Episode 27: Special—A Conversation with Microsoft's Head of Strategic Investments Brian Schultz

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[31] Welcome to episode 27 of Acquired, the show about technology acquisitions and IPOs.

[32] I'm Ben Gilbert.

[33] I'm David Rosenthal.

[34] And we are your hosts.

[35] Today's episode is a discussion about M &A at Microsoft with Brian Schultz.

[36] Brian is the managing director and head of strategic investments at Microsoft.

[37] And Brian actually started at Microsoft in 1999 in CorpDev and then left for a little detour into the startup world in the mid -2000s.

[38] He left and co -founded Antella here in Seattle, which was ultimately acquired by Photo Bucket.

[39] And he did that with Dan Shapiro, who's now the co -founder and CEO of Gliforge here in town.

[40] Shoutout to Dan.

[41] After that, he came back to Big Tech and to M &A to Microsoft and has been back in Corp Dev and now running strategic investments ever since, but remains very active in the Seattle startup scene and has been a friend to us and many others here.

[42] So welcome, Brian, and thanks for joining us.

[43] Thanks for having me. Yeah, yeah.

[44] We are super excited to, you know, we've had, we've had Taylor Barida from Adobe on who runs Adobe's Corp Dev, but super excited to talk to you about kind of the bridging this world between kind of the big technology companies and running corp dev there and strategic investments, but actually having gone and founded a startup yourself, what's your perspective?

[45] What kind of brought you back into Microsoft after tasting the startup world?

[46] Right.

[47] Well, there's, I think, a whole bunch of different ways to look at it.

[48] And, you know, I think the one thing that I certainly believe is that it actually has made me a better corp dev person by far, having been on the other side, if you will, you know, talk about empathy.

[49] Empathy for your customer.

[50] Yeah, and having, you know, had to raise money and deal with these discussions that, that happened between strategic investors and acquires.

[51] Raise money and sell your company.

[52] All these things.

[53] And so, you know, just having, and as a CFO, CEO of a startup, having been on the other side, both on the investing and acquiring side, I also, I think, I hope, avoided a lot of pitfalls and kept my, you know, cap table clean.

[54] And, you know, they knew a lot of things that I should be doing that I think a lot of folks can get trapped in.

[55] And so, yeah, I think having the diverse set of experiences is a great thing.

[56] And I wish more folks in Microsoft and other big companies, as well as in startups, had had that empathy to be able to reach across the aisle.

[57] And of course, now we're getting into politics and didn't mean to do that.

[58] But going back.

[59] Was there an election this year?

[60] I don't know what you're talking about.

[61] Blocked completely blocked.

[62] You know, one good example is in a startup.

[63] of course, you have trouble getting people to call you back, right?

[64] You want to do partnerships.

[65] You want to do fundraising, whatever it is.

[66] You're just out there trying to, you know, make yourself known and actually do things.

[67] Whereas in the big company, you almost have the opposite problem where you have too many people you have to deal with.

[68] And so thinking specifically about M &A, you know, I acquired a company a few years ago that was about 25 people.

[69] And I remember looking at the conference call, you know, set up on my computer, said you have 28 people on the call.

[70] He said, to do the acquisition of 25 people, I was talking to 20 people.

[71] Was that a just an internal Microsoft?

[72] Just an internal call, right?

[73] And, you know, if you think about, you know, all the business owners plus their lawyers in and outside of the company, and it's just, you know, it's a big effort.

[74] Now, you know, of course, the, that doesn't quite scale, right?

[75] And so even doing, say, an acquisition of LinkedIn, you don't necessarily have a much bigger team on the inside.

[76] But, you know, along with 10 ,000 people.

[77] Exactly.

[78] Exactly.

[79] Well, definitely not.

[80] Hopefully not.

[81] So you're the head of strategic investments.

[82] To give a little bit of context to our listeners, can you explain what that looks like organizationally inside of Microsoft and what the process looks like when you're acquiring a company?

[83] Like, do you find the company and bring it in, or does a business owner find the company and then loop you in to start the actual formal process?

[84] How does that look?

[85] The corporate development team within Microsoft sits under the CFO, and we managed.

[86] managed Microsoft's balance sheet activities.

[87] And so if you think about acquisitions, investments, investors, and joint ventures, when we do these partnership activities as it relates to the balance sheet, that's where corporate development gets involved.

[88] And the kind of how we find companies or find our targets and have these discussions is really, it's a mix, although it's typically driven by our business groups in terms of the finding of the companies.

[89] And that is because our product teams, they know their, they know their markets much better than we do.

[90] And certainly at Microsoft, we have such a broad -based business in so many different areas that would be really difficult for the central team to be all -knowing, right?

[91] You'd have to be a venture capitalist.

[92] Well, yeah, I mean, so, you know, I mean, you guys obviously have these extensive maps of different spaces and it's constantly evolving.

[93] And you have new players coming on board.

[94] And in any given little micro area, you might have, you know, 10, 15, 100 companies, right?

[95] And so if you think about that at the Microsoft scale across all of our products, you know, you'd be looking at a really complex diagram.

[96] And so it's really impossible for a central team to keep up with all of that.

[97] And so we really rely on the business groups to think about what's in their space as they think about their roadmaps.

[98] And most of the M &A, I mean, obviously the headlines go to LinkedIn and the large size acquisitions we do, but most of our acquisitions tend to be much smaller and are really driven by those product roadmaps in terms of where there are whole.

[99] goals and what they need to fill and where they're going.

[100] And so those are really just square up the center of where the product teams are thinking.

[101] Yeah.

[102] I'm curious to kind of go back to, you know, the fact that you have kind of actually been a founder in a startup and a successful one, you know, that raised money and then was acquired and then did M &A at Microsoft before and then came back to do it again.

[103] How did it change your perspective?

[104] Like, are there particular things that you're more acutely aware of now or that you think about differently than before?

[105] Because when you joined before, I think you'd been an investment banking analyst, right?

[106] As many folks who come into M &A roles at companies have been, which speaking from experience myself, you know, that's pretty far from actually being a founder of a startup.

[107] So how'd the perspective change?

[108] Yeah, well, you know, when I got to Microsoft, I mean, even when I was doing investment banking, I was thinking, you know, you're almost too removed from what's actually happening on the ground in terms of doing something, right?

[109] I mean, you're kind of advising and moving things, you know, around the chess board, but you're not actually doing anything, producing anything.

[110] Not building the chess pieces.

[111] Exactly.

[112] And so, you know, investment banking, that's why I joined Microsoft was I thought, wow, I really want to get into an operating role in a company.

[113] And that seemed like a good path to do it.

[114] And this was, you know, back in 1999, right at the height of the dot -com boom, where everything was kind of going a little crazy and my thought at the time was this is going to end somewhat soon most likely and I want to go get myself positioned in a place where I could actually still have a job in a year and actually and actually learn something from it and so that's where that Microsoft job seemed really appealing and I'd never been to Seattle and hadn't really thought too much about coming here to do that but it worked out nicely and we were super in those early days.

[115] And then I got here and did a lot of fun things and actually helped create an internal startup.

[116] At the time, I was advising the Windows and our kind of infrastructure teams, enterprise teams on security storage management and those types of systems.

[117] And we started the security business group back then.

[118] Yeah.

[119] Is that what became Windows Defender?

[120] Eventually became Defender and a whole bunch of other things.

[121] And one of the first things we did was acquire at the time anti -spyware antivirus technologies and roll those in along with some stuff that we built.

[122] And so I joined this startup group and realized, hey, I really like this startup thing, but doing it within Microsoft was not quite what I had in mind.

[123] And I saw the pros and cons of that and thought it would be really great to go and actually do it for real.

[124] And so actually, there was a company I co -founded before Antella, which was at the time known as Genesis and then became Plectics biosystems.

[125] And there was a Microsoft co -founder that I met.

[126] And we went out and raised money for that company.

[127] And then I left that company after about a year after we got a funded and joined up with Dan and Charles, where we founded on Tele.

[128] And so, you know, kind of that pathway and what I realized was kind of taking the business knowledge and the corrupt dev knowledge.

[129] there's general finance and business and strategy thinking, you know, and work with some really great technical and product folks was really a nice, a nice combination.

[130] And so that was kind of that role that I took on as, you know, kind of founder and then evolving into, you know, CFO, COO.

[131] I'm curious, you're kind of getting into your specific role, which I assume probably takes much, if not most of your time these days in the investment side.

[132] How does that function in Microsoft and how Microsoft just relaunched Microsoft Ventures, which is early stage investing, kind of more traditional VC type stuff.

[133] You do later stage larger checks, right?

[134] Yeah.

[135] And that's actually probably gone through more of a significant evolution than the core M &A role has, you know, in those three epics.

[136] So you kind of in that dot com time frame, Microsoft was very active as an investor.

[137] And in those days, you know, every company was going public, you know, a year after they were founded.

[138] And one of the...

[139] The series B round was your IPO.

[140] Pretty much.

[141] And what was commonly accepted as one requirement of your IPO, it wasn't revenue.

[142] But it was actually having a strategic investor.

[143] And so, you know, kind of the name brands of your investors lent a lot of strength to your IPO and without anything else.

[144] When the number one VC question was, what are you going to do when Microsoft enters your space, right?

[145] That's right.

[146] And so, you know, Cisco, Microsoft, you know, kind of the big companies at the time were investing a lot in a lot of different startups.

[147] And we were also investing.

[148] It was a really interesting time in terms of influence and how the world was going to play out.

[149] And so we were investing in, you know, undersea fiber cables and satellite companies and cable companies and telcos and DSL coming, you name it.

[150] And so we were really spreading around a lot of money.

[151] and that didn't end so well.

[152] You know, we didn't really get the strategic return.

[153] And of course, from a Microsoft perspective, despite having a nice balance sheet, our investors aren't investing in us as an investor.

[154] They're investing in us as an operating company who's delivering revenues and profits to our shareholders.

[155] And so, you know, even if you take a billion dollars of our balance sheet and turn it into 2 billion, 3 billion, 5 billion, you know, it doesn't really impact your stock price in the same way as doubling, tripling revenue and profit.

[156] And so we weren't, so the reason to do it was really strategic reasons of how are you going to take those investments and turn that into leverage plays on increasing revenue and profit for the company.

[157] And that didn't really happen.

[158] And so we really stopped doing it for the most part throughout the 2000s.

[159] And I think one notable exception was our investment of Facebook back in 2007.

[160] And so what we did do is we said, where it's really, really deeply strategic, we'll go out and we'll do an investment.

[161] And that's what we did in Facebook's case.

[162] But otherwise, we weren't really doing this, you know, kind of, hey, we'll put some money in her balance sheet.

[163] We're a partner and why not.

[164] And that was just a quick sidebar.

[165] I mean, the Facebook investment at the time, the world thought you guys were crazy, right?

[166] Yeah, they were nuts.

[167] Billion dollar valuation, I believe.

[168] That's right.

[169] I think their last round had been done at five, five billion.

[170] And so we took it up to 15.

[171] And yeah, they certainly ridiculed us at the time, obviously in hindsight, that did okay.

[172] turned out pretty well yeah and I remember when I was there that that began or this was this was after the investment but there was a lot of integrations like the companies were very friendly with each other that was when Windows phone was kind of doing a lot of things differently than then iOS and Android were doing and kind of like integrating across networks there was a lot of like kind of proprietary first party type integration with Facebook and the contacts and providing being back to them for mapping things and There was like a very tight integration there, so I can totally see what you're talking about on the strategic side.

[173] Yeah, and that was exactly that case, right, where we could really deeply align with a partner and do the investment, you know, create this whole win -win scenario.

[174] I think, you know, coming back to investments, you know, they're often talked about as a, you know, kind of either or, you know, you can acquire us or you can invest in us, you know, And I don't really think they operate that way as really substitutable goods.

[175] Because, you know, as a minority.

[176] Oh, completely.

[177] Speaking as a shareholder in lots of startups.

[178] Yeah, exactly.

[179] It's very different if, you know, you create an exit for the company versus just put more money into the company.

[180] That's absolutely right.

[181] And if you think about it, again, coming back to the strategic angle of it, you know, if we own, you know, 5%, 2%, 10%, even 20%, even with a board seat of any given start.

[182] up, we really don't have any control.

[183] And we don't really have really anything.

[184] You know, yes, you have some equity, and that's obviously nice.

[185] But again, that's not really what we're here for.

[186] We're here to be partners.

[187] All Street isn't compensating.

[188] That's right.

[189] Wall Street isn't evaluating Microsoft share price based on how good you are as an investor.

[190] That's absolutely correct.

[191] Yeah, that's like a fascinating, taking a step back for our listeners and thinking about how we normally evaluate companies on these episodes, being an LP, or let's say you're a venture capital firm and you have LPs, the pressure on you and the expectation is very different than being an operating company with shareholders.

[192] The shareholders are looking for multiples that come from your operations and your ability to execute core business activities in a sustainable way.

[193] And when LPs are in a fund, you know, they're in it for 10 years.

[194] They're looking for three times or so, the capital that they put in, hopefully more.

[195] But really, it's like can you guys sustainably make these investments?

[196] And I think as an operating company, that's just not, to your point, it doesn't move the share price.

[197] It's not the business.

[198] That's right.

[199] And from an employee perspective, I mean, take this all the way down to the individual practitioners in any given corporate fund.

[200] And again, you can, you know, for any you who are talking to different corporate investors, you know, ask them how they get compensated, right?

[201] And most likely, if it's your typical corporate VC and it's a balance sheet activity, they're employees of the company, right?

[202] And their compensation is going to come in, you know, shares and bonuses and salary from the operations of that company.

[203] It's not coming from, you know, whether or not you succeed.

[204] Whereas obviously a VC investor is in a different place.

[205] And so, you know, that's why you think you have to be really careful in this world of strategic investing and coming back to why we do it.

[206] Yeah.

[207] So with all that context and having done it in the past and realized it didn't work, what's the philosophy this time around?

[208] Yeah.

[209] And when you say it doesn't work, I think you have to be careful in terms of work to do what, right?

[210] And so if your objective is these really deep strategic tie -ups and or return on your capital or both, right?

[211] I mean, I think it's kind of hard to do both at the same time.

[212] And you think about, you know, setting valuation and being a difficult investors, sometimes you have to have hard conversations as an investor with your companies.

[213] And you think about obviously the hardest one that a board might have to do, which is changing out a CEO.

[214] As a partner, as a strategic investor, we're not good at that.

[215] Right.

[216] I mean, we certainly don't want to ever have to turn to our partner and say, you know, by the way, you you, you, you found or you CEO, you're not right for this company anymore as an investor.

[217] Or also even, you know, I mean, there's a whole set of difficult conversations that come along with being an investor in companies.

[218] But, you know, one in particular I'm thinking about is, hey, now is actually the right time to sell the company.

[219] To sell the company.

[220] And if you are a potential acquirer as well, then.

[221] That's right.

[222] Yeah.

[223] And so there's a lot of conflict there.

[224] And it's why, you know, I think if you want to do strategic investing the right way, you have to be really clear on what your objectives are and why you're doing it or you create lots of conflict.

[225] And in many cases, they can backfire.

[226] And certainly something we want to be very cognizant of is our reputation among investors, among founders and technologists, is we never want to damage our reputation as a good partner, as a good technology company in order to achieve those investment returns.

[227] Because obviously, that's penny -wise, pound foolish for us.

[228] So would you say the effort is more around creating strategic partnerships through investment rather than investment to generate returns?

[229] Well, so it's the way we've scoped it, and there's actually two components to this.

[230] One of them is relatively new, which as of earlier this year, we created Microsoft Ventures, which is an early stage venture effort.

[231] And so Microsoft Ventures is out there looking for, you know, companies that are in generally our strategic partnership ecosystem, and they're looking to establish those relationships, starting with that equity check and developing a relationship.

[232] And so they're out there looking on the cum, and if you're using a craps analogy.

[233] And so the fact is at the early stage, you know, kind of your seed, your A type stage investment, it's hard to be a meaningful strategic partner to Microsoft because our scale, right?

[234] It's really hard to do.

[235] Now, you can be a potentially really interesting strategic partner.

[236] And so that's what Microsoft Ventures is there to do, which is to create those relationships and those opportunities and be in those conversations or around how we can add value to companies.

[237] In some cases, that's going to come with that equity check and then a partnership.

[238] In some cases, you know, come just from the partnership, but they're there to have those conversations.

[239] On my side of the house, it's almost the opposite where I'm leaning into companies that are already Microsoft partners and that are deep, meaningful ones.

[240] And it's, we're doing, you know, call it five to ten of them a year.

[241] And it's really more of, you know, an endorsement an ecosystem leverage and tightening that relationship as opposed to trying to find new and interesting partnership opportunities.

[242] And so that's why I'm more of a growth investor, if you will, because these companies tend to be a little bigger, a little more mature.

[243] And are these companies like, like, for instance, that might be selling through the Microsoft Salesforce on the enterprise side already?

[244] And so we typically look, and obviously we have lots of partners.

[245] And those partnerships come in, when I look at a strategic investment, really three criteria at its core.

[246] One is on the partnership side, is there a really interesting technology product integration between the two companies that makes this really interesting?

[247] And then the second piece is there some sort of go -to -market sales marketing motion that makes the combination of the partnership powerful.

[248] and where I find really interesting components of both, right, because there are plenty of companies that have one or the other.

[249] But when you find a really, really impactful combination of those two things, that's where it gets more interesting as a strategic investment.

[250] And then the last part, the third part, is it a good investment?

[251] And just like any kind of growth investor will monitor a portfolio, you know, based on expected returns and make financially sound investments in those meaningful partners.

[252] As I have to imagine as much as Wall Street won't reward you for being a great investor, Amy Hood, Microsoft CFO might punish you for being a bad investor.

[253] Yeah, exactly.

[254] And so, yeah, that's again why we tend, you know, not to do this, you know, in a hugely active way.

[255] And again, I'm not out there spraying billions of dollars of our balance sheet money around because that really just creates a huge liability.

[256] And so we do it, you know, where it's meaningful, where it makes sense and where we think we're going to get a reasonable financial return, that's risk -based.

[257] And so over the last two years since we started doing this in a programmatic way, we've done about 16 investments, investing about $250 million on this side of the house on the growth side.

[258] Microsoft Ventures has a separate portfolio they're mentioning.

[259] That's a great transition.

[260] We want to move into talking about the state of the M &A market right now at large.

[261] And it's you talking about you talking about, a number of deals is a great segue into why have we seen so much deal activity this year, both large and small.

[262] And the largest of which being obviously you guys.

[263] Right.

[264] Well, yeah.

[265] And those are, again, you know, as we look at M &A, they are different.

[266] And we're always looking for great opportunities for us to grow.

[267] And so, you know, the question of, you know, those large companies, we're always evaluating everything, right?

[268] And the thing with the large companies, they tend not to be, you know, suddenly found opportunity.

[269] We do, we know about LinkedIn.

[270] We know they're there.

[271] You know, we know where all these large companies are.

[272] We know who they are.

[273] And so, you know, those are always being evaluated.

[274] And obviously when, you know, something happens, whether, you know, something flips between, you know, day one and day two, where we decide, okay, now it's the time to acquire Skype.

[275] Now it's the time to acquire LinkedIn.

[276] And, you know, there's a whole bunch of things that go into that.

[277] And in terms of you're asking about the trends right now, you know, I wouldn't say that there's anything on our side of the house that makes us a better time or more exciting time to acquire.

[278] I'd say it's almost on the opposite side where, you know, it might be a really good time to sell.

[279] And so there's a lot more companies that are trying to market themselves in that way.

[280] And if you think about the technology cycle and, you know, kind of how things get funded and how technology moves and waves, And how startups get funded, you know, there's certainly a lot of companies that are, you know, kind of coming to be a no man's land in terms of their growth relative to the last round, relative to their ability to raise more money, and really kind of reach escape velocity into independent land, if you will.

[281] And so I think there's a lot of companies that are certainly looking to sell.

[282] Do you think that's motivating?

[283] Let's zoom out from Microsoft and look at the industry at large.

[284] That's motivating why so many deals are getting done.

[285] because companies are so much better at marketing themselves as a great pickup?

[286] Yeah, I mean, I don't know if they're better at marketing themselves, but they need to.

[287] They need to be, right?

[288] I mean, if your next funding round isn't going to come, you've got to do something, right?

[289] I mean, you've either got to fund through cash flow or you've got to fund through investment.

[290] And if you can't, you know, raise your revenues enough relative to your burn.

[291] And if you can't, you know, raise investment, then you really have one choice.

[292] Yeah.

[293] Well, you have two choices.

[294] One is happier than the other.

[295] Yes, yes.

[296] Fair point.

[297] I'm talking about the companies that actually have something, right?

[298] And so, you know, there will be a price for companies that actually have something, right?

[299] So how do you, I'm curious on that front, the fact of life in startups is, unfortunately, more companies than not end up in that situation, you know, where they've built something, you know, they've built a product, it's getting usage, they have revenue, but it's either not going to get to a scale where they can cover their burn and thus the company.

[300] faces the prospect of going out of business.

[301] Or we see this plenty of times too.

[302] The business grows to a certain scale.

[303] It becomes profitable, but then the growth just stalls.

[304] And you realize you're not going to get to a point where you could be a standalone independent company.

[305] I'm curious for you guys, like you probably see these companies, you know, many times a week.

[306] How do you think about whether they make sense, whether an asset like that makes sense for you?

[307] Yeah, well, it goes back to what we were talking about earlier in terms of who's driving that decision.

[308] And it's, you know, and again, different companies are different here, right?

[309] And so we are typically a product -driven company when it comes to M &A and it comes to our business generally.

[310] And so we're not out there looking to assemble in kind of business conglomerate sense an amalgamation of random software companies.

[311] And so you could certainly have that kind of business, right, where you go out and find interesting software companies that then you can, through synergies of overhead and sales and other things can make good money at.

[312] We're not really in that game.

[313] You know, we're here to grow our franchises and our products and really be a leading technology company.

[314] And so we're looking really at our technology roadmap and saying where things need to fit in, which is partly why we're less of that opportunistic buyer.

[315] Yep.

[316] That's out there kind of just buying companies that have, you know, fallen angels, if you will.

[317] Now, there's still plenty of fallen angels that are interesting to us.

[318] But, you know, those two things are different.

[319] Yes, it's related to the roadmap.

[320] And so where those two things intersect where you have a fallen angel that's on a roadmap, that that's where things get exciting for us.

[321] And, you know, the other piece of that, again, from a Microsoft perspective, is we're typically not looking to acquire businesses.

[322] We are typically looking to acquire teams and products and technologies.

[323] And again, thinking about that roadmap piece where holes are on the roadmap, you know, we sell the office suite.

[324] and so where things can plug into that, that's great.

[325] But if we're acquiring a business, you know, sometimes that's, oftentimes that's incompatible with selling as the suite.

[326] And so in some cases, actually having a large sales force and a large business could be actually value destructive relative to how we think about things.

[327] And so there's plenty of companies that are great, but because they have such infrastructure and raise such money that it actually takes it out of our ability to really find any interesting your intersection of deal value relative to what they need and want to sell for.

[328] Wow, that's fascinating to think about the conflicts there because we, listeners of the show who have kind of listened to our more classic analyze a single acquisition episodes, we'll remember that we analyze whether an acquisition was technology, product, business line, people, asset, or other.

[329] And we've got these kind of categories.

[330] And it's interesting to think about if it's a business line, that can't be incompatible with the existing business line of the the acquirer if the acquirer is not looking to create a conglomerate right of like separate and potentially even competitive businesses under the same management structure so for you guys I you know when when we did the LinkedIn episode we were looking at you know it was like an 8x multiple of revenue that LinkedIn was acquired for and we were like well you know it's actually a pretty good business on its own even if there aren't a lot of synergies and integrations and it's interesting to think about, like, you sort of pushing back on that notion of, like, no, we don't just buy businesses because they're good businesses.

[331] And, like, you know, we hope to cash flow them for the long term.

[332] It's actually a strategic integration and they have to be compatible with our existing business.

[333] That's right.

[334] Now, obviously, and that's one of the reasons that, you know, you look at the larger businesses we buy, you know, like a Yammer or like a Mojang on the Minecraft side or like LinkedIn, you know, generally you're, you know, to make those deals work and you're generally not going to destroy their business.

[335] And so if you have a enough critical mass, and it makes sense on the strategic side.

[336] That's, you know, it's a different game, too.

[337] And so, you know, all these things do fit together and every deal is different.

[338] But, you know, I'm just saying on the whole, when we're thinking about these things, you know, those are some of the things we think about and consider is, you know, how does that business play, as you said with our existing businesses, is that something that we value or something that we don't?

[339] Or in some cases, something that actually is a cost to us.

[340] One, kind of tying together both of these topics on growth and, And sort of the roadmap and strategic imperative for Microsoft at the opposite end of the spectrum, a trend that's emerged or reemerged in 2016.

[341] And I'm curious your take on and whether you talk to these guys is the appearance of private equity in the software market.

[342] And sort of the P -fueled or P -led buyouts of software companies.

[343] how much, you know, in many ways, that's the exact opposite of what you're talking about.

[344] That is the, you know, if not, in some cases, an attempt to create a conglomerate of multiple software companies together.

[345] But in other cases, just, you know, hey, we're just going to take this private solely for its own business line.

[346] Why do you think we've seen that emerge?

[347] Because traditionally, PE has shied far away from technology.

[348] These are typically not cash flow positive companies.

[349] you can't put debt on them.

[350] What's changed?

[351] Well, I think that has changed, right?

[352] I think there are a lot of now mature software companies that have legacy businesses where you have nice cash flow.

[353] And if you think about your typical technology companies business where a lot of money goes to R &D because you're always trying to grow and chase the next generation, if you strip at all that cost, in some cases you can have a really nice profitable business because the marginal cost of producing and selling software is relatively low.

[354] Or I should say the cost of producing is relatively the cost of selling.

[355] It could be high.

[356] But where you find that right model where if you strip out a lot of costs from the business and you think you have this pretty solid revenue stream from customers that even if you don't invest is just going to fade out over time, you can actually have some really nice traditional looking LBOs.

[357] And so we've certainly seen that.

[358] Those, you know, those aren't always so exciting to us, but, you know, we actually have co -invested with some private equity firms in a few of these take privates or LBOs or, you know, re -settlings.

[359] And the one that was announced is Informatica, where PremierA bought them.

[360] And we invested in that.

[361] And what's actually exciting about that one is there's a component of that business, you know, that is legacy, but there's also a really good growth component.

[362] it to it, which is what gets us excited.

[363] And the opportunity to really go deep in a partnership with them was what got us excited about the partnership and the investment.

[364] And, you know, kind of on the quarter to quarter basis sitting under a public company, you know, street mentality of managing that, it's often hard for them to really make the hard decisions and both the cuts as well as the investments that they need to make to kind of modernize that company.

[365] And so in many cases, it's better suited in a private, you know, kind of private equity -based format.

[366] And so that can actually be really interesting and really exciting.

[367] And there's certainly a lot of those businesses that are out there.

[368] I just want to highlight real quick for listeners, because I'll admit, I just Googled it.

[369] LBO is a leverage buyout.

[370] Oh, I'm sorry.

[371] Yes.

[372] No, no problem at all.

[373] It's interesting.

[374] We've got a good mix of kind of like product and engineering types that listen to the show as well as people that are kind of much more versed in the corporate development and financial world.

[375] And I tend to perhaps over index on, hey, be.

[376] a recovering investment banker myself, I just imagine everybody knows these things.

[377] But yeah, and typically, you know, the reason we're talking about this is it's only been very recently that private equity firms and LBOs have really started paying attention to tech.

[378] And Brian, for really the reasons that you were saying that the industry's matured.

[379] But typically these firms would buy, you know, like, you know, Heinz ketchup, right?

[380] The types of things that Berkshire Hathaway would buy.

[381] Exactly.

[382] It's more Warren Buffett style in a way.

[383] Yeah.

[384] And actually, I mean, it was back when I was an investment banker that Silver Lake, which I think was the first true private equity, traditional private equity tech -focused firm was formed.

[385] And I remember meeting with them thinking, you know, how odd, right?

[386] Really, these two models are somewhat incompatible.

[387] But certainly over time and being the first, they were able to create a really nice business to go and take that traditional private equity model.

[388] into tech, and now there are a whole bunch of other folks that play in that space as well.

[389] Yeah, I think in quite short order, I forget it maybe two years.

[390] They three -xed Skype before selling it to Microsoft.

[391] That's right.

[392] Pretty wild.

[393] Yeah.

[394] Which obviously then that was a tech buyout that you played on the other side.

[395] Yep.

[396] That's right.

[397] This is actually a pretty good segue.

[398] So on the Skype episode, we talked a lot about the implications of having a lot of of cash overseas and that, you know, Skype was actually a really great way to deploy some of that capital because it would have a pretty heavy tax burden when attempting to repatriate it.

[399] And so the question for you is, are potentially changing corporate and foreign tax structures on your mind as you think about large deals?

[400] Yeah, we're certainly always cognizant of the regulatory regimes and tax regimes.

[401] You know, most of these larger actors, acquisitions, you know, have a large and complex international component to it, which means we're dealing with that anyway, you know, even at the kind of more operating internal level of any given, you know, company.

[402] I mean, if you look at, you know, at Skype, if you look at LinkedIn, if you look at a whole bunch of, they all have, you know, pretty complex operations.

[403] They've got to think about, you know, Skype, of course, happened to be domiciled, not in the U .S. and so that was certainly a nice benefit that we were certainly aware of.

[404] But, you know, these things are always changing.

[405] And if you think about, from the Microsoft overall planning perspective of how we manage those environments, it really has to sit within our overall management.

[406] And again, these things get really complex in terms of where IP lives.

[407] You know, Apple and others have been in the news a lot lately in terms of, of how they do those transfers of tech and how that creates or avoids or distributes their taxes in different ways.

[408] And so, again, it's a very complex issue that we certainly pay a lot of attention to.

[409] Again, I wouldn't say that going back to why we do M &A in the first place, we certainly aren't financial engineers as a business.

[410] And so we're always looking out for the right strategic thing.

[411] And if that deal happens to be Skype that's based outside of the U .S. or if that deal happens to be, you know, LinkedIn that's based here in the U .S., you know, we go do the right deal, you know, assuming we can come up with the right terms and structures that makes the deal work.

[412] And so we're not out there to be financial engineers, although that's certainly a part of what we have to do, you know, just given the complexity of operations to these companies.

[413] I was always amazed when I worked in banking, like, how many tax lawyers we had running around on every deal.

[414] Yes, certainly part of those 28 people I discussed earlier.

[415] Yeah.

[416] In thinking about sort of the two different functions, you know, there's M &A activity when Microsoft acquires companies, and then there's strategic investment activity, which is what we've been talking a lot about on this episode where you choose to deploy capital into someone for strategic reasons.

[417] Do you have any good examples of investments that Microsoft has made in the last few years that, you know, ended up becoming product integrations or like success stories for a business or some payoff with that strategic alignment?

[418] Payoff in terms of...

[419] Maybe like you made the strategic investment and then there was something in the product in the ensuing years, either on the Microsoft side or on that company's side that took advantage of the sort of strategic alignment between the companies.

[420] Yeah, sure.

[421] I mean, we can look at a couple of examples in the recent past that I've been involved with If you look at, say, 4Square, we've made an investment at 4Square, and we've developed a great partnership around their data and data asset that feeds into Cortana.

[422] Oh, interesting.

[423] And so that's, yeah, that's pretty cool.

[424] If you look at a docuSign.

[425] What does that look like with 4Square?

[426] Is that like when people ask Cortana about what's a good place to eat and it surfaces recommendations from 4Square data?

[427] Yeah, I mean, Foursquare is one of the sets of data that we leveraged in that case, yeah.

[428] I mean, we certainly have a lot of our own data as well, and we pull data from multiple sources, but Foursquare has a great, great set of data on location.

[429] And lots of Foursquare data gets used in all sorts of location use cases that aren't even related to, you know, and user recommendations.

[430] We were kind of a prototype for them doing that kind of deal, and now they've basically created a whole business out of licensing that data to other stuff.

[431] which is part of our investment thesis in that company.

[432] And then if you look at DocuSign, we had a different example, but we've had a great partnership with them going back many years in terms of how you could utilize their electronic signatures in Office 365.

[433] There's some good selling and marketing motions that go along with that as well that go in both directions, and we participated in their last private round as well long after the partnership itself had come to be.

[434] And then if you look at a more recent one, which is mesosphere, you know, the container space.

[435] And we're, you know, doing a whole bunch of interesting things, both with them and the other container players.

[436] And we really like that partnership as well, both on the technical and go to market side.

[437] Do you ever see any sort of conflicts arise where you want to be horizontal and participate with everyone?

[438] and kind of, let's just say it's all the container players in a very democratic and open way, and yet you have this strategic bet that you've placed on one of them?

[439] We certainly do.

[440] I mean, you know, we, I mean, obviously it depends on the space in terms of how democratic you want to be, if you will.

[441] But again, you know, we're first and forward most technology partners, and the commercial deals will speak for themselves.

[442] And so if we're going to go and do some sort of exclusive or semi -exclusive, whether it be, you know, kind of implied or purposeful exclusivity in any given area.

[443] You know, the commercial partnership and how we do that and talk about it will mention that.

[444] And the investment is, again, a separate deal.

[445] And so one good example there would be if you look at a company called Cloudflare that we invested in, you know, they actually, you know, doing what they do, they need to be and want to be, you know, kind of a neutral party.

[446] and to do that and to hammer at home, it was actually an interesting approach by that CEO founder to use his investment round as a way to reinforce that message of neutrality.

[447] And so he got Baidu, us, Qualcomm, and Google, all to co -invest together in the same round.

[448] Very interesting.

[449] And so, you know, you can use these investments as tools.

[450] And, you know, again, given the right commercial partnership, we certainly had no qualms with those guys as investors.

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[471] Maybe good time to jump to, you know, we discussed with Taylor at Adobe when we chat with him a few months ago, kind of what the right way was for startups to, you know, build a relationship over time with potential acquirers.

[472] And he really stressed the importance of that it is a relationship, you know, don't expect that you're just going to call up, you know, a potential acquirer one day and have a deal done, you know, by the next week.

[473] But I'm curious on the investing front, you know, for you guys, obviously, you know, different companies have different policies on, on this and approaches to strategic investments.

[474] But what's the best way for an earlier, a mid -stage company to start building that relationship with Microsoft?

[475] Yeah, and I think, you know, piling on with the Adobe guys on that, you know, it is amusing or unamusing sometimes where, you know, we'll get these calls saying, hey, you know, we have a term sheet in hand from X, you know, would you like to also put in a bid, you know, let us know within the next week to be acquired, right?

[476] Right.

[477] And that's generally not very productive.

[478] And it is indeed a relationship.

[479] And the thing to think about as a startup founders is, you know, getting acquired is almost like going through a hiring exercise.

[480] And you do have to develop relationship and trust.

[481] And essentially, the acquiring entity is indeed making a hiring decision, you know, on the company as well as the specific people.

[482] And so if you don't have a relationship in place, it's really hard to speed that through in a rapid way.

[483] And so it's always a good idea to be developing those relationships with potential acquires, you know, well in advance.

[484] And it leads into what I will say on the investing side, which is certainly on the strategic investing side, for me, all those roads lead through a partnership anyway.

[485] And so you need to have that dialogue with us on the partnership side with their product teams.

[486] Yeah, with the business units and the product teams, you know, to get those partnerships in place long before I could potentially invest.

[487] and so that's really the best way to do it.

[488] And I'm always happy to help get folks set up with the right folks in Microsoft if they don't have a path in.

[489] Otherwise, but that's really what has to start.

[490] And certainly then, you know, as those conversations are going to then have a separate parallel relationship development with my team is certainly not a bad thing.

[491] But, you know, again, first and foremost, we're a technology partner.

[492] The investing thing is really secondary to everything we do.

[493] So, you know, if there's limited resources in any given side, I wouldn't, I wouldn't bother with me as much as that hurts me to say.

[494] But, you know, and really focus on those strong relationships on the product level.

[495] It's also more leverage for them.

[496] I mean, if they can get a situation where, you know, there's cross -selling motions, I mean, the Microsoft field and sales team is really powerful.

[497] And I've certainly seen a lot of startups get a lot of leverage from that.

[498] And if you can make that work, that's really impactful to a small company.

[499] Yeah.

[500] And it's funny, as we, anybody who's in the startup world knows, it always just happens to work out that any time that you're very close to a major milestone, whether it be cementing a partnership with somebody like a Microsoft or a sales milestone, it also just happens to be when you're running out of money.

[501] And founders are tearing their hair out, trying to balance the two of them.

[502] Yeah.

[503] No, I mean, I certainly don't mean to make light of that really difficult challenge and I've obviously been there.

[504] And so one philosophy, though, you know, going back again to our investing approach, you know, we're not looking to make companies or make rounds except in those, you know, really rare cases like the Facebook investment.

[505] And so we tend not to lead rounds.

[506] And we tend to just put a little bit of money in.

[507] I mean, again, we're not looking to be the.

[508] primary funding source here in any given round or dealer company.

[509] And so we're not, you know, we're not your typical investor.

[510] We're not going to jump in and save a company if they're running out of money.

[511] And so we're the wrong folks to rely on, you know, on that basis.

[512] Anyway, and so the relationship can certainly be very helpful and both on the M &A front and the investment front for us to have that dialogue.

[513] That's always a good thing.

[514] But, you know, if the running out of money thing is something that you're trying to avoid it's it's usually not uh i'm not usually a good call to me yeah well we'll jumping back over to the m &A side of the house uh one of the the theses of this show when we first set out was to figure out what makes acquisitions successful and selfishly so that david and i can really understand how to build companies that will become um successfully acquired and will fit into another business or more recently we'll actually have a successful IPO process we realized that we were selling ourselves short.

[515] That's right.

[516] Our ambition's short.

[517] Right, right.

[518] In that vein, I'm very curious, how on the M &A side of the house at Microsoft, do you judge acquisitions and do you decide if this worked out well and we're glad that we did this five, ten years later?

[519] Yeah.

[520] We certainly do.

[521] It's a really hard thing to do.

[522] And of course, the challenge there is that the destination is often changing as you're going through the process and certainly in tech, you know, to, five years, hindsight wise, things look a lot different than they did initially.

[523] It's the wrong number here.

[524] And so, you know, it's really, it's really difficult to think about how to judge an acquisition and whether it's successful or not on any really rigorous way in tech.

[525] You know, that said, we certainly try.

[526] And so with any given acquisition, we'll have a set of agreed judgment milestones, metrics, various criteria, which usually include, you know, retention, you know, or all the folks or some folks of the acquired company still here, you know, six months, one year, two years later, are they happy?

[527] You know, have we shipped X, Y, and Z product or feature?

[528] Have we done, you know, AB and C integration?

[529] Have we, you know, pick your, you know, the revenue targets or profit targets.

[530] Are there some sort of accelerated, you know, either schedules or unit volumes for some product or feature we have, you know, pick your set of things that form the basis for why we went and did a deal.

[531] And we lay that all out and we cement that in and then we do track that.

[532] And then the owner, you know, someone in Microsoft owns that.

[533] Someone in the product team, product teams owns that team and signed up for either that revenue or those features or retention or whatever it is.

[534] And so we certainly do, you know, judge those over time.

[535] And that's, you know, think the closest we can get you know and again even with that we have to be cognizant of of how things shift and change and often that person might not be the same person who's managing them you know those acquired employees six 12 you know 24 months later are there any that you think went particularly well in the last five years that that are worth saying like wow that that that one went really phenomenally um yeah and i think there certainly are and and one thing i think that's um that's fun to to watch is our changing approach to these things um and You know, I think in a lot of companies, and certainly in Microsoft, it used to be the case where, you know, let's say you're the product team for Outlook and you're trying to ship a mobile client and it's not going so well.

[536] And then you get management buy -off to go buy by a mobile client, in this case maybe a company.

[537] Let's just say as an example.

[538] And then you bring those folks into the company and now that startup that you just acquired is reporting to the same people who are failing.

[539] before.

[540] That usually ended up being a recipe for, for just not, let's just say that the acquired companies just who are excited to be in that position.

[541] Let's say that the managing folks there, you know, essentially went and continued to try and do the same thing, but now just with new people working for them.

[542] And so that usually didn't end well, surprisingly.

[543] And so, you know, I think with the compil and with other companies we acquired recently, we've done that differently, and we've taken those folks and empowered them, and assuming they've been successful, we've continued to expand their scope and given them more and more.

[544] And so, I think you're seeing the benefit of that approach with Outlook, mobile and iOS, and how that's worked.

[545] And so, you know, I think that's a case where I think we're pretty excited.

[546] And you can say the same thing for, I think, a lot of the other companies we acquired recently.

[547] Yeah, it's interesting to, I always love thinking about what those, you know, as the organization matures, you know, the corp dev organization matures or, you know, from my world, you know, as a VC firm grows and sees many cycles and as individuals, uh, within those organizations grow, you know, you start to learn these, you know, VC's all about.

[548] pattern matching, but you get these, you know, sort of senses that develop and kind of informal rules.

[549] And then what's really interesting is when you decide to break the rules.

[550] But I'm thinking about like, you know, one that actually be relevant to my carve out, you know, in VC that you learn pretty quickly is it's really hard to build a big company if you're not targeting a big market.

[551] And plenty, you know, I make that mistake.

[552] Madrona makes that mistake.

[553] Even the other great VC firms make that mistake all the time.

[554] But, and then you always remind you like, God, why did I do that?

[555] You know, but, but, you know, for you for you, for you know, for decades, having been able to practice the craft of, you know, of M &A and I think about, you know, VC is the same way.

[556] You definitely get these, you know, these rules that kind of evolve like, oh yeah, maybe we shouldn't if we're buying a product to replace one that's failing.

[557] we probably shouldn't have them report to people who are who are who are not successfully shipping the current product no that's right yeah um one final note kind of before we move into follow ups hot takes and carve outs are there any other people or companies who you admire that you think do corporate development or strategic investing really well uh that's a good question me i think you see lots of different models um if we're talking about just the investing side um you know and And Google has taken the approach of creating a separate fund and a whole separate team and creating those walls and trying to create a real VC.

[558] And I think that's certainly one way to go.

[559] And the market will judge over time if they're doing a good job with that or not.

[560] And they're essentially out there competing with any other VC for $4.

[561] You know, that can take away some of the strategic components to it too.

[562] And so there's, you know, all sorts of views on the spectrum.

[563] I mean, corporate VC has gotten, I think, really hot for some reason over the last number of years and just about everyone I think I was reading today that, you know, you have a, I think it was Tyson Foods, you know, the folks who make chicken.

[564] They now have a VC looking at new protein replacement opportunities.

[565] So, you know, Sesame Street has a VC.

[566] You know, pretty much everyone has a VC these days, right?

[567] I've been amazed.

[568] I mean, it's been so much talked about in the last couple of years, but you drive around in Silicon Valley.

[569] You see all the auto companies have their, you know, Silicon Valley centers now.

[570] Yeah, I mean, I did a deal recently with GE and Caterpillar and others.

[571] I mean, you know, kind of, you know, everybody's getting into the game.

[572] And I think that's going to be interesting to watch over time.

[573] And so to kind of flip your question, you know, kind of, I think there's a lot of folks who I'm not sure if they're doing it right and we'll have to see.

[574] And again, going back to why these folks are setting it up and what they think they're going to get out of it.

[575] And as a former startup founder, you know, certainly at the early stage, you certainly have to be careful about tying your wagon to really anyone because you want to maintain optionality at the early stage if you can.

[576] And so that's a hard thing to balance against the corporate entities and keeping in mind what we already talked about in terms of their incentives, which is really for their company and their equity versus a traditional investor who's really looking to you to make a gain.

[577] And those incentives are very different.

[578] And that manifests itself in the boardroom, that manifests itself in shareholder votes.

[579] follow -on rounds and all sorts of things that I think folks are going to have to be careful of.

[580] So I think there's a whole bunch of folks who are out there doing a good job.

[581] You know, Qualcomm Venture certainly does.

[582] And I think Google is a pretty good reputation.

[583] And Salesforce is very active.

[584] And we've co -invested with them before.

[585] So I've been very impressed with a lot of the teams I've seen in corporate VC.

[586] And again, we'll have to see how the whole space shapes out.

[587] Indeed.

[588] Indeed.

[589] Should we do follow -ups and hot takes?

[590] Yeah, let's do it.

[591] We've got some fun ones.

[592] I realized we were negligent last episode on the Marvel episode and didn't discuss, I believe, we discussed Snapchats, Snap Inc's spectacle launch and initial very positive reviews.

[593] I can't wait to try them.

[594] But we did not discuss the elephant in the room, which is news that they are rumored to be preparing to file for an IPO.

[595] Yeah.

[596] Really interesting to think about they're a younger company than Uber and a lot of these other kind of like super unicorns.

[597] And in true Snapchat fashion, just not necessarily going with the trend.

[598] They just continually think of themselves as a different company or a different type of company than a lot of these other big companies, big private companies of their generation.

[599] And so I think you know, there are reasons why it makes more sense.

[600] for Snapchat to be IPOing and companies like Uber to be waiting.

[601] There's a lot of Uber in China, I think, is kind of the big reason they're waiting.

[602] But with Snapchat, I continue to be impressed, and I'm a buy at any price.

[603] But don't take my...

[604] Note to self, do not give money to Ben.

[605] Don't take my investment advice.

[606] Yeah.

[607] Also really interesting with Snapchat.

[608] I mean, one, you know, to kind of as we talked about on the Facebook IPO show and then afterward as well, I think it's great to see a company that is four years old, but clearly has achieved scale and is in the process of building a meaningful revenue business and eventually hopefully profits as well.

[609] Take this step and do this.

[610] They've achieved domestic scale.

[611] I'm very curious to see how they do international.

[612] as they really start to expand there because I think you know what we keep seeing Instagram copy a lot of Snapchat's functionality and if you're already an avid Snapchat user you often are not really compelled by the Instagram features you're like I can already have my network my habits but then you think about all these people that are in countries where Snapchat hasn't gotten big yet and now that's sort of question is will Snapchat ever get big in those countries since since Instagram kind of has a lot of that functionality now and they already use Instagram all the time.

[613] And I'm still bullish because I, I, this is one of those like, uh, sort of seed company bets where you just say, yeah, I wouldn't bet against that person.

[614] And like I want to, I, I, I have a lot of faith in their ability to figure that out.

[615] And that's why I feel about Evan Spiegel and, uh, the kind of leadership at Snapchat.

[616] But, um, I, I think it's important to like, note a risk that they've achieved domestic scale and we'll see how they do.

[617] Well, it'll be a very interesting S -1 to read no matter what.

[618] Yeah, the risks of the business section is going to be awesome.

[619] I'm curious, I don't think Microsoft is a shareholder in Snap Bank, but Alphabet, Google Alphabet is, as are several other strategic companies.

[620] I'm kind of curious, Brian, like when you guys have had investments that then go public, what do you guys do with the stock?

[621] Doc.

[622] Yeah, we depends on the situation, and we generally don't comment on what we do with it.

[623] And this goes back to the whole question around how and why we're doing strategic investing is selling a partner is usually a really difficult thing to do.

[624] And so we generally just don't talk about these things.

[625] And so, you know, people will ask, hey, you know, Facebook, if you sold your stock and we just don't answer.

[626] And it's for good reason, which is, you know, assuming we're under the threshold, of course, for having to be, yeah, then there's really no benefit whatsoever to talk, you know, talk about how we, how and what we're doing with those, those stakes that are put in place.

[627] Which is actually interesting, something that I didn't realize even until I'd been working in venture for quite a number of years, but I think most people don't realize about the VC.

[628] ecosystem.

[629] It's actually kind of the same thing.

[630] You know, when companies go public, like, it's not like there's a magic moment and, like, we sell all our shares.

[631] Oftentimes, we can even if we wanted to.

[632] And so you have VC firms that are holding shares of companies that went public long ago and figuring out, it's actually a big, you know, ends up being a meaningful kind of strategic discussion within VC firms for each investment.

[633] When's the right time to sell?

[634] When is the right time to sell.

[635] And we also have the complication.

[636] We can distribute the shares directly to our investors.

[637] So we can just give them the shares rather than selling on the open market.

[638] So that's another lever we can pull.

[639] We can we can hold, we can sell or we can give the shares away or give the shares back to our LPs.

[640] Is that LP decided or is that decided by the management of the VC firm?

[641] It's decided by the management of the VC firm.

[642] And then so the risk of, you know, the sort of LP argument, typically they want us to distribute.

[643] as fast as possible, because, like, hey, you know, that's our investment.

[644] We invest in you.

[645] These are shares.

[646] They're now liquid on public currency.

[647] We have people that manage public stocks.

[648] You should give them to us.

[649] Right.

[650] The tension, though, is if we do that and we think there's a meaningful chance that they might just sell those shares, then that can be detrimental to the company.

[651] If a whole slug of shares comes on the market at once, that can depress the share price.

[652] So it's a complicated situation.

[653] Yeah.

[654] Hot take, this is just today as we're recording this.

[655] Amazon announced Amazon Go.

[656] We got to talk about this.

[657] Yeah, so Amazon Go is a driverless drive -thru store.

[658] Is it my getting that right?

[659] Autonomous AI.

[660] It is all of these things.

[661] It's a grocery store here in Seattle that you walk into and there are scanners and sort of turnstile like things when you walk into the the store.

[662] You scan the Amazon Go app on your phone, and then it identifies you.

[663] And then once you're in the store, you just pick up anything that you want to buy.

[664] You put it in whatever.

[665] You hold it.

[666] You put in your backpack.

[667] You put it in your purse.

[668] And you just walk out of the store.

[669] No, no checkout aisle, no cashiers, no nothing, just automatically tracks what you picked up and you pay for it through the app automatically.

[670] Yeah, I don't know if this will work, but I I love, it's impossible to overstate how much I love Amazon's muscle for experimentation and ability to like do tens or hundreds of these sorts of things at once.

[671] And it's interesting.

[672] I'd love to know how big the team was that pulled this off.

[673] I'm willing to bet it's a lot smaller than you'd think.

[674] Yeah.

[675] What's also interesting, we don't know, but one of the cool things about how Amazon works is there are these small teams within the company that are focused on innovative projects that they're doing, there's a good chance this might be completely separate from the Amazon bookstore, which is in New Village here.

[676] Certainly it's a very different model of the store.

[677] Super cool.

[678] Love to see this innovation.

[679] I can't wait to it'll be open to the public in early 2017.

[680] I can't wait to go try it.

[681] Yeah, Brian, what's your take?

[682] You're going to check it out?

[683] I'm excited to go buy stuff and walk out.

[684] And see what happens.

[685] Feeling like I'm shoplifting, but it being totally legit.

[686] Exactly.

[687] Exactly.

[688] I mean, this is going to create all sorts of consternation for shoplifters.

[689] I mean, how they're going to get around this is going to be an interesting question.

[690] Yeah, I wonder into the product and the model for this, how much they thought about that.

[691] I mean, shoplifting is like a meaningful, you know, it's a meaningful cost to retail stores and grocery stores.

[692] This solves that problem.

[693] Maybe.

[694] I mean, obviously, if they have technology that solves that problem generally, you know, in theory, everybody who does retail is going to want to buy it.

[695] You have lots of companies, or I shouldn't say lots of companies, but a few companies around that have anti -theft, anti -shoplifting technologies.

[696] I did some work actually as an investment banker for a kind of called Sensormatic back in the day, which has some of those.

[697] And they have some that you put in clothes.

[698] And if you try and walk out, it does the ink splash across the clothes to ruin them, just like you find with bank robbers.

[699] They put on those ink things that explode.

[700] Others that just make the thing go beep.

[701] Um, but obviously shoplifers, uh, you know, have ways to still prevail.

[702] Yeah.

[703] Can't be artificial intelligence though.

[704] So there's an interesting question, right, with, with tech, uh, that, that Amazon's using here as to how they think this is going to work.

[705] Yeah.

[706] Um, all right.

[707] Carve outs.

[708] Yeah.

[709] So mine is, uh, for years now, maybe even a decade.

[710] Okay, Go has been producing really incredible music videos and upleveling their game every single one.

[711] So for anybody that remembers, I don't know, probably like 10 years ago, the treadmills video where it went totally viral and they shot at themselves in their backyard and, you know, there's people dancing and they've this choreographed.

[712] The band members having a choreograph dance on treadmills.

[713] And they uplevel their game over and over and over again.

[714] And maybe a year or two ago, they did this incredible drone shot one where it was, you know, the first music video that I saw that really took advantage of, oh my God, what if we have this?

[715] slowly rising drone go into the sky and you know you can see patterns formed by thousands of people on the ground all wearing different things and they've they've upleveled their game again so they're their new video for the one moment the entire video is shot in a super high frame rate camera and snap chat spectacles no yeah it's not it's not but it's um it's exploding paint and like bullets going through things and it's all.

[716] So is it like the matrix?

[717] It takes place in like four seconds, like the whole music video, but it's all super slowed down.

[718] And so you have like three minutes of, of super high frame rate footage.

[719] Oh, that's cool.

[720] And it all actually lines up with the words they're singing and the music.

[721] It's, it's really, really cool.

[722] That's really cool.

[723] That's really cool.

[724] Yeah.

[725] I got to watch that.

[726] Mine, which I alluded to earlier on the show, is UC Berkeley.

[727] I just found out about this recently and read it um they do this really cool uh oral history uh this program that does oral histories uh with people that have been um instrumental and kind of the development of the bay area uh and uh one of the aspects is business in the bay area and um they have uh don valentine who was the founder of sequoia uh and he founded sequoia in the early 70s he had been he was at Fairchild Semiconductor he was not part of the Trader Sate that I believe was the Trader Sate left where was it but they founded Fairchild and then he went to National Semiconductor and then he founded Sequoia but these were like this was the birth of Silicon Valley anyway there's this great kind of 75 page it's all a transcript of hours of interviews with Don and it's it's fantastic just to hear him talk about that history of the early days of the valley and the semiconductor industry, but also the philosophy behind Sequoia, how it started, how they evolved their thinking process about things and they're still among the best in the business and how they've evolved over the years.

[728] Really cool.

[729] We'll link to it in the notes.

[730] Cool.

[731] Brian, we know you've got one too.

[732] Yes, yes, I do.

[733] I find this particularly in light of everything that's going on right now in terms of the election is an article that O'Malloc published in The New Yorker about a week ago called Silicon Valley has an empathy vacuum.

[734] And I think it's just a really interesting thought piece for all of us just to think about how what we do affects everything and everyone else and whether or not there's more we could or should be doing or less that we could or should be doing relative to that.

[735] And that's relative to job displacement, relative to, you know, kind of changes in society that our technology can foster, such as how we're impacting journalism, you know, how we're impacting, you know, culture and communities and all sorts of things.

[736] And so it's really interesting.

[737] Yeah, it's a great piece.

[738] And certainly something I and Ben and I in the show have been thinking about a lot over the last, you know, month or so is, you know, lots of questions to be.

[739] asked, but I don't think we can, I don't think we should as a tech industry continue to operate just in ignorance of even trying to think about the broader impact of what we're doing, especially as we head into, you know, this age of artificial intelligence and, you know, all of the great things that are going to come from that and all of the social challenges as well.

[740] So it was a great piece by, by home.

[741] Yeah, and to just pile on, like, it's, I don't.

[742] recommend everyone read it for sure um something we have struggled with i think uh david and i and a lot of other people that that i've talked to in the last few weeks and even before the election um we celebrate a lot of the things that that technology does uh growth to hyper scale um being Instagram having 13 employees when it was acquired?

[743] In shock and awe of the, you know, the model, actually originally kind of created by Microsoft of incredibly high fixed costs, but then, oh my God, you can sell licenses to this software with zero marginal cost to the world at gigantic, enormous scale.

[744] And now with the Internet making that even more accelerated, yes, generally in the long term, more jobs are created after a single one or two generations of a gap by an advanced technology but it um as an industry we really do over celebrate these gains in the short term and really do not um come up with solutions for all the people that are are disenfranchised because of it and i think that uh this piece is really great i think we are about to have a self -driving truck huge change and if anybody looks at that that graphic that was floating around the internet about a year ago of truck driving is like the top job in 20 states yeah including California including California and like auto has just like acquired by Uber has just completed successful self -driving truck trips like it just doesn't feel like it'll be too long now can't ignore the consequences no no no and I I know I'm rambling a little bit on this, but it really, uh...

[745] We're glad you brought it up, Brian.

[746] Yeah.

[747] Our sponsor for this episode is a brand new one for us.

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[750] Yeah.

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[775] We're pumped to be working with them.

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[777] And when you do, just tell them that you heard about them from Ben and David here on Acquired.

[778] All right.

[779] Should you bring it home?

[780] Yeah.

[781] Awesome.

[782] Well, Brian, thank you so much to our listeners out there.

[783] If you aren't subscribed and you want to hear more, you can subscribe from your favorite podcast client.

[784] If you've been a long time listener of the show or maybe you're a new listener and you just want to help us out, we would love, love, love, love a review on iTunes or a tweet or a share on Facebook or any way that you can help grow the show.

[785] So thank you so much.

[786] Thanks for listening.

[787] Thanks to Brian and we'll see you next time.

[788] Yep.

[789] Who got the truth?

[790] Is it you?

[791] Is it you?

[792] Is it you?

[793] Who got the truth now?