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- [00:00]
Howard Morgan
Every company we have has sort of 1/10 the number of coders they used to have because AI does that well. So today what I visualize is that 10 or 15 years from now we will be working alongside humanoid robots everywhere. Elon has predicted a billion robots, actually predicting 10 billion.
- [00:18]
Miguel Armasa
Welcome to Fintech Leaders where we explore the stories behind today's most innovative financial technology companies. I'm Miguel Almasa, co founder of Gilgamesh Ventures, a fund that backs early stage fintech entrepreneurs. Today I have two returning guests. I sat down with two legends of tech. Alan Patrick, co founder of Apex Partners, Greycroft and Primetime Partners. And Howard Morgan, co founder of Renaissance Technologies, First Round Capital and chairman of B Capital. Together they represent over a century of investing experience and have participated in every major tech revolution of the last half century.
- [00:59]
Howard Morgan
Our day to day lives will be very different because the chart that Rene showed, which is so many jobs that are going to be at least partially or largely done by AI will have happened, but also so much physical help.
- [01:13]
Miguel Armasa
We discussed the evolution of VC over the last 50 years. Why most VC investors are actually risk removers, not risk takers. The next couple of decades of AI and its impact and a lot more.
- [01:26]
Howard Morgan
The speed with which AI is improving is exponential.
- [01:30]
Alan Patricof
A young lawyer coming out of law school today, their functions can be totally done by AI. Totally.
- [01:38]
Miguel Armasa
Special thanks to Kitty Cushing for bringing us together at the Newport Global Summit in Rhode Island. If you enjoyed this conversation, I invite you to leave a review on Apple, Spotify or YouTube.
- [01:54]
Interviewer
So having been in venture capital for such a long time, could you maybe take us back and then find us or educate us on how did the VC world or early stage investing, startup investing looked like back then that that.
- [02:15]
Alan Patricof
I could do a lot easier and Howard could share his experience. I go back to 1970 when I started and I started based on having started three companies accidentally. One was New York Magazine which I became chairman of and was the major investor. And then another company was called Lynn Broadcasting which some of you may remember got sold to AT&T eventually. And a third company was in the medical electronics business. And I realized that high net worth individuals were very good about family groups, were great about managing their stock portfolio but no one was really paying attention to small companies. I was running a family, not my own. Their investments, they had no interest in private early stage companies. And I said this would be a great business to manage money for high net worth individuals. And we started and the context I'm giving is in 1970 to give you an example, I Think we probably must have seen, I don't know, 50 opportunities in the first year in prime time. I'm jumping out of 20, 21. We probably see a thousand a year. I mean there was, it was, it was so hard for us to find deals. I remember we only had a telephone in those days. You, things didn't just come in over the transom. Today. Every single day there's five deals come in over, just get sent in by email or something. So we had to scratch around to find investments to operate. And I just will stop this phase by telling you, the first investment we made was in the secondary lead smelting business. Now if a secondary lead smelting company walked into a venture company today, the first they would get, they wouldn't be able to come in because the doorman would stop them downstairs. They couldn't get through. If they got through, no one would ever see them. And I'm happy to say that that particular investment by luck and the strength of the entrepreneur became ultimately, and by the way, our investment was a quarter of a million dollars, became the largest secondary smelting company, not just the United States in the world. And it's today a $2 or $3 billion company. And it all started with a quarter of a million dollar investment in a scrapyard. But you really had to dig it to find deals. That's the point I'm making. If I went through the whole list of the first couple of years, nothing was like it was when I started Graycroft and certainly when we started Primetime. Primetime has seen in five years, you're seeing 4,000 deals coming in there over the transom. Over the transom.
- [05:09]
Howard Morgan
I restarted much later. I'm a much younger person than Alan.
- [05:13]
Alan Patricof
Don't rub it in.
- [05:15]
Howard Morgan
But when we started with Jim Simons In 1982, the PC revolution was just really beginning. And so we started seeing a lot of companies both in New York and in the Bay Area. And I was, for a long time, people would ask where I lived and I'd say C2B on United Airlines going between New York and San Francisco. And we saw hundreds, a hundred deals, not the thousands. And Alan is absolutely right. I mean, at, at B Capital, we actually see 10,000 deals a year coming in world because we're global. So we see a lot of things over in Singapore and India as well. And that's because entrepreneurs has become valued. People have seen over the decades that you can be an entrepreneur, you can create something that's useful for society and you'll be well rewarded. And that came out of the 80s and 90s and the ability to build companies and then scale them and then take them public, which you could do up until 2001 very easily. And that all works great.
- [06:20]
Alan Patricof
If you were asked, if you asked what you did for a living and said you were in the venture capital, this in 1970, the person would absolutely ask you, what does that mean? My own wife at that time who passed away couldn't explain what I was doing. My kids couldn't explain it. Today you can go to. We were in an Ecuador recently out on the islands, and people there know all about venture capital. I mean, so it's, it's. So you pick for this worldwide trend today.
- [06:54]
Interviewer
To be frank, I don't think my parents know what I do who do understand technology of venture capital.
- [07:01]
Howard Morgan
But I think we also have people.
- [07:03]
Interviewer
From all walks of life and different industries. Could you move me from your point of view, your opinion? What is some of the most misunderstood aspect of venture capital? What do outsiders. What should outsiders know? Maybe we'll start with Howard.
- [07:24]
Howard Morgan
Well, when my daughters were asked what I did for a living, I said what I do is I talk on the phone all day. I say no, but I have to say no politely so they'll come back to me with their next idea, which might be the right one. Because in venture capital we're turning down. People think we're risk takers, and to some extent we are, but we're really risk removers. We try to remove as much risk as possible from all the deals we see. And in the end we do. We used to say we do 1 in 100 deals, but with the flow that we're seeing now, as Alan mentioned, it's gotten so great. We probably do 1 in 500 deals that we see. And so the, the job is really trying to find those things that can create venture scale companies. Because what the Internet has done is it allows you to create a company very inexpensively and you could make five or $10 million a year in that company for decades, but you can't make hundreds of millions. So it could be a successful company, but not a venture scale company. So we have to look for venture companies.
- [08:25]
Alan Patricof
Yeah, I would embellish that. I would say that people have a perception that, you know, venture capital is, is an easy way to make money. It's a very, very hard way to make money because the loss ratio is not insignificant and the pain that goes with it, and it doesn't happen overnight. You can have investment in your portfolio for 10 years and be suffering and Working with it and still not realized anything. And in particular the last couple of years the IPO market, which everybody likes to glamorize, has been virtually non existent. So a lot of venture capital investments which actually have done well have not been able to become liquid in spite of them doing well. So that, that is also extended the life. Most funds are 10 year funds. But I would say I'm very honest of how I run my life and Howard is the same. I would say I've had at least I've set up 25 funds here and abroad because at Apex we had offices all over the world. I would say I probably start at least 25 funds and I would say at least three or four of them have run as long as 17 years. And, and, and certainly 10 years is very unusual to be able to liquidate your last investment at the end of 10 years. So it's a long term business. The other thing I would say is I, and as Howard does, he may have knew more than I do because I haven't done as much lately. I'm doing one next week speak to business school classes and the last time I did one was, was about nine months ago. I would always ask this question how many of you in the audience intend to at the end of business school start your own business? And 90% of the people would raise their hands to start their business. And I would always say the same thing which I would say today. Why don't you go to a job instead and learn something about how someone else does something wrong and earn on their dollar. What mistakes that you could avoid and learn something about a business because you're not starting a business because you are really passionate about that particular thing that you're going to do. But you know you're going to start a new delivery company, a new company with the, with AI in the name. And you're doing it because someone graduated a year or two before you and is worth five or ten million dollars on paper and you think they're a snook and therefore if they could do it, why can't you do it? And, and honestly there are lots of kids who are graduating who want to go right away into business and the failure rate's high. So I, I happen to believe in working under a great mentor that you can work directly them go to work in a, in a job, in a, in an office, not at home in your bedroom and learn something and then figure out what you'd want to do to start a business. But there are. The startup rate is enormous today. And that's why we're seeing failures, because a lot of people don't have relevant experience to justify the startup.
- [11:37]
Interviewer
It's no secret that the tech and venture capital industry is highly cyclical. Both of you have gone through some very intense crisis in the industry. Could you maybe share the toughest crisis you went through and how did you navigate it?
- [11:58]
Howard Morgan
We went through some really tough crises in 87, 89, when the markets crashed. Because in those years, and you know, in those years, the stock market, I don't know how many of you are old off here, but we traded in eights. The stocks were quoted public stocks were quoted. There was, you know, 12 to 12 and an eighth, right? And that eighth 12 and a half cents was split between the brokers and commissions. And that meant if you sold a million shares of Stock, you had $12,500 to split between the commission brokers. And so you took companies public because you could trade millions of their shares each week and you'd use that money to create research and conferences and get people to know these small companies. And so small companies could be public. But when the markets crashed, as they did in 87, all of a sudden the IPO windows froze. Now, when the IP and IPO windows froze, venture capital didn't have money to give back to their investors. And in those days, the investor expected to get their money back pretty quickly. So if, if I, if I put a commitment of a million dollars to a venture fund in 1985, I would expect to get 4 or 500,000 back in the next couple of years, long before they called the whole million dollars. In today's world, if I invest or commit a million dollars to a venture fund, I'm pretty much assured that they're going to call 7, 800,000, maybe 900,000 before I get a nickel back because it takes so long to become public. And so the crises in those days were very different than the crises crisis today is a lack of exits. As Alan mentioned, at Means, venture funds go on for 15 years or more. And there's nothing wrong with that if you get outcomes. First round capital 2008 bond FRC2 paid out 55x to its investors. Yale, Princeton, absolute spectacular. But it paid most of those out in years 13 and 14 when Uber went public and when Roblox went public. So if you have to wait a really long time, then you, you can't invest as much in new ventures.
- [14:09]
Alan Patricof
I just almost exactly what Howard said, I didn't have 55 times in a fund, but they were very lucky to be very early on in Uber. The for ME it was 1999, 2001, that period. And the way I like to just describe it succinctly is every single week, there wasn't one. There was at least one company in our portfolio who couldn't make that Friday's payroll. And if you think it's fun to live with companies that are constantly in desperation to, you know, and having to lay off people, I would say in today's environment, companies are better financed because there's more money available, they do better planning. Venture capitalists have learned people are running a company or experienced, trained. And I don't think I've had one single company in the last five years in our firm Primetime, of which I want to bring. Howard is an investor as a limited partner, which we're very proud of. And I. The I don't think we've had one company that couldn't make this week's payroll. I mean, we've had three or four, three or four at least maybe five companies that have gone under out of 35. So already after five years, but none of them at the. On a basis that, you know, they hadn't planned enough and they couldn't make this week's payroll and therefore they had a layoff. Everybody. It's just much more grass, much more gradual failures.
- [15:51]
Interviewer
I want to switch gears to AI because that's of course a topic that I'm sure everyone was interested in. This question is for both, but I'll start with Howard. In one of our conversations in the past, Howard, you mentioned that when you first got involved with the arpanet, which then became the Internet, there was a point in the maybe late 70s, 80s where you kind of visualized how this was going to evolve all the way to the iPhone. How are you visualizing AI today?
- [16:27]
Howard Morgan
Yeah, so today what I visualize is that 10 or 15 years from now we will be working alongside humanoid robots everywhere. We will have humanoids doing chores at home, working with the elderly, which I will be in, I guess I am now. But. But the society will look.
- [16:50]
Alan Patricof
No one will replace Eleanor.
- [16:52]
Howard Morgan
No one will replace Eleanor. Society will look different. Our day to day lives will be very different. Because the chart that Renee showed, which is so many jobs that are going to be at least partially or largely done by AI will have happened. But also so much help, physical help in the home, in the offices, in shops, obviously in manufacturing and logistics will be done by robotics. And I think we're almost underestimating the spread that Robots will have over the, over the decade. Elon Musk, not one of my favorite people, but Elon has predicted, you know, a billion robots. Actually, I think he predicted 10 billion, but it's probably, I, I can see a billion robots in that period.
- [17:41]
Alan Patricof
How many people here have used an AI source in the last week? Everybody. I mean, that's, that's where we're at. And this is, you know, a phenomenon that's only what, three years old, would you say?
- [17:55]
Howard Morgan
Yeah, I mean, it's four, three to four years old.
- [17:58]
Alan Patricof
So that tells you an awful lot. I also, as a venture capitalist, everyone thinks you're, as Howard said, a risk taker. You take chances, you're speculative, just the opposite, where we're all trying to mitigate risk. I am not, I do not recommend everybody going crazy about AI. I mean, lots of companies today have reinvented themselves and they'll call them xyz Company AI, AI in the name, AI in their footings, wherever it is. They're going to be like every industry that I've seen over the last 50 years. There's going to be winners and they're going to be losers. And who knows yet? I mean, yesterday I saw that ChatGPT is selling employee stock at 500 or 500 billion dollar valuation. This company is three years old. You know, those are very big numbers and it's very exciting. But there are lots of platforms being developed and there's no question Chat CBT is in the lead. But there are, you know, there's perplexity and there's Claude and there's lots of other things that are coming up in different areas. I just would say be cautious and from our standpoint, focusing on product services and technologies for the older generation that want to live longer and live healthier. We're thinking about how AI can be used in an application to help someone. For example, I just throw out an application, a simple one. Caregivers come to take care of people and they have to fill out reports by medical rules of how the person's blood pressure is, how they react, what their mental acuity is at the moment. And all of that has to be transcribed and put into medical records. Now they come and they can do it by voice and sit there and talk and keep a recording on. It's all automatically through AI, translated and converted into filling out forms for what's required for medical records. And think about the time that's spent and the greater accuracy in terms of interpreting what the findings are. That's a very simple example. I Personally think there's going to be great upheaval. I think that particularly in early entry jobs is going to be a lot of damage. A young lawyer coming out of law school today every, their functions could be totally done by AI.
- [20:34]
Howard Morgan
Totally.
- [20:35]
Alan Patricof
They don't really need entry level lawyers anymore coming out of law school. And not that they're all, I don't mean they're all going to be out of work, but they are going to have to change that. What they do with young lawyers in terms of research and I don't know what it's good the end result is going to be, but it's, it's, it's scary. And you could do that in the engineering profession, in the marketing profession. I mean, boy, that's one really has to scare you if you're going into marketing because AI can come up with a marketing plan that's better than you've ever seen in, in about one second.
- [21:14]
Howard Morgan
I think. You know the thing about AI that's different than the, than our, the database revolution and, and even the iPhone revolution which really took about seven years to get a billion people on iPhones and that was enormous. It took a week to get 100 million people on ChatGPT. And the speed with which AI is improving is exponential. And whether we get to artificial general intelligence or artificial superintelligence in four years or five years or 10 years, we're getting it. There's. So the machines will in fact be smarter than us in many ways and we have to be able to deal with exponential growth and humans don't do that well where we can get real help. And Alan mentioned that he and I are both big believers in longevity and doing things that will try to help us. He wants to live to 114. I'm trying to get to 122.
- [22:12]
Alan Patricof
I am going to live.
- [22:13]
Howard Morgan
He is going to live to 114.
- [22:14]
Alan Patricof
I promised my wife 24 years and.
- [22:17]
Howard Morgan
I'm trying for 120, but I. We're now using very heavily to design drugs to understand large bodies of data that show us what behaviors are correlated with longevity, what you can do to change and sort of overcome your genes which are the dominant factor in how long you're going to live and then to change your lifestyle to overcome the genes. All that's AI and that's a huge change for the world.
- [22:45]
Interviewer
So two more questions. So in the era of AI, I mean we have quite a few founders here. We spent some magnificent time this morning with some top notch founders. How do you evaluate builders in this era, what principles remain and what are some new principles you're applying up?
- [23:10]
Alan Patricof
I have.
- [23:11]
Howard Morgan
You know, part of the question is, how do we evaluate founders? And we ask every founder how they're using AI in their business and how they see and how much of their business could be done with AI by other people, by competitors who see what they're doing. And, you know, coding now is done by AI. Every company we have it, it has sort of one tenth the number of coders they used to have, because AI does that well. And when you're covering very complex things. And we saw this morning, we'll hear more about the wonderful region stuff, complex control systems. AI is a huge boon in that and even in our own business, we at B Capital, my partner Eduardo Saver is over in Singapore running 12 people doing AI for us to help us evaluate companies. We used to spend a week having the analyst do a very large study of the company, and with all the numbers and all the competitors and so on. And then we would ask them questions at the investment committee, and they'd say, well, give me.
- [24:13]
Alan Patricof
Give me a day.
- [24:13]
Howard Morgan
I'll come back and give you the answer. Now we put all that into the AI. It goes out over the Internet and other sources and gets back data. It gives us rankings on the management team. How good are they? It gives us rankings on the competitors. It gives us advice on whether we should do the investment or not. And it answers any questions like, what if their revenue slipped by a quarter? What if instead of, you know, instead of a thousand boats, they only sell for 100 in the first three years? And instantly the AI comes back and says, here's what that means. They'll need more cash. They'll do. It's just completely changing. If you use it extensively. And we're making sure that the founders that we back now in whatever field, in whatever kind of field, whether it's. Whether it's in the healthcare field, whether we have a company now we're backing, helping people do corporate moves, international moves. So they help you with an AI that says, okay, here's what you got to do to get your visa. Here's what you got to. Here's the schools for your kids, here's how to. All of which was to take people weeks to do, is now AI, you know, minutes.
- [25:21]
Alan Patricof
I think what Howard said, I'll revise my answer. Talking to the factors that we meet with as to how they could use the technology is about the only way we can really scale it. I mean, we can analyze the technical aspect of the technology involved in what they're doing.
- [25:45]
Howard Morgan
Yeah.
- [25:45]
Interviewer
2 comments on what you mentioned. I know of a very large a hundred billion a year in phone that has added an AI as a member of their investment committee. It's a true story. We have one of our portfolio companies are recently hired two amazing engineers. And I was like how did you get them as a seed stage company? I was like, well, the employment rate of their class recently graduated 50% engineer. So just something to think about to wrap up. So you, you've had amazing careers. Lots still left to be written. That's very clear so far. Could each one of you list your proudest achievement?
- [26:40]
Howard Morgan
My proudest achievement is helping start four great companies. Renaissance and IdeaLab, first round and B Capital. Because I believe that for me the secret has been to pick great partners. 58 years with Eleanor and as the first great partner, my thesis advisors, Jim Simons, Josh Coburn and Bill Gross and Eduardo Savonar. That's the secret and that's been the proudest achievement is helping build those things.
- [27:12]
Alan Patricof
I don't know. I mean, you know, everyone wants to know where did you make the most money? What helped you? I, I can't really think that way because that company that's been the most successful or the, the most money is not really what may have given you the most satisfaction. I, I think that I say in my book, and I've said it many times, I, I've been in this business so long that every single day someone comes up to me and I used to be very nervous about it because I was always afraid. You don't remember me, but you screwed me 20 years ago. And it's a natural fear. I don't have that anymore because it's never happened. The number of people that I helped start in business, the number of people I've given jobs to, the number of people I've always taken their telephone calls from, the most obscure person. I've been willing to beat almost any college student when they come out to try to give advice. So I don't call myself a mentor. And I was talking to my wife about this the other day because she was asked who has she been a mentor to? I get asked it all the time and you don't say, you're a mentor. Someone else says he or she was my mentor. That's. And I think I have probably hundreds of people were not so young anymore who would call me their having been their mentor. When I was getting married to Barbara. We're only married a year and a half. I had a bachelor's party. And from my bachelor's party, a couple of guys used to work for me, wanted to take me to Las Vegas. They wanted to do all. And what I did instead is I had a lunch of all the people who I had hired as people coming out of college or at a business school. And I had about 40 or 50 people who are now all a lot older than having the, you know, some of them in their 50s and the 60s. And so I got a. I obviously get a lot of satisfaction out of having pretty big following around the, around the world.
- [29:21]
Interviewer
Well, Holland Howard of the time I talk to, I say the same thing. Thank you for your contributions to our industry and to the world. And thank you for joining us on stage here.
- [29:34]
Howard Morgan
Thank you.
- [29:37]
Miguel Armasa
Thanks for tuning in. I hope you enjoyed this great episode with Howard and Alan. If you want more interviews, make sure to subscribe, follow and leave a review on Apple, Spotify, YouTube or wherever you get your shows. It helps and means a lot. If you have any suggestions or thoughts about the show, just drop me a line on Twitter or LinkedIn. Signing off till next week. I'm your host, Miguel Armasa.