Hermann Hauser: The Man Who Saved Apple from Bankruptcy

0:00Okay, Herman, in 1978, you put£100 into your business, Acorn Computers, which then spun out the world-beating technology arm. that company floated for a hundred million pounds you obviously became one of the most successful technology entrepreneurs in europe the rest as they say is history you became one of the most successful most prominent most visionary i'm guessing also wealthiest and most influential people in the tech scene in the tech scene from what i understand also the only people ever to have a million x return on their initial investment can you give us a little bit of a an insight into what it was like the year founding Acorn.

0:45What was the environment like? What was it like to start a technology company and computing back then? The reason why we started Acorn was that Chris Curry, who was working for Sinclair at the time, was fed up with Clive and he wanted his own company. And he came, and we were both very excited about a thing that the BBC called the chip. So there was a very famous program called When the Chips Are Down. What they meant by a chip, of course, was a microprocessor. This was really an absolutely remarkable program. It was one of those programs that mesmerized the nation because it painted a picture of a future where every household would have a chip that did things for them.

1:35I mean, little did we know that every washing machine, every household now has hundreds, if not thousands of chips. A group of enthusiasts who built their own, who bought the Intel chips. It was very expensive. It was tens of pounds, hundreds of pounds for a single chip. And then you could build your own computer out of that. And that feeling that things might completely change with this new invention made us start Econ Computers. We just wanted to be part of it. And we felt it was all happening in microprocessors, and we wanted to be a microprocessor company. Little did we know that at the time we would produce the most successful microprocessor in the world.

2:20But then, you know, neither Chris nor I had any money. So I said, Chris, yeah, I'm happy to start a company with you, but how much does it cost? Oh, he said, 100 quid. Do you have 50 quid? I said, yeah, I've got 50 quid. We can lose it. Had it been the case, as it was in Europe at the time, that you had to have a thousand pounds of capital in order to start a company, we probably would not have started Acorn Computers. But the UK allowed you to start a company with a hundred pounds. So we did. So a hundred pounds in, in the 1970s. And, you know, fast forward a few years, of course, you go public with a hundred million pounds.

3:02and that makes you a million X on your initial investment together. And then you fast forward again, because we're talking earlier about Moore's Law. So if you fast forward again to 2024, Arm is the most valuable IP company in the world. So I was telling you, I looked last night, the market cap is up to$170 billion, which is absolutely wild. So valued considerably higher than Intel. You know, the company really, I guess, that inspired you in the starting point. What are some of the key pivotal moments? What are some of the magical stories you've got for us that sort of made that thing happen for you whilst you were running it?

3:42Normally, great breakthroughs at European universities are first exploited in the US. This is a case of a reversal where RISC, which was a breakthrough at Stanford by John Hennessy and Patterson at Berkeley. RISC stands for reduced instruction set computer, was a university breakthrough that argued that by reducing the instruction set, i.e. reducing the complexity of the microprocessor. By reducing the instructions, you can make a much smaller microprocessor, run it faster, and altogether you actually can produce a higher performance than with the complex instructions at computer. And that breakthrough, which was a breakthrough in academic papers, was first picked up by us.

4:41And we actually, in Europe, in Cambridge, produced the first implementation of that American breakthrough, that Acorn was the most successful technology company ever in Britain at the time. And we were the first company in Britain to grow from zero to 100 million pounds in revenue, not just valuation, in revenue in five years. What would be your guess on what 100 million back then was worth in today's money, like half a billion? Yeah, probably. Yeah. Fair abouts. The excitement that I see amongst young people for AI reminds me so much about the excitement of people about microprocessors. And, you know, if young people are passionate about the technology, they absorb all the details like a sponge.

5:26So, you know, this was a fantastic experience to actually make the difference and create, arguably, the generation of software programmers in the UK with the BBC Micro. And they said, with this new risk approach, we can do our own, because the instruction set is the fundamental core of any microprocessor. We didn't have an IBM 360. In fact, we didn't have a computer at all, except for the BBC Micro. But we had Sophie. And Sophie at that time arguably was the best assembly language programmer in the world. And so your, so I guess, insight to why Arm was able to beat out the biggest technology company in the world at the time, which was Intel, was actually constraints.

6:19It was less people, less money, and less barriers in the way. So Sophie didn't necessarily adhere to the risk philosophy totally, but she just wanted the most efficient instruction set in the world, which she produced. So when you went public, you were 50-50 owners? We were 50-50 owners. That is ridiculously rare as well, no? Yes, it is. And when we went public, we only sold 10 % of our shares to the public. Oh, really? yeah oh wow okay we we we retained control so a lot of key things um it sounds like a mix of um genius business decisions and luck in timing as well uh with a sort of arms race thing going on all thrown into the middle there to to bring something to market and get it mass distributed as well right and that is that sounds to me like the sort of alchemy behind how the business went obviously from a hundred pounds to a hundred million.

7:22Now, if we fast forward, you go public. And as you say, you only sold about 10 % of the company going public initially. And then you've got this really unique, at Acorn Computers, you've got this really unique technology, which is, which is, you know, as we discussed earlier, the world's most valuable IP. How does the world's most valuable IP today, Herman Hauser, this public company called Acorn, and Steve Jobs and Apple all collide. We didn't collide with Steve Jobs because Steve Jobs at that time had been ousted from Apple. And it was John Scully who ran Apple at the time. Did you get to meet Steve Jobs?

8:00Yes, I did. What was he like? Well. He won't hear this now, so you can say what you like. Well, I said it also was to was he was still alive. He was a very charismatic person who was also incredibly arrogant. So it wasn't all that easy to deal with him. He wasn't particularly bright in the sense of being a computer scientist. So we all met at Esther Dyson's PC forums. It was a comparatively small community. Bill Gates was always there. Steve Jobs, Larry Ellison, later Jeff Bezos. And we all gathered around the dinner table, et cetera. Now, Steve didn't have that sort of intellectual firepower that many of the other people had at the time.

9:02But he had this unique ability to motivate his team to do insanely great things, as he called it. And then the following day, he would just cut them to threads and lay into them about how they are the most stupid team that he's ever come across in his entire life and lay into them. So he created this amazing tension that spurred people to do insanely great things because Apple did a fantastic job with the early Apple products. Many of us thought that the next big thing in computing was going to be pen-based computers, and Steve didn't. And the reason why we thought so was this very simple argument that if you compared the number of people who could write and the number of people who could type, you all of a sudden had a much bigger computer market and it was much more inclusive if you allowed people to use a pen on the computer.

10:11And the graphics tablets and the technology was good enough so that you could use pen-based computers. So we were all terribly excited about it and so was John Scully. And the Newton Project was Apple's entry into that. And Larry Tesler was in charge of the Newton product And he then argued that if he went with ARM, ARM was a small Cambridge company. They had nowhere else to go. They will always support their processor, you know, come what may, because that's what ARM had to do. So he invested one and a half out of his own pocket because it was so little. He probably had a much bigger budget for the Newton.

10:54He invested$1.5 million to buy 43 % of arm. I remember the telephone call, actually, because VLSI was going to be a 5 % owner as well. And VLSI was saying, nah, this is too expensive. We're not going to come. And Larry put the phone down on them and said, I'm going to call you back in 10 minutes. You make up your mind. Bang. And they finally came in. So you did sell 43 % for$1.5 million. We did sell 43 % for one and a half million. And one of the little known facts is that, and you can read this app on the internet, just type in John Scully, Herman Hauser and Arm and you'll get this quote where he said that Apple would not have survived.

11:40It would have gone bust had they not been able to sell the arm stake for$800 million at the time when Apple was, just before Steve Jobs came back, was on its appers. So the world's most valuable IP company right now has also played a stake in arguably the world's most loved company today still being around. So, you know, in that sense, do you think you saved Apple, Apple that we know today? This is not me saying it. This is John Scully saying it. So read it on the internet. Okay. Sounds to me like a yes. What are the four technologies you think are going to change the world? Well, in my opinion, it is going to be AI.

12:22It already has a fantastic effect. It is quantum computing, which of course, as physicists spend a lot of time on. It's synthetic biology. And And I think it's also going to be the blockchain and smart contracts. I'm one of those people who think that AI is not overhyped. I do think that AI is the most amazing technology that we've ever come across. And Alan Turing, of course, was in many ways the father of AI. And he believed, even as early as 1953, that computers eventually will be able to be intelligent and rival human intelligence. So I do believe that AI is going to be one of the great technologies.

13:18What's the upside and downside as you see it? What do you think is the best case that we get with AI? What's the worst case that we get with AI? Let's start with the worst case. I do share the worries that indeed Jeff Hinton has about AI being let loose and being abused by people. His worry, which I share, is that the speed of progress in AI is so fast at the moment that it is very hard for the way we organize society to accommodate that speed of change. So that is a worry. My optimistic hope is that AI will contribute to quality models of the world, including economics and all the sort of important decisions that politicians and we as humans have to make, that these models are good enough and have enough predictive quality so that you can run what-if calculations and what-if scenarios.

14:36So when we come to decisions like climate change, you can say, well, we can reduce CO2 here or we cannot. This is what the model predicts. And we then have to choose what to do. But we know the consequences. And if you're honest with people, show them the scenarios. I think they will make rational decisions. So I do want to ask about quantum computing. I'm wondering what the most simplistic terms that you have about why it will make an impact for us could be. Well, first of all, the amazing fact that quantum computing is so fundamentally different from the rest of computing. And is the reason why that's so exciting?

15:25Because to your point earlier about things like climate change and real problems around energy, fuel, poverty, food sources, etc. These are questions that can be queried by computers that are exponentially more powerful than the current models we have to solve some of those big problems. Well, the excitement about quantum computing is that it actually can make a contribution to all the really interesting problems that we still have that we can't tackle with classical computing. And they are these very large optimization problems. So they're finding and modeling quantum systems. Again, quoting Richard Feynman, why on earth would you want to use a classical computer to simulate a quantum system?

16:15You should use a quantum computer to simulate a quantum system. Why are quantum systems so important? Well, because all the molecules are quantum systems. So if you want to make any progress in drug development, for example, this is basically a quantum mechanical problem. You want to find out how a small molecule finds a particular binding site in a protein and then has its effect of stopping that protein doing things that you don't want to do it or indeed encouraging the protein to do things that you want it to do. Other than I get why physicists would be excited by it, what difference does quantum computing make to the average person who might be listening?

16:59It sounds to me like the answer might be, for example, solving cancer. Well, indeed, yes. If you could speed up the drug development and maybe ideally in the long term do drug trials in silico rather than on a quantum computer rather than on people over many years. Because it takes about$2 billion and I think 12 years to develop a drug. So if you could reduce that to just a few months or a few years, it would completely change the pharma industry. from a practical point of view you mentioned uh quantum computing ai synthetic biology and then you said something i just wasn't really expecting which is blockchain and i think that's probably because blockchain out of all of those well i mean maybe not ai but you know is has had its hype moment it has um and it's been at that sort of sort of failure to aspect of finding real consumer breakthrough arguably bitcoin is the best known usage of it But it seems sort of stuck, I would say.

18:03So what is your view on why blockchain still matters today? Well, first of all, it hasn't burst. You know, it is already an absolutely huge market. The problem is, at the moment, it is still very fraudulent. Lots of people use blockchain and bitcoins for illicit trades, and there are lots of scandals and lots of scams. And that, of course, distracts from the fact that the blockchain technology and the mathematics behind the blockchain technology is very sound. The great excitement I have about the blockchain is that in combination with smart contracts, it enables us to automate business processes and increase the efficiency of our economy.

19:03If central banks are involved, as opposed to the Wild West that we have at the moment with Bitcoin, with fantastic gyrations of the price of the Bitcoin, then we can get the benefits of digital currencies, which is zero cost of payment transactions, instant transactions. And I'm delighted that we've got major initiatives on the e-pound, the e-euro, the e-dollar. And then, of course, there is the e-huan, which has already been rolled out in China and is used by 180 million people. So but it's the smart contracts that are not just the payment system, but the ability to agree on a business process and then have the automatic implementation of it through the blockchain mechanism.

20:02All of this is to say you have some unbelievable and rare creds, as Gen Z would call it. Now, in 2010, you predicted some big tech trends that were upcoming. I'd love to know, you know, briefly, as a little interlude, which ones of those have succeeded and which ones have bombed? There have been some disappointments, like fuel cells, for example. I expected fuel cells to be much further along than they are right now. So stem cells is probably the single most exciting development because although it's not big news yet, the fact that we can produce stem cells from normal skin cells using the Yamanakta transcription factors, the four transcription factors that Yamanaka-san got his Nobel Prize for, to take a normal mature cell, like a skin cell, and reverse it back into an embryonic stem cell.

21:13These are called induced pluripotent cells, which then can act as a starting point to create any of the cell types that we have in the human body, up to 200 cell types, is exactly that breakthrough that I talked about earlier that enabled synthetic biology and is the basis for Optiox, which is the patented technology that we're using at Bit.Bio to create these very high-quality human cells. There's a well-known saying, which is, America innovates, China imitates, and Europe regulates. In the view of that statement, in post-Brexit Britain, but realistically across Europe as well, do you think Europe is kind of screwed against America and China for technological advancements?

22:04No, I don't. And the reason why I don't is a recent Atomica report has pointed out something that we people in Europe who like to be doomsayers and knock ourselves down. And if you actually look at the figures, there are some encouraging news. First of all, our university system produces outputs, research outputs, which is comparable to the US. So we don't have a problem with respect to the production of IP in the first place. Secondly, Europe produces more startups than the US, it's a little known fact. So we actually don't have a startup problem. We've got a scale-up problem, but we don't have a startup problem.

22:56Thirdly, we have more software programs in Europe than in the US and more AI specialists. But the most surprising thing of that report really was that we have a net immigration into Europe of technology specialists from the U.S., not the other way around. So there is this myth in Europe that everybody wants to go to Silicon Valley. And Silicon Valley, of course, still is the leading technology hub in the world. But there are more Americans preferring the European lifestyle rather than the other way around. Presumably predominantly into the UK where there's a real focus on AI. In London anyway, London and Cambridge.

23:41No, it's actually surprisingly spread out. So Lisbon, for example, has a great community of Americans that love Lisbon, including Tony Fidel, who also spends a lot of time in Paris. Paris is very high up the list. London is number one. There's no doubt about it. But it is surprisingly evenly spread across Europe. Now, the big problem that we still have is scale-ups. So when a startup has shown that they do have a world-beating idea or product, et cetera, then in America and in China, it must be said, mainly through government funding, people are willing to put the hundreds of millions of dollars behind that company to make them a global winner.

24:36And that is the firepower that we lack in Europe. It is getting better. We now have a few hundred million dollar financing like Mistral in AI in Paris, Pascal again, a quantum computer company. It is encouraging. It is happening, but still far behind the US and China. I had a lovely interview with Lionel Barber. He says that he interviewed you for his book gambling man so i've got a video here of a question that he said that we should ask you are you ready to watch it we're going to get your uh your reaction sure and um and see what you think what should we ask him oh you could ask him that do describe how massa tried to persuade you that the arm deal was a good one for soft bank and britain you'll get a great answer i've got it in the book.

25:39I won't spoil it. So? Man, he didn't persuade me at all. I voted against the takeover from of Arm by SoftBank. And he said, you know, Herman, I am going to look out. Don't worry, I'm going to look after your company. You know, it's not my company anymore. You're paying 32 billion pounds for the company. It's yours. And it is true that he did look after Arm. He kept it independent until he wanted to sell it to NVIDIA, which fortunately we managed to prevent. This was a hard fight. And I'm pleased to say that a number of companies, you know mainly Qualcomm in the US had much more effect on that than I did.

26:43But how do you you know in that scenario like what kind of influence do you still have in a conversation like that? So you're not saying you know actually we were able to stop and setting it to NVIDIA sounds like you know you and a bunch of other people but what happens in a scenario like that? Do you still have voting rights? I have no voting rights at all. And I'm not on the ARM board. You know, of course, I was a shareholder at the time, but we had to sell all our shares when Masa took over. So I had no official relationship with ARM at all. However, all the the main merger and acquisition authorities in the world, and it was the CMA in Britain, the European Merger and Acquisition Authority, and the FDA in the U.S.

27:38all talked to me about this and wanted to have my view on whether it was a good idea that NVIDIA took over arm. And I, of course, I also wrote to Boris Johnson at the time to say that this was a bad idea. And surprisingly, the CMA in the UK was quite robust against the takeover from CMA because, as I called it, that ARM is the Switzerland of the semiconductor industry, and a lot of the value of ARM is in the fact that ARM evenly deals with all the licensees. The winning argument in the end, which was produced by Qualcomm, Qualcomm had an excellent lawyer on this that I talked to a lot, and he phrased it like this, which was, I think, the winning argument, that NVIDIA both has the absolute ability and the strong incentive to disadvantage the other licensees by developing special versions of the ARM.

28:52And then it's anti-competitive. Just for themselves and be anti-competitive. So did Master Sun steal the UK gen of technology? Well, the rules of the game of the London Stock Exchange is that anybody can make a bid for a company. He bid 43 % above the price at the time. And all the people went to sell because they got a 43 % profit over the share price. And these are the rules. And that's why he won it. But this does highlight a bigger problem, doesn't it? Because that is the most valuable IP. than therefore, I guess, the UK has ever produced. Yes, it is. And we sold it on the cheap. With hindsight, absolutely, yes, because it was sold for$32 billion.

29:38$32 billion in COVID and it's already worth$170 billion market cap today. So look at that. It's offensive almost, but it's a perfect summary, isn't it, of the way that the UK thinks small, not big, in the position of power we could have in the world. Sadly, yes, that's the case. but of course a government didn't have a golden share or a rule where it could block such a transaction. I think the government laws are now more powerful than they were at the time. So if such a transaction were to happen now, I think there would be more deliberation about whether or not to let that go through. So it's one thing to make such unique, incredible technology.

30:28There's another thing to make it succeed. What do you think is that sort of je ne sais quoi, your, I guess, investor hat on? What is that je ne sais quoi to create an actually commercially successful technology company? Well, I always mention three criteria that I use to assess the potential of a new technology company. The first, of course, is the size and growth rate of the market, because unless it's a big thing, why bother? So really it has to be an important project. The reason why I say size and growth rate of the market is a Cambridge example that we have called Cambridge Silicon Radio, which became a very successful Bluetooth company which we sold to Qualcomm for$3 billion.

31:19When I invested in Cambridge Silicon Radio, there was no Bluetooth market. So the size of the market at the time was zero. However, I believed in the growth of the Bluetooth market in the smartphone. In order to invest in this company, which we did, I had to believe that there was going to be a Bluetooth market which didn't exist, that we could beat the number one radio company in the world, which was Ericsson that already had a chip. And I had to go against the advice of all my silicon friends in the valley. And as is sometimes the case in Cambridge, the spin-out from CCL did manage to produce the first single-chip Bluetooth company, and it became the standard in basically all the buds that people wear now with the Bluetooth connection to the mobile phone.

32:12The second is the quality of the team, and there, of course, I really scored with that team. I knew they were brilliant from CCL. Maybe all the things that I've learned over the years is a gift that VCs need to have is to assess whether somebody is really an outstanding entrepreneur or a technician or not. And then the third criteria is defensible technology. And in the case of this Bluetooth company, Cambridge Silicon Radio, we had a patent on this single chip implementation, which created a lot of value in the company. Got it. So three key criteria to commercial success. And I suppose quite often you might find two and you have a brilliant company, but doesn't quite go as far as those examples.

32:59Yes. I should also just add that the order here is very important too. So the market is the most important of the three. The team is more important than technology because I have seen so many cases where an A team with C technology will beat the C team with A technology. Going the other way, what's the dumbest thing that you see most founders do that kills their startups sadly and it happens quite often they fall out with each other uh you know and what do you do if the founding team doesn't get on with each other in 30 40 years you uh you may be starting to consider your will and um what you do and where you leave your legacy obviously you've got your footprint all over or fingerprint for sure all over uk tech and beyond in europe as well um what Where do you plan to donate or leave money in your will?

34:02With our charity, we have two main themes. One is education and the other is entrepreneurship. And of course, putting the two together, education and entrepreneurship is very important. That's why I run a summer school in the Tyrol every year, which is run for the 10th year this year. and it's again one of those extremely unlikely things that seem to have happened in my life. It was really my cousin, Josie, in the Tyrol who said, Herman, it's really all happening in high tech in Austria as well. We've got to do something. I said, Josie, leave me alone. I've been trying to do this in Austria. It's a hopeless case.

34:47I did various lectures in Vienna and I remember these lectures on venture capital and high tech. And this guy puts his hand up at the back and says, now, do I understand this correctly? You want to have part of my company, and then you want to go on my board, tell me what to do? Who the hell are you? I said, well, you know, strangely, I've got a line of people in my Cambridge office who think this is a good thing. So at that time, you know, Austria was just so far behind that they hadn't understood venture capital and that VCs can actually help companies to succeed. But he wouldn't let go, my cousin.