#34 – Winter Has Arrived – Part 2 – End of Season 2 … the Burst of the Bubble and the Crisis Upon Us… What’s next?!

Tech Deciphered

In this episode, the end of our 2nd Season, we close our discussion on the crisis that is upon us and deep dive on what will happen next. We finalize with a brief recap of our season 2 and on what we got right and wrong.

Navigation:

• Intro (01:34)
• Section 1: What Will Happen Next
• Section 2: End of Season 2 – a Quick Recap
• 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 Tech Deciphered episode 34. This is our second episode on the bubble that’s finally burst winter that has arrived. We will talk more in this episode about what will happen next. If you want to listen to our episode 33, where we talk about what has happened, what is happening, go back to that episode. And for this one, we’ll be focused on future, short-term, medium-term, where we believe this is going.

Nuno
So what is happening next? There were some significant changes in the world that we’re really not coming back from. And we’ve heard some amazing things and some well-written analysis, or at least some very pointed notes from people like Benedict Devin and many others that we have inspired ourselves with.

Nuno
But in effect that the whole notion of digitization is true, I think we have had a forced digitization over the last two years, which has really brought us forward. Our ability to do ecommerce, our ability to actually use services that we legacy services and have ways of interacting with those services that are more virtual than they were ever before, our ability to get telemedicine and many other things.

Nuno
So there’s been a lot of moving forward that has been positive. There’s a lot of things that, in our personal experiences, for example, in the home, we don’t accept anymore. I think Benedict was the one saying no one is going back to cable. I’m not sure that holes in that sense, but obviously there’s been a lot of court cutting streaming seems to have one day. Clearly, it was already relatively clear. Probably, it got accelerated through COVID.

Nuno
We’ll now see the reckoning of that in the next few years on who’s going to be the big winners in that space, but certainly, I think that’s moved forward. The ability for us to really communicate with each other at a distance is now a theme that needs to be addressed by everyone. So it’s no longer an afterthought. It’s not like, okay, oh, maybe we can get on a plane and go somewhere. No, no, no, no.

Nuno
Do we have a good way for our team, for example, in a professional environment, to interact with each other at a distance? What are the tools we have to do that in? So all this notion of hybrid versus remote versus being in the office doesn’t really matter. Remote work needs to work. And we’ve learned our lessons and there is a lot of tools missing. There’s a lot of things that haven’t been done properly.

Nuno
We also know for a fact that there are pieces of the acceleration that we saw in biotech driven by COVID and the vaccines that ultimately are here to stay. So there’s definitely not a going back on this either. Obviously, there’s a lot of work still to be done in digitization, in particular, across different sectors of the economy.

Nuno
But honestly, with all the tragedy that COVID has been and all the crap that we’ve been embedded in for the last two years as a global society, the silver lining is, guys, we’ve got the digitization we’ve been asking for. The whole digital transformation stuff we’ve been talking about, it happened in two years, what probably would have taken 10 years.

Nuno
And again, it’s not perfect, there’s still pieces missing. But even the pieces that are missing, I think, because of this shock that happened to the world, we are all working from home. Because of the shock, the pieces that are missing are now much clearer. The flaws in the systems and tools that we had are all much clearer.

Nuno
Again, I think this is an amazing situation for us to be in as investors. This is an amazing situation for us to be in as entrepreneurs. It is now clearer that there are things missing that we can build.

Bertrand
I totally agree. A lot of things got accelerated are not disappearing. Another big example is around the cloud computing. The move to the cloud has been accelerated. It’s more efficient, it’s easier, ultimately, for many cases, less costly. So this is not something we are coming back. The same with mobile devices, which in some ways, strangely enough, did pretty well.

Bertrand
Mobile devices, mobile content in a situation where a lot of people were spending much more time at home. But even at home, you prefer the smaller screen that you have really everywhere with you. You don’t just want to be focused on one big screen. Some of those sectors are going to probably go a bit more back to normal.

Bertrand
Edtech has seen a lot of tension, not just because of COVID, but also because of regulations and changing platforms rules. Edtech is probably going to face a lot of unknowns, especially in front of an economic prices that are coming. Ecommerce, we probably keep moving forward, but as we have seen, it has been coming back a bit more in line with past trends.

Bertrand
But obviously, yes, a lot of things are not coming back, a lot of habits are not coming back. It’s still amazing for me to see how now everyone, there’s a video confer individuals, professionals, such situation, investment situation, stuff that in many cases were not possible, two, three years ago, would have been seen as a platform.

Bertrand
Yeah, it’s that acceleration of digitization is there to stay and more is to come. And I would say you could even argue that with an economic crisis where typically you want to optimize your spend more, there should be more digitization because people will realize that the most efficient channels are digital to which consumers transact with them. And you will need to be even more hardcore in order to optimize your spend.

Nuno
In some cases, the nuances of what happened during COVID have become very apparent in the last few months in particular. So for example, for us, one thing that wasn’t clearly solved in this whole stack of communication within the Enterprise and within the company was definitely the water cooler moments, the ability that people have going to each other’s offices or each other’s desks and asking something about something else that’s very quick in answering.

Nuno
And for example, for us, that has led us to some thinking around that thesis, we actually might make an investment in that space, so I’m preempting a little bit that. But there’s definitely pieces of the puzzle because they got so disjointed they became clear.

Nuno
The notion for me right now that is super exciting is this acceleration that we got, nobody probably would have asked for it that we got a global pandemic, but it provided a shock to society that has at least given us some positive things. And those things are things that we can build upon that can help us move forward across a variety of areas.

Nuno
One is that there’s been obviously advancements in artificial intelligence. We’ve been paying attention quite heavily at artificial intelligence. We think we are now at the point of what we call the app economy and artificial intelligence, where there is a lot of leading platforms that you can build on top of. And so what you’re effectively doing is you’re being amazing in terms of algorithms.

Nuno
You have amazing engineers with you and data scientists that really allow you to go to the next level, in terms of how you build your own platform around existing and underlying platforms. I think we’re going to see advancements around artificial intelligence that go well beyond it. That what got us here is not what is going to get us to the next level, what got us here was brute force.

Nuno
The next level is going to be finesse. It’s going to be smaller datasets, better algorithms, bare methodologies, less computer or compute intense methodologies. A lot of exciting stuff happening around it.

Nuno
And we’ve talked a lot about other big advancements. Quantum computing has moved forward. I’m not sure we’re there yet, to be very honest in that field. Biotech has had incredible movements. I think anyone that’s in biotech today should feel like totally vindicated that was the right choice.

Bertrand
Yes, indeed.

Nuno
That’s something for the future. Anyone that’s around data manipulation and from anywhere from data quality, data engineering, data science, it’s essential. The word becomes more digitized. Data becomes actually more important even. There’s a lot of amazing things happening in the world. And obviously one of your favorite, which is nuclear energy and nuclear fusion.

Bertrand
I’ve been a big fan of nuclear for more than 20 years. I’m glad that finally, this is something that is back on the table for people who are thinking carefully about how you solve energy needs instead of proposing to go back to prehistoric times and stop using energy. I’m very excited that nuclear fission, it’s back on the table that companies are investing more into nuclear fusion programs as well.

Bertrand
That’s two fantastic technologies. I believe we absolutely need more of them. You take one famous example, in France, around 80% of all electricity is nuclear. That’s a big difference in terms of energy dependence, but also in energy pollution. Let’s not forget there is no pollution coming from a nuclear reactor, and they are so safe.

Bertrand
It’s kind of crazy actually what happened the past 10, 20 years of using even maintain some reactors, let alone expand if I take some examples, like in Japan, in Germany, in California, where actually prices of electricity having traced like crazy.

Bertrand
And what’s even more shocking to me is that some of these misled policies from these countries try to impose their crazy policies to the rest of the world. Germany trying to block Europe from going nuclear. It’s already mad enough to do that to your own economy, but to impose it on others makes no sense. And obviously it was not very smart to decide to depend from Russia in terms of energy independence.

Bertrand
So pretty excited that a lot of smart people are thinking again about that. I hope that people are also going to go back to hacking for oil and gas again. It’s insane how little energy-dependent is most of Europe, for instance, or some other regions in the world, and we should absolutely push for that.

Bertrand
It’s too difficult in a very difficult world becoming more and more multiple. You need to have more control and to have closer-to-home sources of energy that you can depend on. As much as we like solar and other form of energy, this is not as available all the time than using nuclear or burning oil or burning gas.

Bertrand
We need to be realistic. We cannot keep having programs that are expecting people to face loss of leaving standards. That’s crazy. That’s going to just bring one thing is a lot of resentment, it’s not outright revolution in some places. I hope we are coming back in a way to sanity about what is energy, how we find energy, and what is the most optimal energy mix.

Nuno
So maybe moving again to probably the question on everyone’s mind, I mean, is what economic cycle are we on? Is there going to be a quick hard landing at some point that is even worse than what we’ve seen thus far? Is it going to be a long, soft landing? Is it going to be some other variation? What do you think, Bertrand?

Nuno
I’ve already put my stick on the ground the last episode, so I’ve already said it’s hard. We haven’t seen the hard one. We haven’t seen that moment where everyone trembles.

Bertrand
I think it will be bad when you are combining inflation with recession. Unfortunately, I believe it’s coming. Are we already there? I don’t know, it’s possible actually. Will it be by early next year? That’s for sure is my take. So you probably want to prepare for that. It’s always difficult to predict how it actually will work because it depends on lot of externalities.

Bertrand
Do we get back to normal relations with some countries like Russia? Tough to imagine. We have oil and gas from Saudi Arabia again at big scale. I think there are a lot of questions that are difficult to answer. I don’t believe we have a hit at the bottom yet.

Bertrand
I believe, again, the worst is still to come. But on the good news part, it took psych, at least central banks, I’ve got the signal, even the ECB, that they should raise rates to fight inflation.

Bertrand
I think in order to spot the bottom, you need to understand where is inflation starting to decelerate and the next piece of the puzzle at the same time, we will see that procession coming. I expect that to be relatively hard and painful. After all, we are paying for excess of the past, probably 15 years.

Bertrand
And in terms of inflation, we’re actually, in some ways, sadly so paying for world as that when global and is now getting generalized again.

Nuno
Indeed, maybe moving to our favorite subject of Startup Ecosystem and where we’re at, because obviously, that’s, as you know, is the world we operate in. We’ve spent a lot of time talking about macro the last episode, in this episode, and over other episodes as well. But the micro world of our beloved startups, VCs, investors, and others is where we always like to bring it back to.

Nuno
My clear view is that fundraising will be extremely difficult over the next 1.5 to two years. And this is holding true, not just for startups, but actually for venture capital firms. Limited partners are now reevaluating where they are and where their assets are. There’s definitely a cycle ahead of us.

Nuno
From the perspective of talking to a lot of the startups that are in our portfolio, or that even we’re thinking of investing in, the advice we’re giving is, historically, the industry has thought about 12 to 18-month runways, and then we’ll go back to fundraising, or will fundraise again. And we’re not talking about 24, 30 months, you need to really withstand this.

Nuno
We’re not talking about plan Bs and plan Cs, where if things don’t quite continue the trajectory there in terms of growth or your top line, how do you rescale? Definitely, there’s going to be a balance of power that will move back to venture capital firms and investors. I think we’ve seen entrepreneurs taking the upper hand for the last few years.

Nuno
There’s always a way to check if they’re taking the upper hand. By the way, if you guys have some doubts about that, just go and check out the reports from the law firms, Fenwick, and Cooley and that that talk about what’s happening in terms of the key clauses in the agreements. And you’ll see immediately when it’s tipping to the other side.

Nuno
When the clauses are becoming more beneficial towards investors then they are towards the startups, you see that balance moving. There’s always a little bit of lag, so clearly that’s going to happen, but it will depend on and go back to VCs and investors.

Nuno
If you’re an entrepreneur and you’re still trying to fundraise, but you started fundraising before you thought this was a crisis and now you’re having difficulty, maybe you need to adapt a little bit your deck, maybe you need to adapt how you’re pitching it.

Nuno
And if you were not being nice to the investors you’re talking to, because you thought you had like 10 investors at the table, maybe you don’t doved them anymore. Well, good luck. This is what I would say, it’s karma, as I call it.

Nuno
The funds with vintages from 2000, 2018, so funds that had their first close in 2017, 2018. As probably many of you know, funds are entities that are normally limited in time, in many cases, 10 years. And they do with first close, and then they might do subsequent closes to that close where they say, this is the capital I’ve committed, and then over time they do cash calls on that capital.

Nuno
Funds with vintages of 2000, 2017, 2018 are funds that would have started deploying money around then. And normally, the investment period is a term that we use in fund management, which declares the period of time under which you basically deploy capital for new investments. And normally, that investment period in many funds is four to five years, I’d say five years, classically was the timeline. Many funds are now doing three, four year investment period.

Nuno
It’s the time period of the fund under which you can deploy capital for new companies. After that time period, you can still deploy capital, but you can only deploy it in companies that you’ve already invested in. You can do what we call follow on money. You can put more money in that company and deploy more capital to that company.

Nuno
If you’re a fund with a vintage 2017, 2018, with a four to five-year investment period, your investment period sadly is coming to an end. It may already have come to an end. And if that’s the case, you’ve already deployed all of your money for new investments. So your stack is done.

Nuno
If you went in and were desensitized on valuation because you were hitting a lot of party rounds with companies that were being super overvalued, that magically on your books were looking amazing because they were raising more and more rounds, again super overvalued, and now they’re getting realigned, you’re out of luck. Because all that was on paper, either you’ve raised a new fund or all that was on paper is evaporated already.

Nuno
There’s also funds, and we’ve talked about a few of those funds in the past that just literally went in and deployed everything in one to two years. They might be funds that are vintage, just before COVID, 2019, early 2020, and they just deployed everything, so they’re sort of done in terms of investment period.

Nuno
They’ve not deployed all their capital, but they’ve done all their new deals that they needed to do in that fund. And therefore they’re, again, their portfolios defined. They can’t do anything with their portfolio. They can put more money to a Company X than Y going forward, but they know who Company X and Y is. They can’t choose anymore.

Nuno
A lot of companies and VC firms that had great gains on paper that were walking on water, as I’d say, now they’re going to be subject to gravity. And the thing that matters is liquidation. All that matters in venture capital in the end is DPI Distributions to Paid-In cash on cash. How much cash do you give back? And the rubber is going to hit the road in the next few years.

Nuno
It’s going to be interesting to see if the superstars of the last two years are going to be the superstars of the next two years. A spoiler alert. No. But it also gives back this notion of what happens next. What VCs are going to be the VCs that are going to do well going forward?

Bertrand
Yes, I totally agree with you. It’s a big reset for entrepreneurs and for VCs as well. On the VC side, I guess it’s clear that we are going to see longer processors and more detailed due regions. When you have more time to analyze a company because there is less competition on the deal, and you can finally go back to normal.

Bertrand
I want to highlight that some VC firms had not stop to work properly during COVID, only some of them definitely stopped. And I guess we know soon which one are already in trouble. The other piece is that it will pay to our VCs with a strong operational knowhow, because that’s when you would be able to help your portfolio company to guide them during this difficult time.

Bertrand
It won’t be just to be there on the board to upload and just say good, nice stuff to the CEOs to keep him happy and motivator, it will be time for the truth. I’m not sure all CEOs will be willing to use the truth, but hopefully there will be more of this at board meetings. Again, I think that would be very, very helpful to provide a better pictures to different firms.

Bertrand
I guess we will see also investors looking more carefully at business models and go back to basics. Is it the reason about business model? Is there some payback? Is it insane? I think it would be actually exciting times.

Nuno
Indeed. And this is a good time to know who’s with you and who’s not. If you’re an entrepreneur, it’s a good, really good time to figure out what your investors really stand for. When push comes to shove, how do they behave with you? What advice do they give you? How often do they interact with you?

Nuno
If you’re an investor, it’s also a good time to know what you can count on from the founder side. If you’re not getting any calls for help right now from a company, chances are someone else is, maybe you’re not the investor that they talk to about these things. There’s a lot of metrics there that are quite interesting. I believe all sets of good time to know who are the employees that are all in as well.

Bertrand
Definitely.

Nuno
These are tough times. Again, as I said, we still haven’t seen, so to speak, the tip of the iceberg of what will, I believe, become this great unemployment trend. Some employees are still maybe in a world where they think they can get better places out there. And if your company’s going to a crisis, it might jump ships just on the sake of it.

Nuno
A couple of months down the road, I think things will be a little bit more of a moot discussion because the job market will have changed dramatically in a couple of months. But in any case, it is very important at this stage for you to really figure out what you have and what you don’t.

Nuno
Again, in times of crisis, you really get to know who’s on your side, who’s not. You get to know who you can count on or not. Again, it’s a really good time for you to do that analysis to figure out who’s on your side or not.

Nuno
It’s also a really good time to go and build a business properly. And we always forget a business. We saw this in 1999, 2000, and we talk about the new economy. I think somehow we weren’t talk about the new economy recently, but we were talking about something similar.

Nuno
But again, it’s the same fundamentals. It’s the fundamental piece of getting profitability right in the way that works for your company, wherever the profitability needs to be. It’s the ability to figure out not only react your cash consumption, cash burn is, but also the cash flow that you’re generating from the perspective of what you’re doing.

Nuno
It’s the opportunity, as I mentioned before, to figure out what your org chart looks like. Who are the employees you can really count on? Who are the people who are going to go to the next level? Make them sure that those people are staying onboard.

Nuno
And then also figure out those who are not in for the long ride, who are not all in. And if you’re in a startup, you want all in people for the most, certainly if you’re in early stages of a startup. It’s also great time to be focused on what actually matters to the existence of your company. And we know companies for the most fail, certainly startups because they run out of cash. And that’s it.

Nuno
Everything that you can do to preserve cash, be a top line, optimizing pricing, being more aggressive in certain contracts you’re negotiating right now. Anything you can do potentially on bottom line and not the classical, we’re just going to lay off a bunch of people because layoffs have their own side effects as well.

Nuno
You might lose customer service capability, you might lose product management cap, you might lose a number of things that are not actually ideal for you to lose. But this is a time where you do those tweaks. It’s the time where you start figuring out, okay, this is my running plan going forward. It’s what I’m going to do over the next year to two years.

Nuno
This is my plan B if things really start going really bad. This is maybe my plan C if things go really, really well. How would I up my ability to serve the market? And have that in account and have these discussions with your investors, have these discussions with your advisors, get their advice and at some point make your online.

Nuno
If you’re the CEO, it’s your call. I was recently on a board where, and this doesn’t happen very often, but I was recently on a board where there was, let’s just say there was fundamental differences of opinion between several board members at the same time. And the CEO I feel was taking into account all their opinions, which I’m not really sure will provide him with great guidance.

Nuno
He was, I think, trying to please everyone. It’s up what you can’t, you can’t please everyone. You have to choose what is your path. And maybe your path is aligned with board member X or board member Y, maybe your path is actually not aligned with any of the board members. It’s something different. But when push comes to shove, it’s your call.

Bertrand
Yeah, it’s just CEOs, entrepreneurs have to understand. It’s a two-way street. I think you also talk about the fact that the poor relation is changing. Suddenly, investors are becoming much more selective, terms would be harder. You really want to think carefully about how you are going to manage your board, how you are going to run the company in such a way that you make it interesting for new investors.

Bertrand
You cannot just be dreaming about the fact that you are going to not listen to your board members, not make all the change that a lot of companies are doing. At the same time that all of these would be good and well, and you will find new investors. If it doesn’t work, you can still count on your old investors because very clearly you don’t put good money after bad.

Bertrand
Right now, some investors are going to make very clear decision that, hey, we all spend a lot of money. Sometimes at a high valuation. As you say, it might be time to double down financing some existing board for your companies. As investor, your job would be to use very carefully this additional datas.

Bertrand
Because you will want to be saving and helping the one who are trying, first, to save themselves, to really do well, and to be very good students about what was the best way to run a business in this situation, because you will want to go to the one that at listen to good advice and are going to become your winners. I think it’s really something important to understand for CEOs.

Nuno
At these times of great challenges, there’s also great opportunities for all involved. If we’re a startup, we’ve talked about this in the previous episode as well. I certainly believe we’re moving from the great resignation to the great unemployment. And therefore, this whole thing where employees were running the world in many areas in general, I think is going to move back to employers.

Nuno
If that’s the case, if I’m a company and I’ve had difficulty hiring and I’ve had difficulty finding talent, some really good times might lie ahead. I might actually be a good time for me to expand my team rather than actually just contract my team. If I have the capability financially to do that, it would be a perfect time to do that.

Nuno
There’s going to be a lot of opportunities. There’s going to be spaces that you think your competition was occupying, that they’ve always been there, that they may have just dropped the ball on, and it’s not very visible. It’s a good time to talk to people that you wanted to sell to customers that you wanted to sell to Enterprise that you wanted to sell to, and figure out if they’re satisfied or not.

Nuno
There’s going to be a lot of opportunities, hopefully all within, again, the ethical realm that arise from it. There’s also great opportunities for investors. In terms of new investments, with the rebalancing evaluation expectations, with more difficulty in fundraising, we get not only the power that comes with clauses and terms and all of that, but we get more reasonable deals.

Nuno
We get more of the longer dating period, you were talking about longer due diligence processes, and longer processes lead to longer dating. And so we get to know each other a little bit better. I really won’t make a mistake in the investor I bring on board, and the investor probably won’t make a mistake in the company they’re investing in as much.

Nuno
There’s a lot of positive pieces to this that I believe will come out of this overall. And hopefully, the last thing that I would say is maybe we’ll stop being obsessed with unicorns for the second. We’ll start getting obsessed with something else, I guess, but we’ll stop being obsessed with unicorns for a second.

Nuno
Again, think about liquidity, think about who are the companies that have a standing business, that should have a standing business, that have an ability at some point to either go public or to sell to someone else, but like a proper business.

Bertrand
Yeah, no, totally. I think we are in agreement. What was the expression? The edge of the unicon replaced by the age of centers. Centers being companies at 100 million run rate.

Nuno
And let’s not to have any mythical creatures in our lexicon, please.

Bertrand
Let’s talk about potential scenarios for the future. I think that’s really is a big question from all of this. Where are we going next? I think we talk about short term in terms of inflation, increase of rates, or recession, because that’s the short term.Medium term, long term, if I stick to the economies, there is a question of, are we going to enter a long period of taxation?

Bertrand
We got that in Japan. We got that in the ’70s in many countries. That would be a big question because that’s a very different economic environment that companies startups we have to face. I don’t know if it’s clear at this stage, but I think it’s a very real, strong possibility that we go in this type of scenario. So that’s one.

Bertrand
I think we talk about the world becoming more multipolar, a world becoming more regionalized. I think we will see more about how can we build closer to home. I mean, if we’re in the US, how do we build more in urban Mexico instead of China? If we are in Europe, it will be more in Eastern Europe, for instance, on north Africa.

Bertrand
I think we see some adjustment pretty strongly, especially with what’s happening in China. I don’t know many people willing to go back to live in China, given the handling of COVID. I think we will. And obviously, there is a big joke. Political tension between us and China, China and Europe.

Bertrand
And of course, especially when you see the partnership between China and Russia, I think we were very tightly synchronized with China. I think it’s going to unravel, and it does started to unravel, unfortunately. So we have to take that into account how he sees the world and where it’s going.

Bertrand
I’m not saying it will happen over time, but after 30 years of world integration, we might go back to 30 years of, I don’t want to call it disintegration, but definitely a certain role back to a more regional world, a world being less flat.

Nuno
A second potential scenario is that we go into a world that goes back to where it was, obviously China, and there’s other parts of the world that have decided to go in a different route. But we go back to a world where the collaboration that did exist to a certain extent during COVID.

Nuno
Actually sediments that we were going in the right direction, that the world was becoming quasi flat, that integration, internationalization, globalization was a given. And so that’s another potential scenario that we would be under going forward.

Nuno
Maybe a more unlikely scenario than the first scenario that you described, Bertrand, but certainly a possible scenario. I do feel for that to happen. I am not a Doomsdayer, but I do feel for that to happen, that we would need, unfortunately, and sadly, another shock somewhere, that gets us back all to the table to do stuff together.

Nuno
Although I hope for that scenario, I’m not sure I would hope for the triggers that would lead us to that scenario. At this stage, the more natural thing is we are going into a siloed environment. What I would call the siloed scenario that we just described, where everyone builds their own capabilities, everyone has their own regulatory environment that are pretty aggressive, everyone serves themselves.

Nuno
And obviously, this has a lot of implications at the micro level on which companies win. Why do they win in those markets? Are they regulatory advantaged because they’re local companies? Do they have other advantages that others don’t have in terms of connecting to infrastructure in those specific regions?

Nuno
Again, I would hope for the more collaboration back to the world is quasi flat. Again, I think the triggers to that are probably negative unless I’m missing something. Maybe we’ll just have to do with the whole siloed stuff for a while and see where we come back from.

Bertrand
Yeah, to be clear, a flatter world is more what I would have preferred. I’m trying just to be ready, stick in this, and think about what’s going to be most likely. I would like it to go back where it was, but I think at this search, it will be a tough one. Obviously, there are some additional risk we could talk about in terms of potential scenarios.

Bertrand
Of course, additional issues and risk in the world that there can be a new type of pandemic. I guess everyone has heard about monkeypox at this stage. I don’t know if it’s the next big one. I don’t think so. Not certainly not pops so. But as we have seen, pandemics have increased in intensity, and we travel going back more or less normal in the north region of the world. Maybe it’s that some things that will happen again.

Bertrand
And to be clear, we’re still not out of the woods with COVID. We are talking about something on top of this in terms of geopolitical risk. We talk a bit about Ukraine, of course, but obviously in another region of the world, there is another big potential flashpoint. It’s Taiwan in front of China.

Bertrand
This one feels like a very high risk situation. Even more high risk, since everyone has seen what’s happening with Ukraine. So hopefully, this will be sorted out peacefully, but it’s very difficult to know at this stage how this will be solved.

Nuno
And on this beautiful note of Taiwan war, monkeypox, we are very hopeful of the world, as you all know, and we’re very positive and optimistic about the world. But on this note, maybe it’s a good time to do a bit of a recap on our season too and what we’ve been discussing, what we’ve talked about. A lot of our Season 2 was in the midst of what many thought was the end of COVID, which we actually called right.

Nuno
If we go through our list of what did we get right versus not, one that comes clearly right was COVID timelines. I think from the beginning, we were saying, this is going to be a multiyear thing, maybe two, three years, even when in 2021 we launched Season 2. Later in 2021, there were a lot of people already talking about, Oh, it’s done, and it wasn’t, as we know.

Nuno
I think now we’re probably close to something that’s really more endemic in the world, and there’s a really big silver lining on that. I think the second thing we definitely got right was the bubble bursting. We’ve been talking about it for a while.

Nuno
Maybe the one thing we did get wrong is early on in Season 1, we were talking about the fact that we were going to finally have the bubble burst when that first lockdown and shelter in place happened around the world. We got that wrong. And there was a lot of stimuli, but we probably stuck to our message throughout the last two years.

Nuno
So through two seasons, saying that all of this didn’t quite make a lot of sense to us, that we were not economists or macroeconomists, but there’s something wrong with it. Unfortunately, we’ve been proven right.

Bertrand
I guess it’s maybe because we are not economists that we saw things that were obvious, but not seen by economists.

Nuno
We don’t want to be ostracizing any economists that maybe listening to us.

Bertrand
There are some very good ones, but they are few and far between.

Nuno
Generally good track record. I think we’ve seen a lot of the dynamics around valuations happening in private markets and public markets quite well. We’ve been talking about not just the bubble at a high-level term, but also that everything was grossly overvalued.

Nuno
And we didn’t understand a lot of the price turning ratios, and we didn’t understand a lot of the valuation multiples that were being practiced. We talked a lot about behaviors by certain investors in early stage and why we didn’t understand those behaviors. We didn’t understand lack of DD. We didn’t understand insensitive to valuation early on.

Nuno
If you’re listening to us, and when we don’t understand something, and we question it a couple of times, maybe it’s a good time to take note. We seem to be getting it right more than we probably thought in the first place. But that’s good news. In some ways, I think it’s good news that it shows that common sense, which as we know, is not very common, does seem to rule the world.

Bertrand
Yes, indeed. I think that’s a good lesson. I’m sure you can make your own analysis. I think what’s key is to try to understand what’s really happening, to go back to data you can trust, and to go back to analysis that try to understand carefully cause and effect.

Bertrand
I think it’s quite key not to be simply blindly listening to the main discourse on the main media these days. It’s sadly not trustworthy. You want to make sure you are making your own analysis, finding the right data. And if you do that, I think you have better chances than most people to get a sense of what’s happening, what might happen next or so.

Bertrand
Learning to think, learning to analyze, finding your data points, your data sources. Personally, I try to spend a lot of time finding the right sources on Twitter, for instance, to follow people that I’ve seen making logical arguments on analysis, providing the source of data.

Bertrand
Usually, if you think like everybody else, that’s not going to work. At best you are not getting a significant advantage over everyone that thinks. To keep in mind, at the end of the day, you want to have a relatively strong opinion on some topics that would matter on where you think differently. And strangely enough, it’s analysis that we can think.

Nuno
It’s about triangulating data. It’s about looking at data. It’s looking at different perspectives on the data. But at some point, it’s about also asking the fundamental questions and having a perspective, and having critical thinking. And we both work in venture capital, as you guys all know, and there is a little bit, sometimes of lemming mentality in our industry.

Nuno
There’s hot areas everyone jumps into it. There’s new plays that come into the market and everyone thinks. So that new play, very rapid investing, very little DD that may change the world. We all have to deal with our own teams. We’re partners. We’re managing partners. We’re part of our VC firms at a relatively senior level.

Nuno
And we have other people on our team that read a lot of stuff as well, and they’re very intelligent as well, our associates, our principals and our quantum technologists and team members, and they bring things to table. And sometimes they look like brilliant ideas. And you’re like, why? I mean, I don’t understand.

Nuno
And it’s very funny, because it’s happened to me many times that the person on the other side is like, this guy must be stupid, because Sequoia is saying this, because Benchmark is doing this, because Tiger has done that, because Softbank is playing this way.

Nuno
And then we look at some of these things, fortunately, these firms are all amazing. But we look at some of these things and they’re like that something that looked like a brilliant idea two years ago was just the stupidest, dumbest ass idea ever. We see two, three years later, and I think that’s one thing to take into account.

Nuno
It’s true of macro economy as it is of startups and the startup world. Things take time to really pan out. But when they pan out, it is a big deal. Again, critical thinking, critical reasoning, having your own perspective, you can’t lose that.

Bertrand
Yeah, and for sure, Silicon Valley, is its own eco chamber. And personally, I’ve longed to be pretty worried about what’s the current theme of the day, because it has been more often wrong than right. Let’s not forget that most investors and entrepreneurs in Saucon Valley didn’t see mobile apps coming up, that we had so much chat around the VR, AR and it’s still going nowhere.

Bertrand
I think the last news today was meta was delaying the launch of AR headset. As we discussed before, timing is key. Especially as an entrepreneur in VC, if you invest at the wrong time, it will usually be a total disaster. It’s really key to make your own analysis. I try not to remember too much all the bad advice I was given by people when I was running a business at penny.

Bertrand
It was pretty amazing to see people coming to you with just a latest fad every year. You should do this, you should do that. There is money in this, money in that. Again, so many of these things didn’t pan out at all. One thing to be worried is actually some of the big tech companies.

Bertrand
People should not forget that the Facebook, Microsoft of the world, Google of the world, they have a lot of spare cash. They are cash printing machines. And what it means is that they use that to fund a lot of ideas, some being totally crazy. And they will tell you, once in 10, it works great.

Bertrand
But if you’re an entrepreneur working on your own business, do you really want to take one intention? No, you want to really find something you really believe in, find something that, for a lot of reason, is going to work, and bet on it. Obviously, not everyone will see that way. But for me, the worst has been to try to just follow what some of the big cops are saying when they perfectly know.

Bertrand
Even if they say that it’s important, it’s a next big trend, targeting very little. And for them, it’s a pocket change. But for you, as an investor, as an entrepreneur, it might mean the difference between great returns or total disaster. And most of the time, it’s a total disaster side. It’s really not to follow some of these big trends to create your own opinion. It’s easier to serve on a big wave, but better to serve on a real wave that’s really happening.

Nuno
I mean, at the end of the day, yeah, use your own thinking, create your own perspectives, see the people who trust you and you don’t, but generate your own perspectives. I think that’s the thing we would take away.

Nuno
This concludes our last episode of Season 2, and our last episode of our geology on the winter has as arrived. We had a chance to share with you in episode 33 that we were right, but also share quite a lot of details on what is happening around the world at this time and what is happening exactly around the world.

Nuno
Secondly, in this episode, we discussed what will happen next. And we did a little bit of some scenario analysis of the future at a high level. And finally, we did a quick recap on our Season 2.

Nuno
We look forward to doing Season 3. We look forward to having you send us topics that you want us to discuss, sharing with us on social media, sharing your perspective, sharing your thoughts. If you agree, if you disagree, we’d love to have you in the conversation. Thank you, Bertrand.

Bertrand
Thank you. And in time of timing for Season 3, we expect to take a smaller summer break, so we will be back with Season 3 around the fall. Thank you.