a little bit nuts that they're the ones deciding the trajectory of the globe for the next four years but so be it that's yeah that's the game we're in i'm a little bit fearful that if he does lose i'm a bit fearful of the of the blood in the street i don't think this is going to be he's not going to concede whether it's thin margins or thick margins he's not going to concede so i'm a little bit fearful of the of the civil unrest that's going to follow should he lose and if he wins i'm just as fearful of the world he's going to create i mean let's hope he doesn't do half the things that he said in his campaign trial i'm sure he won't i'm sure he's playing to the base but we'll see i i think so i think so his program if implemented in full would be very bad news for everybody i do think that if if one takes a slightly more generous interpretation of some of his policy program, I think that might be good news for some folks.

3:52I think especially around M &A, where we have had kind of the current regime, Lina Khan, has been quite, should we say, antagonistic to big tech, which has meant just less tech M &A, which has meant less liquidity, and the venture ecosystem, which has meant less money for startups. So there is kind of that angle. On the other hand, there is kind of all the stuff he's been talking about with, forcibly removing immigrants, the tariffs, all that stuff is just, it's probably not very good economic policy. It's going to drive inflation and interest rates up and would really just hurt everybody, not just Americans, but everybody in the world.

4:27So it depends, I think, a bit on your interpretation of whether you take a generous view or you take a more sort of literal view of the things he said. I think it's also worth saying that a lot of people watch the soundbites of him, and I fall prey to this. I watch the soundbites. But when you actually watch the full soundbite in context, okay, he still sounds nuts a lot of the time, but it's almost defensible nuts. I can see he's just using colorful language and kind of being very expressive. But when a lot of the media soundbite him, he can sound absolutely fruit loopy until you watch the whole thing in context.

5:06I did that with the Joe Rogan show. A lot of that stuff sounded nuts on the Twitter or the XX ads. But when you actually listen to it, it's like, okay, I don't like you. I think you're a very unpleasant human being. But that wasn't a representative view of what you were saying. now one of the one of the acts that he is it feels and sounds and smells like he is going to reverse is the chips act so this is yours on the docket i mean we're reading noah smith which i so reading noah's article which is effectively why on earth would donald trump want to reverse the chips act he doesn't come up with an answer now i don't know what you took from the article so i'm going to hand over to you what was what was your take what was your read i know smith he is very firmly in the camp of not Trump, but he's also a very sensible, kind of very centrist economist who I think just produces lots of good analysis of what's going on in the state of the world and generally is a positive and optimist, somebody that I enjoy reading.

6:05I think what he sort of pointed out and others have too is that generally the CHIPS Act was a bipartisan piece of legislation and it's been seen as incredibly successful. The overall bill was$280 billion. dollars, so a huge piece. But kind of the important part there was the roughly$52 billion allocated directly to semiconductor research and manufacturing. And the important part there of that was kind of the roughly 40 bill allocated to manufacturing incentives alongside another$25 billion in tax credits. And so the idea here is really to use that money to stimulate the development of the US semiconductor industry.

6:46That has been so successful that others have copied it. So we have the European Chips Act, where the EU similarly tried to sort of put aside a lot less money, 11 billion euros, and then we're hoping to drive 32 billion euros of private investment to crowd that in alongside. And if we look at some of the results we've had today, so in the US, the Semiconductor Industry Association, they've made an analysis saying that they are expecting as much as$400 billion to$500 billion of investment coming out of the roughly$40 billion allocated to those manufacturing incentives. And that's phenomenal. Any government that can put in$40 billion and drive a 10x investment are just going to be creating so much in the way of jobs and, you know, improve trade balance and economic prosperity.

7:42And it's going to be such a positive thing. And sort of that's, when you look at the CHIPS Act, really what it's driving, which is also why when, you know, folks are talking about maybe repealing this, it just sounds absolutely nuts because it's seen as so successful. But what's your take on why? Because Noah Smith didn't quite, he was very noncommittal. I mean, it feels like it's just, it was a Biden act and therefore it's going to go on an emotional basis. But what was your... Well, so yeah, so this is, you know, back to what I said earlier, is are we taking Trump literally, or are we maybe giving him some artistic license in terms of him saying stuff off the cuff?

8:22You know, as you say, he's not a... He can often come across as a bit of an unpleasant human being. I mean, he'll sort of... He will oppose anything just because it comes from the other side, at least rhetorically the question is you know if he gets re-elected if he gets into power if he got into power would he actually cancel it and it just seems such a like such a nuts thing to do something that's been so well mike johnson repeated him i mean by all reports i mean there's there's on camera him saying and mike johnson speaker johnson repeating him but maybe he's just repeating maybe he's just repeating what he's heard rather than what he's been briefed that's actually that's Has he been told, right?

9:01Has he been told that the thing you have to go and do is to basically poo-poo anything the existing administration has sponsored? Yeah. And then after the election, we'll do whatever we please. Well, let's stay stateside. So next up, I want to speak about, I've been reading a lot about Berkshire Hathaway and basically... So we should go there. But I just, I think before we go there, I mean, we do want to cover Europe. And I think kind of I think what Europe has tried to do, what's worked and what probably hasn't worked yet is instructive. And I think it's worth touching on. So, as I mentioned, the European Chips Act, you know, similarly was trying to allocate 11 billion euros.

9:39But a smaller portion of that comes from our, quote unquote, federal budget. Right. So kind of the commission budget, I think it's like three, three billion euros with the remainder meant to be coming from the national governments. And the noises so far is that Intel, they were talking about kind of up to$33 billion of investment in Germany and new plants there. TSMC discussing a new$10 billion fab in Dresden. Infineon. That's working well. TSMC going to Arizona has worked really well, hasn't it? Extremely well. People are saying that their plant in the U.S. now is performing better than the plant in Taiwan.

10:17It should be an extraordinary success for the U.S. So there has been talks in Europe about some of these plants and some of these things. And if you're generous, you can kind of tot it up to maybe 50, 60 billion euros. But the challenge is that when we look at the progress of how much digging has actually started, how many shovels have gone into the ground, we're just nowhere near as far along. Lots of questions around Intel in general. Will they be able to pull through? Possibly not. And other companies, sort of kind of the ideas were there quite quickly, but have we then seen the action on them?

10:51I think some of the differences is in the US, the federal government was able to provide more funding directly out of the big central pot, as opposed to having to rely on individual states to do it, which is always more complicated. You were able to have streamlined regulations and especially approvals to make it very quick to get things rolling. And of course, you have an existing ecosystem, which is bigger in the US, Although we often use that as an excuse. And, you know, we've got semiconductor expertise in Europe that we should have been able to rely on. So it seems like we just haven't been quite as bold, maybe quite as ambitious.

11:29And you can only hope that there is a sort of release two of this, a version two of this from a European perspective that gets beefed up a little bit so we can actually get a move on and get not from, you know, 10, 20, 30, 40 billion, but into the hundreds of billions we need to really create a truly competitive industry. in this space. But the obvious answer is to get SoftBank and the government in the UK to push ARM to build a chips factory in Cambridge, right? That would be the obvious of the obvious of the obvious. Yeah. I'm sure if the government puts enough capital behind it, it probably could.

12:07But again, previous government was talking about quite a lot of funding set aside for semiconductors. But I think they were talking about it in headline terms without actually allocating the money in the budget. New administration comes in, finds out that promises have been made, but not necessarily the funds allocated for. And ambition has now been scaled back a lot. And so the question is, was it right to spend as much money on increasing public sector salaries and pensions, right? Which is a noble thing to do, but maybe we should have put a little bit more money into investing in things that will create future wealth, as opposed to just spending money we don't even have right now.

12:48Well, we're going to get to Starmer and Reeves and some of the bit more budgetary stuff a bit later on. But why do we do it now? Why do we step straight in now? Because, so reading all of the recent reports, and I've seen something in the FT from Starmer himself, he wrote his little letter. It feels like the mantra wasn't invest, invest, invest has been purported as in came out of their mouths lies at the the budget but stability so i kind of buy and what's your take on this i kind of buy okay we wanted to create this kind of stability structural let's sort the nhs let's fill the fiscal gap let's and then we're going to have the investment conversation so this is me being a being a possibly a naive optimist but it feels like They're still making the right noises about investment, but they're not actually doing anything just yet.

13:41But what's your take? Is there anything that they can do, maybe not political behind the scenes they can push? I don't think it's behind the scenes. I think it's exactly the opposite that's needed. And, you know, as we've talked about before, there was initially a willingness to give them a little bit the benefit of the doubt, also because kind of the previous administration had sort of a lot of energy and felt a bit tired. bad. And the challenge, you can see energy, money, and you could, the list can go on. The challenge, you know, as we've talked about is you have fundamentally an administration now that even if they want to do the right thing, there's questions as to whether they actually really understand business and understand how wealth is created.

14:24You know, with the best will in the world, I mean, Stammer is not a dummy, but he's a, he's a, he's a public prosecutor. I I mean, he's a lawyer, right? Reeves is a very smart economist, very good with numbers, I'm sure, but she's never built a company. There aren't that many on the labor benches that have been in business and really understand how business works. And so I think a lot of times people default to what they know and there are a lot of civil servants and government workers. And so they have a lot of knowledge and affinity for those sectors, and that's where they go and that's where they focus.

15:01You know, we saw today, they're talking about the third runway at Heathrow. And we know if you are a private company and you need to allocate capital to something, the most important thing is certainty. The last thing you want to do, the last thing you can do and afford to do is to spend years of uncertainty, of allocating money to architects and engineers and designers and consultants if you don't know whether a project is going to go ahead or not. And so what governments could do is not go behind the scenes, go in front of the scenes and say, we are open for business. If you want to invest here, if you want to expand and invest in infrastructure, airports, energy, if you want to do this stuff, we are going to fast track approvals.

15:41We're going to make sure you can put the shovels in the ground quickly. We're going to make stuff happen. instead what the government has said the official line is well why don't they develop all the plans and the applications and put them in and then we'll tell them what we think and whether we support this third runway or not and that is exactly the wrong approach to take right you got to be in partnership with business not not behave in this bureaucratic way where it's like well you know first you do all the work and spend all the money and then you know later down the line we'll tell you whether we think it's a good idea or not.

16:13No, no, no. If you want to get dynamism back, you've got to take a different approach. You don't have to be a business builder, an entrepreneur, an investor to understand that resolving planning, resolving and creating the frameworks for investment are smart things to do. So I kind of get what you're saying. I mean, maybe it's the previous point you're mentioning, but they know this. They don't need to be the smartest business people on the planet to understand that you need investment and you need smart people doing things and you need innovation so i can't work out why they're not doing it the only thing i can think of is politics the only thing i can think of is that yeah the budget they wanted to just like be seen to be sensible and not like the previous group and then i'm hoping that now comes the investment piece and the smart investment piece and the regulation changes the planning changes.

17:09Starmer and Reeves have both said the words. I think the third runway at Heathrow is an excellent litmus test. You want to attract private capital into the UK to drive economic growth. There is a project here that the capital and the country has been crying out for for 20 years. We have international backers ready to go. But isn't that the problem? Isn't that the political hot potato? It's got so much legacy around it. But everything does. That's why nothing gets done. That's exactly, this, this is not, you cannot, you can no longer be behind the seats. Somebody's got to stand up. Somebody whose, whose name starts with, with, with, with Kieran and it's with Starmer is going to stand up and say, enough, we're going to approve this stuff.

17:52It's going to happen. If you want to invest and build and make and do and grow, we're going to back it. We're going to fast track it. And the naysayers and the people that want to stop it, they're not going to have a voice. We're not going to listen to them now because we need the country to go back to building and growing. And unless you get that kind of message from the top, it's going to be another five years of not very much getting done. Right. Well, listen, let's go back to the previous point. So this does have also, I think, ramifications for Europe and Berkshire Hathaway liquidating and cashing up, really.

18:26Now, over the last 20 years, they've pushed their cash reserves from pretty negligible nothing into the 300 billion bracket. And they've been a net seller of stock for eight consecutive quarters. So their cash reserves now sit at$325 billion. So what is going on with Warren Buffett? And are there, I mean, the obvious thing to say is that he's saying that everything's overpriced, there's too much risk, I'm going to cash out and I'm going to wait for something to happen on the other side and then I'll come back in. So what's happening here from your perspective? He is arguably, I can't even say the smartest investor of our generation because he's not even from our generation, right?

19:09He's in the 1820s. He's involved in wide still. Sometimes seems like that. He's been around for so long, you can barely count it. And it's just phenomenal that he stayed on top for so long. At 96. The dude is 96. It's unbelievable. So many incredible bets. and he often said, I only invest in things I can understand really well. He always stayed clear of technology right until Apple stopped being a tech play and started being a fundamentals play. When you can buy Apple at a price earnings of 10, that's when he leaned in and leaned in heavily and did the investment of eternity. It was a 3X in 10 years, was it?

19:52Yeah, but the amount put in, right? Right. It's one thing to put in a million bucks and get three million out. It's something else to put in. With a 69? Did he do 69 billion? That's it. It's something else to put$60 billion in and take$180 billion out. Right. It's just nuts. 60 billion. What the hell? Yeah. It's just a whole different ballgame. And there are just not that many opportunities coming around where you can deploy that much capital and get that kind of return. So he's done it. He's done extremely well. What is happening? On so many aspects, U.S. equities are expensive. They're expensive now.

20:28They've been growing extremely well for a long time. And, you know, many people expect some mean reversion, right? Expect that, you know, after 10, 15 years of exceptional returns, the S &P 500 is going to start to slow down and returns over the next 10, 15 years will be lower. And what's the one thing that can really change that? Well, that's the paradigm shift we see in technology. It's AI. We talked about all the cases. We spoke about them earlier today. Companies being able to take hundreds of workers out of specific functions, massive cost savings, and the ability to increase customer support and quality at the same time.

21:08If that paradigm shift comes good the way we think it will, well, the S &P has got a long way still to go, right? Because earnings are going to continue to grow at a very nice clip. But if you're Warren Buffett and you're 96 and you don't tend to invest in things that could potentially happen, but you like to invest in the numbers and the fundamentals, well, this is maybe a play that's a notch too speculative. And so he's going into cash. And I guess with his investment strategy and philosophy, that makes sense. yeah he's been tapping out for the last couple of years hasn't he that's a lot of money ah what is next on the docket so i guess we're staying staying stateside we have been playing with chat gpt search and it looks like a quite a compelling product i mean i flipped my my default browser to to chat gpt so we've talked about this a lot but is this is this another chip away google search dominance do you think i mean obviously this is this is price you have to pay i think for the premium version i think it was on on a wait list and you have to pay but is this is this going to be another another stick in the side of google or will gemini come back or what's your what's your take on this i mean there is a reason why sergey brenner is back in the lab full-time now right it's inkering well i think it's more than just tinkering the google fundamentally has got to reinvent itself so the company's quite diversified today people don't always appreciate that YouTube is on a standalone basis, a$50 billion revenue business.

22:39Okay. So it's still the lion's share, right? I mean, I've not seen the stats in a long time, but it was, it was, it was, I think 80 % of their revenue was search. Search is still the biggest, the biggest business, but it's created other business lines. And there's kind of, you've got two things that are attacking now you have on one hand, you have this, this nasty antitrust thing, potential breakup of Google. And then you have, quite frankly, these LLMs and OpenAI on the other side. But, you know, people talk about perplexity. I think it's a very nice product. I just, I don't frankly see them having the momentum that OpenAI does.

23:11And OpenAI is formidable. The engineering, the quality of the products they push out, the speed of iteration. I like Gemini. I think there are some aspects to it that are very good, but gosh, I, Sam Altman, he's ahead right now. And I, if I was Sundar over at Google, I would be a little worried i think yeah i i i'm with you i'm with you i maybe it's what you know and what you're used to and i dare say it won't be easy to flick flack between and test but gpt is very very smart um and they're doing well i mean the next topic was you know big tech enjoying all the gains from this ai boom and it looks like since gpt's launch in november 22 it's just been you You know, chasmic$8 trillion of market cap.

23:53It's just, it is just mega. Where next, I guess, is the obvious question. And where can Europe play? I think we've got to get into the game on semiconductors. Do you think we're going to have to make some chips? Yeah, also because that's strategic. You know, we've seen shortage of semis before. And it goes into everything. It goes into cars. It goes into defense. It goes into... And it's not going anywhere, is it? It's not like there's going to be a supplanted technology. And if you're not making chips and being very smart about it, then you really should be. Yeah, we've got stuff to build on, right?

24:26We got ARM with architecture. We got ASML, which creates so much of the foundational technology. There's a lot of stuff here. I think saying that we can't do anything is just a bad excuse. So you just need to have an ambition. Yeah, no, I totally agree. And I was speaking with a family office last week who were talking about their strategy of investing in AI is either the UK or the Bay. so they only look for ai for the smartest brains for the talent they only look here or there and i thought that was a really interesting obviously only anecdotal but i thought it was a really interesting point it's like yeah that we have some ridiculously smart people here so let's hope they get utilized and we build some stuff the last thing on the docket is the is the boulderton annual report on startup founder mental health there's been a lot of shifts so they they do an annual survey and this year they surveyed 120 entrepreneurs and what that report has shown is that stress is a significant problem and it's gone up by 62 percent from last year so the factors just to list a couple of the factors that it kind of went into some more of the detail about was the impact on older founders now what people i think don't fully always appreciate is the average age of a founder is about 39 depending on which which report you read it goes from 35 to 42 somewhere in that bracket so these aren't 22 year old mark zuckerberg ivy league kids the average age of a startup founder tends to be quite old founders don't like talking to investors is one of the aspects that came up which i which i understand having sat on both sides of the desk the financial stress and now this has obviously been driven by there was a number of down rounds last year 30 percent of deals last year were down rounds 42 percent of founders state that financial stress was a massive contributor to burnout and the question i guess for you and us in the room is about what role should vcs play in the the startup founder mental health issue do you think i think it's a really good question and i think there are lots of different vectors to it i would say importantly, you know, upfront, we have to be really candid and conscious about the model of venture capital and the fact that when we invest, it's not a loan and that we expect some companies not to succeed.

26:49And that's part of the industry. And that's part of how it's supposed to work. It's not that we deliberately invest in companies and expect them to blow up. You know, if a company doesn't work out, we're not going to hold the founder personally liable and tell them they're bad people or it's somehow all their fault or anything like this. The expectation is that some businesses won't work for a wide variety of reasons. Is venture capital too aggressive? I think there are some really bad actors. I think there's some investors that just don't quite get it and become personally vindictive if companies fail.

27:24Now, there are also founders that lie to avoid owing up to reality so i wouldn't put it all on the investors but i think there is sometimes a bad dynamic and so i think it's so important that investors are not you know if a founder fails if the company just didn't work out that's okay right then we try and figure out if we can do the next one as opposed to oh you're a bad human being or this didn't work or whatever it's all your fault i think we have to give founders license to aim big and try to go big and for things sometimes not to work out and that's Okay. You alluded to this at the beginning of your bit, but there is this misconception, I think, that venture capital is an extension to taking angel funding or other routes of funding.

28:11And it's not, it is a very different track and it is go big, go global, go fast, speed of sale, speed of scale, which doesn't suit. I mean, I think venture capital is that odd paradigm where virtually suits no one it almost suits none of the of the hundred startups that are that are started it probably doesn't suit 99 so and i'm not convinced that founders genuinely sometimes know what it is and they very quickly learn but i i'm i'm i'm always intrigued by what services or facilities we should set up coaching support i know some funds with some mompreneurs have child support services so taking some of the strain and stress away outside of the business or dealing with some other aspects of life outside of the business and i'm not sure whether vcs should or shouldn't do those things so that that's the open-ended question i guess that i have for us is what should we do to support founders better with not just their mental health but they're you know the performative side not just keeping them out of the therapist's chair but what's the how do you improve your mental strength and your your abilities and your capabilities so i don't know if you have any any closing thoughts before we before we wind up my dear man it is a performance sport succeeding with us with a startup and i don't mean a lifestyle business i don't mean starting a company that you you know borrow a bit of money for and you build a nice little business, but creating a technology startup that you want to build into a leading global company that's a category leader that will compete in markets across the world.

29:55And with compete, I mean, defeat the competition, right? Really become number one. To do that, that's like saying, I want to become at the top of the podium at the Olympics. That means you're going to have to be, and you're going to have to create a team that is the best of the best in the world at what you do. Now, everything else flows from that. So there will be a lot of sacrifices along the way, right? Just like the Olympians who clinched the gold medal, they have not had the same life, the same hobbies, the same free time as maybe others that didn't choose as hard a route. I think startups are the same.

30:33You have to be willing to suffer some sacrifices along the way, and you have to be prepared for that. I think sometimes people get a bit confused. and there's kind of we want to generally we want to create more companies more businesses and we want to help people and a lot of that is probably should become lifestyle businesses and that's a very different trajectory but if you want to go down the venture route and become a global leader that's a very specific thing and i think a lot of the things that we sometimes conflate with this they're not really that they're not about creating olympic glory they can be good and fair and fine enough themselves, but there's something else.