You can read a brief transcript of part of the discussion or watch the full interview below.
Q: Many people say a market correction was needed for some time. Are you optimistic about the next 12 months, or do you see more weakening in the market?
I agree with the overall premise that, clearly, the market got way overheated. We tend to forget about, every 10 to 20 years, our lessons learned. We repeat it with the dot-com bust, etc. Whenever there's too much funding going into too few opportunities, you heat up the opportunities and people got funded that probably shouldn't have been, or people were encouraged to spend at a pace that was unrealistic for the long term.
These corrections, even though they are so painful, especially for those of us who might lose a job, or lose an investment, are so important in terms of our ability to recreate ourselves. The key takeaway is technology is no longer a separate cycle. It is integral to every business, whether it's automotive, healthcare, or finance. As this whole world goes digital, which is happening with tremendous speed – and you combine the AI and cybersecurity factors – there's no better place to be investing long term.
I would say this is a great time for company creation. The main reason is company building is a marathon, it's not a sprint. Great companies are created during tough times. When public markets are at their peak, stop investing. When public markets go down, start investing. The main reason is, if you're investing at the peak of the market, you have to pay higher and higher and higher valuations. Eight, ten, twelve years down the road when you must exit, are the markets going to be triple? Are they going to be the same? Or are they going to be one-third? Entry is very, very important.
When downturns happen, like what's happening, the agile companies, the companies which are starting right now and the companies which have the right burn rate are going to survive. You can't just sustain your business on free money from VCs and public market investors. You've got to make money. You need to be sustainable and be a built-to-last company. I think this is a wake-up call for companies whose bond rates, especially late and mid-stage, were out of whack.
“Technology is no longer a separate cycle. It is integral to every business. As this whole world goes digital, which it's going to with tremendous speed, there's no better place to be investing long term.” – John Chambers
Q: There is a lot of startup consolidation happening right now. Do you see these being done largely for talent, for the technology, for geography penetration? Which do you think work the best?
I think a merger of equals for startups is very hard. Basically, the way we are advising startups is first and foremost, get your own business in order. Make sure you can be a sustainable company.
Once you have that – focus, focus, focus. Look at your products, your people, make sure it's clear. Are you going to be the controlling CEO? Or is it going to be somebody else? Because this idea of co-CEOs just is very, very hard. It doesn't work. Culture and values are very, very important. At the end, people build companies.
We all know you can have any strategy, but culture eats strategy for breakfast. When you set out to make an acquisition, make sure you know your North Star as the acquiring company.
But I do see an increasing trend among private companies acquiring other private companies. I think that will continue because today's private companies are much larger, they're better funded, they’re in the later stage, if you will, and they have the capacity to do acquisitions of smaller startups that we otherwise didn't see in the past. I do think that we will see more of those going forward, not necessarily just out of desperation, but out of strategic value and growth potential.
Q: Which industries are you focused on? What do you think is going to happen over the next one to five years?
I think this is going to be the most exciting decade in technology by a factor of two or three-fold from what we've seen in the past. If I were placing bets big time today – which I am – I would bet on AI, and I would have bet three or four or five years ago on AI. I would be focused on cybersecurity. It's unfortunately going to be a key element as we move forward. I would think very much about how companies truly go digital and the implications of that transformation.
There is a lot of opportunity. Think outside of tech and computer science. Go look at fundamental innovation that's happening in biology, chemistry, and physics. Take the learnings, what happened in IT, and go solve big problems. It's all going to come together. Whether it is bioengineering for human and planetary health, plastics, sustainability, it's all a biochemistry problem. Let's go solve physics problems. Let's think out of the box. AI also came from a lot of those things. It's not just neural networks, this, that. There's a lot of psychology that goes in. Let's get back to basics. The things which were ignored are coming back.
When you look at organizations such as Fairfax, what we are looking for is what is the next digital transformation, what is the next deep tech company which we will co-create or collaborate and work with. I think there are three key trends which we’re looking at in the world.
The first one is Darwinism. It's not the strongest of the species which survive, but the ones which are most agile. I think as you look at VCs and startups post-pandemic, the new normal is how will you be more agile and how will you adapt? The second is carbon – we are looking at complete decarbonization or energy transition in the world. There's $30 trillion betting on how we can get ourselves to 1.5 degrees by 2030 or beyond. Can we look at decarbonization, energy transition, and what do we focus on that? The third leg of this is de-globalization. De-globalization of the value chain, of the supply chain. We look at companies which are focusing in digital and deep tech to enable these trends.
Then we collaborate and co-create and partner with these companies. More from a business side, not necessarily IT. But we can enable companies with revenue growth, cost optimization, and customer experience.
[Discussion transcript slightly edited for brevity and clarity.]
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