Tech Deciphered

Final episode on AI and generative AI, including start-up and VC landscape, regulatory & privacy environment and what does the future hold, with answers to such important questions as, can AI kill us? (spoiler alert: yes, it can).

Navigation:

Intro (01:33)

Start-up and VC Landscape (02:13)

Open-Source (08:31)

Regulatory & Privacy Environment (14:31)

The Future (21:18)

Conclusion (31:17)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

-- Introduction --

Nuno

Welcome to Episode 44 of Tech DECIPHERED. This is our second and last episode on Artificial Intelligence and generative AI.

Nuno

In the last episode, we introduced AI. We talked about what's happening around generative AI as well as verticals and what the big guys are doing. In this episode, we will go further into what's happening in the startup and venture capital landscape, the open source landscape, the regulatory and privacy environment, and we'll end by talking about whether AI will save all our lives and save the world, or whether it will kill us all.

-- Start-up and VC Landscape --

Nuno

Maybe moving to startups, obviously, there's been a lot of funding into companies that are now at the forefront of some of these big shifts. We talked about stability AI that had raised over 100 million from players like Lightspeed and others. KOTO, I believe as well, that are responsible for stable diffusion. We've seen in the past very well funded startups in the AI space not necessarily then scaling or doing very well. But at the end of the day, there's definitely been a lot of funding. What is the current crux of the matter if you're a venture capital firm and you're looking at this landscape?

Nuno

The crux of the matter is noise. You see all these, "Okay, I'm chat GPT for something, or I'm an app that's going to run on top of existing platforms using generative AI."

Nuno

Generative AI is the new blockchain. It's a new Web3. It used to be in all pitches two or three years back, Web3, tokenization, token economics, et cetera. Now everyone's like, "It has generative AI." My, again, relatively simplistic view of looking at this is I think of it as an app economy. In the same way that we had the launch of the app store in 2008 and we had mobile apps, initially everyone said, "Oh, that's not an app economy. This thing is never going to amount to an economy." It did. We now know that mobile first and mobile app is an economy. We have two proofs of that in this podcast.

Nuno

It is also true that I believe what we're seeing right now is a similar thing to an app economy. This doesn't mean that we're not going to have some significant revolutions around AI and new platforms emerging that everything is going to be based on. I think we will have that as well.

Nuno

But at the same time, when we start seeing people saying, I'm going to use the tools and platforms that exist today to do an application specifically around this, which will be really cool and will take productivity to the next level, most of these will fail, like most apps failed. Some will potentially win.

Nuno

The notion of generative AI first is how I look at it, is for me a bit analogous to app economy like we saw with mobile. Some will rise to the top, very few. Most will fail dramatically. There will be a tons of noise. For us as investors, as venture capitalists, the complexity is to understand how can I reduce the noise level? How can I look at companies that are real and not fraud and not BS? Within the companies that are real, which companies are of a high likelihood of having a shot at this? Are they creating a new market or tapping into an existing market that they can corner?

Nuno

I think that's the real dilemma of VCs right now. I've seen a lot of VCs that have never talked about AI before now talking about AI. I think it's a bit facetious and a little bit maybe intellectually dishonest at this stage. It's becoming the new thing everyone needs to jump into AI. I feel there's an app economy coming. You can invest in some of these companies to the next level and really build behind that.

Nuno

Then second part of our thesis, certainly at Chameleon, is very much that AI is going to be in everything. There's a lot of companies that we invested in that were not generative AI companies even. They were actually using deep learning methodologies and techniques to do their business, but they were not actually generative AI companies. For them, it's a feature extension. Having a generative AI proposition to their product line makes sense.

Nuno

It's not like a new thing. It just makes sense to actually amplify their feature set by having a generative AI play that they can now use to cross sell or upsell on their current and new clients.

Bertrand Schmitt

Yes, it's clear that as an investor or course, as an entrepreneur, you really have to question where do you want to position yourself in that range of possibilities? You clearly see the biggest tech companies in the world investing like crazy in AI. In some ways that's scary. Usually you want to invest in space where the cannot invest for some reason or where they are not investing or they are not focused here. Ai for sure, they are investing.

Bertrand Schmitt

Two, you can see some incredibly well funded startups as well, from Open AI to Anthropic. It's a tough space to be a pure AI player today. Then you can think about investing in infrastructure, and we can see a lot of interesting companies in the infrastructure space from Hugging Face, for instance.

Bertrand Schmitt

There is a space there as usual. There is also, as you said, the question of startups who are just going to do better what they do, thanks to AI, as they will increase their efficiency, as they will be able to propose new features that will make the product more attractive. One question will be, are there opportunities for startups to disrupt existing software? The same way that Saas had disrupted traditional software license, traditional CapEx software, then mobile has disrupted traditional computer software.

Bertrand Schmitt

Is there a way to disrupt some existing space, thanks to AI, I think that would be the question for new version of what we do today, but in a more efficient way, or is it just an opportunity for the existing player to just do better? They have some advantage because they already have customer data, obviously. As an investor, that would be a big question. Do you want startups with AI in your name, or do you want startups that are just focused on the value proposition that finally we can really do better or solve or do at a more cost efficient way?

Nuno

Maybe four or five years down the road, there won't be any distinction. AI will be literally everywhere. It's more of, are you an AI first company or not? Are you actually creating a platform or infrastructure on the AI or are you creating an app around the AI? It will be more of a stacked discussion rather than are you using artificial intelligence? Everyone will be using artificial intelligence, I have no doubt.

Bertrand Schmitt

In a similar way, everyone had to go to mobile. It's pretty rare that you don't have a mobile offering. The same way that actually you don't talk about the fact that you have a database running your system. At some point, it was a new thing, having a database, a relational database. Now it's obvious everyone has one. It's not a differentiating factor.

Bertrand Schmitt

If you remember 20 years ago, the other new stuff was to have a website. I think some of this, over time, you either adapt or die. For sure, some new entrants will try to try to take advantage of this to position themselves against existing players that are slow to move.

Nuno

Well, we're getting back to the... I have to give a mea culpa here, and the definition of AI is like electricity is going to be everywhere, or it will be like electricity, and I used to opine that it was a non nuanced definition, but I have to now say I probably agree with him. It will be effectively like electricity at some point, or different degrees of electricity distributed in different ways.

-- Open-Source --

Nuno

Let's talk a little bit about open source, the real open source. We have incredible movements around open source. We see players like Google being a little bit concerned about this. Is there a fundamental moat or not? Is there?

Bertrand Schmitt

I think there was this fantastic article that looks like it was a leak from someone at Google. The title was Google, we have no moat and neither open AI. Acknowledging that potentially all this talk about you need to have a mass, a huge quantity of data in order to train an AI, you need a huge quantity of capital in order to build advanced AI might actually be wrong.

Bertrand Schmitt

That's a very interesting take because today that's one of the biggest question. At least if you look at the chat, will proprietary models win from Open AI, from Anthropic, from Google, or will open source models win? That's a very big question because it will drive very different, fundamental cost situation, but also monopolistic behaviour.

Bertrand Schmitt

One interesting reference point is image. Generative AI for image in 12 months, from open AI being transformational, leading a new wave, to actually stable diffusion taking over and replacing it and being the leading solution, except that stable diffusion is open source....

The truth about Artificial Intelligence and Generative AI. This is the first of two episodes on AI.

Navigation:

Intro (01:33)

What is AI and AGI? Why now? (02:07)

Setting the Record Straight (08:55)

Verticals (20:30)

Other AIs (28:48)

The Big Guys (31:20)

Conclusion (38:38)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Bertrand Schmitt

Welcome to Tech DECIPHERED Episode 43. This would be the first of a series of two episodes on AI, AGI, generative AI. A lot has been happening in the past six months and we felt it was a great time where not everything is clear yet. The fog of war is still intense. There is probably a little bit more visibility into where things are going. It would be with pleasure that we'll talk about this deeply fascinating topic and for sure one of the topics most discussed today in tech.

What is AI? What is AGI? Why now? (02:07)

Bertrand Schmitt

Nuno, maybe we should start with trying to define what is AI, what is AGI, what is generative AI?

Nuno G. Pedro

Easy task. AI is what is in the name. It's artificial intelligence. It's typically seen as a branch of computer science that is looking at creating mechanisms within machines that, in some ways, are similar to human intelligence or practically speaking, would refer to human intellect.

Nuno G. Pedro

Now, as we know, machines can't think. That's still true today. So they do this through very complex mathematical models that get implemented normally through software and hardware combinations. Then within artificial intelligence there are different fields of artificial intelligence.

Nuno G. Pedro

In the good old days, people used to talk about weak AI versus strong AI, which is more general intelligence, where weak AI is normally more focused within a specific field of solution set. General AI and strong AI will eventually become our overlord and think better than us. Nowadays you will hear a lot of different things around artificial intelligence. You'll hear machine learning, you'll hear deep learning, you'll hear about natural language processing, computer vision, et cetera.

Nuno G. Pedro

All of these fields are fields of artificial intelligence that intend to emulate what we as human beings do. So computer vision basically would look at the automatic analysis of things that get processed through vision. Could be video, could be pictures.

Nuno G. Pedro

Natural language processing is looking at the interaction of machines and computers with natural languages and human languages, the language that we have. Deep learning, I would allege, is a subfield of machine learning. There's still a huge argument on that or whether deep learning is a different field or not.

Nuno G. Pedro

I normally see it as a subfield of machine learning where deep learning normally uses things like neural networks—we'll talk about neural networks later on—which are trying to emulate how our brain structures thinking effectively. In a nutshell, AI is a field of computer science. It's an evolution of computer science. Machines can't think for themselves, so they do this through very complex algorithms and techniques that normally use a lot of mathematics and quite a bit of data.

Nuno G. Pedro

Although we'll also have a discussion today on how much data do you really need. Are we past the times where you need massive amounts of data or not? In some cases, these techniques and algorithms also need to be trained. There needs to be some sort of training mechanism, potentially even human in the loop, basically telling the machine, whether it's classifying things appropriately or not.

Nuno G. Pedro

For example, in computer vision, is this really a monkey or not really a monkey, if you're trying to classify a monkey would be an example of that. But again, that's in generic terms what artificial intelligence is.

Bertrand Schmitt

Yes, and to build on what you just said, interestingly enough, the field of AI started probably at the same time as computer science per se started so in the 1940s. It's a space that's been alive, I can't say well all the time, but definitely alive and ticking for decades. Interestingly enough, it has probably been a field that started, I don't want to say too early, but definitely more early than we had the computing power to achieve what we were dreaming.

Bertrand Schmitt

That has probably created a lot of AI winters. If you talk to people experience in that field for the past decades, they have known some boom and some incredibly long period of bust, 10 years, 15 years where no one would want to invest in anything called remotely AI given some past experience of promising a lot and under delivering.

Bertrand Schmitt

I think things changed around 10 years ago with the advent of the latest GPUs from Nvidia, with the advent of new coding paradigms like CUDA from Nvidia as well, that let harness the power of GPU for this type of task much more easily, and obviously some new techniques in deep learning that let you train better and at more scale.

Bertrand Schmitt

Of course the availability and advantage of digital data at scale because since the 2010s we have the internet, we have books, we have content, we have audio, we have video, we have photos, we have everything online. Suddenly accessing data that you can use to train at scale model became finally much easier than it used to be, so a big dramatic change. What we are probably mostly going to talk about today as routes 50, 70 years ago, but really was enabled in the past 10 years.

Nuno G. Pedro

To be clear and just picking up on what you said, these have mathematical roots in things that have been around for many decades. Neural networks are not new. We're now talking about convolutional neural network CNNs, recursive RNNs, adversarial.

Nuno G. Pedro

We're going to talk about transformers. Transformers is probably something more recent. It's an adaptation which actually is credited with Google, which is funny because it's deeply used by OpenAI, but Google were the guys who came up with it. But in general, if we look at the field, it's been around for a long time. The mathematical basis of the algorithms and techniques that we use in AI today have been around for decades.

Nuno G. Pedro

To your point, what has fundamentally changed? If I had to synthesise it and summarise it computational power, obviously with the advent of GPUs now there's even ASICs so there are specific semiconductors that are very, very focused on the process saving of certain techniques of AI. Computational power has definitely changed. Availability of data at scale and the ability to process that data at scale and access data pipes has obviously changed a lot.

Nuno G. Pedro

I would say networks have changed as well. Latencies have come down, so if you want to process stuff in the cloud or even in your own processing power, in your own device, that has obviously simplified the whole story of it.

Nuno G. Pedro

In some ways, it's brute force. If we think about it, it's like a lot of data, a lot of compute, and it's brute force. Now we get AI. I think this is an important point because this will come back to why our AI agents or our AI overlords will not kill us immediately because it's still brute force. They're not really intelligent, they're just doing stuff. We'll come back to AGI, to general intelligence later on, but let's leave that positive note for now. They're hopefully not going to kill us anytime soon.

Bertrand Schmitt

Brute force is a good point because ultimately a lot of researchers argue that we are still very, very early. In many ways, if you look at the way human baby animals are able to do stuff that AI still cannot do today, they always point to the fact that we can learn much faster with much less data, in some ways. At least, that's one way to look at it about the world around us, the current way we train this machine.

Bertrand Schmitt

In a way, it is definitely a different type of intelligence we are building today with what we call AI. It's not human level intelligence and it's not trained the way you would train a human being. It's very different based. That's something to always keep in mind when you talk about AI.

Setting the Record Straight (08:55)

Nuno G. Pedro

What about Generative AI? We've all been listening to it. I'll open the hostilities and then you can tell us the real truth about generative AI. I'll open the hostilities by saying that in my opinion, generative AI is not generative at all. It's a very poor choice of words that someone at some point made on what generative means. I think it means generative within the context of the neural networks that it's running on.

Nuno G. Pedro

But it's not really generative. It's more of an aggregation of things. It's something that comes after something else that makes sense for that thing to comes after something else. That is true of images, it's true of text, it's true of a variety of other things. Sadly, that's what even GPT stands for, Generative Pretrained Transformers. That's a cool name.

Nuno G. Pedro

I think that's the first thing I would like to debunk. Generative is not generative at all. These things are not creating things. We'll come back to that later on, regulation and a bunch of other IP issues. But what is Generative AI, Bertrand, as we see it today?

Bertrand Schmitt

Yeah, that's a good point. I think it always go back to how do you train these models....

In this episode, we deep dive into the process of Venture Capital - how does it actually all work? - and what the future of VC holds. The end of our 2 part episode on the Evolution of Venture Capital.

Navigation:

Intro (01:33)

Section 1: The Process of VC (01:59)

Section 2: Stats on VC (19:03)

Section 3: The Future of VC (27:31)

Conclusion (38:40) 

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Bertrand

Welcome to Tech DECIPHERED episode 42. After our first episode, episode 41, sharing the history of venture capital as well as the business of VC, and we are starting episode 42 with the process of VC, as well as some statistics around VC and we will finish with the future of venture capital. Nuno, good to see you again.

Section 1: The Process of VC - (01:59)

Nuno

Nice to see you, and let's start with the process of venture capital. At its essence, the process of venture capital is we're funnel managers. We're not just fund managers, we're funnel managers. We manage a funnel. It's about how healthy that funnel is that a fund can return a lot of capital or not.

Nuno

So it's all about really two extreme positions in the funnel, the beginning of the end being deal sourcing, the quality of the deals you see in the market and the market is essentially—we'll come back to that later—has been very inbound driven. It's about people that come to you. That's why you needed to create a brand, people need to know that you existed, et cetera. I suggest that's about to change and that's we'll talk about in the future of venture capital.

Nuno

But it's about the quality of the deal flow that you have, your proprietary networks, your access to key entrepreneurs that bring you other entrepreneurs, your access to scouts, your access to the market and the quality of those deals.

Nuno

And then at the other extreme is selling the asset at the right time. And really normally you sell an asset either because the company is bought by someone else, or the company IPOs, and at some point you can sell it as public equity or the company fails miserably.

Nuno

I think in the last few years it's very obvious there is maybe a fourth mechanism for you to exit, which is secondary. Someone wants to buy your participation in that company and you can sell it to that other entity, be it an investor, be it a company, be it someone else. But maybe minority sale or selling just your stock rather than anything else.

Nuno

Also important to highlight in the business of venture capital, venture capital firms are minority shareholders. They're not majority shareholders, they're minority shareholders. They're just protected by special provisions because when they buy into the company, they buy into preferred shares. Their shares are paid higher than they should be, but then they get special rights. And then if that VC gets someone on the board, the board member also gets special rights in terms of approval, minority protections, et cetera.

Nuno

So it's not that VCs are dumbasses or stupid and they only want to have minority protection, no, we don't run your businesses, we don't want to own it. But we do want to have protections on your businesses to make sure that we are well represented, either because we're on the board or because we're a lead investor or we're a significant investor in the company.

Nuno

Two pieces of the funnel are top-end deal sourcing, top of funnel, bottom end of the funnel, end of the funnel, you liquidate the asset in some way or the other. There is a loss ratio. Companies will fail. This is high risk. Loss ratios vary a lot, the industry seems to have different mechanisms to figure out what the loss ratio is.

Nuno

Some people a loss ratio is below 1X, so you get cents on the dollar on a company is already a loss. Some say would be 50, 60, 70% of a portfolio, others would say maybe a little bit less. In this day and age, you can always get some money back. So maybe the loss ratio is a little bit lower than that.

Nuno

You will hear a lot about power law, that most of your returns will come from 2 or 3 companies in a portfolio that might be 25 to 35. There's this magic number of 20 to 30 companies per fund, which seems to be around. It has to do also with a number of partners and the positions you're in. It could vary a bit more. Obviously, if you're an incubator and accelerator, you will do hundreds of companies. But if you're like a classic VC firm, you might do 20, 30, 25 to 35 and all of that.

Nuno

But just to go back to the funnel, these two elements of top of funnel and bottom of a funnel are the essential ones. And then there's one, that I would add as a corollary, is you need to get into the deal. You can do due diligence or not, you can do whatever, but you need to get in the deal. That's pretty critical as well. So you can identify the company, but if you don't get into the deal, well, great, you identify the company and then what?

Bertrand

You spend a lot of manpower to work and the thing happened, that's not good.

Nuno

And getting it to the deal is more art and science. You need to be well known, you need to have a reputation, people need to want to give you an allocation, even if you're not the lead investor, even if they want to go with someone else to be the lead investment in that round. So getting into the deal is pretty critical here. The two extremes of liquidation and deal sourcing, which in the middle the dealmaking piece, that creates that added value.

Bertrand

Yeah, and as you say also, it's definitely a poor law at work. Some investments are going to generate outsized return, I mean, you could argue that the very definition of being a VC is outsized return on a few investment. The model for most funds of having a fund returner, I mean, one investment might return the whole fund, if not more. And then you have others that are bringing back 5X, 3X, and then you have quite a few 1X and ultimately you have the one who don't return anything.

Bertrand

Another term that I've seen used is a J-curve, where you talk about from deal sourcing to liquidation, that's what happened. You have to start investing money from your fund and usually you have your first four years of investment that are focused on investing in new companies, and the remaining of the term of the fund, as you said, a total of 12 years. So the rest of the duration of the fund is around, potentially some follow-on investment, but also quite a bit of exits, hopefully. And that's where the J-curve come back. Initially, you decrease the amount you have in your fund and step by step you get it back through the exit.

Nuno

Exactly. You can recycle capital and do a variety of things without necessarily always calling capital from your limited partners.

Bertrand

Potentially, yes.

Nuno

The funnel, just to be very clear, this is at least my taxonomy, is about deal sourcing screening. Deal sourcing is really sourcing deals, and screening is really that first conversation that you would have with the company. Then there's a piece around analysis which might be relatively high level and then the deep dive more into hardcore due diligence, data room analysis, looking at a bunch of data, doing outside analysis.

Nuno

If the VC firms normally, if they're hopefully any good, they will do their own analysis. For example, on market, they won't just trust your numbers on market sizing. Then there's dealmaking, negotiation, getting the deal, putting a term sheet in front of someone or getting into a term sheet that's already been signed, getting to an agreement, managing the lawyers as we we're talking before, then portfolio impact and management.

Nuno

So we've already invested in a company, now we need to create impact for our portfolio, help them manage it, be on boards, the ones that we got board seats or board observer rights and really create value to the company through our own selves, through our teams, through our institutional value and the operations that we've created in-house—we'll talk about that in a second—and then finally liquidate.

Nuno

So again, the two edges are sourcing and liquidation, but at the end you need to liquidate. The company needs to go somewhere. It's either it's gone or it's rebought by its partners or it's sold to someone for a lot of money or not a lot of money or IPOs, et cetera, that's the end of the funnel. Well, that's basically what we manage.

Nuno

This funnel is a complex funnel because if you look at it, it requires a lot of different skills, a lot of different elements of skills for you to be really good at. The skills that it takes to negotiate a deal are not the same skills that it takes to assess whether a market is amazing for a specific company or the skills that it takes to assess whether the team is exceptional and is gritty and can take it to the next level. All of these skills are super different. I always call it, it's the ultimate generalist activity that you have a huge unfair advantage if you have some deep spikes where you're really good at.

Bertrand

Yes, it's a complex process. I'm not sure if we have time to go deeper in every one of these steps. But for instance, deal sourcing that has been a lot of change, as you say, from an old boy network, proprietary network, to applying data science at scale and finding companies automatically with automated scraping databases, API access and filtering these machine learning,...

In this episode, we will go in-depth into the evolution of Venture Capital, including its History, the business model, process and operating model, and what its future holds.

Navigation:

Intro (01:34)

Section 1: History of Venture Capital (01:59)

Section 2: The Business of VC (15:27)

Conclusion (19:54)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Nuno Goncalves Pedro

Welcome to Episode 41 of Tech DECIPHERED. In this episode, we will talk about the evolution of venture capital. We will start it with its history. We will discuss the business of venture capital, what is it all about, and we will go into the process of venture capital. How do venture capital firms and funds actually operate? Finally, we will talk about the future of venture capital, the immediate future and the more long term one. How will it change?

Section 1 - History of Venture Capital  (01:59)

Nuno Goncalves Pedro

Maybe starting with history. Venture capital actually goes back a long way. Obviously, we always like to go back to Second World War, the military complex in the US going full throttle, a lot of IP being generated, a lot of really useful things for defense that could be applied to the mainstream markets. In some ways, that's the beginning of the history of Silicon Valley and the beginning of the history of venture capital at scale with public-private partnerships, grants and money from government, technology transfer into areas that were ultimately areas that went fully outside of defence and into normal markets, so to speak.

Nuno Goncalves Pedro

But actually, venture capital goes back even further. Venture capital and high risk projects go back to, for example, the time of discoveries, the time of trading by boat. Actually, that is where the term carried interest comes from. It is carried interest. What happened was the boat owners were going to take merchandise from one place to the other. Because a lot of these missions and projects had a lot of risk to them, not only they got paid to do it, but they also got paid in kind to do it with carried interest. They would keep some of their carried interest. That's how the term carried interest really comes into these high risk profile projects.

Nuno Goncalves Pedro

Venture Capital is a very high-risk endeavor, or a higher risk endeavor than normal. Its history starts around World War II with private-public partnerships.

Bertrand Schmitt

I feel that between the age of discovery and World War II, there might have been the age of whaling in the US, from what I understand. Nuno, you want to say a few words on this?

Nuno Goncalves Pedro

Yeah. It goes back to whaling. It goes back to all these endeavors and projects and shipping. The military complex really expands it into private markets, so public-private partnerships, getting money into it. We started having, in venture capital, actually, early days, there was a lot of East Coast players in the market, which were more coming from the banking angle to it, just pushing into it.

Nuno Goncalves Pedro

Then we started having, because of a lot of aerospace defense projects happening around California and in California, there was a migration to players that were more, I would say, businessy, less banking. Some of the early VCs in this market, people like Pitch Johnson, Bill Draper, the granddaddies of us all. Bill was involved in a firm with Pitch. I think that was one of the original firms, if I recall correctly.

Nuno Goncalves Pedro

Bill went on, I think, to found Sutter Hill, which is still one of the oldest in continuity. Pitch went to found Asset Management, which if I'm not totally incorrect, is the oldest VC firm in Silicon Valley into continuity. A shout-out to the Asset Management guys, very good friends there. Obviously, from Bill, we had Tim's son. Now we have his grandchildren, so that's a bit of a dynasty. Sutter Hill is still around and doing very well, thank you. There's definitely all these roots that go back to it.

Nuno Goncalves Pedro

Then in the late '80s into the early '90s, when we started having some really innovative companies that came into the market, Fairchild, Intel. There was a little bit of a search for the next wave of venture capitalist. And out of that search of the next wave of venture capitalist, we have people like Mike Moritz, who used to be a journalist, actually. John Doerr used to be a senior executive at Intel, coming into the market and really being some of the most known VCs of all time at Sequoia and Kleiner Perkins, call for them buyers.

Nuno Goncalves Pedro

Through those times, just to define epochs in venture capital, I think the epoch in venture capital that we move from was the very IP-driven, postwar epoch to an epoch that was all about what I call the country club proprietary networks.

Nuno Goncalves Pedro

I knew people that had done well. They were about to start their next company, an idea. I was willing to really feed them. Relatively low risk. I know they were successful. They had built stuff before, they had a great track record. It was almost like real risk. I was incubating the idea, giving you money and letting you go with it. Then for a long, long time, to be very honest, until probably the late '90s, until really the Internet 1.0 movement happened, that was about it. That was the playbook in venture capital, country club, networks, etc.

Bertrand Schmitt

Another legend we might want to talk about, Don Valentine, who started Sequoia. I believe he was a very famous salesperson, head of sales at a big firm before funding Sequoia, if I'm not wrong. He was very successful in that endeavor. A lot of big guesses from these guys who started funds in the '80s.

Nuno Goncalves Pedro

Yes, he was, I believe, at National Semiconductor?

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Then it's a little bit unclear how big was Sequoia when they started. I've heard that they started with five million. By a single LP, I'm not sure this is totally accurate and that capital may have been their first LP. I'm not sure again. But it certainly started in the early '70s, I believe, 1972.

Bertrand Schmitt

Yes, you're right, '70s.

Nuno Goncalves Pedro

Everyone talks about Sequoia like it's a brand new firm and they've been around for a long while. They've had obviously an amazing track record. They've gone through this. Mike Martz is a continuation of that route. But the playbook was really this playbook. It's people that I knew, people that I knew were talented. I call it the country club thing is I'm not saying it in a nasty way, but it was direct access to people that otherwise it would be difficult to access. There was no Internet, there was nothing at scale.

Nuno Goncalves Pedro

Then the Internet happened and many things happened around that time. In some ways Sequoia, Kleiner, I believe, were at that time the guys. Benchmark started existing around then in the '90s, but they were probably not as amazing and famous as they are today. Although, to be honest, I would say they're probably the first big riders of the Internet movement. They made a lot of money in those early funds. But the playbook was still more or less the same. We started going from the country club into universities, into young entrepreneurs. That may have moved a little bit, but in effect it was a similar play.

Nuno Goncalves Pedro

It was proprietary networks. I have access to those people when they're starting their next company. I have access to those professors when they're starting. Vmware was started by Diane and her husband who were professors. There was a lot of this linkage to academia that filled very well with the whole country club, proprietary network, ethos of it and caught a lot of the early Internet plays because Google was at Stanford and Sergey and Larry were there, etc. That's the first real big epoch of the professional VC. The postwar IP thing, that's the first big epoch.

Nuno Goncalves Pedro

Then no innovation for a long, long time. I would allege that until probably mid-noughties, late noughties, there was almost no innovation in playbook. VCs were mostly inbound-driven proprietary networks in the sense of who do I know, what companies are they at, et cetera.

Nuno Goncalves Pedro

Then all of a sudden, something happened. The something that happened, I will credit it to two people, but I don't think they're the only two people or the only two firms that really did this. But I always credit Mark's sister and what he did. Up front, it used to be called something else. I forgot the name. Mark will forgive me, I'm pretty sure. But Mark Suster, with both sides of the table and really answering these questions, was a very opaque space. People didn't understand legal documents and he started demystifying and being the friendly VC. Brad Feld for sure was also part of that movement. Certainly, Union Square Ventures with Fred Wilson were part of that early movement. They started blogging about it. I've already said three names.

Nuno Goncalves Pedro

Then the guys we institutionalized it in some ways and said, "No, we need to have a brand and we need to have media and we need to reach out there," because by and large, a lot of the VC firms were very stealthy or they were very much in their corner on Sand Hill and they did their thing. Benchmark had-

Bertrand Schmitt

No website.

Nuno Goncalves Pedro

Still does have a very poor... No website, like a splash page....

SVB goes down, and the Fed and Treasury react. The latest on the financial crisis: What actually happened? What was done to stave off the crisis? What are the next steps and what’s further on the horizon? As always, our “no bs” views and analysis.

Navigation:

Intro (01:34)

Section 1: What happened?

Section 2: What was done to stave off the crisis?

Section 3: What are the next steps?

Section 4: What’s on the horizon?

Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Bertrand

Welcome to Episode 40 of Tech DECIPHERED. An episode, of course, focused on what happened this past week with Silicon Valley Bank and the overall financial crisis around it. We are recording this as of Wednesday, March 15, Pacific Time. Between the recording and the release of this episode, it might take a few days, so things might have changed. Bear with us. What a week in Silicon Valley. That was pretty insane. I think we have a black swan type of crisis every year now happening.

Nuno

If it's once a year, is it still a black swan?

Bertrand

Of course not. Sorry if my joke was not explicit enough.

Nuno

You're being facetious, understood. Okay, clear.

Bertrand

I'm definitely being facetious about this. Definitely, in the past, I don't know, three, four years have forced us to run businesses in a different way. We will try to do a short episode this time focusing on what happened, what was done to stave off this crisis, as well as what's the next steps, what's on the horizon.

Nuno

Let's start with the obvious big picture thing. Rate increases by the Fed is one of the engines of all the issue around SVB. We'll come back to what actually happened later on, but let's go through fundamentals first. The Fed has been increasing interest rates dramatically for the last less than a year. It's going to be a year, I think, this week, from starting at 0.25-0.5 range to now being at 4.5%-4.75% range, if I got that right, for the Fed rate in one year, less than a year, which is incredible. That has created, obviously, a situation where there's a lot of strain on various financial products that banks, for example, may be over exposed to.

Nuno

But it all started, in all honesty, for a valid reason, which was really containing and reducing inflation. If we remember, inflation started around the one point something percent mark, so well below the 2% magical number, which we're now questioning is 2% really the right number or not. But it went through the roof by 2021 into 2022 to 9%, and the Fed had to do something. They've been pushing it down. Obviously, I think the last number of inflation is around 6.0%, very close to 6.0%. Clearly, the interest rate increases have been working in really containing and reducing inflation, but this is the side effect.

Bertrand

Yes, it's definitely a side effect. Why is it a side effect? It's because when you increase rates, especially so fast as a bank, especially banks who have seen continuous increase in deposits, thanks to the monetary inflation over the past few years. If you have bought assets, long-term bonds at low rates, suddenly with the rate increase, the value of your bonds is decreasing.

Bertrand

For me, what's also interesting in all of this, and we keep learning more and more in the coming few days, but if I look at regulators, it looks like as well, they were asleep at the wheel. I was reading that a very recent FDIC stress test was not including any chance of rate increase in 2022. That proof for me is that banks officials were not doing what they were supposed to do in terms of diversifying risk, preparing to different situations. But the regulators were absolutely of the same mind. Apparently we talk more into the specifics of SVB, but several banks that went bankrupt actually just got their auditing released and done and stamped by KPMG in the past few days. We're talking about two weeks and everything was supposedly all right.

Nuno

Just to clarify, they went bankrupt or they went under this systemic approach, either at FDIC or the Janet Yellen announcement? Because formally, I don't think they're bankrupt.

Bertrand

FDIC took them over, but took SVB over Friday morning. Let's not forget we had another bank, Silvergate. The day before all this maelstrom on Wednesday I believe last week, didn't technically went bankrupt but was ceasing operation. We got another bank, Signature Bank, also that was taken over by the FDIC. I don't know if technically it was a bankruptcy, but I'm pretty sure it is because ultimately it's taken over by a new entity. Senior management was fired. Technically, you are not banking with the same entity.

Nuno

Yeah, you're banking with a bridge bank now.

Bertrand

I guess it's as close as you can be for bankruptcy for a bank. Let's put it that way. Banks have a special system in place to manage them when it is believed that it's not running well anymore. From what I'm reading about Signature Bank, there was a belief from officials, apparently, that they were not close enough to the action at this bank to know what's really going on, and that started to spook the FDIC officials. This one might be an even more different situation where technically they might have been in a better shape, but they were not able to share numbers at a fast enough pace with the regulators that the regulators believed that they have to take them over.

Bertrand

We talk about regulators and auditors, potentially a slip at the wheel. Maybe another piece, Jerome Powell was testifying last week in front of Congress that the banking system was all right. We are talking about days before all of this happened, and not just these guys went bankrupt, but we'll talk more about this, but that actually there was a significant change in regulation to stave off a bigger disaster.

Nuno

Yes. Obviously, there's a couple of other important elements here that we should maybe also talk about, the low returns on deposits that were around, the ability for people to move capital around and put their money into other accounts that obviously were giving them a lot better returns at that point in time. There was already some movements in terms of deposits in certain banks, in particular in SVB.

Bertrand

But to insist on this one, I have been following for a few weeks. There was definitely a lot of noise on this specific topic that not just SVB, but every bank in the US, because they have been so used to provide depositors with 0% interest rates on their savings account, didn't want to raise them when it should have been appropriate to raise them in order to match the treasury.

Bertrand

There is here a very clear greed on the part of the banks not to provide returns to their depositors, and in exchange, take a big risk that depositors are going to leave. If they are going to leave, you have to compensate by either cashing out your bonds or other assets as a bank or having to raise equity. They all took a big chance by not increasing savings rates that people would not leave even when they have the opportunity to have very safe risk-free higher return from treasuries.

Nuno

What we had effectively on Thursday was a bank run 42 billion in initiated transfers. I'm not sure if all of them were completed, but 42 billion in initiated transfers, which is a world record, I'm pretty sure.

Bertrand

It is.

Nuno

We're talking and discussing a lot of things around the bank that were very specific around this bank. A high concentration in some of the deposits, 42 billion would have been around 25%, very close to 25% of all the deposits in the bank. It would actually be 20% of all assets of the bank. A bank that had high concentration on certain accounts. From what I was told, there were certainly very large accounts with the bank, which is if one of those accounts got the money out, that significant hole immediately. All of this is true. I would go back a little bit because I actually disagree with all this discussion that's happening around, "Oh, no, it was FDIC's fault." Of course, it was in some ways the Fed's fault on increase of interest rates.

Bertrand

That I cannot fault the Fed to increase rates. I mean, that's their job. The rest of the institutions should know that they have to do something.

Nuno

But maybe they increased it too fast.

Bertrand

I think they started too slow. That's the issue. That's why they had to go too fast.

Nuno

Yeah, maybe they started too late, and that's the case, I don't know. Maybe it is that the FDIC stress tests weren't updated to include all these things. There may have been some regulatory mishaps that wouldn't have happened otherwise. There may have been some mishaps where the bank had some issue that came up.

Nuno

My ongoing theory, and I cannot say for a fact this is true, but I've now talked to enough people that seem to agree that this is likely what happened, was there were definitely some discussions with Moody's in the bank around their debt rate and a potential to actually downgrade them on their debt rating.

Nuno

There was actually a very quick knee jerk reaction to sell assets that they had at a loss. There was actually a push to recapitalize the bank, and we now know that magical number to be 2.25 billion, because it got announced in a press release on Thursday morning. In that recapitalization, it is clear that they started talking to a number of actors in the market, including General Atlantic,...

In this final episode on Boards of Directors, we will share tips for successful board meetings, how to manage them, how to be a value-add board member and insights on advisors and advisory boards.

Navigation:

Intro (01:34)

Section 1: Tips for Successful Board meetings (02:11)

Section 2: How to manage your Board (18:24)

Section 3: For Board members (25:52)

Section 4: Advisory Board / Advisors (33:09)

Conclusion (49:19)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)NunoWelcome to Episode 39 of Tech DECIPHERED, where we continue our discussion around how to best manage your board and get the most out of it, as well as how to be a great and hopefully non-dysfunctional board member. NunoIn this episode, we will talk about tips for successful board meetings, how to manage your board, and we'll go into details on anything from agendas to how to organize the cadence of it, KPIs, et cetera. How to think through advisory board members and advisors and how they're different from consultants and contractors, and also on how to be a fully functional board member and bring value to the company that you're a board member of.Section 1: Tips for Successful Board meetings (02:11)NunoMaybe we go to tips for successful board meetings and door calls. Maybe we go to the first one, which I know is one of your favorites. BertrandI think it's quite key to be prepared for your board meeting, and it works for both sides, the execs, the CEO, and on the other side, investors, people who receive the communication from the company. That part is quite critical. BertrandMyself, not initially, but at some point when I was running my previous business, App Annie, Data.ai now, one thing I did after ending up sending a board deck and board back instead of the usual two days before a board meeting to send it a few hours before. I was not feeling very good about how it worked out. I ended up approaching that to share stuff at least a week in advance. BertrandThat might sound crazy from a lot of perspective, but at the end of the day, it's a question of just organization. There is no reason you cannot do a week in advance. You can do two days in advance, but you would have more time. If it slips, it's no big deal. If it slips by a day. BertrandWhat it also gives you is the opportunity to potentially reach out to different board members between the moment where you send your board materials and the moment where you have your board meetings. It gives you more time to set up some calls, to answer some questions, highlight some points. BertrandIf you have time to do that between sending your board back and having a board meeting, you will have a much more streamlined board meeting itself because if the big questions have been discussed in one-to-one, if some controversies have been addressed in one-to-one, things will go a lot smoother. BertrandSurprisingly enough, some board member might prefer more challenging confrontational type of board discussion. Personally, I don't if it's not needed, but working that way gives you definitely some more efficient board meetings. NunoTo your point, manage this thoughtfully. Again, when you're sending board materials, you send it to observers as well, et cetera. If you have some lead board directors, in particular from investors, that are material to you and you know there's going to be a complex conversation at the board meeting, have that conversation even before you send those materials because you might not want to have some of this material sent out. NunoAgain, be very thoughtful how this done. I think Bertrand, you alluded to a best practice. Sadly, I have very few boards that I sit on that send their decks and their information and financials a week before. I would love to have more. I've had people sending the day of and I'm like, "I don't know what you want me to say." BertrandThat's clearly unacceptable. NunoIn that case, you need to say, "It can't happen again." In particular, if we have quarterly board meetings, which has become, again, the norm during these bullish times of the last three or four years. And if it's quarterly, honestly, a week, you should have enough time to prepare and send a week before. Worst case, you send three or four days before, but again, you should send them well in advance. NunoBe very thoughtful, again, what you put on the board materials versus what you don't put. There's elements around legality and stuff like that and materials being discoverable. There's elements around you having potentially people on the board or that you're sending the deck to that are not board members that might be board observers, or that might be privy to information or have connections to other people where the information you're sharing might be taken in the wrong way. NunoA lot of inside information cases that we've seen in large public companies have happened because of that. Either it was discussed at the board meeting or because there were materials shared that shouldn't have been shared, then further on to people that were not privy to the companies. NunoAgain, just be thoughtful on what you write in the materials, how it's written. Focus, first and foremost, the discussion on what absolutely needs board approval. Normally, stock option grants, increases in salaries, stuff like that. What should have board approval and what you should discuss, like strategic direction of the company, significant allocations of resources. NunoI always put this "cover my ass" section of risks that have emerged internally or externally. Many founders that I know like to do the tops and flops of the last quarter. Address risks pretty early on. If it's a huge risk, even before the board meeting, just put it in front of people. Don't wait for the board meeting, just put it in front of people. It's better to do that than to... If you're being sued by Google or Google has stopped you from having access to their advertising stuff... These are true stories, by the way, raise that early on rather than late. BertrandOne thing I noticed is that some CEO might be a bit too positive on everything doing great and not acknowledging enough what's potentially not working require more improvement. I think it's key to have a balanced perspective of the business because at the end of the day, you are ultimately being judged by the facts. What happened, cold hard numbers. How are you ending the year in term of sales, in terms of EBITDA, in term of cash flow? BertrandMy point is that there is only so much that everything is looking great at each presentation, but ultimately you don't make the numbers or you achieve not-so-exciting targets. I think it's quite important to show and demonstrate that you understand what's going on, you understand the positive as well as the negatives of the business. Because at the end of the day, that's the only way to propose a plan and discuss how we can do things better. NunoAlso, take credit to your point. The achievements that you've gotten to. BertrandOf course. NunoI know some founders who are like this, they only talk about the crap stuff and risks and whatever. If you're just parachuting into the board meeting, you're like, "Oh, my God." But the company is doing incredibly well. NunoAgain, also give credit for achievements. Give credit for achievements if you have a senior executive presenting to the board and that person is doing particularly well. Or even if the person is not there that you can convey to that person, the board, "I mentioned to the board your performance and they're aware of it," and all of that. NunoA couple of things on form. I don't think you should spend too much time on beautiful presentations, but really focus on content. "I have the core content there." If a board member, in particular, an investor asks you for something, make sure it's there on the next board meeting. If they ask you for North Star metrics on a certain aspect, make sure it's there in the next board meeting. If they ask you for an analysis of sales pipeline or something else, make sure it's there on the next board meeting. NunoJust pay attention to what people are telling you. These are important things because these are quarterly. If you miss two, it's like half a year. The person that is in front of you will only get the level of update they want nine months down the road and that's not cool. Again, be very thoughtful about that. BertrandYeah, and on that point, I think you can standardize board meetings presentation quite a lot. That should simplify your life. If it's always the same framework, your life would be much easier. BertrandTypically, I think you can reuse maybe 70% of your board deck quite easily and you just have some new section to talk about some stuff in product, some legal matters, some different stuff. But all the finance, sales, even quite a bit of marketing can really be quite repeatable and product metrics. BertrandYou don't need to reinvent the wheel for every board meeting. Also, it makes life of everyone easier, not just the life of the people building the decks, but also the life of board members who are reviewing these documents. If they have a different format every board meeting, that's painful. NunoThat's absolutely spot on because it makes it easier for us to also read if we're not executives. For example, I have one board where the founder CEO always does it in a memo and then has financials and minut

In this episode, we will explain what a Board of Directors is and is *not*, its roles & responsibilities, and how it should evolve over time.

Navigation:

Intro (01:34)

Section 1: What is a Board of Directors (02:10)

Section 2: Taxonomy (06:20)

Section 3: Evolution of Board structure over time (12:08)

Section 4: Board Composition (18:38)

Conclusion (29:47)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Bertrand

Welcome to Tech DECIPHERED, episode 38. This is the first of two episodes where we will discuss about how to manage your board from a CEO perspective, mostly. The idea here is to talk about why do you want a board, what's the purpose of a board, what would be the taxonomy about running a board, the evolution of a board, its composition, how you should manage your board, as well as other board, like an advisory board, as well as sharing some perspective from a board member perspective or from an advisor perspective.

Section 1: What is a Board of Directors (2:10)

Nuno

Indeed. Maybe we start at the beginning. What is a board of directors? I think that might be a question that gets thrown quite a bit. I'll read from a definition. Some of the stuff we'll be doing today is based on a document I prepared a very long time ago and some other things that Bertrand dug out. But just to directly quote, a board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. What is a board? A board represents, basically, normally actually shareholders. Shareholders and other stakeholders in a company. It depends on the country. We know, for example, in Germany, that boards of directors also have in many cases representation by unions. But in the case of what we will discuss today for the most, we're going to talk about startups and tech companies. Normally, boards represent shareholders, and they represent the interests of shareholders. So the people that are on a board of directors are there to make decisions around a couple of areas that are vital to the well-being and growing of the company in representation of a larger group of shareholders.

Nuno

The typical duties of boards of directors obviously include the governance of the company, so all the key policies and objectives of the company. The selection, appointment, supporting, and reviewing of the performance of a chief executive. We'll come back to that as well. It's normally a contentious issue, but it is the responsibility of the board to do that. Making sure that the company has their adequate financial resources to sustain itself, to be a growing concern, proving annual budgets, strategic items, any accounting that is done to other stakeholders of the company, including shareholders. And last but not the least, and there's many other things a board can do, but last but not the least, setting the salaries and compensations for company management. This should be interpreted under the logic of the senior people of the company, certainly the CEO, maybe founders, and other core people to the company. In a nutshell, what the board is responsible for is governance on the one hand, and on the other hand, what I would call mostly strategic decisions. Strategic decisions that link to the financial well-being of the company and that link to its organizational stand, that link to its strategic elements.

Nuno

What does a board not do? A board is not the executive committee of the company. It's not responsible for day-to-day decisions or management of the company. We'll talk about it later. And when we talk about composition, there might be members of the board of directors that are executives, but the board is not responsible for day-to-day. It's not responsible for managing Johnny or Mary, or making sure that they're doing a good job on their day-to-day basis, etc, etc. It might be that Johnny or Mary are strategic in some discussions that get brought to the board, but it's definitely not the board's responsibility to manage them on a day-to-day basis. It's definitely not the board's responsibility to manage the operations of the company on a day-to-day basis

Bertrand

Maybe one point to never forget as a board member is your fiduciary duty. You are not here to just represent yourself, your fund, your interest. You are actually here to make sure that the organization is overall well managed, that it stays in some financial situation. And to do that, you need to be objective, unselfish, responsible, honest, trustworthy, efficient, hopefully. And at the end of the day, you need to act for the good of the organization, the company, the business, rather than for the benefit of yourself or some of the shoulders you represent. Your work as a board member is for the good of the organization.

Nuno

This is a pretty vital point that you highlight here, often forgotten by both sides of the table, by the executives in the company, people that work on the day-to-day, the CEO, the chief operations officers if they're board members, and in many cases, also forgotten by investors. Obviously, we are there to return the most money to our own investors, to limited partners if we're a venture capital firm. But at the end of the day, we also have to represent the best interests of the company. If we do something that's egregiously against the best interests of the company, although it might be in the good interests of us as shareholders, we might run into trouble. So again, it's something to remember at the end of the day. I've been on many boards of directors, and sometimes people forget. Sometimes they forget very aggressively, sometimes they forget for a short period of time and someone needs to remind them that's what they're there to do. Maybe this is a good way to migrate the discussion into precisely what is the taxonomy for the people attending a board meeting. And obviously, we have executives, non-executives, independents, all this stuff.

Nuno

Bertrand, do you want to give us the lay of the land?

Section 2 - Taxonomy (06:20)

Bertrand

Yeah, sure. It's quite typical to have some founders as well as some executives as part of the board. Obviously, some founders might be executive in the business, might be employees in the business, or actually might have left the business but still sit on the board. So these executives, when they are on the board, they should act as board members. They should wear board member hat. And executives, of course, can be a CEO, COO, CFO, chief product officer, chief revenue officers. So you might have different execs that are board members. And o- course, what might happen in a board meeting is that you will bring as needed, but that's different from being an executive board member. If we go on the other side, non-executive board members, you have, of course, typically the investors. So if you raise money, you might have a seed investor, you might have a Series A, a Series B. Typically, you might have multiple investors in a round of financing. And there, typically, you might have only the lead or potentially the co-lead having a board seat. And what happens is to step by step end up with also some independent board members, one, maybe two that are more neutral and they do not represent investors as they do not represent executives.

Bertrand

They are just independent.

Bertrand

Obviously, some board members were introduced by the CEO, might be introduced by some VCs. So they might have some connections with one side of the table more than another. But at the end of the day, they are supposed to act independently. And you can also talk about inside investors, meaning execs and investors, and outside directors, meaning as independent. Inside versus outside directors is another way to talk about it. Sometimes some people might be surprised to see some co-founders who are no longer executives, no longer in the business, still on the board. They stay there because they have knowledge, they have expertise in the business, and sometimes they might have significant shares and control of the business but might not want to still be operational.

Nuno

Likely, if they're still there, they are investors. They still have stock in the company of some sort. Normally common stock, but it is a significant amount of shares, right? So there'd be non-executive investors that just obviously happen to be co-founders of the company at the end of the day.

Bertrand

Yeah, and if we go about non-board members, you have different type of people who might still be joining the board. So you can have a company secretary, a company lawyer to make sure the minutes are taken properly and we'll talk about it, to make sure the legal matters are respected. Typically, that can be an insider, a person working at the company, or it could be your external counsel, quite a lot of counsel. By the way, in Silicon Valley, specifically, provide that for free, so they don't charge you for their time working at the board. That's a good tip to know.

Nuno

I wonder why.

Bertrand

Yes. Definitely, they have an interest to know what's happening and to propose additional services if they were needed. But there is good value to have a lawyer assisting at the board, end to end,...

We sort of predicted the FTX and SBF debacle… seriously! How much are CEOs’ political and socio-economic views welcome publicly? How about employees’? How much is too much? In this episode of season 3 of Tech Deciphered, we talk about founders & CEOs activism, employee activism and share our tips on when to talk and when to just… keep your mouth shut.

Navigation:

Intro (01:34)

Section 1: Founders & CEOs activism (02:13)

Section 2: M&A changes everything (20:09)

Section 3: Employee activism (27:38)

Section 4: Bring it all together (39:24)

Conclusion (44:57)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Nuno Goncalves Pedro

Welcome to Episode 37 of Tech Deciphered. In this episode, we will address CEO and employee activism. How much is too much? We will touch upon a few CEO-activism events that are recent. We will also talk about how M&A changes everything.

Nuno Goncalves Pedro

We will then address employee activism, which has become more exacerbated over the last three years. Finally, we'll bring it all together. How much is too much? Should you be in the media all the time? How much should your PR department control of what you say? How much should you listen to your employees? How much, as an employee, should you actually speak out?

Section 1: Founders & CEOs activism (02:13)

Bertrand Schmitt

I think Nuno that's a timely topic and it's something that, for the good or for the worse, has been changing, maybe quite dramatically, if you compare the last decade versus how businesses used to be run before. I guess, of course, it's thanks to change in technologies. You have your cell phone always available. You can talk to people. You can record, you can tweet, you can do video.

Bertrand Schmitt

I guess step by step, CEOs, employees discovers that they actually could have more of a voice, and there might be less need for a middleman to express your opinion. As a result, you communicate more easily. If you stop communicating publicly, challenges can start to increase. It's a brand-new world out there.

Nuno Goncalves Pedro

As Spiderman would say, or actually his uncle, "With great power comes great responsibility." Unfortunately, sometimes, people forget the responsibility piece and maybe they tweet at the wrong times of the day, or they say the wrong things without really checking themselves up. Part of it we'll discuss today. Sometimes when you share on social media, obviously, it lacks context, it's misinterpreted, or sometimes it's just plainly wrong, which is also the case.

Nuno Goncalves Pedro

Shall we start? How much should one have an opinion on specific topics, geopolitical topics that are important socially? How much should a CEO or founder have an opinion on? Maybe we'll talk about a few examples.

Bertrand Schmitt

I think traditionally, the approach was, if you're in the economic sphere, you are out of the public sphere, you are out of the political sphere, and you are very careful and measured about how you communicate. Usually, you have a big PR department, all focused on supporting you and the message you are supposed to convey, and you certainly don't go off the cuff.

Bertrand Schmitt

Obviously, things have changed since the past 10 years. It's not easy for a CEO to make that decision to do more, but sometimes you have no choice. I think some interesting examples, a few years back, maybe actually with COVID, we saw some tension about, basically, should you be focused as a company on your mission first at the extent of anything else?

Bertrand Schmitt

We have seen quite a bit happening in that sphere. Maybe two companies have, in some ways, best showcased to extremes. On one side, you have the Salesforce of the world who is definitely trying to take every topic out there that you can find and trying to push the company itself and its employees to become "good citizens" and to influence the public sphere. We can remember, for instance, how Salesforce was pushing for new taxation scheme in San Francisco, hopefully, to help some people.

Nuno Goncalves Pedro

Others beyond themselves, because I do think that they got at some point some tax break as a company in SF and that may have rippled to others.

Bertrand Schmitt

Some would say that it was a clever ploy to actually make it more painful for other companies, especially the competitors to operate in San Francisco. It depends how you position it. It was clearly positioned as a of being a good citizen by Salesforce, but not everyone would agree.

Bertrand Schmitt

But on the other end of the spectrum, we have a company like Coinbase, where, basically, there was a lot of internal pushback for more discussion internally around what's happening in public policy, what's happening in the US. At some point, the CEOs say, "Oh, this is good and nice."

Bertrand Schmitt

But ultimately, we are mission-focused company, and this is not our problem. Our problem is, as employees, to focus our efforts and energy on our mission. If we believe our mission is important, that should help you believe you are focused on the right thing, and there is no need to do anything else, at least, during your work hours. Of course, obviously, what you do on your personal time and your personal name is a different story.

Bertrand Schmitt

But that should be enough. We believe that it's creating too much risk of division of the company to have this constant debate about what should be done from a political perspective. That's not productive or conducing of a good well-run company that wants to be focused on its mission.

Bertrand Schmitt

I think that, obviously, Coinbase, as well as many companies, have a very important deep mission, and that could be seen as a very fair statement. They think these two companies, Salesforce, Coinbase are really the two extreme of that positioning. Should you be involved in politics, at least internally or should you be much less?

Nuno Goncalves Pedro

It's interesting because if we go back in time, once upon a time, there was a world where, as you said, there were PR departments, comms directors that were in full control of their CEOs, there were message houses that were followed, media training that was held regularly practice, people talked like really politicians. There was a separation between internal communications and external communications, or internal communications was, by nature, more open, although also fleshed out but more open.

Nuno Goncalves Pedro

External communications was a lot more focused on what key messages we want to give the market, how will that affect our stock price. Then all of a sudden, all changed. It changed with social media. It changed with the leaking of internal memos. It changed with leaking of town halls that were videotaped and recorded.

Nuno Goncalves Pedro

All of a sudden, we've gone into a world, where, on the one hand, and we'll talk about employees later on, employees are sharing stuff that maybe they shouldn't be about what's going on in the company; and CEOs, in some ways, are acting in arenas that maybe they should be a bit more thoughtful about. The extreme example obviously is our great friend, Elon Musk. Everything that he does seems to be a meme.

Nuno Goncalves Pedro

We've talked about him in the past. Amazing one-man marketing machine. I don't think it's one man. He has people working with him, but definitely he's the meme machine. Not mean, but meme machine. Everything got a bit fuzzy.

Nuno Goncalves Pedro

The distinction between internal and external is not there anymore. People say what's going on, their minds. I share my perspectives on what's happening in the market might not be aligned with my board of directors, might not be aligned with most of my company, actually. It doesn't matter.

Nuno Goncalves Pedro

We've gone from a world in which people are saying, "You know what? We are a company. We have something we want to do, your logic of mission driven. We are of our own value system, and this is why we abide by the external stuff is the external stuff."

Nuno Goncalves Pedro

Then we have the other part of the world, where it's just like, everything's open. I'll just do whatever I need to do to get my company out there to manifest my perspectives on what's happening in the market. I need to be very aggressive and active about it."

Nuno Goncalves Pedro

In some ways, actually market Salesforce is a little bit more to the middle than to the extreme. Maybe Elon is the extreme example here. Marc is very thoughtful on how Salesforce will show up. Obviously, he has his principles. There's a value system that they abide by.

Nuno Goncalves Pedro

Maybe Elon is at the other extreme, which is like, "I have perspectives on everything. Tesla is not the only company I'm running. This is my perspective right now."

Nuno Goncalves Pedro

I think that's a little bit too much. Honestly, at that point in time, you have people that are a little bit bigger than life, in some ways. I'm not saying that what Elon is doing is not creating value for his companies. It's actually, quite the opposite, probably he's creating a lot of value for his companies.

Nuno Goncalves Pedro

But it's incredibly risky. You're going to unavoidably step on people's toes that you shouldn't. You're going to be operating in an arena that you're probably not well-equipped to participate.

Nuno Goncalves Pedro

I think, for me, that's the biggest objection I have is when I he

"I am leading or involved in a company… and we are in trouble. What should I do?” In this episode, we share what do when you are in trouble and what to do if everything else fails. This is the second and final episode on this topic. For more information, also listen to episode 35

Navigation:

Intro (01:34)

Section 1: What to do, if the company is in trouble? (02:04)

Section 2: What if all else fails? (34:46)

Conclusion (47:21)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Bertrand Schmitt

Welcome to Tech Deciphered Episode 36. It's our second episode about, "My Company's in Trouble. What Should I Do?" In the previous episode, we talked about the context. We talked about how to determine if your company is in trouble. And we talked about what being relatively safe looks like. In this episode, we are going to talk about what to do if your company is in trouble, as well as what are your options if all else is failing.

Section 1: What to do, if the company is in trouble?

Nuno Goncalves Pedro

Let's say that actually, you are in trouble, that you've done the analysis, you're running out of cash quickly. Your economics are very poor. Your burn is difficult to turn around. What do you do? What is the first thing that you do?

Bertrand Schmitt

I think the first thing that you do is as management, as a board, to acknowledge you have an issue. That's really the first thing. Acknowledge you have an issue and then start working together, management and board of directors to get in agreement into what is, at the very least, what is our current situation, not even what we should do about it, but always a level of risk, level of tension. The analysis done of what's happening so that you can start smartly discussing about the option for the business.

But we saw an acknowledgement across a team of professionals, execs, and board of directors, it's very difficult to move forward. If one side believes a business is doing alright and there is no biggies, that's an issue. If one side believes that, hey, it's not that great in term of burn rate, but we would get financing easily. That's trouble if the other side doesn't believe that. And usually, that might be your board who doesn't believe it would be that easy to fundraise. I guess it depends.

But it's really key to be aligned about the analysis. I've seen companies, I think it's less true now, but if you look at in June or May that still we're not acknowledging what was happening in the market, it was crazy for me. It's like, guys, this has happened for six months now. You need to acknowledge it's a different economic condition and what was investable, and we go back to the default investable in November of 2021, is not default investable in September 2022. And the gap might be pretty big.

I can see that some people at the first bear markets really start to think, Oh, good times are back. No, no, they're not coming back. Not so easily. And you cannot build and bet your business just based on bet ready for a few weeks. Or both sides of the table need to come into agreement about the burn rate situation, the capacity of the company to deliver on its revenues and its projections of top line, specifically, but also about bottom line and get into agreement about what it means in terms of ability to fundraise.

Nuno Goncalves Pedro

And let's say we have agreement, so board, executives, everyone's like, we are in trouble. What we're going to share with you next is a little bit the menu. Okay. We're in trouble. What do we do? This is the menu a la carte. Some of these you can bundle, you can mix and match. But this is like a menu of things you can choose to do.

The first and foremost thing you can do in terms of order, and this is in an ideal scenario, is control your own destiny. And the levers you have in controlling your own destiny are relatively simple. One is top line What can I do about my top line?

And my top line is my sales, my revenues. So can I charge more from existing clients? Can I play a little bit with pricing? Can I create distinctive pricing maybe for new customers? Can I ask some of our existing customers to pay more in advance or contracts that I'm negotiating right now, ask them to pay more in advance? Can I shift around cash and not just money?

Again, one key lever that you have is very simple, which is top line. How do I increase it? How do I maybe even make it more predictable? How do I play around with it in terms of levers to make it work?

Bertrand Schmitt

I think on this one, I totally agree with that reason. That's the first thing to do, it's made so little tactical, but in a situation where you have higher inflation, the least you could be doing is immediately work on readjusting all your contracts with automated readjustment clause based on inflation.

That's the minimum thing you have to do about changing your pricing. You have certainly to take that into account. You cannot be stuck with clients who are going to spend for the next, I don't know, three years as much money every year for the same service. They need to end up having to pay more. And that has to be an expectation. I'm talking must see a B2B context. B2C, you don't need 10 people doing that, but it's going to increase by that much.

But in B2C, as we have seen from Disney to Netflix, all of them are readjusting their pricing. So please work on this one. It's an easy one. It would be crazy not to use it, especially now that everyone is doing it.

Nuno Goncalves Pedro

It is a good time to justify it. I mean, it's like inflation and there's all these things happening and we need to pay more to our employees. And it's a good time, as you were saying, Bertrand, it's not just really about the B2B companies, also B2C, the ones that depend on subscription. Even in-app purchases. If you are a gaming company, you could actually tweak the promotions that you're pushing to your gamers and to your users on a weekly basis.

The second side is, as you can imagine, the cost side, and that sort of goes directly to the bottom line and how can you become leaner? This is the classic one that people say, "Okay, you just cut costs, right?" Again, I would always start by looking at top line, in the first instance, but you obviously need to look at your cost base.

Are there parts of my organization that make a little bit less sense that I can become leaner in. Are there parts of my operations that I can optimize? Are there parts of my supply chain that I can optimize? Are there parts of my relationship with suppliers and logistics firms that I can optimize? Everything is up for discussion. And again, this is a good time to do it because we are in a crisis.

So it's a good time at a global level to say, "Well, I need to tweak this a little bit. If you say you're my logistics partner. Would you be willing to cut your costs right now for a certain amount of money and maybe we have an agreement by which we go up in the future?" "Is there something I can do around a specific area of my team that was very geared, for example, towards growth?"

I don't want to take a stab at growth marketing because marketing can be a very important function during these times as well. But maybe there is a part of your growth marketing team that you could say, "You know what, we need to step a little bit back. We're not going to be aggressively doing growth marketing in the next six months or 12 months." Maybe the team needs to be leaner by default.

I'm not defending that everything here is about layoffs and cutting, but it might be about renegotiating. It might be about actually being a little bit outside of the box and figuring out what is something that's win-win for everyone involved that we could still make this work.

We've seen this in the past. We've seen companies that have laid off almost no people, but they went to a reduction in salaries for a defined period of time to see if the company could rebalance itself where they gave something else in return. They gave more benefits in return. They gave maybe more time off in return to the team, or they made the team have more time off for a significant period of time.

There's ways of doing this that are not necessarily the classic, I'll just call everyone, fire people or lay them off and we're good. There are ways to do this in a way that is absolutely win-win for everyone involved. But cleaning up the cost side, becoming leaner for a period of time might be the difference between living or dying. Cash is king, and if you run off cash, as we discussed before, you die. So, again, very important to have these discussions.

Bertrand Schmitt

I guess I might be a bit more aggressive on this, in the sense that, yes, of course, you should do everything that you talk about, in term of trying to optimize your cost in the smartest possible way and go after easy win. If we are talking right now, it's because easy win are behind us and we are in the situation where we need to go deeper and might take that one unveilment where a lot of great companies, especially in tech, have already been going to lay off, 5%, 10%.

We thought even thinking about it, they were like, okay, markets trouble, recession coming, that the time to do a reduction in force and move fast. And you even have some companies like Microsoft who do that every year and sometime you have a few percentage of the [inaudible 00:08:15] falls that's let's go to [inaudible 00:08:16]....

“I am leading or involved in a company… and we are in trouble. What should I do?” In this episode, the beginning of season 3 of Tech Deciphered, we firstly share how to know when you are in trouble (spoiler alert: getting this right is essential) or … if you are “relatively safe”.

Navigation:

Intro (01:34)

Section 1: Context (03:28)

Section 2: How to know the company is in trouble (04:58)

Section 3: What does “being relatively safe” look like? (17:15)

Conclusion (28:17)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)

Nuno G. Pedro

Welcome to season three of Tech Deciphered. We have many surprises in store for the season. But to start, we will have two episodes: Episode 35 and 36, on the topic of My Company is in Trouble. What should I do? In these two episodes, we will discuss context on what is happening currently in the market. But more importantly, we'll help you figure out if your company is in trouble or not, maybe the most important of the first questions that you should answer.

Secondly, we will talk about what to do if your company is indeed in trouble. And coming from different perspective, not just the perspective of the CEO, but also of people that are involved at the board level or relatively senior people that are involved in the future of the company.

And finally, we come to the "what if all fails" piece, right? If everything's failed, what should I do? It's going to be an interesting set of questions, and hopefully, our answers will be helpful to you all.

Section 1 - Context

Bertrand Schmitt

Thank you, Nuno. Yeah, it would be exciting to start this Episode 35. Maybe to share more context, we can start first with our last two episodes about the bubble bursting, winter coming. I guess winter is getting closer. A lot of great companies, tech companies today, they are valued at 50% of what they were worth last year. Fifty percent, five-zero.

And it's not just 50%; it's 50% versus a year ago. Imagine the company attempt to grow, to expand their business, to be more successful, but the market are still valuing it 50% lower. That's happening for a lot of great companies in tech. If I take some private market, this company in the buy-now-pay-later space that announced pretty recently, [inaudible 00:01:42], that they were moving from $46 billion valuation last year to 6 billion market cap this year for the last round of financing, which is a huge gap. We're not talking about 50% anymore. We are talking about 90%.

It probably happened because they had to mirror what happened in the public market with other competitors in that space who end up being in a similar situation of losing 90% market cap. Of course, the private market had to react and adjust to that new situation, and you cannot keep disconnecting yourself from the relatives of public markets, especially if you are at very late stage.

Nuno G. Pedro

You have Zoom that was close to 160 billion at the top of it in 2020. Top of COVID, I guess, and now at 25 billion or so. There's been some interesting... And this is a public company.

Bertrand Schmitt

We are not talking about Peloton.

Nuno G. Pedro

We're not talking about Peloton. The whole COVID effect also being felt very strongly in many industries.

Bertrand Schmitt

Yes, Peloton is actually on 15X.

Nuno G. Pedro

That's not too bad.

Bertrand Schmitt

It's in way more serious financial trouble than some of these companies we are talking about.

Nuno G. Pedro

Today, we will talk about a variety of situations. This question has been asked to us by some of our listeners, which is, okay, now some companies are in actual trouble, and we always have to qualify what does that mean? What does actual trouble mean? A company like Zoom that is worth significantly less than they were during COVID height, I mean, it's troublesome for Eric and for the leadership team, but honestly, there was a readjustment of their value, and probably now they're undervalued.

Section 2 - How to know the company is in trouble?

Nuno G. Pedro

It doesn't mean that Zoom is not a valuable company. If we look at some of readjustments that we saw around companies like Facebook and Amazon and others, these are not companies that are in trouble. They have had readjustments and reset things.

These two episodes will focus a little bit more on actual trouble. Not just valuation trouble but actual trouble. Like what means, may I run out of cash? Do I have a growing business or a growing concern going forward? Maybe let's start by setting that stage. How do you actually know that your company's in trouble? Where do you start?

This seems like a really basic question, but it's often the case that people get it absolutely wrong for a long period of time. That long period of time could be six months or a year, where if I'm the CEO of that company, I could have been working already on a plan to readjust my strategy, my operations, my leadership team, whatever needs to be done to shift the boat into the right direction. And I just missed it.

If there's anything you want to take away from these two episodes, I would say the first thing to take away is figure out whether your company's in trouble or not relatively quickly. Listen to your advisors. Listen to your board of directors. Figure out if your actual economics are working or not.

Let's start with the first thing you can take a look at. Many people in the startup world understand this, but we're going to explain it in a little bit more detail. Understand your runway. What a runway means is how many months do you have ahead of you with a specific set of assumptions—we'll discuss that in a second as well—that you can go without running out of cash.

There are many companies that are just fundamentally profitable. They don't have a concern around that, their unit economic scale, etc., but in any case, many companies are not in that camp. There's a lot of startups that are burning more cash—we'll talk about burn in a second— are burning more cash than they're generating. Therefore, their runway is necessarily limited. It could be 6 months; it could be 12 months; it could be 24 months; it could be something else.

What would they have to do? Just to start this discussion, a runway calculation is actually not that easy because it starts from the perspective of assumptions. In assumptions, you need to think through a variety of things. The first thing you need to think through in your runway calculations is, honestly, if I'm being extremely conservative in terms of my top-line growth, my sales pipeline, but also pretty aggressive in the fact that I might have costs that I'm not fully anticipating. When I do this analysis and I turn it into a cash flow analysis, that will give me probably a very aggressive runway. It'd probably shorten my runway more than I would expect it to do so.

That's a good thing because that will tell me when do I need more cash infusion, or do I need to do something else about it? Again, if you are in a case today, and we'll talk about, later on, what is a classic runway. I think in the industry, we talk about 12- to 18-month runways once you raise money. We'll discuss later that actually, maybe you should extend your runway above the 12- to 18-month period of time, which is classic in fundraising. So I raise so that I can maintain my business going for 12-18 months.

We will talk about it later that we believe that you should actually prolong it. It should be more than 12-18 months. But if I have three months left of runway, we're running out of cash in three months, and I'm not raising money yet, I'm going to have a problem because raising money takes time—takes 3-6 months; we've talked about this in the past—and so, how can I do it? How can I go to that level of maintaining my company growing or going either with financing or with something else?

So I know I'm in trouble if my runway is really, really short, and I have no other way of changing course, or if I need to change course, but I need to change it right now. So first thing to look at, runway. What's your runway? How many months you have left of cash? Do different scenarios. If you think your scenario is conservative, it's probably not conservative enough.

Second thing to take a look at is burn. Bertrand, what is burn?

Bertrand Schmitt

Yes. Maybe before going what is burn, I think it's very important that the proper scenario is put in place to estimate runway calculation because if you start always using a rosy scenarios that you are going to grow, as expected, nothing more is happening in that market, in that situation, things are going to change; expectations might not be met, and you cannot plan a runway calculation just based on a rosy scenario. You might want to have a downside. You might want to have unexpected, maybe an upside scenario, but you cannot just plan everything on an upside scenario, an optimistic scenario.

To go back to your question, what is burn, burn is simply how much money you are burning every month, so you are losing every month. We are talking typically about cash burn. To be clear, that means that if you are burning, let's say, one million a month, and you have 10 million in the bank today, and in 10 months from now, you would be out of cash and the runway is 10 months. That's a very critical metric. Obviously, this one as well would vary depending on your scenario and the assumptions.

Nuno G. Pedro

...