270. AI minister: How we build a trillion dollar AI company

0:00Do you think it is plausible if we ever have another deep mind that it could become a global leader while remaining essentially a British business? The narrative being that we're nowhere in AI. The narrative is we're nowhere in AI, we don't have particular strengths, that we are only focused on sort of catching up and adoption rather than being in the frontier. We can do both of those things and we can do them really better than pretty much most people in the world. Kids are using AI and they're using it in a way where they're finding increasingly it's hard to tell between fact and fiction. Is there blue sky thinking going on in government about that scenario?

0:51Hello and welcome to The Rest is Money with me, Robert Peston. Now, as you know, Steph and I have spent an enormous amount of time on this podcast querying whether this government is preparing the UK properly for this AI economic industrial social revolution. And we have been, let's be clear, doubtful that the government gets it. Now, believe it or not, there is a minister for artificial intelligence. His name is Kanishka Narayan. And I'm delighted to say that Kanishka is joining us today. He's here because he wants to tell the world about this£500 million investment fund that the government is creating, a fund for investing in AI.

1:45But it won't surprise you that I want to talk to him about a whole raft of other questions, such as, is the government changing the education curriculum appropriately for an AI world? Are they thinking about how they'll raise tax revenues when there are no humans in jobs? How will we pay for schools? How will we pay for welfare? So a ton of stuff to talk to Kanishka Narayan about the Minister for AI. Here's our interview. Kanishka, very good to see you. Now, I've got open on my phone sovereignai.gov.uk, which appears to be an advert for all the great British people who made all the breakthroughs that led us to this moment.

2:37So for years, underrated Ada Lovelace, Alan Turing, the great genius without whom we wouldn't have today's AI world. We've got, obviously, Tim Berners-Lee. We nod at Dennis Asabis and AlphaFold, which is his incredible breakthrough where, you know, he's able to sequence all proteins as a result of, you know, DeepMind's astonishing prowess. And this was a number of years ago in AI. But I'm struggling, if I'm completely honest with you, to understand from this website what it is, because this website is sort of advertising this up to£500 million fund that you're launching for AI. It doesn't really tell me what it's going to do.

3:24So this is your opportunity to fill in the gaps and tell us what is this£500 million fund for. Great. Well, thanks, Robert, and thanks for having me on. Let me justify the website and then I'll tell you about the fund. So the website is effectively driven by this sense that in Britain in particular, I used to spend some time investing in tech in the United States. In the US, the reality is pretty good in technology, but the narrative about technology is just way ahead of reality. And if in fact, it pulls the reality up and into the future. And in Britain, we have the opposite challenge, which is that the reality is pretty good.

3:56We have an amazing history and heritage of all the people you talked about. And even the present reality is very good. But the narrative just drags us down and again and again. And so the attempt here - Or the narrative being that we're nowhere in AI. The narrative is we're nowhere in AI. We don't have particular strengths that we are only focused on sort of catching up and adoption rather than being in the frontier. We can do both of those things and we can do them really better than pretty much most people in the world. And so the website was a teaser as we were thinking about launching to say, let's build up some excitement about the story of Britain when it comes to AI.

4:25And then the specifics of the fund are like the fund was driven by the sense that in the last wave of technology, we let too many companies start by fantastic entrepreneurs, but ultimately leave when they were thinking about scaling. And we want to avoid that with AI. And so the fund is focused on early stage getting indoors with the companies, one to 10 million pounds of investment in some of our best AI companies, but companies where we will then not just use the cash, but every other lever of government, public policy, procurement. data, visa support, all of that together to anchor those companies more and more in the UK.

5:00Kanishka, there's a ton of other stuff we need to talk about, but let's quickly go to a break.

5:07We're proud to say that The Rest Is Money is powered by Octopus Energy this year. Greg Jackson is back to answer another question. Now, this is something that we see a lot that I wanted to ask you about. When you start in something new, how do you think about risk and momentum? I think people think entrepreneurs love risk, but I'm not sure they do. I hate it. I never buy individual stocks and shares on the stock market. I don't gamble. I think the thing about an entrepreneur for me is I've got more control. When you're working for a company, every day you're at risk of what that company chooses to do with you.

5:42If you're an entrepreneur, actually you've got far more say in what happens tomorrow and next year than when you're at the mercy of your bosses. Nice one, Greg. Well, thanks to Octopus Energy for powering this episode of The Rest Is Money. K-pop Demon Hunter's Saja Boys breakfast meal and Huntrix meal have just dropped at McDonald's. They're calling this a battle for the fans. What do you say to that, Rumi? It's not a battle. So glad the Saja Boys could take breakfast and give our meal the rest of the day. It is an honour to share. No, it's our honour. It is our larger honour. No, really, stop.

6:18You can really feel the respect in this battle. Pick a meal to pick a side. A participant in McDonald's while supplies last.

6:31All right, so let's actually get into some of the detail of this. I mean, actually, you know, one of the proposals I actually made in a book that I published before the general election, it's called How to Run Britain, was indeed that the government, given that we don't have Silicon Valley, I mean, obviously we have venture capital funds in the UK, but we don't have either the risk, high risk taking early stage backers of the scale that they have in California. Perhaps the biggest deficiency of all is we don't have the capability to take small companies global. We don't have the scale up finance.

7:12So I was making a very strong recommendation in this book that the government is one of the, in a sense, few institutions that can take the kind of risks that are necessary for the kind of returns that you can generate and that government ought to do this. But I'm a bit unclear about how much risk your fund will actually take in practice. Yeah. Well, I think I think the diagnosis is exactly right. You know, I used to invest in Silicon Valley and in the UK. The UK ecosystem is about eight times smaller. Now, you could say when you scale GDP, that's not totally out of kilter. But broadly, we think we can do much better in this context.

7:53In terms of risk specifically, you know, I have to place it in the wider context of all the other parts of capital the government is putting up. So we have an earlier stage, the riskiest bets that we're taking and therefore very focused in terms of early innovation are through UKRI and Innovate UK. that I know my colleague Patrick Valance has spoken to you about. What this is focused on is saying, by the time the British Business Bank comes into play with 20 plus billion pounds of capital, and then the National Wealth Fund, sometimes we lose companies between the very early stage university context and the scale of capital context.

8:26So this fund is very dedicated. So this is like a round two or a round three funding. This is round two. We call it seed or series A in kind of venture language. So this is very early stage still, but you've commercially spun out of the university. You're very focused on the commercial context now. And so seed and series A, very early door still, get inside, play all the other levers of government well so that the companies have the best chance of scaling. And when they scale, because the government is involved early on, we can help them with scale of capital through our other institutions as well.

8:54Just to be clear, would the criteria that this fund would use for determining whether to invest, would it be, would they be the same criteria as, I don't know, a Sequoia, for example, one of the biggest firms in the world, you know, rooted in California? Or, you know, I guess we've had on this program, very successful UK venture capitalists, Saul Klein. Would you be using the same criteria as he would be using? Or will the government be, I don't know, looking for different standards and different returns? There are two aspects to the criteria here. One is we want this to be an exceptional performing fund because ultimately we're focused on companies that can move the needle for the GDP of this country.

9:42and so you have to make sure that you are taken seriously by the wider ecosystem. If I'm a top-tier founder, I think this is a valuable thing rather than just a sort of I can't get capital from Seoul, I can't get capital from Sequoia, so I come to this. So we have to hold very high standards when it comes to portfolio-level returns. But the second thing is that we also have to say what is different about taking money from government and for that reason, a criterion is going to be are you a company which is relevant to UK sovereignty? And we would define that very broadly. Are you relevant to national security?

10:14Are you relevant to ultimately a path which makes this a trillion dollar company and therefore has huge economic implications? Or are you relevant in particular to aspects of life sciences and science, which we think are core anchors in sovereign build out of the future as well? So there are some distinct areas. We are not looking at sort of primarily commercial applications, for example, will probably be less likely to meet the filter because we think there's a very active venture market there. So high quality returns, a great fund, but at the same time, really focus on this anchor, which is how can the UK build companies of GDP level impact in this country?

10:50Are you, which is something that government has historically done, simply filling a gap? So would you expect only to invest in a firm that comes to you and says, actually, we just can't raise the money? Or is the criterion something slightly different from that, which is we can raise the money. Actually, we would slightly prefer not to take it all from Singapore or America. and therefore, you know, can you replace them as it were? So what is the criterion? For this stage, which is still early on, where we think there's a lot of capital available, the role is the latter. So the role is I can probably go and raise this money from a bunch of other people, but the problem has been that every time we've tried to do that historically, we've had to go to the United States, we've had to go to Singapore, we've had to go to Canada.

11:45by having UK investors, including Sovereign AI around the table, the chances that this remains a great UK company and is supported to be anchored here in the UK, those chances go up. Now,£500 million seems like a lot of money, but I was quite struck. I don't know if you've been following the career of somebody who sort of started out with Demis Osarby's bloke called David Silva, who was with him at Cambridge, with him at DeepMind. And, you know, it's been really, you know, was the leader of the AlphaGo project, which is, again, one of those great AI breakthroughs where, you know, AI, you know, defeated a Go, you know, this incredibly complicated game, a Go world champion.

12:34Right. He is setting up a business. He launched it only in November. which is called ineffable thinking. And apparently it's already got a value of 4 billion in terms of the fundraising that it's doing, but it's raising hundreds and hundreds of millions of pounds. And all of it's frankly from America as far as I can see. I mean, the lead investor here is Sequoia. Now, you might argue that this is precisely the sort of business that we should be trying to keep British. But if he needs hundreds of millions of pounds, British government hasn't got hundreds of millions of pounds. So it is inevitably going to be backed by American venture capitalists.

13:17Shouldn't we worry about that? Well, I think the main thing I'd say is that there are going to be amazing businesses. And David has an exceptional background, is going to build, I think, an incredible company in the UK. There are going to be businesses which will raise from US venture capital investors, partly for scale, partly for expertise, actually. we still have some great investors elsewhere who I think are good targets for UK founders. So it doesn't really worry you that in this particular instance, it's not going to be financed by British money? I want David to create a generation-defining company, and I want him to do it in the UK.

13:53If that means that some of the capital comes from abroad, that's okay. What I do want to make sure is that the UK, both in the private sector and in the public sector, is being the best partner to him. So he feels like he can keep the company here and achieve the best success he can. That is why we've been very deeply engaged with David. I hope he'll say to you, if you speak to him, that he has the sort of support he needs from the UK government. And it's my job to make sure that continues. So he stays here. Now, the other thing on the website we were talking about is, the other thing on there is a job description and a way of applying for the job of being the managing partner of this fund.

14:33Have you had many applications? We have had a ton of applications. I can't wait to talk to you about the appointment. I think the whole country and the ecosystem is going to be surprised at the quality of applications and the quality of the final appointment. I'm very excited about it. And that's, I think, a latent thing, which is that more and more people realise not only is this one of the most defining questions for economy and security, the future of AI, but more and more the best place to have an impact. We've seen this in the AI Security Institute on security questions. The best place to have an impact can be the UK government.

15:03Will they feel, do you think, that they are running a government institution or that they're running a venture fund? I want the day-to-day experience to be that of a venture fund. I think this only succeeds if we are the best partners to founders and to the wider set of investors in the ecosystem. People take the government signal seriously rather than as a sign of poor selection. That said, I want the managing partner to feel that they have all the levers of government at their disposal. And so we want to make sure that from a procurement point of view, there are pots of money, which means that they can call on government as a customer playing a role as well.

15:40from an investment point of view, that they're able to engage where national security questions are concerned to understand what is needed in those contexts as well. There is a huge amount government can do on visas and talent support as well. All of that made available, but the decision making, the culture, the pace has to be top tier venture. And in terms therefore of the culture, would this individual and their team get a profit share? I think the one area where we haven't done that is in the profit context. And that's because, you know, of course, it's very competitive at the moment in venture, people are making lots and lots of money.

16:14But the thing I felt, you know, I quit venture capital to do politics, because I felt it would make a big difference. I think there are a number of people who are now willing to focus on purpose and impact, if they feel like they can genuinely have the discretion to have that impact. We have been able to find that. Somebody who is maybe already made quite a lot of money, but now wants to do public service. We've had exceptional applicants, really top tier, experienced investors in this country and abroad who want to do this job. I feel very convinced that the offer of purpose with discretion is the right offer.

16:45And did you think about, however, a slightly different approach, which would have been to essentially have a blended fund, get some private sector money in? Because that arguably might have created more of that risk-taking entrepreneurial culture if you had, as I say, private sector money blended with yours and then a team that could perhaps share in the profits. Yes, the big thing I'd say is this is not the only shot we're taking a goal. This is one shot. The British Business Bank invests in a number of UK venture capital firms, which is exactly doing what you're describing. The government being a limited partner, taking a stake in those funds, but the funds being private sector funds, the right culture, the right decision making.

17:33In this context, we felt it was important from an information access point of view and the ability to use all the other levers of government, procurement, visas, data, that it was a bit more internal to government whilst having the culture and the decision making of venture. That's what we're trying to do with this. But it's not a needle. It's yes and both of those. And I want to sort of move the conversation onto another aspect of your responsibilities as Minister for AI in a minute or two. But I suppose if I were applying for this job, probably the first question I would ask you if you're doing the job interview is, OK, I have identified this amazingly exciting AI business.

18:21You know, if we invest, I don't know, five million pounds, can't 100 % guarantee we'll make a fortune. But, you know, we've kicked the tires, we run the due diligence, looks fantastic. Do I then have to wait six months for the Treasury to sign it off? Yeah, the answer to that is exactly no. The whole point of doing this was to set up something that could work at the pace and with a risk culture or venture. And so in every single aspect of design, including, by the way, you know, it might sound like a small thing. The reason that website looks like it, it does, unlike any other government website, was because in every small aspect of design and detail, I want this to sound and feel like a venture firm, which is the top tier firm.

19:05And so in terms of pace of decision making, we have agreed governance context, which means that it can now move at the pace that you would expect in venture as well. And we want that to be true of every other aspect of working with sovereign AI. So, you know, if a firm comes to you and says, look, you know, we can raise this money within the next three weeks from, as I say, this Singapore fund or this California fund. So we need an answer from you within three weeks. You'll be able to do that. Yes. OK, well, you know, proof will be in the pudding. Well, I can't wait for the first set of deals to be announced.

19:44you'll have seen that this isn't just a kind of promise in theory. We've actually already done this. Kanishka, the rollout of artificial intelligence, the artificial intelligence revolution is such a big subject. So much more to talk to you about. And in particular, I want to drill down into how the education system needs to change, how what young people are taught in schools has to be transformed.

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22:44So, you are the Minister for AI. I'm assuming you are the very, very, very first Minister for AI in the history of British government. I think the bundle that I've got of AI and online safety is unique, but we have actually had a couple of ministers before me. Have you? Oh, right. Who were your predecessors? I didn't notice. Immediate predecessor. So Farrell Clark did this job before me. I think Viscount Camrose did the job as well. Okay. Very good. Very good. Well, it's a shame you're not a Viscount, but maybe it's a matter of time. But anyway, there are so many big public policy issues around when it comes to AI.

23:21So I recently had a conversation for the podcast with Tom Blomfield, you may have come across who founded Monzo, now doing venture in California with Y Combinator. It was a very wide-ranging conversation. But one of the themes we discussed is the sheer pace now at which AI is reaching a level of competence, which means that in particular a whole astonishing numbers of white-collar jobs, just at this initial phase, look as though they are, for humans, going to disappear. And, you know, if you look at the pace of change in robotics as well, it is, you know, whether you think it will be absolutely transformative of the economy or just a big shift, you know, either way, we are living through a massive change in the nature of employment.

24:29Now, he is one of those people who takes the view that over the next five to 10 years, almost every job that you can think of will be replaced by AI. I think income tax will go away pretty soon, sort of five to six year time horizon. I don't think we will tax human labour. I think we will tax compute. The short answer to that, Robert, is I am thinking about those risks. I am thinking about both the employment context, the implications for a wider economy. We set up a future of work unit. It has now been expanded into a wider AI economics institute that the Chancellor set out in her Mays lecture as well.

25:04And I want Britain to be the best in the world at having the quickest understanding, both existing signals of what is happening in the labour market and within firms, but also thinking long term about exactly, as you say, transformative AI scenarios and where public policy can go. In terms of, this is another cultural question, we're talking a lot about culture today. To what extent, because one of the problems, and this has been the reason why we weren't prepared, one of the reasons we weren't prepared for COVID, ministers tend to focus on today's problems and at a push, what are the things we need to achieve before the general election?