Below is the transcript of a CNBC interview with Jim Breyer, Founder & CEO, Breyer Capital and CNBC's Geoff Cutmore. The interview took place at CNBC's inaugural tech conference, East Tech West, in Nansha, Guangzhou.
GC: Jim, so let's just get straight in to it here. I think a lot of people are very interested in raising money, in looking for companies to raise money for, there are a lot of people with just an idea at the moment, thinking about how do I take that forward. Give us a sit rep on the state and the health of the Chinese VC industry here, the private equity sector, as it looks at putting money in to technology. Because all these phrases are running around, the froth is coming off, winter is coming, and so on and so forth. How healthy are things here, in your opinion?
JB: Well, like any set of markets, whether we're looking at the public markets in the US today, or in China, there are segments that are extremely healthy. There are many more which are undergoing very significant valuation downdrafts, as well as consolidation. So, if I had to, at a high landscape, describe what's happening, we are no longer, I believe, in a market where people, by expectation, will consider 8, 10, 12% or more per year, many times after tax, to be a ballpark estimate of what they're trying to do for their funds, whether it's a private equity fund, whether it's a venture capital fund, whether it's an endowment. And I think what we're going to see, in December and January, is a more profound change in what expectation should be than we've seen, certainly since 2010. We must remember, a lot of the very best and successful venture capitalists, since 2010, perhaps graduated from college in and around then, and have had eight bull years of investing. IN china, it's been compounded by eight bull years where a lot of money came from R&D funds ,from state funds, and so there has been an abundance of capital with an abundance of opportunity, and these kinds of trends generally don't last, and in many cases they end badly.
GC: Clearly there is money for the right companies, I mean, as we sit here, Horizon Robotics just managed to find a billion dollars-,
GC: So there is plenty of money for the right kind of businesses, but how do we differentiate between the winners and the losers, at this stage? Is it by sector? AI vs robotics vs autonomous cars? Or is it just the nature of the business, and the principal who's running it?
JB: Well, I've been to China, this year alone, uh, for-, this is my seventh time, uh, this year in China, and I spend most of my time in China and the US, and most of my time looking at new investments, where the underlying platform is a set of artificial intelligence platforms and cloud services, provided by Alibaba, by Google, Amazon, Microsoft. I'd offer a couple comments. In the United States, the very best AI and machine learning talent is being recruited now as freshmen, at the top universities. That's never happened before. They are being recruited just like a pro basketball team will start looking at high school and first year students at college, they are getting enormous pay packages, they are encouraged to finish school, but these are the Messis, these are the LeBron Jameses, if you will, of the world of artificial intelligence. So, one of the trends we see in the US, the so-called FAANG stocks are recruiting the very, very best artificial intelligence talent, and they're not always working on the latest consumer web service, many oftentimes they're working on very specialized applications, Google and Apple both have significant AI healthcare opportunities that they're recruiting heavily for, in some cases out of medical school. These are gifted young individuals. And I try to recruit these same people, maybe a year later, or maybe two years out of Apple, Google, and Amazon, uh, where they want to change the world, they want to have a mission-oriented company, they have extraordinary talent, they are getting the equivalent of $400,000 or $500,000 annually, plus equity, they're 25 or 26 years old , and the goal is to team four or five of these superstars with-, I'll give you two examples, two medical AI examples. In one, we're teaming these kinds of individuals with four computer pathologists, who are world renowned, one of his students just won a Nobel prize, at Memorial Sloan Kettering, in New York, so you're trying to create, from the get-go, interdisciplinary cultures that were not attempted ten or 20 years ago. The good news, if we can make these work, get the great chemist, get the great breast cancer expert, get the best of the best computer scientists, to work together, and run algorithms against very defined datasets, Google, Facebook, Amazon, won't be building those kinds of vertically oriented AI products and services. This is human-assisted AI, which will help nurses and doctors give better diagnoses to their patients, and as many people in the audience perhaps know, you go in for testing, rarely will you get the test results back within ten days. There's no reason for that. With the advent of many of the new computer pathology reading techniques, that is clearly already being cut in half. So, as consumers of medicine and healthcare services, in many cases, we will be very significant beneficiaries, both from an outcomes standpoint and an efficiency standpoint, and a second opinion standpoint, in areas where they intersect. Finding the art to try to combine the great machine learning individuals with the great doctors, having them work on a congruent mission, that's part of the art of venture capital-,
JB: But that's in short supply.
GC: Sure. What is your advantage here in this market, do you think, over a local VC?
JB: Well, I've been investing in China since 2002, and I've had a team, IDG China, it is called IDG Breyer Capital, uh, since 2005, and there is not one senior partner that has left, in that time period, we have 110 professionals, 200 employees. We have just opened an office in Shenzhen, we have eight other offices, with Beijing being the headquarters, but we have an office in Chengdu, we have an office in Changsha , it all depends where the talent is. And, as a person very interested in history and culture, not only of China, but of the US, that's how these geographies tend to evolve.
GC: So, depth and breadth gives you more opportunity?
JB: I believe so, and we fight like crazy over the very best entrepreneurs. So, it's no different from Silicon Valley.
JB: When I was very lucky and fortunate to invest in Mark Zuckerberg, he was not yet 21. I had met Friendster and Myspace, and a third company, Tickle, within the past year, so I knew what I wanted in social networking, in 2005, and then tracked down Mark, we met in March, it took us a week of going back and forth on what kind of offer it would be, we went out for a dinner, I ordered him a pinot noir, he said, 'Jim, I'm not yet 21, no pinot noir for me, give me a month,' and shook hands the next day.
JB: And that's the nature of so many of the very best deals. We're seeing, right now, in silicon valley, a very clear evolving cycle of many of the best 35-year-olds, if you will, who have spent eight to ten years at Apple or Google or Facebook or Amazon, same companies come up again and again, they're leaving. And they might take a three or six-month break-,
JB: But they're not done with their career. In areas-, I had this conversation with two individuals who left Facebook, last week, and they said, 'We'd really like to make a difference in this next company we do. We think technology can make a very big difference in two areas. Healthcare, using AI, in some of the applications we talked about, and fintech.' And those are the areas where a lot of these alumni are going to be focused upon, and that's very healthy. The top seven to ten Silicon Valley companies, I know them very well, there's great depth. Jeff Bezos, Mark Zuckerberg, Tim Cook, they're superstars.
GC: Jim, let's move on quickly because we don't have a lot of time-,
GC: On this session. But there are some questions that I want to ask you, that maybe you could just address very quickly for me, because I know you've got some strong views around this. V Chain-,
GC: You're an investor in V Chain.
GC: What's gone wrong with cryptocurrencies, and is that tarnishing expectations around blockchain?
JB: Well, I think clearly, bitcoin and the other coins, are off-, over nine months, they're off 60%, and over a year, they're fairly flat, in many cases, at least bitcoin, November to November. There was clearly tremendous speculation, I made my first bitcoin investment in a company called Circle, and that was 2014.
GC: Were you too early, or too late? [Laughter].
JB: Uh, well, we're still private-,
JB: I always would rather be early, but the mistake I made for sure is being too early. But I think I divide the world of cryptocurrency in to those that have truly interesting underlying platforms, where parts of the rails are blockchain-based, and then others that are hoping to be a true commodity, and trade like silver. And the companies that I back, there are about 12, for better or worse, I ask them to focus very deeply on the technology, because, in many cases, I think we will have a cryptocurrency, fintech, set of transaction layers, which big banks, small banks, uh, between countries, there is no type of monetization that will not, in the future, take place, without very advanced-,
GC: So, the future-,
JB: Crypto technologies.
GC: It's coming, be patient, we'll see a rebound in sentiment towards these-,
GC: Can I-,
JB: But it's not coming this year or next, although we'll see isolated examples next year, but building the rails and the technologies, whether it's in the EU, whether it's, whatever happens with Brexit, the UK and its trading partners, every year we hear about a potential trading relationship, a new one, Russia and China, for instance. These take so much of the friction out of what is the traditional exchange rate, 7%, 3% like commission, and when I walk campuses, I'm on a student campus at Harvard, MIT, Cambridge, Oxford, Tsinghua, Beida here. Every three months, I'm on at least several of those campuses, and a lot of the trading is done electronically by the students and the post-docs. Here, in China, we're lucky to have Alipay, and other forms of electronic payment. The US is behind, Europe is behind, as well, but in a world, five years from now, where that is what the customer wants, those are very, very compelling opportunities.
GC: There is a-, as we look at the Google story at the moment, and I read this morning, 200 Google employees are upset about Firefly, this tailored version-,
GC: Of a search engine for the Chinese market. It continues to raise this idea that we're going to see the Chinese internet go in one direction, and Chinese technology in one direction, and the rest of the world will be heading off in another direction, without the kind of convergence that we might have expected, a few years ago. Is that how you see things happening? Or will something change, and we get these two meeting together? Because it seems any western company that says it's going to build a model for China immediately becomes a target for criticism.
JB: I see it evolving in that way, but I'm an investor, and so I wouldn't bet a fund on specifically one direction or another. There will always be changes. But if we look at it with wide open eyes, the last 20 years, 25 years, when I started making investments in the internet, in 1994, 1995, if we look at the outcome, it is a US dominated, US-centric, worldwide internet, with the exception of four to five Chinese internet companies, and that is-, it's almost astounding, it's at the system level, the semiconductor level, the hardware level, and, of course, at the consumer service level. And I think the Europeans, rightly so, when I go to Europe, twice a year, will say, 'We don't have a chance at this point, to outcompete Google and Facebook. Therefore, if you want to serve German customers, cloud services, the data, all must be within the boundaries of Germany.' I don't think that works, I think so much of our trade is global. I am what many people would call a globalist, and I believe global trade, and global technology sharing, is what's so important. At the same time, I have not seen this kind of bilateral discussion around evolution of standards on the internet, and given our political state in the US, and the political state of China, I see the Chinese companies, for the next couple of years, competing over India, but not necessarily competing very effectively, in the US, and therefore I see the very best of the best internet companies in the US trying to find pockets, or pieces, to get a foot in, in to China, which is acceptable. With great employee controversy, which they haven't seen in some of their long lives, but in ten years, I'm fond of saying, Breyer Capital, of the 20 top technology market caps of the world, I would like Breyer Capital to continue to be a significant investor in 18 of the top 20. Now, some of those might just exist in China, some of them might just exist in the US, it'll be a handful that operate in both, but that is my fundamental goal, and 18 of the top 20-,
JB: In 2027 will be internet companies, with some healthcare flavor, in the US and China. That's-,
JB: That's the bet.
GC: We've got to wrap it up, and I'm getting the signal over here, on the-, on my right, but I've just got a quick personal question for you. I have a 16-year-old daughter. Should I send her-,
GC: Should I send her in to AI? Or should I send her in to private equity? Which is the smartest decision?
JB: That's a very easy answer. AI, where there's a healthcare component, is, I think, with the bionomics, AI addressing significant healthcare outcomes, we've never had-,
JB: The patient data, we've never had the vision computing, or the algorithms, and my bet-,
GC: So AI, not P-,
JB: AI healthcare would be a much better choice than private equity.
GC: Terrific. Great to talk with you, Jim, thank you.
JB: A pleasure.
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