AI rewrites the venture capital playbook

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0:32Good morning from the Financial Times. Today is Thursday, September 10th, and this is your FT News Briefing. The U.S. Treasury Secretary is disappointing bond traders, but it looks like he helped give the yen a boost. Plus, tech investors are shooting for the stars. And so the risk is multiplied, and the capital involved, the capital at risk, is multiplied. It's go big or go home. I'm Sonia Hudson, in for Mark Filipino, and here's the news you need to start your day.

1:13U.S. government bond yields rose to their highest level in almost three years yesterday. Yields move inversely to prices. The sell-off came after Treasury Secretary Scott Besant said he's expanding his plan to buy back long-term government debt to$6 billion, and that disappointed investors. Now, it's a step up from the Treasury's initial$4 billion figure last month, but it's less than the roughly$8 billion that Wall Street expected. Higher bond yields push up borrowing costs and mortgage rates for U.S. consumers, as well as for companies that want to raise cash. Besant said he hopes the expanded buybacks will stop the deepening bond sell-off, but he said that the route does not, quote, reflect the underlying market fundamentals.

2:10Scott Besant has also been intervening in the currency market. The yen has been doing well this week, partially due to a recent unusual move by the U.S. Treasury. Besant worked with the Japanese government to buy up the currency earlier this summer because of its importance to U.S. financial markets. The FT's Tokyo Bureau chief, Leo Lewis, says initially there were doubts. There was this big intervention that you just mentioned earlier in the summer. But over the weeks that followed, the yen started falling back. And there was a sense that, you know, are they going to step back into the market?

2:47And then, rather to everyone's surprise, the yen started moving seemingly on its own. One reason the yen may have strengthened is because traders are expecting the country's central bank to raise interest rates next week. The Bank of Japan has been in the process of normalizing, which is to say that the Bank of Japan had for a very long time been this big outlier. It had kept rates very, very low, zero or below for a long period of time. Normalization in its terms is bringing interest rates into positive territory. What's at stake now is that it is under pressure to significantly accelerate that process of normalization.

3:27Markets are closely watching this Bank of Japan decision next week, and so is Besant. Here he is talking about it earlier this week. So when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do. The Bank of Japan is under pretty overt pressure from the US side to get ahead of the curve and to accelerate or become more aggressive in its schedule of interest rate increases. There's been some speculation it might do back to back interest rate increases and do another one in October, which, again, would be very, very rare.

4:10And so there's a lot going on in the minds of people who are worried that they could very easily or very quickly get on the wrong side of a big yen move. So things are looking good for the yen right now. Does that mean that Besson's intervention worked? Because there was such a substantial show of willpower by the Japanese and they had the kind of permission, more than permission, an endorsement really from the US side, the market is left with the sense that they could do it again at any time. And if they have managed through the intervention to slightly reset the way that markets look at the yen and the risks around the dollar-yen exchange rate, then that will have been an effective intervention.

4:56Leo Lewis is the FT's Tokyo Bureau Chief.

5:05A leading candidate for the IMF's chief economist job lost out on the post after he was found to have criticized the Trump administration's tariff policy. That's according to people briefed on the process. London School of Economics professor Ricardo Rice had been slated to lead the fund's research and analysis arm, but the IMF nixed his appointment at the 11th hour. IMF insiders told the FT that the incident made many people worry the role would go to a Trump ally and that that would undermine the fund's credibility. The U.S. is the IMF's largest shareholder and can exert a strong informal influence over the organization.

5:47The job ended up going to Silvana Tenreiro. She's a former policymaker at the Bank of England and another highly regarded economist at the London School of Economics. An IMF spokesperson declined to comment on the hiring process for its chief economist role. They told the FT that the selection process for the role had been, quote, rigorous and competitive. Rice also declined to comment.

6:16Moonshot capitalism is back. The AI boom is fueling a resurgence in ambitious bets, some of which are literally out of this world. Early SpaceX backers have earned huge returns and valuations for traditional software companies are falling. That's forcing tech investors to embrace riskier and more capital-intensive dealmaking. Here to talk more about this is Tim Bradshaw. He's the FT's Global Tech Correspondent. Hey, Tim. Hey, Sonia. So how has the venture capital investment landscape changed recently? Tell us a bit about that. In the years following the 2000.com bust, a lot of venture capital investors went looking for very predictable, safe tech investments, and they found them in software as a service companies.

7:04But that seems to be running out of steam now that we are into the AI boom. Many investors are worried that AI model companies like Anthropic and OpenAI will end up eating all of those traditional enterprise software businesses lunch. And so hardware is very much back in fashion. And so a lot of the new, more ambitious ideas that are getting funded are in the physical economy, whether that's in energy or space. And we've seen more than$150 billion invested in these so-called deep tech deals, excluding AI since the start of 2024, which is more than the 130 odd billion in the entire decade to the end of 2019.

7:46Is there a particular type of company or a particular sector that people have told you will really take off in the future? I think a lot of them are just in some way inputs or outputs of the AI. So anything that can radically lower the cost of powering AI chips or put them in novel places out to sea, up in space, inside nuclear power stations are all getting funded. There is renewed interest from several startups in brain-computer interface technology. One of them is literally called the merge, which is you merge a brain with an AI. And then there's also a lot of other ideas that are, you know, really enabled by AI technology.

8:32Nuclear fusion itself, there are startups that are working on that now that kind of say it's much easier to model these fiendishly complicated systems because you can do it in software using AI before you actually have to physically make the thing and test it in the real world. And so AI is both the kind of source of demand for novel ideas for lowering energy costs and also an enabler to take on tougher ideas that previously would have just been much more expensive in upfront capital costs. Okay, so there's obviously a lot of excitement brewing around these types of companies, but But, you know, moonshot investments are by definition riskier.

9:08Can you tell us about some of the potential pitfalls here for investors? So venture capitalists in the tech industry have always been used to making fairly unlikely bets. But I think the idea with this kind of moonshot trend is that the biggest hits are going to get bigger. And so you've got to be more ambitious in what you're backing. They require a lot more capital to get off the ground because they're working in the physical world. And they're also harder technically to pull off. And so first you have to solve the science problem. Then, assuming you do solve the science problem, you have to sell it.

9:45And the commercialization risk of this technology is as hard as it would be for any other venture-backed company. Just because you have a great scientific or engineering founder doesn't mean that they'll be great at commercialization. And so the risk is multiplied and the capital involved, the capital at risk is multiplied. It's go big or go home. So it's taking high risk, high reward to a whole other level. Yeah. What are some of the risks with this type of investment to the wider market and the wider economy? I don't think there's a huge risk of fallout for regular people on the street from this.

10:20We're talking about tens of billions of dollars a year going into this deep tech outside of AI. And so I think the risk really is that if the AI boom slows down, then all of these other bets will be off. That will stop the overflow of capital into these other kind of slightly crazier and more ambitious ideas. Well, as always, we will keep our eye on the AI industry. Tim Bradshaw is the FT's Global Tech Correspondent. Thanks, Tim. Thank you.

10:52Before we go, one of London's grandest hotels is sending a message to the ultra-wealthy. Even royalty have to pay their bills. The Dorchester has secured a court order to sell a car belonging to Sheikh Nasser bin Abdullah Althani, a member of Qatar's ruling family. The hotel sued Al Thani after he allegedly ran up an unpaid bill of more than 450 ,000 pounds. The Sheikh's lawyers told the FT that he has only recently become aware of these proceedings and that they dispute the bill.

11:32You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. Thank you.

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