The AI Bubble Isn't the Dot-Com Bubble. It's Worse

Are we in an AI bubble? Veteran Silicon Valley investor Bill Reichert says yes, but that doesn’t mean the AI revolution is slowing down. In this episode we sit down with Bill Reichert, General Partner at Pegasus Ventures, to discuss the unprecedented investment pouring into AI, why many AI startups will fail, and where the next wave of innovation could emerge. This conversation highlights everything from data centers and quantum computing to China’s growing technology ecosystem and what businesses need to do to innovate and compete. Bill also shares his “Yellow Jacket Paradox,” raising a bigger question about the future of AI: If biological intelligence can accomplish so much with so little energy, could a fundamentally new AI architecture eventually disrupt today’s LLMs, data centers, and AI leaders? Subscribe and follow for more conversations with the world’s leading thinkers on AI, technology, innovation, and digital transformation. In this episode: 00:00 The AI bubble is here 01:02 Why this tech cycle is different 03:30 Is AI growth sustainable? 04:18 Why most AI startups will fail 06:11 What separates AI winners from the hype 09:08 The “unfair advantage” in AI 10:59 Where is the next big AI opportunity? 13:16 Investing beyond generative AI 18:13 Why AI is becoming a commodity 19:05 The data center and energy opportunity 20:17 How AI is transforming every industry 22:23 Is AI changing venture capital? 26:13 Does more investment create better technology? 29:01 China, the US, and the global innovation race 34:28 The race for quantum computing 36:51 Is China really just copying the west? 40:06 Why big companies struggle to innovate 45:54 Startups as corporate innovation labs 47:29 How to spot an overhyped tech vendor 49:13 Why companies need to test before they invest 51:04 Why innovation pilots fail 52:49 Escaping “pilot hell” 54:54 Will the pace of innovation ever slow down? 57:30 How AI changes the future of work 59:48 Does AI mean we’ll have to work harder? 01:03:06 The leadership mistake that causes burnout 01:06:08 Control vs. unlimited growth 01:07:12 The “Yellow Jacket Paradox” 01:09:29 Why today’s AI architecture may be wrong 01:11:13 Will today’s data centers become obsolete? 01:13:38 The price of innovation 01:14:08 Closing thoughts Connect with Bill: LinkedIn: https://www.linkedin.com/in/billreichert/ Our links: Visit our website: https://www.infotech.com/?utm_source=youtube&utm_medium=social&utm_campaign=podcast Follow us on YouTube: https://www.youtube.com/@InfoTechRG

• 0:01Speaker 00

  Certainly, we are in some form of bubble. Certainly, there is too much capital chasing too many possibilities. And there will be a lot of tears somewhere down the line.

• 0:17Speaker 01

  This is a show about the future of tech and the future of work. I'm Jeff Nielsen, and today we're diving into AI as an engine for business innovation. My guest today is Bill Reichert, general partner at Pegasus Ventures and a 20-year veteran technology investor. Bill is what I consider an AI startup whisperer and one of the best people on the planet to provide the inside scoop on what we need to know about the innovative tech coming out of Silicon Valley right now. I want to ask him how much faith he has in the current crop of AI startups, where he thinks we'll see the next wave of cutting-edge technologies, and what we can all learn about how to actually build the next generation of tech. Let's find out.

• 1:02Speaker 01

  Well, Bill, thanks so much for joining today. Really excited to have you here. Look, you've been a tech investor for, you know, let's just say you're a veteran in the space these days. And so I'm curious, when you look out at the tech startup, the AI environment you're seeing these days, what makes it unique or different from other startup periods or cycles you've seen in the past?

• 1:27Speaker 00

  Yes, well, first of all, thank you, Jeff, for having me on. Really appreciate the opportunity to be with you here today. In terms of this cycle compared to other cycles, a few differences that are pretty substantial. One is the speed at which things seem to be changing in a very broad-based way is unprecedented. I mean, we've had technology breakthroughs before, the internet, the smartphone, and it seemed to be pretty dramatic. But the reach and impact potential of this dramatic AI explosion seems to be faster than what we've seen before. One.

• 2:12Speaker 00

  Two, the other aspect of it that is dramatically different is the amount of capital that is being allocated to this. The quantity of capital that's being dedicated to this particular cycle absolutely swamps previous tech innovation cycles. And so we thought the internet boom was a big deal. And it is nothing compared to what we're seeing right now. And then the third thing that is happening is you are seeing startup companies grow revenues at a pace that, again, has never been seen before in terms of the speed to

• 2:56Speaker 00

  a billion dollars of revenue. Are you kidding me? You know, we were sort of amazed by companies that got to 100 million in revenue in just two years. I mean, that was amazing 10, 15, 20 years ago. Now, it's nothing. Lots of companies are getting to 200 million in revenue in just several months. So, you know, many factors that make this very, very different from cycles we've seen in the past.

• 3:30Speaker 01

  I find all of those to be pretty interesting and pretty compelling, and I want to dive a little bit deeper into some of the implications of those. So maybe we'll start by talking about growth and I guess the implications for the volume of capital. Do you sense that for a lot of these companies, this is sustainable and the tech is going to enable this to continue? And I guess what I'm really getting at is when we look at the volume of capital here, you know, some people have described it as kind of a gold rush. And there's been narratives that everybody's just kind of gotten a bit greedy chasing these returns, but at some point, you know, there's going to be an awful lot of losers in addition to the winners from the investment perspective. Do you buy that? Or do you think the growth that we're seeing is sustainable and it's just going to remain a pretty hot business for the foreseeable future?

• 4:18Speaker 00

  No, certainly, we are in some form of bubble. Certainly, there is too much capital chasing too many possibilities. And there will be a lot of tears somewhere down the line. You know, not all of these companies are going to be able to win or even sustain. And so we're going to see lots and lots of failures over the next several years. So, but having said that, you know, similar to the internet boom, you know, there was

• 4:58Speaker 00

  just a huge number of companies that failed during the internet boom, but no one suggests that there wasn't enormous value creation because of the internet boom. And so it's not as though this is going to go away. It's just going to be very messy. And so, you know, where you sit in that mess will be, and it sort of depend on kind of exactly how you are participating in the whole process. But there is no question whatsoever that the momentum of innovation and the implications

• 5:39Speaker 00

  for everyone in terms of adopting these innovations is positive and sustainable as far as the eye can see. Particular products, technologies, services, companies, capital investments, those are going to be highly variable in terms of who wins and who loses. And, you know, sort of by sheer count, most are going to lose.

• 6:09Speaker 01

  I think that makes a lot of sense. And, you know, I'm sure you know better than most the ins and outs of, you know, the winners and the losers and what that looks like. And I'm curious on that note, if there's any particular, I guess, trends or unique qualities that you look for these days in companies that you and Pegasus are investing in, whether it's the sector they're in, whether it's some sort of moat, whether it's the founders themselves, what to you are the best indicators that this company could really be a winner?

• 6:43Speaker 00

  Yeah. You know, so our number one factor is, are they delivering a compelling value proposition? And, you know, in order for it to be compelling, it's got to be differentiated. And so if they're just delivering something that everybody else is delivering, then by definition, it's not compelling. And so that relates to sort of the other critical important factor, which is a variation on the moat theme. And that is, do they have an unfair advantage that is going to separate them from the rest of the crowd, that is going to differentiate them and enable them to sustain in spite of all of the other players that are chasing them?

• 7:28Speaker 00

  And so we look for that unfair advantage. And, you know, one of the challenges in this environment is the baseline technology of generative AI is now essentially a commodity. And so for, you know, any company that launches a new app that enables you to automate some particular part of your world, it's really hard for that company to differentiate because, you know, next weekend, a couple of grad students can launch something that's a little bit better, right? And so that's a huge challenge right now for startup companies and for investors in this, you know, in this space.

• 8:13Speaker 00

  So we look for companies that are in some part of the ecosystem that other people can't easily penetrate with some unfair advantage that other people can't easily acquire.

• 8:29Speaker 01

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• 9:08Speaker 01

  The unfair advantage framing is really, really interesting to me. And you mentioned the, I guess, on one side, the, you know, can a couple of grads do it in a weekend? And I was thinking about the other side as well, which is what happens if one of the incumbents, you know, one of the winners from the web cycle of the last handful of years decides that they want to do it, right? To what degree do the Googles and the Anthropics and the Microsofts, like, do they have an unfair advantage in this space? I'm curious to what degree you look at that and how it influences where the bright spots are.

• 9:41Speaker 00

  Yeah, yeah, I mean, guys like OpenAI and obviously Google, but even Anthropic and Microsoft obviously have an unfair advantage. So each has a different unfair advantage. You know, Google and Microsoft have, you know, massive multi, you know, multi-trillion dollar businesses as it is, independent of, you know, generative AI and large language models and all of that. Guys like OpenAI and Anthropic have backers and now momentum in terms of customers that, you know, gives them an unfair advantage at this point.

• 10:22Speaker 00

  So it is, you know, it's hard for a startup to have an unfair advantage of, you know, $10 billion of revenue.

• 10:33Speaker 00

  But, but yes, it's, you know, to, to have that level of commercial success gives companies like OpenAI and Anthropic an unfair advantage in addition to the partnerships that they've been able to build with, you know, some extraordinary partners like Nvidia and the whole, there's sort of data center infrastructure that they've been able to capture.

• 10:59Speaker 01

  So I guess to use, you know, kind of an old expression in the business, like, where, where do you see the blue ocean these days? Where, where are some of the areas where there is still that ability as a smaller player to have an unfair advantage and not get your lunch eaten by one of these, you know, $10 billion plus behemoths?

• 11:18Speaker 00

  Yeah, well, I mean, the big blue ocean out there is an entirely new architecture for AI. That's the big blue ocean. I mean, so in sort of the current generation of architectures, it, you know, largely what we got is maybe a lot of lakes. There are a lot of lakes out there. But, but no, the, the, the, the blue ocean is that clearly there's got to be another architecture for large language models. There's got to be another architecture for, for robotics.

• 12:01Speaker 00

  And so that's the, you know, that's the next wave, which is, you know, it's going to take some work for somebody to figure out. But it's not as though, you know, you can go into, you know, fish farming or nail salons and create the next billion dollar business because nobody's attacked that yet. So, but there are plenty of, plenty, plenty of beachhead opportunities out there for, for companies, for startups, for corporations to develop and, you know, take your current customer base, whatever it is, and look at what is already solved and what is not yet solved,

• 12:46Speaker 00

  or even more, kind of what can be solved better. And that represents, you know, opportunity for innovation.

• 12:56Speaker 01

  So looking at some of the, you know, more recent investments that you've made or some of the recent investments that you're exploring making, you know, to the, to the degree of specificity that you're comfortable with, can you share some of, I guess, the, you know, the themes or opportunities that, you know, have caught your attention or are exciting to you?

• 13:16Speaker 00

  Yeah, so a key aspect of our investment strategy is working with our corporate partners to find emerging technologies of strategic value to them. And so we are very much driven by our network of over 40 multinational corporations who are our partners in pursuing innovation. And so we look pretty much across the universe at opportunities for innovation, you know, very, very broadly. So we look at material sciences and life science and, and enterprise software and consumer and gaming and whatever. So we look very, very, very, very broadly.

• 14:01Speaker 00

  So for example, we're looking at alternative foods and what are called functional foods. And so, you know, in the whole food world, massive, huge, amazing, you know, part of our world that sort of tech and venture doesn't pay that much attention to. But we pay attention to the world of agriculture and food and food distribution and health and wellness and that whole, you know, value chain there. And so, starting at the farm with ag tech, through distribution, through functional foods and considering sort of new ways to process food

• 14:42Speaker 00

  to make it healthier for you or to last longer or to reduce waste. All of those domains are, you know, really interesting and huge domains. But nobody talks about it much, right? In the sort of tech venture world. We also look at, you know, novel materials. And so everything, you know, physical in your world has some aspect of material science associated with it. You know, simply, you know, the screen on your smartphone. That, you know, amazing material science technology in there. But there are better alternatives out there.

• 15:24Speaker 00

  For, you know, the windows behind you, the screens you're looking at, the electronics in the, in the devices that you're working with. Material science can improve the energy efficiency, can improve the bandwidth throughput, can improve the quality of all of these, you know, devices and materials. That's an interesting space. And then how you manufacture things and how you distribute things.

• 15:54Speaker 00

  The AI can help a lot in optimizing things. Machine vision can help with that as well. So there are just an enormous number of interesting areas. Health tech is another one. We recently invested in a company that is, has developed a number of AI models for predicting how molecules will interact with other molecules and how combinations of molecules will interact in the cell. How do they get through the cell wall? How do they interact with the nucleus and other plasmids in a cell? I mean, it's extraordinary science that is, you know, sort of way down,

• 16:39Speaker 00

  way down in the biotech, biochemistry plus AI models domain. So I, you know, space tech, right? I mean, so we're investors in space tech, really, really interesting things happening, you know, beyond just launching and satellites. And so, you know, we're big investors in SpaceX from way back, but we're also investors in Axiom Space, which is building a space station up there. And then investors in some other, some other technologies that take advantage of space to do things better, faster, cheaper here on Earth.

• 17:23Speaker 00

  So it's, I mean, it's just an absolutely amazing world that we live in right now in terms of opportunities to find innovations that can make a dent in, you know, in any given ecosystem.

• 17:38Speaker 01

  It's, it sounds really, really exciting. And I guess for me, what caught me a bit off guard in a good way is that what you didn't say is, you know, LLMs or LLM adjacent technology or where it feels like this capital is probably, you know, densest or, you know, kind of most oversaturated. And yet it seems like a lot of these areas are still leveraging cutting edge, you know, whether it's AI technologies, whether it's machine learning. It is sort of future tech and algorithms as a way to optimize and automate what's being done in these spaces. Is that, is that a fair read?

• 18:13Speaker 00

  Absolutely. Again, you know, for the most part, LLMs and AI broadly speaking are sort of baseline commodity, you know, technologies that are available for a wide range of applications. Now, you know, admittedly, there are opportunities to invest directly in LLMs as we have. You know, we've invested in OpenAI, we've invested in Anthropic, we're investors in XAI, now part of SpaceX. So we have made those bets because we do think, you know,

• 18:51Speaker 00

  those are pretty fundamental technologies and companies in terms of the future. And they enable a whole bunch of other things out there. But yes, other aspects of our investment thesis is the infrastructure to support all of this going forward. So yes, massive amounts of money are going into building data centers. But then there are a whole bunch of problems around data centers that need to be solved. You know, how do you provide enough energy to data centers? And so we have invested in a company that is developing technology

• 19:32Speaker 00

  to provide behind the meter energy for data centers, right? And then you've got the water cooling issue of data centers. Is there a better way to cool data centers? Well, the best way to cool data centers is to reduce the heat. How do you reduce the heat? You increase the efficiency of all of the compute inside the data center. And so chips and other technologies that improve the energy efficiency of compute, that's another domain that we're investing in. So yeah, you know, we're in the thick of that as well. You know, as then all of the adjacencies out there that could take advantage of these new technologies.

• 20:17Speaker 01

  It's so exciting to me just hearing, I guess, about the fact that it feels like like almost every sector is exploding with possibility at once, right? Like, there's the foundational piece, there's every individual sector. Like, anywhere you turn over a rock, there's, you used the word "speed" earlier, but it feels like this speed isn't just in little, you know, cute app startups with AI. It's literally all over the economy.

• 20:47Speaker 00

  Right. No, it is, and it is, you know, it's one of the massive evolutions of Silicon Valley is back in the old days, you know, you were sort of touching on the implication that I was there back in the old days, which is fair.

• 21:05Speaker 00

  So, back in the old days, you know, we, you know, we built computers and software and networks. And, you know, that was good stuff, but it was mainly sort of corporate infrastructure. And we had some home stuff and I did some ed tech stuff and, you know, that was nice. But the world went on, right? And, and then, you know, and then came the internet and then came smartphones and now coming AI. And so, all of a sudden, sort of Silicon Valley broadly defined in terms of the tech, you know, ecosystem of startups and venture now touches everything

• 21:48Speaker 00

  that everybody does every day, you know, from when you get up in the morning to how you get to work, what you do at work, what you do over the weekend, you know, leisure time, you know, services, information. It's hard to think of anything that you touch during the day that is, that is not subject to this innovation ecosystem that has grown up over the last many, many years.

• 22:23Speaker 01

  It feels, so I'm, I'm not a Silicon Valley insider. I'll put that on the table. But it feels like one of the interesting sort of trends here is, you know, maybe a generation ago, if I can call it that, in Silicon Valley, it wasn't Silicon Valley everywhere in terms of touching all these different sectors, all these different areas of technology. It was much more focused in the sort of core, you know, applications, core software build outs, the things that now can, as you said, be written by a couple of grad students, you know, over a weekend. It is part of the reason, I guess it's part of the reason we're seeing the shape change

• 23:03Speaker 01

  is it feels like that area that used to be, you know, so rich for VCs probably doesn't need VCs as much anymore because of what the techno, you know, if you can build it in a weekend with two people, why do you need venture capital fund? If it's really moving that quickly? And so, it feels like there's, the world is changing and the shape of it is changing and where we'll see investments is changing. Is that a fair read or would you, you know, characterize it differently?

• 23:33Speaker 00

  No, it's a very, very fair read.

• 23:37Speaker 00

  No, it's a very, very fair read. And, and, you know, we've had this discussion and debate, you know, on panels here around how is it that things are evolving and what are the implications of it? Now that you can build an app over a weekend, you know, what does that mean for the role of venture capital in, in, in supporting innovation? So, while it is true that it has never been easier to develop a significantly powerful innovative application of some sort, it has never been harder to scale it.

• 24:19Speaker 00

  And so, what, what we're seeing is that it takes a lot of resource and a fair amount of luck, but a lot of resource, you know, to get out above the noise. And so, you know, because there's so much noise now in the innovation ecosystem, your ability as a startup, you know, you got this great app you've developed over the weekend. So, how is it going to break out? Now, sometimes they break out, you know, serendipitously. But generally, generally, it takes a lot of resource to get in interesting innovations to break out above the noise.

• 25:02Speaker 00

  And so, that's, that's the role of venture capital now is to help startups with the capital and the connections that they need to break out and get above the noise to be able to scale their businesses. So, you know, there's still a real important role for venture capital. But what has happened is you've now got this massive influx of, of sort of new characteristics of capital, generally not venture, but, you know, project development for all these data centers and, you know, sort of late-stage private equity types of capital,

• 25:47Speaker 00

  you know, for these massive multi-billion dollar financings, you know, bringing in a whole bunch of different types of capital into the innovation ecosystem that now, you know, swaps the traditional venture capital, emerging tech, startup ecosystem kinds of investments.

• 26:13Speaker 01

  Do you see that as something that trickles its way down to actually creating value for customers? I mean, I can understand why it's good, you know, if you're an investor, I can see why it's good. If you're a founder and you're looking to make a buck, I can see why that's good. If you're a customer, does that ecosystem make things better for you?

• 26:32Speaker 00

  Well, the great thing, the great thing about, you know, sort of the open market capitalist economies is that as a customer, you get to choose, right? You don't have to buy if you don't want. And that's actually, you know, that's actually in some senses, you know, a big problem for the pace of innovation is all of the sand in the gears of, you know, the adoption cycles by, you know, corporations, governments, you know, consumers. You know, there's, there's an inherent resistance to adopting new things.

• 27:15Speaker 00

  And so, that's part of why the cost of scaling has gone up so much is that is the need to overcome that inherent resistance. But another aspect of this diffusion of innovation across every aspect of our lives is that now it creates a sort of whole big public policy discussion that we didn't really have that much before. I mean, again, in the olden days, there were these, you know, kerfuffles over, you know, Japan getting ahead of us in semiconductors and cars, right? And so, there was, you know, public policy around innovation and all that sort of stuff.

• 27:58Speaker 00

  And then, of course, China, that became, you know, a very interesting topic in terms of intellectual property and all of that. But now, you know, you've got, and just this, because tech touches all of our lives in so many different ways, now you've got politicians who are involved in this on a daily basis, you know, sort of within each country and then across continents, all of a sudden, innovation has become a very significant topic for politicians in sort of in every direction in terms of, of competing with other countries and/or protecting your citizens

• 28:41Speaker 00

  and regulation about data leaks and privacy. And, you know, it has expanded the sort of noise in the system just dramatically, which again, makes it increasingly challenging to be an entrepreneur.

• 29:00Speaker 01

  That, that makes sense to me. And there's a couple of, you know, follow-ups I have to that. One of them is we were speaking earlier before we started recording about your recent trip to Shanghai. And I'm curious, you know, for your sort of reflections on, I guess, the geopolitics of innovation and, you know, the future of tech. You had been mentioning that, you know, that things just are a bit different in China for, for better and for worse. Well, I guess, what are your, some of your implications on that? And if there's any takeaways for you for what the implications should be in Silicon Valley?

• 29:32Speaker 00

  Yeah, so yeah, lots of really interesting discussions with, you know, a variety of people from around the world while I was at the World AI Conference in Shanghai. So one of the things that is very clear, that is, I think, a good thing in many ways, is that you cannot keep technology within the borders of any given country. So technology will always diffuse globally. And it doesn't matter what sort of firewalls you put up or what sort of fences you put up. Technology will diffuse globally.

• 30:12Speaker 00

  You can put some, you know, some, you know, a little bit of interim blocks in there. But fundamentally, technology is going to diffuse globally. And we see that, you know, sort of all over the world. Obviously, China has been able to take great advantage of every innovation that's happened elsewhere in the world. And then sort of pour additional resource into accelerating it. And so as a result, they have, you know, caught up in many, many areas. And they have surpassed the rest of the world in many, many areas now. So obviously, in areas like renewable energy, you know, 10 years ago,

• 30:57Speaker 00

  you would have, wouldn't have quite thought that it would have played out the way it has. But now China deploys more renewable energy than the rest of the world combined. I mean, it's overwhelming in terms of wind and solar and other sources. And then that has played out into the whole electric vehicle side of things. You know, China was way behind the curve in electric vehicles, you know, up until just the last few years. And now, you know, it's, it is shocking, going back to Shanghai, you know, I haven't been there for eight years.

• 31:34Speaker 00

  The last time I was in Shanghai, on a, on a cloudless day, the air was yellow with, you know, pollution. And, you know, you could see the iconic buildings on the Bund, you know, sort of through this yellowish, you know, miasma. You go back now and, you know, I don't know what the number is, but, you know, you look at the traffic and EVs have green license plates in Shanghai. And you're looking at the traffic and like almost all the license plates are green. It's unbelievable, the transition they've made to electric vehicles and to cleaning up the air.

• 32:19Speaker 00

  And so now the air is, is, you can taste the difference, literally, you know, in the air in Shanghai. Again, you know, what they've been able to execute is just, you know, astonishing. So, but, you know, it's, you can, you can't control the, the diffusion of technology around the world. You can control the diffusion of capital around the world. And so unfortunately, I think for the world, you know, we now have this barrier in terms of capital flows between ecosystems.

• 33:00Speaker 00

  You know, China has been able to make up with it, for it with, with government funding. And so the private sector venture world in China has, you know, by some accounts, close to collapse. I mean, not everybody would say that, but it's dramatically down. But the total amount of capital going to innovation has dramatically increased, you know, entirely because of the government. So, you know, so we see these advances that China has made, thanks to government sponsorship, which, you know, we're never going to really be able to do here in the US and in the West.

• 33:44Speaker 00

  We just don't have that kind of government. And for the most part, thank God, right? For the most part, thank God, we don't have that kind of government. But, you know, you see, you, I mean, you visit Shanghai and you see that, you see the trade off. Yeah, I would not make that trade off. But, but we need to be aware of the fact that that has given them a, a, you know, a significant advantage in terms of catching up and surpassing, you know, the West, you know, Silicon Valley and the West more broadly, in terms of advanced technologies.

• 34:29Speaker 00

  And so, you know, the next interesting step is going to be quantum computing. And, you know, who gets to fault tolerant quantum supremacy faster is an anxiety on both sides. You know, both sides want to win that particular race. It will be interesting to see if it really does matter. So, you know, I don't know if maybe there's an, there's an analogy between OpenAI and Anthropic. Does it really matter who wins that race? I mean, both can be successful.

• 35:14Speaker 00

  You know, from week to week, benchmarks suggest one is ahead of the other. If, if, you know, five years from now, we finally get to commercial quantum computing, you know, maybe the Chinese will be a little ahead, maybe we'll be a little bit ahead. But whatever it is, the difference is going to be a little. It's not going to be, you know, binary, you know, these guys win, these guys lose. I mean, so you can have successful quantum computing sort of on, on both sides. Obviously, we would prefer to win on this side.

• 35:56Speaker 00

  But, you know, if, if they get ahead of us, what does that mean? It's to some extent means, god damn it, we got to try harder, right? And that's arguably, arguably, that's an incentive to, that's an incentive to innovation and investment, is this competition. So, you know, how it plays out, I'm not sure I can predict. But it certainly is an issue we need to be paying attention to. We need to understand what is going on over there. I think they're doing their best to understand what's going on over here.

• 36:40Speaker 00

  And so, you know, it's only fair that we make sure that we don't slip behind by not paying attention to what they're doing.

• 36:51Speaker 01

  Do you subscribe to the narrative that the Chinese model is really just, you know, IP theft paired with, you know, massive amounts of state funding? And so, you know, if we do our part to minimize IP theft, and maybe we can't, based on what you said about technology being transborder. But if I, if I believe that narrative, it seems to me that, you know, the quantum leaps, you know, to use that term, will come from America. And then we'll maybe we'll get, you know, leapfrogged by China at some point. But that they don't have a model that will actually help them achieve that breakthrough. Do you buy that or is that just more of kind of an anti-Chinese sentiment?

• 37:33Speaker 00

  I mean, I think it's an outdated perspective on the Chinese model of innovation. And, you know, yes, there was certainly, you know, many, many, many years where it seemed that their strategy was primarily to, you know, steal from the West. And they had a whole bunch of different ways of doing it. Some were legal and some were not legal. But it goes back to, I mean, the history of technology. The United States, you know, dramatically accelerated its textile business locally by stealing IP from the UK.

• 38:15Speaker 00

  Okay, I mean, so, you know, we did that, what, 200 years ago? And, and, you know, it worked out reasonably well for New England. But, and, you know, arguably, arguably, the development of the railroads was dependent upon, you know, borrowing some IP from, from Europe. And so, you know, the history of technology suggests that you can't necessarily, you know, be surprised that, that, you know, over the last century, Japan, Korea, and now China have borrowed IP

• 38:57Speaker 00

  from, you know, the West in order to accelerate their own innovation. But, you know, you look at what's going on in China now. And again, I have, you know, very, very little doubt that they have people who are as creative as people we have over here. And I do think they, they are handicapped to some extent by the information controls that the Chinese government imposes. But for advanced technology, the Chinese government is, you know, very happy for Chinese innovators, academics, researchers, engineers,

• 39:42Speaker 00

  to learn as much as they can about what's going on in the West. So, and then taking advantage of that and improving it either incrementally or by leaps and bounds with their own talent. So I would not bet against the ability of China to be innovative.

• 40:06Speaker 01

  I want to keep following that thread in maybe a slightly different direction, but I'm thinking about, you know, these creative individuals, the structures that can enable or stifle that creativity and actually kind of unlock and unleash innovation. And, you know, one of the things that you said earlier, Bill, that I wanted to follow up on was that what you and what Pegasus do when it comes to innovation, a lot of it is working with corporate partners and not just direct investing. There's been an awful lot of talk for a long time about how, you know, large enterprises can be more innovative, or how they can have an innovation arm. And whether that's, you know, doing it themselves, whether that's acquiring a business, whether that's some

• 40:48Speaker 01

  sort of partnership or investment. I'm curious what your perspective is on how enterprises can best, can best be like, explore and develop that innovation. Which of those models works best? Or is it really a blend that depends on the enterprise?

• 41:09Speaker 00

  Yeah, yeah. I mean, there are a whole bunch of things that get in the way of large corporations being as innovative as startups can be. And, you know, one of them is the fear of failure. Is that, is, can, you know, who's the, who's the manager executive who's going to stick their neck out and try something that has a good chance of failing, you know, to help innovate the organization? Most corporations have a culture that punishes failure and rewards not making mistakes, right? And so that's

• 41:54Speaker 00

  inherently anti-innovation. And so if you want to innovate, you've got to experiment. And, you know, by definition, experimentation means there's a chance of failure. And, and so that is something that is core to enabling corporations to enhance their innovation. The other thing that, that is related to that, that makes innovation hard, is the whole concept that we have in the startup world of a minimum viable product is something that is unacceptable in a corporate brand environment, right? So, you know, the, the

• 42:38Speaker 00

  reason startups can get away with a minimum viable product, which is a product that doesn't always work the way it maybe should, and sometimes breaks, is, is that that corporation, that startup, you know, doesn't have a brand anyway. I mean, there's, there's, there's no brand to devalue, but big corporation that has a brand, you know, and launches a minimum viable product, oh my God, right? If that breaks, if it doesn't work, you know, then it damages this larger, you know, brand. And so what corporations need to figure

• 43:16Speaker 00

  out is how to create a, you know, a sandbox or sandboxes of sorts where they can do this experimentation, sort of outside of the concerns of the global corporate brand in such a way that they can learn and experiment and discover and innovate, and then eventually get to the point where they can integrate with the larger corporate brand. But, you know, that's, we used to have a reasonably sort of well-understood model of that in the concept of a skunk works and/or, you know, to some extent, a research lab, you

• 44:00Speaker 00

  know, a Bell Labs or a Sarnoff Labs, or, you know, some of these more traditional approaches to doing R and D outside of the corporate brand. But for whatever reason, you know, those things have kind of gone away, right? I mean, you don't, not a lot of Bell Labs anymore, right? And so I, now where does this happen inside of a corporation? And so what we work with our corporate partners to try to do is to enable them, you know,

• 44:37Speaker 00

  to set up these sort of separated sandboxes so that they can explore innovations without the sort of fear that happens within the larger corporation of any failed experiments damaging, you know, the corporate brand.

• 44:57Speaker 01

  It's something that's really interesting to me. And I say that in part because I used to lead an innovation arm of, of the company I worked for. But it's also interesting to me because I think, as you said, and you, you know, very clearly highlighted a lot of the, the factors, that the, historically, the risk of failure here is extremely high, right? That, that most companies and corporations are just not very good at this because there's a fear of failure, because it's not a true sandbox. You know, maybe they don't have the right buy-in, or they don't, they just really aren't set up for success. And so you mentioned that, you know, part of what you do is often more of a partnership where it's finding external partners or startups that can pair with organizations to do this.

• 45:42Speaker 01

  Do you see that as a more fruitful model? Or is, you know, how, how would you decide if you're a business leader, whether this is something that you should build as your own little lab or skunk works in-house, or whether you should find a partner?

• 45:54Speaker 00

  Yeah. And so the, the whole, the whole idea of open innovation and the idea of sort of corporate venture capital innovation is you use these startups as your sandboxes, as your skunk works. And so, you know, rather than, you know, buying them and trying to integrate them, which was kind of an old model for doing it, leave them independent and, you know, invest in them, support them, partner with them, collaborate with them, but leave them independent until, you know, you get to a point where it makes sense to

• 46:35Speaker 00

  integrate them, to maybe acquire them or to license, and then to integrate them. And so that's the beauty of this corporate venture capital, open innovation model, is you don't have to sort of reorganize your corporation into skunk works, or into R and D labs, or into sandboxes. You can use investments in startup companies as multiple sandboxes for experimentation, potentially failure. But, you know, the cost of a failure of an investment in corporate venture capital is so dramatically lower than the cost of

• 47:15Speaker 00

  spinning up an innovation within the corporate structure and then failing. And so that's the virtue of this model in terms of, of risk versus reward in terms of innovation.

• 47:29Speaker 01

  So, Bill, when I think about, you know, developing some of these new innovations or capabilities, you know, coming back to a few things you've said already, it feels like more organizations than ever are working with technology vendors, technology partners to actually augment their capabilities versus doing some of these things in-house. And as you've said, the whole market is kind of awash with all these, you know, startups who are trying to have some new piece of value that they're creating. Now, now I'm curious, you've been doing this a long time from a VC perspective. I'm sure you've, you know, heard more pitches than almost anyone in the game. And so to capitalize on what

• 48:10Speaker 01

  I'll call your, what I imagine is an extremely finely tuned BS detector, what should, what should business leaders and tech leaders be listening for or asking when, you know, someone is pitching them, you know, the hottest new capability to bring into their organization as a vendor?

• 48:29Speaker 00

  Yeah. The, you know, the, the reality is that entrepreneurs do have a tendency to exaggerate, shall we say? And so that is a, that is a challenge for, for investors and for, you know, customers. The, the best way, the best way to test an entrepreneur is to talk to their current customers. And so, you know, you've got to, you've, you've got to make sure that the customer, the entrepreneur, the company is actually delivering real value to, you know, to customers as a way of validating whether they can deliver

• 49:11Speaker 00

  real value to you. And then the other side of it is you've got to develop a mechanism for validating within your own company. And so you've got to have some form of proof of concept, or trial, or pilot mechanism, whenever you're dealing with innovation. And so unfortunately, some companies, they, you know, they read the headlines and they say, oh, you know, we got to have that. And so they initiate this massive, you know, sort of corporate-wide initiative to adopt, you know, this new solution, this new technology,

• 49:51Speaker 00

  this new approach. And that never works. What, what, you know, what you need to do is figure out a way, again, back to the sandbox analogy, where you can test it out in a real world environment that is your real world as a corporation, to see, is it going to fit within what you do as a corporation? And so, yes, it may work technically, but does it work in terms of the organizational workflow? Or is the organization going to have to sort of twist itself unnaturally in order to make the workflow of this innovation

• 50:36Speaker 00

  work for their organization? And so that's an element that's harder to predict in advance, that you really have to test in order to know if it's going to work. But as a corporation, you never want to sort of wholesale adopt an innovation, hoping, hoping that it's going to work. That's, you know, absolutely a recipe for failure.

• 51:04Speaker 01

  When that happens, and I'm sure it happens more often than we would prefer, is it, is it impatience? Is it management hubris? Is it not knowing the recipe for success? Why, why does it happen? And is it just a matter of having the patience in doing these things? Or is there some sort of secret sauce that's particularly difficult for making this successful?

• 51:29Speaker 00

  Well, it's, it's both sides of this equation. On the one hand, there's pressure to innovate. Right? So if you're a public company, whatever, your board, your investors, your shareholders, the media, they even puts pressure on you to innovate. And that relates to, every company has pressure to grow. And so you've got pressure to, you know, grow your revenues and improve your margins. So you have all these pressures on the corporate side. And so toying with, experimenting with innovation is not going to move the needle. And so, you know, you've got this dilemma at senior management to say,

• 52:13Speaker 00

  if I just toy with this innovation, it's not going to move the needle. And so why do I waste my time? And so again, that relates to a lack of patience and/or a lack of successful mechanisms for knowing how to start, progress and integrate over some period of time. And so, you know, what the best corporations have created that, that pathway for innovation, such that right now, the other end of that spectrum is corporations running pilots forever and ever and ever.

• 52:54Speaker 00

  And, and, you know, which is, which is hell for both sides. So startups, you know, hate the idea of getting trapped in this pilot hell that corporations create for them. And similarly, corporations get, you know, frustrated with their innovation process when they get stuck in this, you know, pilot cycle that never enables them to, to integrate more broadly. And so we talk with our corporate partners about designing protocols and systems and methodologies for the defining pilots to, you know, tightly enough and executing them

• 53:37Speaker 00

  fast enough that you can come to a decision quickly enough. You know, you have a yes, no decision.

• 53:45Speaker 00

  One of the problems is, once you start a pilot, there's organizational pressure to say, well, we didn't make a mistake. And so it's just a matter of doing more pilots. And then we'll finally, you know, prove that we didn't make a mistake chasing this opportunity. And so, you know, you've got to be willing to say, no, it's not going to work. Let's move on. You know, let's celebrate the fact that we failed. Okay. And, you know, when have you ever heard that inside of an organization? But it, you know, it should be the culture of the organization that you know how to

• 54:28Speaker 00

  get to a quick no around implementing an innovation. And so similarly, you've got to figure out how to get to a fast yes in terms of moving the needle. And so those are mechanisms and methodologies, sort of new muscles that corporations need to develop in order to accelerate innovation inside the organization.

• 54:55Speaker 01

  I like your use of the word quick and fast there, especially in light of our conversation earlier about speed, you know, and the rate of technology increase just, you know, continuing to press forward. Is that speed something you see continuing to advance? You know, I don't want to use the word indefinitely, but for the foreseeable future? Or is it cyclical and we're about to see some sort of cliff and reckoning in terms of how quickly businesses are actually able to digest this stuff? And it necessarily at some point is going to stutter or slow down?

• 55:30Speaker 00

  Oh my God, I wish there was some scenario in which, you know, anything was going to slow down. But, you know, we are, you know, the, the nature of the information technologies that we've developed over the last 40 years or so have forced us to just repeatedly run twice as fast just to stay in the same place. And, you know, you think back, you know, chunks of, of your career and, you know, what, what everybody experiences, if you're at all close to sort of the cutting edge

• 56:11Speaker 00

  of technology and innovation, is that every innovation just makes us have to run twice as fast to stay in the same place. And, and so, you know, the good news is we have tools, you know, these various technology tools that enable us to run twice as fast. And so, you know, we've got these AI agents that enable us to run twice as fast. And we've got these communication tools that enable us to connect with the world, you know, faster, to, you know, propagate innovation and to absorb information twice as fast.

• 56:53Speaker 00

  So, so sorry, but it's, we're, we're always going to be running, you know, going to have to run faster. You know, again, fortunately, we've got, you know, these, these technologies that enable us, that are going to enable us to run faster. Looking for sort of an, a, a metaphorical exoskeleton that, that we can all put on, as well as, you know, a brain enhancer. And that's what these technologies theoretically are doing for us.

• 57:30Speaker 01

  And by the way, that's, that's exactly what I expected you to say, but I had, I had to ask the question. And, and, you know, what I really wanted to get at Bill is the implication of that is, you know, what do you see as the core enabling technologies? And by the way, is it fundamentally about technologies? Or is it about process and having the right, you know, systems and structures and, and playbooks in place to be able to do these things faster as well?

• 57:58Speaker 00

  Well, it's, you know, it's, it's fundamentally about competition. It's fundamentally about, you know, I've got, I've got to run faster than the guy next to me. And he's got to run faster than anybody. I mean, it's what makes us have to run faster is that we live in a competitive world. And so, you know, good news, bad news, right? So the good news, the good news is the competition forces us to be more innovative. But the bad news is, you know, we're never going to wind up with a kind of wall-y kind

• 58:43Speaker 00

  of society, you know, to use that Disney movie. I mean, you hear people, there are some, you know, pundits who think, oh, you know, AI technology is going to, you know, mean that everybody loses their job and they're going to be lying around, having robots take care of them and, you know, playing video games all day.

• 59:11Speaker 00

  No, no. I mean, it's, I have no doubt in my mind that all of these new technologies are going to make us all just that much more competitive. And meaning that we're going to have to figure out a way to work harder while we also try to figure out how to work smarter. But, you know, forget about the five minute manager or whatever it was. I mean, it, it, you know, that's not, that's not the direction that this is taking us.

• 59:48Speaker 01

  Well, and that's, the harder versus smarter piece is, you know, there, there's a very cynical lens on that as well, I guess. And, and that's the part I'm grappling with is how do you end up so you're not in a world where, you know, you have to say to your kids, you know, surprise, you know, for you to stay competitive and relevant in the workforce, you're going to have to work way harder and, you know, way longer hours than I ever did. Like it just, it feels like it's not quite the world we should want to be building. Right? Like we should want to be able to have technology and process that enables us to do more in a smarter way without necessarily, you know, reducing our quality of life, if I can call it that.

• 1:00:29Speaker 00

  Yeah. I mean, again, uh, you know, there will be, you know, sort of layers of behavior in the workforce of the future.

• 1:00:41Speaker 00

  And, you know, there will be a, a layer that does have a, you know, whatever, nine to five job. And, you know, and within that layer, the people that get promoted will be the ones who know how to work smarter. But, you know, there will always be a layer of wherever, whatever you want to, wherever you want to draw the line, but of the sort of executives who are the drivers, who, who, you know, cannot limit their efforts to nine to five in order to compete with the rest of the world.

• 1:01:23Speaker 00

  I, you know, I just think that's the unfortunate reality of, of innovation and competition. And, and so I think some of us will be better at managing that than others. And I, you know, I wish there were a way to provide better support for, for senior executives, for startup founders, for all of those people who work till they're burnt

• 1:02:02Speaker 00

  out, which is, you know, not good, not healthy, and not even productive. And so maybe, maybe we will find an agent that, you know, can monitor each of us in such a way to say, hey, guess what? You know, your productivity is, you know, is going down here. And if you really want to be competitive, you're going to go to sleep right now. All right. You know, I mean, I, yeah, so we're, you know, we're at the edge of having those

• 1:02:39Speaker 00

  coaches, individualized, you know, executive coaches that can, that can ensure that we, we are, you know, we, we sort of compete aggressively, but don't damage the rest of our world, our health, our family, or whatever, as a result.

• 1:03:06Speaker 01

  So maybe as we move to sort of conclude the conversation, I'd love to have you reframe that a little bit, Bill, because I suspect the note you want to end on is not necessarily, you know, hey, business leaders, hey, founders, you know, work until you drop and that's the way to be competitive. And I don't think that's what you're saying. But if I reframe that, what is your best advice these days to that audience in terms of how to get ahead, how to work smarter and how to be more, you know, competitive in today's environment?

• 1:03:35Speaker 00

  The, the, the single factor that I see very commonly that causes burnout is the inability of some people to give up some amount of control. And so where you see the burnout happening in executives, in founders and entrepreneurs, is people who think that they are the critical factor in getting things done. They're the only ones who are, you know, talented enough to execute on this particular aspect and are not willing to

• 1:04:18Speaker 00

  relinquish control. They're not willing to delegate. They're not willing to invest the resources in building the right team. And so I think it is absolutely possible and certainly the right model to proceed with innovation around building a team of people that you've got as partners in leadership to help execute the innovation strategy, the growth strategy for your organization. If you think you are the sort of single point

• 1:05:00Speaker 00

  of failure, that you are the single sort of most important controller of the future of your organization, almost certainly you will drive yourself into a wall. And so, you know, the personality of executives who succeed are those that have the ability to find talent and trust talent and execute as a team, rather than trying to keep control of their organization in, you know, the face of dynamic change that we're going through.

• 1:05:38Speaker 01

  That really resonates with me and is something that, you know, I certainly have experience with and have seen countless times as well. Just to pressure test that a little bit, I'm curious. To me, the number one objection you'll get there is, but Bill, I really can do it best and no team can do this as well as I can if I cede control and therefore I have to do it myself. You know, if you felt that, how did you get over it? If you've heard that, how do you respond to it?

• 1:06:08Speaker 00

  No. So to the extent that you retain control of any aspect of the future, then because you are only one human being, you will by definition, limit the possibilities for your organization. So to the extent that you can find talent and develop talent and build a team that you can delegate to, then you do not limit your upside. But if you, if you choose to maintain control, you are by definition, limiting your upside. And so what do you want? I mean, do you want to have the potential for unlimited upside? Or do you want control?

• 1:06:55Speaker 01

  I love that. It's extremely succinct and powerful. And as I said, it resonates with me very deeply. Bill, I'm just going to move to a wrap up. But before we do, is there anything we didn't discuss today that you were hoping that we could cover?

• 1:07:12Speaker 00

  You know, we, we, you know, we, one of my, one of my sort of significant issues is this question of is there a new, is there a different architecture for AI and robotics that has not yet been discovered that is going to significantly disrupt the current architectures and the current incumbents? And I believe there is. And in various AI settings, I have raised what I call the yellow jacket paradox. The yellow jacket being, you

• 1:07:53Speaker 00

  know, an insect, a flying insect, that is a pest for a lot of us when we're outdoors. And the yellow jacket paradox came about when I was having breakfast on this, you know, in a sidewalk cafe in Boston on a beautiful fall day. And, and having a discussion about the future of AI, and we're sitting there having breakfast and all of a sudden a yellow jacket comes in and starts attacking our breakfast. And, you know, so we're swatting it away and, you know, trying to continue the conversation, but it keeps coming back. And we're swatting it away and we can't, interestingly, we can't actually hit this

• 1:08:37Speaker 00

  yellow jacket. I mean, it's right there, but as fast as we try to swat, we can't hit it. And then brilliantly, the yellow jacket brings in a friend. And so now we got two yellow jackets. And so, you know, we swatted away, but no, it gets to Tina's breakfast and it gets to my breakfast and we swatted away and it keeps on coming. And, and so on reflection, we think to ourselves, oh my God, that yellow jacket is incredibly smart and capable. But how big is its brain? How big is its brain? You know, its brain is

• 1:09:16Speaker 00

  smaller than a grain of sand. How much energy does its brain take? Virtually nothing. I mean, and it flies, right? And it flies. So how can it possibly be that we need a gigawatt data center in order to replicate conversations? We need billions of dollars to create these humanoid robots that can kind of replicate what humans do. How is it that we can't replicate

• 1:09:52Speaker 00

  the brain of a yellow jacket? So clearly, the architecture of a yellow jacket's intelligence is, you know, many orders of magnitude smarter and more efficient than anything we've come up with, with all of our research and all of our billions of dollars of study of artificial intelligence. And so the mere fact of the existence of that yellow jacket says to me, there's a better architecture. And so the question is, what's it going to take to get to that better architecture? And what's going to happen to the current, you know, incumbents

• 1:10:36Speaker 00

  when we get that better architecture? So, you know, I would love to have more conversations with more people who are really, really smart about AI architectures and the reasoning of robots in order to, you know, sort of reconcile what I see as this huge discrepancy between, you know, that tiny little yellow jacket and the billions and billions of dollars that we're spending on compute and AI design.

• 1:11:12Speaker 01

  Does, does that worry you when it comes to this kind of data center and infrastructure build out? You talked earlier about, you know, the importance of efficiency and keeping temperatures down and all of this. Is there a world where we spend all this money and we make all of this technology functionally obsolete in the next handful of years?

• 1:11:33Speaker 00

  Absolutely. No, I mean, you know, two things. One, because it takes so long to build data centers, I think, you know, a lot of the data centers that are being proposed will never get built. Because, you know, because one, we're going to get more efficiency and two, you know, we're just not going to have enough money. But that's another, that's another question. But if you think back to, for example, the, the internet, you know, bubble, we, we built out massive infrastructure in terms of optical fiber and connectivity that wound up going dark when the bubble burst. And so it took, you know, we had all

• 1:12:18Speaker 00

  of that infrastructure in place, but it took many years before we were able to then utilize it again. I think we probably will have some number of, you know, empty data centers and, you know, quiet data centers, you know, as this build out happens and we make a transition to the next generation. So, you know, you've got on the one hand, quantum computing that is probably going to make a dent in the way we compute. And then on the other hand, new architectures that are likely to make a dent in the way we compute. And then sort of up

• 1:12:59Speaker 00

  the middle, you've got these technologies that should increase efficiency, you know, of data centers, which may reduce the requirements for all of the data centers that are being, you know, proposed right now. So I think we will see sort of a lot of turmoil in that market over the next, you know, three, four, five years. You know, again, I, overall, the momentum will continue, but there will be some people who, you know, lose a bunch of money, making bets that are not going to play out.

• 1:13:38Speaker 01

  Right. And it sounds like you sort of file that under the, the price of innovation, right? Like if you're going to keep building out these new technologies, there have to be losers and that's just, you know, a tax you have to pay.

• 1:13:50Speaker 00

  Right. You know, creative destruction, baby. That's, you know, that's what it's all about.

• 1:13:58Speaker 01

  I love it. Bill, I wanted to say such a big thank you for coming on to the program today. I really appreciate your insight. We covered a lot of ground and it's been a really fascinating discussion.

• 1:14:08Speaker 00

  Thank you so very much. I really appreciate it and really enjoyed the conversation.

• 1:14:14Speaker 01

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