This is Masters in Business with Barry Ridholds on Bloomberg Radio Today. On the podcast, we have William H. Jane Way, better known as Bill Janeway. You'll hear his whole curriculum VITA in a minute, so I won't go into the details on that. Uh. For those of you who are interested in technology, venture capital, the history of financing, you are about to sit through a master class in angel investing, VC technology, how the world has developed to fund speculative innovation, the proper role of government, of the private sector, of the public markets. This is really a fascinating conversation, a tour to force. I'm not exaggerating when I said we have another eight pages of question. I could have kept going for another hour of half, but I promised to get him out of here fifteen minutes ago and we still ran late. Um. He is tremendously insightful, with an enormous breath of experience and thoughtfulness about what it means to be a successful early stage investor in technology and other fields. I think you're gonna find this to be an absolutely brilliant, insightful, delightful conversation. So, with no further ado, my conversation with Bill Janeway. This is Masters in Business with Barry Ridholds on Bloomberg Radio. My special guest today is William Janeway, better known as Bill. I think he is the most important person our listeners may never have heard of before. And that's only because some of the things we're gonna talk about are a little inside baseball. But let me give you a quick walk through of his curriculum vita. He is currently a managing director and senior advisor at Warburg Pincus, where he helped to develop their Technology Investment division. Princeton undergrad got his PhD in economics at Cambridge ultimately became the co founder of the Institute for New Economic Thinking that he co founded with George Soros. In two thousand and twelve, he published a fascinating book called Doing in a Capitalism in the Innovation Economy, and we're gonna talk a little more about that during our conversation. He also helped to fund and create b e A Systems. Is that an accurate way to describe that? And we'll spend some time explaining how he a cash investment of a little more than fifty million dollars became a six point five billion dollar payout a few years later. There's so much more stuff to go over. We'll we'll, we'll get into it as we go. William Janeway, Welcome to Bloomberg. Great to be here, Barry so I said as in the introduction that many of the lay people listeners may not know who you are. But let me give a quote from your book by Mark and Reason. UH currently a VC at Andreson Horowitz and essentially the person who invented UH Netscape and and really created the modern browser and the modern form of the internet. And Reason said Bill Janeway is a key creator of modern venture capital, and he tells an amazing story of the intersection of economics and innovation. This book is essential to anyone who wants to understand technology and how it's creation will be financed for decades to come. That's That's quite the endorsement, isn't it. It's a great endorsement. I have a great regard for Mark, and he is one of those rare people whose transition from building a business operationally, which of course he did at Netscape and then opswhere, to being a success will investor. It's a hard frontier to cross. So let me ask you a simple question, and I'm curious when people ask what do you do? How do you respond to that? Well, it depends on which morning I wake up. Some mornings I wake up and it's a hundred percent Warburg Pincus. It's working with my younger colleagues defining investment opportunity or thinking strategically about where there's a hole in the market for innovative technology. Sometimes I wake up and it's a Cambridge University day. I'm deeply embedded in the economics department at Cambridge, which is playing a key role in creatively responding to the global financial crisis of two thousand and eight, which woke up a lot of minds, a lot of economists who have been living in a kind of fantasy world of perfect expectations and efficient markets. So that's another part of my life, and that, of course, is where the Institute for New Economic Thinking comes in and and sometimes I'm very much involved with the Social Science Research Council, a not for profit based here in New York run by a great social scientists named Irak cats Nelson, and where we're creating an environment where economists can feel comfortable interacting with other social scientists rather than playing at being sort of physicists because they've got the math, and so these different lives intersect and they keep the neurons talking to each other NonStop. You know, I've long said that economists have suffered from physics envy. You know, physics and astrophysics. They can land a rover on a comet a billion miles away. Economists don't quite have that practical application of their models. Something you've been critical of and said economics needs to move from a theoretical practice to something more practical. Well, here, here's the problem. Economics is just so much harder than physics because look, the molecules. The molecules don't have consciousness, they're not aware of what they don't know. But every human being, except for maybe an extremist who might be running for president, wakes up in the morning knowing that not only does she not know what the consequences of her actions are going to be, but nobody else does either. And frankly, that is the lesson I deeply learned when I was a graduate student at Cambridge studying under the students of the great John Maynard Keynes. The central thesis of Cames's economics was making decisions that you have to make about committing money, whether it's to household goods or investment in new stuff, where you know that you can't know what the return is going to be, so people do the best they can, and all too often the result is a mess. That's why to us in an eight to me for economics and for everybody dependent on economists, two thousand and eight was the gift that keeps on giving a wake up call. To say the least, it taught us humility about what the great hyak cames as rival and friend called the pretense of knowledge we pretend we know in our models more than we can, and bringing back into the reality of decision making under uncertainty and how that scales up into failures of coordination. That's what new economics is about, and that's why I'm so thrilled forty years after I left Cambridge to be back involved in economics, having spent that time making decisions under uncertainty about information technology venture capital. You're listening to Masters in Business on Bloomberg Radio. My guest today is William Janeway. He is a venture capitalist and author of the book Doing Capitalism in the Innovation Economy. I want to pull a quote out of the book and discuss something you had written some time ago. The innovation economy emphasizes the strategic role played by the state and by financial speculators sources of investment unconcerned with economic value. Explain that a bit. So when you're operating at the frontier, you're making investments in new stuff. Maybe it's building railway networks, maybe it's putting fiber optic cable in the ground, or maybe it's trying to find out what this new stuff is good for. The one thing that you share with other investors at the frontier is you don't know what the return is gonna be. You can't. You can you can run a spread street. Anybody can run a spreadhet. Those are those are really assumed numbers, and you know, when you start out with that basis, who knows where it goes. So if investment that the frontier is limited only to where you have a really high degree of confidence that you're gonna make a profit, you're not gonna have very much investment. So there are two forces that historically, this is his this is history, this isn't theory. Historically two forces have collaborated, have intersected. One is governments driven by political missions, legitimate missions that transcend cost benefit analysis economic calculation. Manifest destiny is what we called it in the nineteenth century when we took nine percent of the land mass of the lower forty eight states and gave it to a bunch of railroad promoters who criss crossed the country with railroad lines on the basis of which came Railway Express and Sears Uh Sears, Roebuck and cantal Monk created the the the mail order retail economy, created a national market. The state moved the technology building that network out to the point where speculators could fund the exploration of what to do with that. They mobilized capital on a scale that those rational, careful green eye shade investors would never have done. We saw exactly the same thing in the ninety nineties when we built out the Internet and we had, you know, two hundred dot coms that went bust, but we were left with Amazon and Google and eBay. Amazon took two point two billion of cash investment to get to positive cash flow and transform the retail economy of the world. You could only do that with speculative money. That is investing to get out in time before the bubble bursts. We can talk about bubba. So let's talk about bubble right now. You mentioned railroads. They eventually be am a giant boom and then collapsed just a handful of survivors. In fact, every major technological innovation, it seems there's a huge boom, it reaches a point of speculaive excess, becomes a bubble, and then collapses. Whether it's cars that were a hundred card manufacturers at one point, what are there now three or four in the United States and a couple of dozen worldwide computers, radio and television, and of course the internet. Is this the nature of technology that boom bust cycle. Well, first, the first thing, the first law of bubbles is wherever you have markets in tradeable assets, from tulip bulbs to beach houses in the Nevada desert. Wherever you have market, you're gonna have hurting behavior. You're gonna momentum investing. You're gonna have people who, just like today with the unicorns, are motivated by fomo fear of missing out. And by the way, when you have professionals managing other people's money, if they don't follow the bubble, they get fired, the money gets taken away, so somebody else does. So bubbles are banal. There are indogenous, they are ubiquitous. Everywhere you look in the history of finance you find bubbles. But not all bubbles are the same. So before we go into how bubbles differ, I have to ask you a question. I'm going to assume that you believe Himan Minsky was correct. Well, you know, Himan Menski was a mentor of mine during the thirty five years when I was totally immersed in venture capital investing on the side, I kind of kept my mind open, listening and looking for people who for thinkers, who who who wrote and analyze the world I was actually living in and I met Hi Menski in about two We bonded he was out at Washington University. I read his books. I wrote some essays for him when he moved east and was at Bard College at the Levy Institute, I used Tom up for his conferences. He had a tremendous influence on me. And of course, in two thousand and eight the world rediscovered the most neglected economists of the second half of the twentieth century. I discovered him through Paul McCulley, who has been a guest on the show and I know for many years from his days of PIMCO, briefly explain Minsky's primary economic thesis about stability leading to instability. Minsky's thesis the the evolution of the UH, of the movement from the conservative, prudent UH system to one of crazy, wild speculation that self destruction goes like this, and and and let's remember Minsky was really applying this to the banking system, not to the stock market. But there's an analogy. So I lend you money, Barry. I lend you money, and you not only pay me back the interest on a timely fashion, but when you owe me back the loan, you pay me act the loan out of your own income, out of money you've earned. So guess what you want? Another loan? You got it. And this time you know, I don't really care. I trust you. You keep paying me that interest on a timely basis. And if at the end of the day we got to roll over the loan, we gotta refinance it. Well, we've just moved from what from what Minsky called the first the hedged environment, where you're paying the loan back out of cash flow, out of earnings, to the speculative environment, because there's a risk, there's a risk that the market may not be so acceptable when it's time. But it's still it's still pretty solid in its business as usual. But then, and this is what happened in two thousand and seven. Then people have been making so much money making these loans, they feel really comfortable lending you the third loan. And this time, you know, you wake up one morning and things are a little tight, and you call me up and say, you know, yeah, I know, I owe you this interest payment, but it would really help me if instead of paying you cash, I pay you in kind. I give you a little more of that debt. This is called pick loans. Payment in kind, another word to recapitalize the interest and the previous principle. And you're rolling the whole loan over again. And the signal that you're in a banking bubble which is going to blow is when the lenders start lending the borrowers the interest to pretend the loan is still good. That's exactly what happened in two thousand and seven. You're listening to Masters in Business on Bloomberg Radio, My guest today is William Janeway. He is a venture capitalist, author and managing director at Warburg Pinkis. And we are discussing how you helped to create b e A Systems, which is a technology company that really integrat rates databases with the Internet. Is that a gross over simplification. B e A was created in the mid nineties and became the company that delivered the platform for running important commercial applications, applications that involve people spending and collecting money across the Internet with millions of simultaneous users. Companies now owned by Oracle. It's the core of Oracles platform technology today, which is called Oracle Fusion. But b e A, beginning in the mid nineties through the mid audies, was a pioneer in transforming the world of transactional computing, of commercial computing from being dominated by IBM everything on an IBM mainframe to being distributed out across millions of separate machines interlinked by the Internet. So this this allowed the transition from mainframe to server. And and so that's such a weird name. B e A Systems would be a stand for well in at Warburg Pinkers, we we had created an investment thesis that it was time the technology had evolved to the point where IBMS dominant control of the marketplace where it could charge enormous premium prices, that that was was vulnerable, and that around the commercial world of enterprises you were seeing client servers Sun Systems running Oracle databases was opening up. So we began a program that that went on for a decade of investing in the way I like to put it in frankly, and kind of helping IBM become just another competitor. So in the middle of that process, um I was introduced to a felic called Bill Coleman. Bill had run UM the core software, it's Sun micro Systems. He had actually been working for Eric Schmidt and and right, and and Bill had a great idea sons sons mantra was the network is the computer, So Bill said, if if the networks the computer, the network needs an operating system like a computer does that that allocates and manages all the different resources. And he connected with a brilliant young engineer named Alfred Twang and a seasoned commercial sales and marketing guy named Ed Scott. So Bill and Ed and Alfred had this idea that that they could, with enough capital and enough time, build software that would effectively replace IBM's core transaction platform. So we began having conversations in the autumn of ninety four, and you know, I said, you know, guys, I I get it. I get the vision. We've been thinking about this ourselves for five years. You guys are incredibly landed. But before we set down to to build something's gonna take three or four years, gonna cost a ton of money. Why don't we see if we can cheat. Why don't we see whether there's stuff out there that could play this role but is owned by people who don't know what to do with it. So we actually launched the e A with Bill and Alfred with the working title it's like, you know, working title for a play bill Out and Alfred b e A. We did it as a research project, first to evaluate all the existing technologies that were available, and then to validate that there were real markets, real markets with real customers that could buy into alternatives to IBM. And we found this technology that had been developed in guests where Bell Labs A T and T and Bell Labs A T and T in those days when it was a dominant communications company basically had to give everything away that it wasn't using in communications because of the monopoly rules. Exactly. Well, that was that became loosened. But before then A T and T sold its Unix Systems Labs. This is where the Unix operating system was, and this is where this core technology called Tuxedo was. They sold it to a little company called Novel nowhere competing with Microsoft, run by a guy called Ray Norda who was dedicated to fighting Bill Gates to the death. So he bought this technology which was super complex, big heavy duty stuff. You needed engineers surrounding it into a company that that told everything in a red box at a computer land store. I used to say, you know, I'm not well unless they can microminiatureize three systems engineers and put it in every red box so that they can come out and dance and make it work. So in any case, Ed Scott had a long conversation with the new CEO, Bob Frankenberg. Bob Frankenberg had come from HP, he knew enterprise computing and he knew that Novel and Tuxedo didn't mix. So we put together a deal which launched the e A by acquiring the Tuxedo technology and having it in the hands of people Billonette and Alfred who knew what to do with it. So that was a fifty five million dollars was we we We had already bought a couple of consulting businesses by this time. We had we had committed because we knew we were gonna be buying stuff from scratch. This was the innovation. We created what we called the line of equity, not a line of credit, a line of equity. So we priced out fifty million dollars up front, and so when the guys went into Novelle needing to do a deal, they didn't have to say, hey, Bob, don't do a thing. We'll be back in six months when we raised another round of venture capital. We were there with them. We could do the deal in real time. That meant in a year BA was running at a hundred million dollar revenue base could go public just in seven as the Internet bubble started to take off. But Tuxedo wasn't designed for the Internet. And this was the genius of Bill and Nett and Alfred and Bill and Alfred, the technology guys really came together. They did a search for technology that was that was Internet native, and they found a little startup called web Logic. So web Logic was already a hot company even though it was just beginning to ship stuff, just beginning, and the valuation happened it before it will happen again. This is what a bubble starts to smell like. The valuation for the startups started rising and rising, but so did the stock of b e A because we've been able to go public. Well you did it Beego public? And what sort of value sen to go public at? Well, initially it was at about a two dollar valuation and that's so that's a pretty good return on fifty five million and we didn't even have all the million in yet, But by that valuation was up to a billion, which was a very good thing because the Bye web Logic it took a hundred and fifty million of shares of stock and if we hadn't had the public market valuation, couldn't have done it. So how long after that did it take to get to six and a half billion, Well, first it took it took about a year after that to get to a billion dollars in revenues, a billion revenue. That's a real company, that's a real company, very profitable, becoming the standard. And with the bubble, with the bubble and the stock market valuation went to twenty five billion. So who ends up taking b e A out when everything is well? First of all, the public speculative stock market, war Paying Kiss owned after the I p O. Warburg pink Is still owned more than fifty percent of the company. And when we were the Soul funders, Soul funders through this line of equity. So we began distributing our shares to our limited partners. The shares were fully tradeable, completely liquid, and the stock kept rising as we were distributing the shares. And so that's where that's six and a half billion of realized value came from distributing shares into a rising market. And you know, we talked about high mensky. I My my senior partner, John Vogelstein, who was the chief investment officer at Warburg Pinkers, was a great student of markets. And I bat Way back at Cambridge, had written my PhD thesis on nineteen nine to nineteen thirty one in Britain. So I'd seen, if you like, I'd seen the movie before. I've seen the stock market bubble of nineteen twenty nine. When our c A. She took the stock price chart of our CIA from twenty six to nine. It looked like b E A from nine six to and that's all you needed to see. We knew it was a bubble. We knew it wasn't gonna last. We knew we'd built a real company, but it was time to realize the value that we've created. You're listening to Masters in Business on Bloomberg Radio. My guest today is Bill Janeway. He is a managing director at Warburg Pinkus, an author of the book Doing Capitalism in the Innovation Economy, as well as a venture capital investor. Let's let's dive right into the VC process. We were speaking earlier about B e A systems. What's the decision process like when you're doing more traditional sort of venture investing where someone brings you a company and you're interested in it. There may be other investors, other vcs or angels participating. What's that process like? Well, I think we want to frame this in thinking about venture capital as an industry. So to begin with, this is not a very old industry. It's about nine eighty when it went from being a craft practice by people. We could get them all in this room, I promise you, the founding and entrepreneurs, but American research and Development, Graylock, ven Rock, J. H. Whitney, um Warby Pinkins was a founder of the National Venture Capital Association. That were barely twenty five firms in the country that were founders of the NVCA, But one of the venture capital has been studied intensely through empirical analysis, and there are a few stylized facts that emerge over these thirty five years since nineteen eighty. The first is there is tremendous kew in the returns of venture capitalists, meaning a small number of venture capital funds have fantastic performance, a large number have very mediocre performance. We see something very similar amongst hedge funds, and not quite as skewed, but still there is a a shifted distribution most private equity as well. Now. Second, and this has been confirmed right through two thousand and ten. Unlike most public market investors, there is persistence in the return. So it's not just a few funds, it's a few firms. So performance of firm one helps predict performance of firm of fund to fund three and that's why you have these iconic names and well, uh, Benchmark and Sequoia, these firms have been successful over decades um So. Third, however, for the industry as a whole, for the me infirm, the returns are very closely correlated with the public market because there and that's that's where we're going to come to a very interesting change in the last fifteen years. It used to be that we could take in the eighties and nineties, we kind of take access to the I p O market for granted each year. And this is frankly, this is my own research when I went back to Cambridge and became a financial economist again after thirty five years as a venture capitalist. The correlation is really tight with the state of the I p O market. In a hot I p O market, venture capitalists look like geniuses. When the market cools down and the exit opportunities shrink, then the returns And since two thousand, venture capital returns have been just for the for the average, have been just about what you get from investing in the nest AT index, where you also have complete liquidity. So this is a stress, This is a strain and a lot of people are concerned about this. Do we have do we have too many vcs? Is there too much money slashing around? Well, there certainly is a lot of money slashing around, but you don't have to think about the technology the environment for innovation, and that's changed too. So back in the eighties and nineties, if you wanted to build a new I T company, talk about biotechnology separately. If you want to talk about a new I T company, to get to the first dollar of revenue, you have to be thinking ten to twenty million dollars of complete risk capital. You had to you had to build a company from scratch. You had to have your own hardware, your own software, develop your own servers today, and your own by licenses today. You could pretty much do that with off the shelf stuff. Well, it's open source with free stuff and renting by the or what. I was talking to an old friend of mine, an old timer who goes back then and is doing a new startup, and he's building some software for investment banks how to pull together all the data they need for spreadsheets. And I said, so, Chris, when you get this to where you can actually start chipping it to a customer how much it will it have cost you? He thought for a moment, he said, you know, sixtys it would have been ten to fifteen millions years ago, when lots of startups. When I was about to say, when people are a little negative on the future of the country, the future of the economy, when I go to certain conferences and and I go to this thing on the West coast in San Diego, of all places that are these young entrepreneurs right out of college, my mind is blown at how innovative and forward looking a lot of these new technologies are. What we're playing off is the maturation of the digital internet infrastructure, spilling over into the open source software, the cloud computer. It is a golden age for innovating and developing new digital services. Obviously we all talk about Uber and Airbnb, but there are twenty more a week now. Let me let me interrupt you there. If you have a longer perspective, if if for the people who are waiting for the US economy to collapse, isn't this the antidote to that? Aren't we going to see a boom in new services, new technology, new apps. Hasn't the whole app economy just completely changed the game. Based on what you're talking about, it's ten or twenty thousand dollars or free to to change the world. Well, and it has all sorts of impact. You know, it changes what kinds of jobs are available, it changes what time, the terms of employment. A lot of people think that in this world you can't rely on your employer for healthcare. We really need to expend even more the social safety net so people can afford to play in the gig economy, whether it's a uber driver, or whether making deliveries, or whether writing software for a startup, writing code for open source. So it has a lot of social impact. But you're absolutely right, You're dead right. Innovation isn't over. It's on a roll, and it's really just ramping up your building on decades of innovation that have made so much things, so much stuff cheaper and more available. And in fact, again taking a long historical look back, it took you know, fifty years from the invention of the microprocessor to get where we are today. Well, going back to that railroad age, it took fifty years from the Baltimore and Ohio Railroad to get to Sears Roebuck. Going back to the age of electricity. It took fifty years from Edison turning on the Pearl River, the Pearl Street Power Plan in New York, the first generating station to where you could have a a mix master and a refrigerator in every middle class home in America. And oh, by the way, you could have manufacturing factories where you could just move the machines around and reconfigure the process and create tremendous increase in productivity. What what's the significance of that fifty year? It takes a long time to first make the new stuff reliable and ubiquitous. How much of that is it takes a generation to grow up just assuming Hey, electricity, Yeah, I could do stuff with that. There's a lot to There's a lot to that, Barry, there's a lot to that. Um. There's another aspect of it too, however, and that is that it takes time to explore wastefully what this stuff is good for. You. Remember we started out talking about decisions under uncertainty. Why we need a mission driven government to to to subsidize the railroads and initially create the Internet, and why we need speculators. It's because we don't know what's gonna work and what isn't we gotta try and try. I like to say the innovation economy proceeds by trial and error and error and error and error. It's learning by doing. There's no roadmap that is given from on high that tells us how to get there at the frontier. It's a lot easier for somebody who's playing catch up. But why not playing catch up? My friend Dan Gross wrote a book called pop Why Bubbles are Good for the Economy Ill and his thesis is railroads, radio, television, computers, fiber. He said, if it wasn't for global crossing and Metromedia fiber that laid thousands and thousands of miles at hundreds of dollars per mile and then ultimately it's pennies per mile out of bankruptcy, you don't end up with YouTube and Google and Facebook and all these other things. That exactly right. So so in the last minute we have you you mentioned, and we'll we'll get a little more into this in the next segment. In the last minute, we have what is the proper role of government in fostering this sort of speculative innovation. Well, government isn't good at picking winners, but it's good at enabling competitive entrepreneurs to become winners funding science and also, and this WEE can come back to, it's not just providing research funding, it's being a customer and early supportive customer for stuff that is not yet ready for commercial prime time. If people want to find information about your writings or or what you're doing doing, capitalism in the innovation economy is available at bookstores and at Amazon. Where else can they find your writing? And Amazon outlet near you, and they can also find me. I've written for Forbes, i write UH for Projects Syndicate, and I'm pretty visible on the on Google. And thanks good part to Bloomberg Television, Tom Keane and Surveillance and UH and now with Barry ridhlt UH. If you enjoy this conversation, be sure and hang around for our podcast extras where we keep the tape rolling and continue chatting. Be sure and check out my daily column on Bloomberg View dot com. You can follow me on Twitter at Rid Halts. I'm Barry Ridhults. You've been listening to Masters in Business on Bloomberg Radio. Welcome to the podcast extras. We've been speaking with Bill Janeway and in case I forget to say this later. Thank you so much for doing this. This is fascinating stuff. I am just holy entranced by the intersection of technology, finance, and economics. And that's a space you know, really really well. There's so many questions I did not get to. But before I even get to my favorite questions, let me let me go back through a few things that I blew through and might have missed. By the way, be e a sist is that I get the numbers right. The initial investment from Warburg was fifty four million dollars, and then the distribution two limited partners was six point five billion in less than a decade, about six years later. Is that right? That's right, Barry, that's an astonishing number. I hope you were one of those limited cards, right. I assume that's a fair statement that. Uh do you ever look back and say, if only I put another hundred grand into that, it would have been worth bajillions. One of the things I've learned over time is good enough is good enough? There you go, that's the right, that's the right attitude. You know, the would have could have shoot a philosophy will just eat away. I know people who constantly kick themselves my my, my, my wife. We met as partners in the firm where we both worked before I joined Warburg Pink. She was an investment professional and her boss had a great saying because somebody would come to him and say, you know, you know, I knew we should have we should have recommended that stock. I knew we should have, and he said, you know what, put it in the retrospect fund. That's the one where nobody ever loses any money. That's right, and everything they pay. You know, I'm I remember writing getting my hands on the first iPod, literally one of the first iPod and writing it up. And at the time, many many splits ago, Apple was fifteen with thirteen cash. You're risking two dollars and the guys I knew board of fifteen and they sold it at twenty and they were thrilled to death. And I can't tell you how often you see a stock like that. But the reality is, no one's going to hold it for a thirty seven thousand percent run. Think about how many drawdowns Apple has had over that period. Most people have no choice but to get but to panic out. There's no other way. Well, this is what we were talking about. We were talking about bubbles. We talked about Minsky in the banking system bubbles, the stock market bubbles, and and and this is something that I think is is really important. Bubbles are you, big buddess? Bubbles happened everywhere, and you can think about them in two dimensions. One is, where is it taking places that the banking system highly leveraged when it blows up, it blows up the economy, or the stock market very little leverage when it blows up, the world doesn't come to an end difference between two thousand and two thousand and eight bingo. But the second dimension is what's the object of speculation? Is a toolip bulbs? Is it those beach houses of the Nevada desert, Or is it some kind of technology that if it's deployed at scale and if enough exploration, enough trial and error takes place, it really can change the world. It can create a new economy. So that's why the lecture I give today mostly is called productive bubbles, separating out that small number of this phenomenon of this crazy irrational speculation, which again and again for the last two hundred years has been responsible for moving us from the Malthusian economy of misery through the railroad age, the electricity age, the automobile age, and now the Internet age. That you would think the Malthusians would give up the ghosts, but they seem to be perennially forecasting doom and gloom even though the genius of human intellectual capital is this never ending parade of even though it began his wartime technology. You look at at innovations, it all goes back to how can we become a better finding machine a thousand years ago? It's now trans transposed itself and become something entirely different, which leads me to a really fundamental question I have to ask you. So you get your PhD at Cambridge in economics, how did that turn into a career in venture capitalism? That's not the typical route. Well, I'll tell you what happened. I studied, as I mentioned briefly, I studied on Derrick Kanes's directs students. I'm what they call, you know. They have post Kinzians and Neo Kaanesians and new Canesian's. I'm a Paleo Kanesian. I'm an old Kynesian. I took to heart the core message of Canes in the general theory and the other writings, which was, first of all, decision making under uncertainty. Nobody knows the future, and everybody knows that nobody knows the future. I would challenge a lot of you on that, because I think a lot of people believe either they know the future or experts, economists, analysts have a good sense of the future. But you're singing my song. I believe no one has a clue what's going to happen, and they spend most of their day lining to themselves that they do, and then they wake up one morning and it's two thousand and eight or it's nine. That's when the uncertainty meme raises its head, when people start saying, well, things are very uncertain. No, no, we you just realized temporarily that you don't understand what's what's going to happen. But then take that one step further, take that one step further. So I'm worried about the future. So I want to save more money. Okay, I want to save more money. And by the way, you're worried about the future too, and you save more money, and all of a sudden, everybody saving more money. Paradox of thrift coordination failure. Each person individually does what's rational, and the result is a systematic mess, which which makes perfect sense and also raises the role of government. Two, During periods of a collapse in private sector business household demands, the government should temporarily step in and and fulfill that, which is eventually what the United States has done most crises, but didn't really do it this last crisis. At least it did some. It did more than Congress wanted to do. It could have done more, as the president's advisors begged him to. But in any case, but where we get there, Before we get to the policy message that there's another aspect. There's another aspect of this. Why I left academic economics because the third piece is economics by nineteen seventy had fundamentally come to be about how do we allocate resources efficiently? How do we eliminate waste in the system. Now you need two assumptions for that to be the case. First, all resources have to be already fully employed, so you're just it's a question of moving to the most productive application of labor capital natural resources. And second, coming back to where we began this whole discussion, you have to know what the return on that next investment is going to be in advance? Can you really do that? Well, I in nineteen seventy nine seventy there were jobs available at the best economics departments everywhere because frankly because of the federal government, because of the response to Sputnik, the federal investment in higher education, huge increase in graduate schools. And I had a real heart to heart talk with myself, having been immersed in kains and uncertainty and ignorance and coordination failure, was I really going to be capable of teaching these naive and innocent young minds that we all know how to allocate resources efficiently, that the problem of economics is just about efficient allocation, that we can assume that all resources will always be fully employed. And I said, I can't do that. I said to myself, I can't do that. So how did you How did you morph from an academic economist too a pragmatic investor in technology. Well it happened by way of a very unusual firm. Now, this is back in the old days of Wall Street, when there were hundreds of private investment partnerships in Wall Street. They were all subsidized by being members of the New York Stock Exchange. Back then, brokerage commissions were fixed. Monopoly profits were available, so you couldn't compete on price, but you competed for business. There were usually three ways to compete. First of all, we all went to school together. We all went to St. Grattle, Sex together. Second, the three Bees, Booze babes and baseball tickets. That was literally how you would you would attract four brains. Donaldson, Lufkin and Jenrette the LJ had created the idea of the research based brokerage firm doing fundamental research. That that was a new innovation that hasn't always existed, did not always exist, and it was it was It grew up with the rise of institute sational investors who would pay for research by directing brokerage commissions to the firms that provided smart guidance. So the firm I joined was one of those research firms which had a very distinctive style. It focused only on the science based industries chemistry, chemicals, pharmaceuticals, electronics, and this new stuff called computing. But you come with a economics background, you don't have a science or undergraduate what was your background? I did I did not have a technical background, but pretty good reader, and I learned, actually as an economist, about this new computing stuff. In V three we had the first oil crisis. The economy went into freeze free fall. Simultaneously, inflation went up, unemployment went up. That wasn't supposed to happen. The models, the first econometric models, all broke down, and I went in search for people who are trying to make sense of this. I found some guys at M I T who were building simulation models of the economy, not purely statistical models, but what are now called agent based models, where you could watch an artificial economy evolved. And I got it. It just hit me like a ton of bricks that computers were not just flexible typewriters or quick adding machines, that they were engines for exploring systems that were too complicated to model in simple mathematics, and I fell in love with computing. I then discovered by way of the getting involved and understanding the first wave of artificial intelligence. I found my way out to Xerox Park in uh Palo Alto, California. This is in the seventies nine. I spent as many nights after dinner, hanging out there watching the future unfold, seeing things lie um mice for controlling a computer. Steve Jobs got the tour of Xerox Center two years before he was So why didn't you start Apple? The graphical user interface, the mouse, there's a the network, the dot matrix and uh ink jet printer. There's a run of things that that is just an astounding like a T and T labs. But that but that was how. That was how I made the transition and and became immersed in learning the technologies, learning enough about the technologies to be able to talk to entrepreneurs in their own language, and to see the world in the course of the eighties to see these these these highly special technical styles of computing that we're used by engineers and by academics begin to grow in scale and reliability. And that led to this sense by none ten nine that these technologies could spill out of the laboratory and come into the big markets for commercial computing. That's how we got to be e A. How did you How long did you spend on the West Coast? How long were you out there for? Well? I I spent probably a week to ten days a month for thirty five years. I had three million miles on American by about and uh we we we um when I I should first say that the world of Wall Street was changing through all this pict brokerage commissions go away, commissions start to decline fundamental research by the mid nineteen eighties. You can see two paths forward. One, it becomes a commodity because you can't afford to pay the smart guys, they're going to the buy side. There are people like Ben Rosen, who was a great computer analyst at Morgan Stanley creates seven rows in the your capital firm. So there was a migration of the real talent. Uh So, either it becomes a commodity or you need another subsidy. If the subsidies investment banking, it's not a commodity, it's prostitution. So we sold the firm in night five to a great British investment management firm called Robert Fleming. Our firm was called f Ebberstat sold it to Robert Fleming in eight five. I served out my contract as part of the deal, and the I had the great opportunity to join Warburg Pincers and to help build this technology investing at Warburg pink You really created that. At Warburg they didn't have much of a technology footprints or am I overstating that, well they we we No, that's not quite fair because, for example, Warburg Pinkers was one of the founding investors in Gartner Group back Gideon Gartner, another one of those great sell side investment research analysts who got the message and created one of the great advisory firms. I was gonna say, that's not a technology innovation, that's really a alright, someone's leaving to do a research independent company play. But it gave you. It gave you a view of what was going on in technology, and there were some really smart people. But the center of gravity of the firm was was not doing these relatively earlier stage, risky technology investments. So you moved them down downstream to a much or upstream to a much earlier stage. The Lionel Pinkus and John Boglestein were great entrepreneurs. They were pioneers of private equity broadly defined from venture capital through growth equity investing. In nineteen eighty six they had raised the first billion dollar fund that anybody had ever raised. WARBURI Pinkas was always large relative to the industry. And given that they decided that we ought to explore investing in technology as Warburg Pinker as a lead strategic investor, rather than following other people. What was the billion dollar fund they had raised initially? What was that for? Was that was for the same breadth of investing, investing in emerging growth companies, investing in turnarounds, investing very occasionally in buyouts, but very broad. Warburt Pink has always had a very broad expanse investing contrarian to what the stock market thinks is the great thing to do. So when did the first pure technology early early stage funds come out of Warburg Pinker. Well, we always invest out of one fund. It's one fund, we invest across it. And that means that when markets changed as they did in we could be realizing the investments in technology while putting new money into energy at twelve dollars a barrel, so we could move against markets within un fund. We've we've always invested from one big fund. The actually the first, the first real technology investment that we lad. There were there were several, the first really early stage it's a company called Level one. Remember Level one, I'm thinking that Level one. Level one was not unrelated with silicon optimized for communications and particularly for digital communications for d s L. Warburge was a big broadband in between what we have today and and the twisted copper playing a whole telephone. When I got to warburg Pin because we made a small investment with some other investors um and the first go round, the first customer had been acquired by IBM and basically closed down. So we had a choice. We could either restart but if, or just give up. But if we and and and the leadership of the company with an outstanding scientist named Bob Pepper who would work very closely at r c A. Starnoff Labs, with my new partner, Henry Crissell, who was himself a great applied physicist and also a great investor. So we took a deep breath and we said we're gonna restart Level one behind Bob Pepper, make a second effort and focus on making it possible for the plain old fashioned copper wires to carry data at a high enough rate so that you can actually interact with a computer, not just you know, push a button and have a cigarette wait to see what happens. And so this is still pretty early stage stuff. This is not this was this was a restart of a startup. So it really was a startup UM, but we had tremendous confidence in Bob Pepper. We helped bring up a board of really strong people. UM. Some years later into wound up acquiring the company for more than a billion dollars. Really, let's talk a little bit about Intel, because you mentioned that vcs really blossomed in nine eighties. But my recollection of National Semiconductor and then Intel and that whole line of companies that starts in the like early nineteen sixties, well, Butt Nick and all that is where Kleiner, Perkins and some of the other big vcs traced back to. Well, getting the timing, there's it's it's an interesting history. So American Research and Development a R and D. The great General George Dorio starts a R and D in the late nineteen forties, takes them about five years to scrap together a few million dollars out of the Boston Trust industry and makes a bunch of investments, none of which really worked very well, but put seventy thousand bucks behind an engineer named uh Ken. Oh my God, I'm blanking. No, No, that's Bob Neiss's Intel. No Digital Equipment Corporation, Ken Ken Ashman, No, We're gonna look it up. But filling in um that becomes seventy dollars becomes hundreds of millions of dollars. Digital Equipment is the in a way, the first truly great technology investment out of a R and d uh. Some of the youngsters got some backing from the Watson family created Graylock Ventures. This is still in the sixties. And then on the other hand, an extraordinary entrepreneurial stockbroker named Arthur Rock follows the New York Giants to San Francisco in the baseball giants in the end of the fifties, and he puts together the financing for Fairchild Semiconductor with Sherman Fairchild, the industrialist. That's why it was called that those were the geniuses, the treasonous six. I guess seven who left Shockley. That was Bob Nois and Gordon Moore and by the way, you go fajen uh. And they started what from Fairchild, which then begat Intel, And that's when Silicon Valley begins to be Silicon Valley. And by the way the book. I don't remember the Intel book. I don't remember if it was Um, I'm trying to remember who wrote it, or it's not the CEO of Intel, but it was someone who was Andy Grove. It wasn't Andy Grove, only the Paranoid survivor. But it's the history of Intel, which is really a discussion of the early history of venture investing. I remember that was a fascinating read, but it was It's important to remember this was a craft. These were a tiny number of firms, half a dozen, tiny number of individuals. There were a bunch on the East coast. East Coast tended to be family offices like ven Rock, the Rockefeller family, J. H. Whitney, the Whitney family UM and the West coast tended to be these new partnerships. But even as late as nineteen seventy, the model, the business model hadn't been established. So there was a guy called ned Heiser in Chicago. He started the front. It was a corporation and had some preferred stock, which was what was owned by the limited partners and had the preferred return, and the common stock, which was in effect that carried interest, was owned by the general partners. When Warburg Pincus was went from putting deals together on a case by case basis, you know, was some entrepreneurs in one room and some rich family representatives and another and created its first fund in nineteen seventy one. Uh wear EM E MW Ventures was forty forty one million dollars. Lionel used to say, it was all the money in the world, and it was set up as a corporation and they took all the money down on day one. Despite that, it generated net to the investors through the nineteen seventies when the stock market was a disaster. If they'd taken the money down step by step the way we all do today, it would have been so there was an experimentation, trial and error going on about financial innovation. Venture capital was an institutional innovation which by nine eighty began to reach scale because of a regulatory change. What was that? What was that change? It was under the law that governed pension funds, the Ariskle Law, the Employment Retirement Investment. Well, originally when it was first established, there were very tight rules about what pension fund trustees could do with the money that they were responsible for. They had to be very conservative. The amendments to the regulations in seventy nine created a kind of safe harbor. You can take a portion of the pension fund and a little more risk seeking, and that enabled pension funds to start investing in venture capital. Before that, it had been wealthy families, and it had been a few university endowments, but it was very limited capital. After night, the capital began to open up, and then in eighty three the I p O market opened up. Between seventy three and eighty three, there were just a couple of windows. One window. December nineteen eighty Apple goes public, jan Entech goes public. Then the Great Federal Reserve Chairman Paul Boker sends rates to I p O stop It reopened in eighty three. We thought, hey, we thought it was a bubble. What did we know? But from seven it must have felt like it. After fifteen years in the desert, a little bit of water, it looks like actually very well put barry so. But but there were real returns and a whole wave of new companies that began to go public, and the validated the venture capital model, particularly around it also around biotech. Now biotech biotech shares with I T the same dependence on long term government investment in research. You can't you can't just do this bootstrap it. You can't just pull a bunch of things off the shelf. This is really complex, sophisticated, expensive research to create a company, well to create the science on which you company can exploit for a particular application. But there's one big difference, fundamental difference between biotech and information technology. In biotech, when you sit down and say we're gonna try to apply this molecule to cure that disease. If it works, if you get through the f d A, you know what the market is. You know it's big. And one way to think about this for investors, early stage investors is, you know there are two states of the world. We get to the FDA, we make a gazillion dollars, we fail, we lose everything. Half a gazillion sounds pretty good, right, half a gazillion, of course, But the fact that the market risk is low, even though the technology risk is huge, is what distinguishes biotech from infotech and information technology. The market risk is at least as big as the technology risk, whether you're building the infrastructure or whether you're exploiting it. With these new applications and solutions. How many dot com babies went bust? How many of the unicorns today are going to wind up lying down and falling over after their mark to reality. Let's talk about the unicorns, and we mentioned how much money is out there slashing a round. Do we have a technology bubble? We have a unicorn bubble. We have a unicorn bubble, meaning the most desirable companies everybody wants to get. Here's what's really weird. This has not happened before. This is unique. Here you have major investment firms, you know, Fidelity, t Row, who are paying public companies that normally own publicly traded equities, and they have been paying valuations that are higher than the comparable valuations of already public web services companies. They're paying premium. They're paying a premium. Now. In the old days, back back when there was no I P. O market in my prior life, we raise capital my old firm at Eberstat back in the late seventies for emerging growth companies that were already profitable that we're growing and we and we valued them at below the public companies because there was no liquidity. Because my my question is why I was about to say, why it's strictly driven by the liquidity factor. Well, the premium paying premium for illiquidity is the one thing you know is it won't last. It won't last. You can every bubble, and the Unicorn bubble is is a bubble. Every bubble has a plausible story somewhere under the hood, right, Well, the narrative always gets you to suspend your irrational self because the narrative is so compelling. Even the south Sea Bubble, the south Sea Company was going to take over all the trade to South America as the Spanish Empire collapsed. But this time the story is very plausible because with the Internet matured as a medium for distributing and consuming services with zero cost and and just incremental renting the cost of run in it, the reach the potential scale of these new companies appears to be limitless. So you have the appears to be limitless, but we know nothing real well, but so you have these examples, you have these proof points. One of the jokes, one of the lines people use is um it's motivated. The Unicorn bubble is motivated motivated by fomo fear of missing out in pursuing the next FAGA, Facebook, Apple, Google, Amazon. So the for the time being, as long as these companies have access to what appears to be limitless capital, so they they're avoiding too marks to reality. There are two ways these these valuations will get marked to reality. One is they do an I p O. You know, you get a price every day, and you know, the joke is the I p O is the new down round. You know, look at school. I do not know that, but that's very funny. And and the other is sooner or later, positive cash flow is corporate happiness. Sooner or later. If you have a sustainable business, you're gonna be paying your bills based on what your customers give you, not what your investors give you. And therefore you have an objective way to mark the valuation relative to earnings. And we're gonna see which of these companies are able to monetize the usage that they're generating in order to generate positive cash flow. Doesn't have to be a lot. Amazon doesn't generate a lot of positive cash flow. But you and I know that Jeff Bezos has about fifty three different levers he wants to generate cash. He just tweaked, you know, tweaks uh free shipping another buck on Amazon Prime. He's got an infinite number of ways because he's got a real sustainable business. Amazingly, his investors have allowed him to take twenty years to be profit free while building out what is now one of the most valuable, disruptive businesses in the world. And he has been He's been a genius at exploiting the opportunity to maximize growth subject to minimum positive cash flow. And I think it is because people appreciate that he can generate more cash flow. He can trade growth for cash flow any day he wants through a dozen different levers. So you you mentioned Amazon. Not too long ago, Tim Cook was on sixty Minutes and he mentioned, they're not that far away from the billion iPhones sold. Stop and think about a billion of these at five hundred bucks apiece. No wonder that the biggest and wealthiest company. We could talk about Facebook, we could talk about Google, but I know I don't have you all day, So I want to get to some of my favorite questions that I asked, and and we we skipped enough questions that we could do another hour. But let me let me work through some of these, because um, these are what really hangs some meat on the bones. So you mentioned going to M. I. T. And seeing what they were doing with economic modeling, and you've mentioned another number of people have been influential. But I have to specifically ask who were your mentors? Who are the people who really shaped your intellectual philosophy. I'd say there were three. First of all, there was the founder of the firm I joined soon after he died. His name was Ferdinand Everstadt. He was probably the greatest unknown American of the middle of the twentieth century. Really in nineteen twenty nine he wrote nineteen He wrote the the Young Plan that was going to save the world from reparations and war debts blown up by the depression, by by the crash of twenty nine and the depression. But during the war he ran industrial mobilization for World War Two on a dollar a year. In between, he started his own firm and created the first mutual fund after nineteen nine, the first fund investing only in the science based industry. That's why it was called Chemical Fund. After the war, he wrote the National Security Actor nineteen forty seven, which created the Defense Department. He was a public private financier, public servant. I knew him from when I was a boy. He was a great Princeton alumnus. He was one of the funders of the original Woodrow Wilson School. He taught me about this intersection between Wall Street and Washington, this dynamic play between private and public sector in a positive way. Lawrence lobbying votes factly, how the collaboration between the two could create a great country. Second mentor was Ed Giles. Ed Giles gave me my shot at every stat He was one of the greatest investment analysts in history. He had three business cards, Chemical Analysts, director of Research, and President. He only used the chemical analyst card. He taught me about going deep, really understanding the dynamics of the industry, whether it's chemicals or computing, in which you want to play a role in in finding investments, in defining investment opportunities. And then the third. The third was an extraordinary man named Fred Adler. Fred Adler in the nineteen eighties, nineteen seventies and eighties was an iconic venture capitalist. He was a lawyer, he was a turnaround artist, a crisis manager, and he was a venture capitalist. And Fred Fred had an unusual personality. Um he Uh. He was very tough, very tough with people who worked for him. Uh. He had funded one of the second of the great mini computer companies, Data General. He built a firm, He built a firm Uncle. Data General became a huge company absolutely, and Fred put the money together financing together for that ten years later, fifteen years as after Arthur Rocket put the money together for fair Child, semi same kind of way. Um. Fred taught me about how to understand the internal dynamics of a business followed the cash Fred, you had these had these pillows made up that said corporate happiness is positive cash flow and used to throw them at his entrepreneurs. In between yelling and screaming at him. I used to tell him that the only compliment he ever gave me was that he never offered me a job because he but but the guys who found an Axcel one of the great firms in the world, they were they worked for Fred back in the in the early nineteen eighties. So Fred and I collaborated. We created a number of companies together. One of them was emerged as Life Technologies, the the company that provided the tools for all the people doing biotechnology. So that was my third mentor before I joined before I joined Warburg Pinkas. So so these are mentors. What about investors who influenced your approach to investing? You mentioned Keynes as obviously a key influencer. I think a lot of people don't realize what a great investor he was. Kaine's John Maynard Keynes was was a great investor. Um, I didn't know him personally. He died when I was three years So I was gonna say what other investors, well, Vogustin John Boglestein was the founding chief investment officer and president of Warburg Pinkas. John was a great investor. He hired me, he gave me my shot at Warburg Pinkas, and he had, as I say, in extraordinary knows from markets and he was he was one of the fundamental contrarians. And so he helped me understand that, you know, being patient looking for where the world isn't looking building new businesses or there's a It actually ties very closely to Kines. There's a wonderful passage in Kiness general theory where he talks about how the value the price of shares in the market has an inevitable impact on investment activity in the real economy. He says, it makes it makes no sense to start a new business if you can buy one on the stock exchange more cheaply than it would cost to start it. Kane's this is the ninety six He saw the LBO business in advance, and then on the other hand, he said, it could it could be worthwhile to take an extravagant amount of money to invest in a startup like b e A if you can float it on the stock exchange for a profit. So this dynamic feedback between what's happening in the stock market and what's happening with real investment from John Maynard Kin's to John Vogelstein and my experience is a seamless web. Those were my mentors. How about books aside from your own book, and I could tell by your writing that you've read quite widely. What what are some of your favorite books, whether they're about investing and venture capital or anything else. Well, of course, the general theory changed my life. It's why I went to Cambridge. It remains an enormous UH reservoir of insight and understanding about people making economic and financial decisions. Hi Minsky's book UH it's got a terrible title, Stabilizing an Unstable Economy, But boy, if if you if you'd read it before two thousand and eight. And by the way, and Tim Geitner's memoir, my partner, Tim Geitner, who's president at Warburg broncas now he talks about how, having been immersed in the in the Asian financial crisis of the late nineties, he read Minsky. So he was prepared intellectually for two thousand and eight in a way that most policymakers were not. Uh. So Minsky's work tremendously important. The There are two books that I've read recently that I would recommend to everyone. UH. They're not they're not directly economics books. One is UH. It's a book by a young historian called Jonathan Levy. It's called Freaks of Fortune. Freaks of Fortune. It came out last year, and it's about how during the nineteenth century in the United States we involved evolved a whole array of new institutions for dealing with the risks and uncertainties of an industrializing economy, adopting British patterns of maritime insurance to insurance of UH for railroads UH and right through the creation of credit unions sharing financial risk. It's a tremendous book I really recommended very strongly. And the second one, the second the second is a book that I literally just finished reading yesterday. It's called Liberty and Coercion. Liberty and Coercion. It's written by a historian named Gary Gerstel g E. R. S. T. L E. He just moved from the United States to Cambridge, England as the Paul Mellon Professor of American History. It's an extraordinary exploration of the dynamic, contradictory intersection between the federal government, whose powers were enumerated listed in the Constitution, and the state governments, which inherited the more or less unlimited power of the British police power the British state. So that even while the federal government is limited by the by the Um and the Constitution and the Bill of Rights, the states could tell you whether you can own another human being, who you were allowed to marry, whether you could own a home. The power of the state was effectively limitless. And this conflict that of course exploded in the Civil War. Then after the Civil Rights amendments, the States struck back and segregation was entirely a function of state law. Then with the Great with the New Deal and the Great Society, the thirty years of the exertion of federal authority over the states, and then now the counter thrust against it under the Robert's Court. So this is an extraordinary Very little attention has been paid to what goes on at state level in the US, but for citizens and non citizens in America is what happens at the state level is at least as important at the federal It's a great book. It's amazing when you step back and look at things through a longer timeframe, how these phases and faints and counterfeits become so obvious that you don't see in the day to day operation. It's true for markets, it's true for history. If there's one thing that I feel that I've had an unfair advantage of because of the education I had, it's being able to bring to the immediate situation, whether it's a dot com bubble in two thousand and eight, or whether it's the global financial crisis two thousands, of the global financial crisis in two thousand and eight, it's a longer term historical perspective that crosses over from economics to politics and backing. So so let me digress from my questions and ask something I did not want to skip. So, Cambridge a couple of years ago just celebrated its eight hundred year I think it was twelve or six and twelve o nine. Um, so it's been around a couple of years. You're not only a member of the uh CO, chair of the eight hundred campaign for the University of Cambridge, but you funded an endowment for research in finance at Cambridge as well as creating a um U k US connection for for research on both sides of the Atlantic. Tell us what you want to accomplish with that that endowment and and what the impact of that has been. Well, when I went to Cambridge on a Marshall scholarship in nineteen sixty five, just exactly fifty years ago, the four years I was there just changed my life um and and and getting reconnected with Cambridge as I did UH in the in the nineties, in particular at a time when and a major change was going on in Britain and had already been going on in the US from the end of World War Two through the nineteen eighties into the nineteen nineties, Cambridge and the other great British universities Oxford. Of course we're essentially funded by the government. They were essentially national institutions. But just as the state universities in America in effect over the course of fifty years, have been privatized, so that state legislatures are responsible for less than ten percent and declining, and probably most of that goes for the football coaches salary, most of that for the worst, say the least. Um. So this idea of the of the university, of a national or a state university is a public good was being dismantled. Cambridge, with this incredible history, you know, from Newton to Darwin to Krick and Watson to Keynes, the the you know, probably the source of more original thinking that changed the world over the last five years. UM, Cambridge was discovering that it, too, like the American universities, was going to have to depend on private philanthropy to supplement, if not replace, the money that had been coming from the government. So I got involved as as an American and knew something about philanthropy. After all of your principal alumnus you know about fundraising, UM and and and at the same time, internally, Cambridge was going through some internal reforms towards a greater degree of professionalism in the leadership, the academic leadership, and the governance of the university. So on the one hand, given this deep history of Canes and and my perception somewhat ahead of the time, I have to confess that finance and economics are one discipline in that they what goes on in the stock market, goes on in the real economy, goes on the banking system. All of that needs to be brought together. That's why my wife and I initially funded the Cambridge Endowment for Research in Finance. But it was really joining forces with an extraordinary woman, Alison Richard, had been Provost of Yale. She became Vice Chancellor of Cambridge at the start of the new millennium and we launched. What I said to Alison, we should present this as this is the first fundraising campaign for Cambridge since Henry the eighth knocked off the monasteries. It will not be the last, and it isn't. We completed that campaign. We raised more than a billion pounds. Nobody had done that in Britain ever before. We didn't only raise money we raised consciousness. We raised consciousness among alumni, among leaders of other universities. It has to be some alumni association. You think about all the people have come out of Cambridge, that's that's quite an illustrious list. But they spent two three generations where if you ask somebody about giving some money to Cambridge, the answer would be, hey, I pay my taxes. So building a culture of philanthropy is a generation's long process. That's amazing. Now Cambridge has launched its second campaign two billion pounds double or nothing. They got thirty billion pounds to catch up to Harvard and Yaleen's they do they do that? You would think they had an eight hundred year or year head start. Well, some of the endowments to college endowments go way way back, did didn't Cain's actually manage some of the Caine manage the money of King's College, that's right, his college and uh and and by the way, Cambridge now has a very well managed professional endowment fund, which I'm pleased to say over the last year two has done at least as well as Harvard and Yale at Princeton Um. So the money that's given to Cambridge is very well taken can care of. And the breadth of the um donations and the breadth of the professionalism of fundraising at Cambridge in the last fifteen years has been tremendous. It is, it really is a great achievement. Celebrating the emergence of Cambridge's own revival of post two thousand and eight economics, My wife and I just made another major contribution million dollars for a professorship in financial economics and a fund for economics which will guarantee that the pore research funding is perpetuated. It's an endowment, not spend down money. And that's and that's at Cambridge. That's at Cambridge. So what do you say to Princeton when they come knock. I've I've also First of all, of course, Princeton is the richest university in the world per capita. Is that true? Yes, I had no idea. And second, we also, celebrating my fifty three union at Princeton, have funded a pro am in financial economics at Princeton, which I'm delighted to say has has taken root. So given all this education, let's let's talk about the students who are just graduating. The millennials, and soon there's going to be in another generation behind them. What advice would you give to someone coming out of school today who's interested in economics and venture capital and finance. What, Because it's a different world today than when I started, and certainly that from when you started. What sort of advice would you give someone who wants to go into your field. Well, first of all, the world is very, very competitive. It's more more competitive than it was. It's more open, there's more access, and that's that's unquestionably a good thing. Um. I I speak a bit as a father, a very proud father of my twenty six year old son who went to Oxford as it happened, the great university, shame to the family. On the contrary, and an Oxford has a wonder full program of philosophy, politics and economics PPE and our son was Sperversity of Pennsylvania. It's so funny you mentioned that that that's its own specific thing. But but that advice would you give him? And what advice would you give other recent graduates? I'd say one one bit of advice is um combining a really open mind, really reading and reading broadly, with a willingness to get down to work. I mean one of the one of the things that just has thrilled my wife and me about our son is that he just loves to get dug into doing real work. Academics, yes, but actually real work out there, um, doing his apprenticeship. Um, So looking for opportunities two whatever the job may be, but learning how too. As Woody Allen said, showing up is half the battle. Showing up on time, doing the job you're asked to do, and then looking for what more there is to be done. That somebody is absolutely but also as I say, reading and thinking about the context in which you're working, not just going down the line. Because the way things have opened up so much, there's so many diverse possible opportunities. UM. But I do respect, I do recognize that it is it is so competitive today that um, there's no there's no guaranteed road. Um. You know, Thomas Edison said, perspiration ten percent inspiration. The perspiration really matters. But but but the informed mind can can confind opportunities for the inspiration too. And and then my final question, and I'm going to change the date on this, what is it that you know about investing today that you wish you knew fifty years or so ago when you left school. That's a very very good question. Um, I think I learned, Um, I think I learned how important? Well, this is something I learned from my mentor at Giles. I used to say, a winner is somebody who knows what to do when he's a loser. What's the backup plan? What's the hedge? What's the cash in the bank that you the the extra resource that you have that lets you survive when the world goes against you. There's a quote that's attributed to Cains. Nobody can ever find in any of his writings that the market can remain wrong longer than you can remain solvent. Um, So I can remain in irrational far longer than the average investor can remain solvent. That's right. And so I would say that it's the it's it's it's thinking in advance about what you're gonna do. What's plan B, what's plans to see? What are you gonna do when the world goes against you? When you plug it in, it doesn't light up? Um, how you going to ride out the heart? Touch? Right? That's right, Bill, Bill, This has been absolutely fascinating. I know, I promised i'd get you out of here fifteen minutes ago, but I just couldn't stop. We've been speaking with Bill Janeway. He is the author of Doing Capitalism in the Innovation Economy, as well as the managing partner at Warburg Pincus and a co founder of the Institute for New Economic Thinking. If you enjoy this conversation, be sure to look up an inch or down an inch on all of our previous on Apple iTunes so you can see all of our previous conversations. I would be remiss if I did not thank my recording engineer Reggie, my producer Charlie Volmer, and my head of research, Michael Batnick. You've been listening to Masters in Business on Bloomberg Radio.