That episode… the 50th, the big 50. We go back to the past and look into the future: was 2023 as bad as it gets? Is there some good or silver lining in front of us in 2024? These and more questions answered in our recap and looking forward episode.
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Nuno
Welcome to episode 50 of Tech DECIPHERED, the big 50, 5-0. Today, we will do a recap of 2023 and what to look forward to in 2024. Although this is actually not really our 50th episode, because of how we’ve done the numbering scheme over time and we’ve changed it back and forth. Let’s just call it our 50th episode and celebrate and take advantage of that. 2023, what a hell of a year, Bertrand.
Bertrand
Yes, indeed. What a hell of a year. Maybe we can start about the positives of 2023.
Nuno
Yes, that would be fast. No, I’m kidding.
Bertrand
Good news is that I’m not sure if it’s fully behind us, but definitely COVID-19 is mostly under control. It feels less in the news these days, either mainstream media or Twitter. It looks like people are back to a more normal life, back to getting the flu or whatever cold you might get, but at least it feels like a cancer-distant memory, but less impacting our daily lives.
Nuno
We put COVID-19 behind us. I was just watching or catching up on a TV series, The Good Fight. They did this funky thing starting, it’s season five maybe, which is literally the whole episode is like a previously on, but we never saw that. They basically did a whole year into 50 minutes of an episode, and they presented it as previously on, as if we’d watched it before, which we have never watched it, which is very funny. It was actually scary. We were scared for our lives and what was going to happen next. That was 2020.
Nuno
Then 2021, we started rebalancing and things started looking a bit better. Last year was like, “Oh, let’s just go back to the normal world.” This year, we’re full throttle. It’s the big vindication. Everyone’s travelling a lot. I’m sure it’s going to be a mess over Thanksgiving. We’re close to Thanksgiving right now. Everyone’s back to travelling. COVID is a little bit behind us. Some people are taking booster shots. Have you taken your booster shot yet, Bertrand?
Bertrand
I have.
Nuno
I have as well.
Bertrand
Flu shot.
Nuno
Flu as well. Yes, cool stuff. Some may have not, I’m pretty sure. Some people are getting COVID again, but things do seem to be under control. That’s a big, heavy burden that we’re not really inside anymore. We’ll see what happens in the next few years. Fingers crossed. I’m knock-on-wood type stuff because honestly, we can’t declare victory.
Nuno
The second very positive thing is, besides we did talk about recession. We talked about economy imploding. It really did not. It’s been an up-and-down year, but the economy did not implode. If something economic activity has now picked up again and there’s no signals of recession, and again, fingers crossed on that, which I guess is good and bad. We’ll come back to the bad in a bit, but it’s mostly good.
Bertrand
Yeah, it’s good news. The question is why, obviously, and can it still happen? Definitely, I came in this year with a more negative outlook, at least for the US. Because if we talk about some other countries, some other countries might have a pretty bad year, actually. At least in the US, it has been surprisingly good so far, at least on the surface.
Nuno
Overall, pretty positive. We’ll see the numbers by the time this is launched. You guys will know the numbers for Black Friday. We don’t know them yet, but I’m assuming they’ll be great. In some ways, we’re back to consumer is one-on-one. We’ll see if inflation is really under control or not into the new year. Definitely, it was a positive year in that respect. We didn’t really have a huge crisis. Us, as consumers, have come back to the table, travelling, consuming like the good old American way. The rest of the world is following suit. Everyone’s doing that.
Nuno
Then maybe the last third big thing is, it’s been the year of AI. Obviously, we’ve had a couple of episodes on generative AI, and we’ve demystified a bit, so we won’t spend a ton of time on it today. Recently, we’ve also had the whole OpenAI debacle. As you were saying, Bertrand, the whole Steve Jobs done in five days instead of years. [crosstalk 00:04:01]. The Gen Z version or millennial version of, “I’m out, I’m not out, I’m out, I’m not out.”
Bertrand
It’s definitely raising a very strong question of governance. What went wrong in a surprising way, given the talent of the people involved, and maybe in an unsurprising way when you know that trying very untested new type of structure that didn’t really make sense in the first place indeed don’t really make sense in the first place.
Nuno
Yeah, I’ve been in a structure like that before, like a non-profit on top that owns a for-profit that is significant. It’s very difficult. You have high dependencies on a very well-functioning board on top. If that doesn’t work out, it’s not great. I’m sure there’s other reasons behind it. We don’t know probably the story or the whole story yet, if it’s just the board, if there were other dynamics around it that we’re not fully aware of. It seemed amateur hour throughout the five days of social media back and forth, and it was live news. They might have well streamed it. I saw someone making the comment on Twitter, on X saying, You should have just streamed it on Twitch. It would have been easier. We could have just followed it. It would have probably been the most watched show recently.
Bertrand
You could do a TV show where every season is one day.
Nuno
Exactly.
Bertrand
Of what happened in real life. A new version of 24, I guess.
Nuno
A new version of 24, like a real-life version of 24. Back to the positive AI has changed everything. It’s been the year of AI. Despite the market in general around startups having cooled down quite a bit, the AI market is still continue going through the roof. A lot of interesting things happening, a lot of noise as well, a lot of things that are maybe not as great as all of that, but certainly very, very positive. We’ve hit our first year of AI is here. It’s here to stay and there’s going to be a tremendous amount of innovation going forward. Incredibly positive.
Bertrand
We just saw, the results from Nvidia and it’s clearly amazing. They are firing on all cylinders. I’ve never seen a company that size exploding like this in terms of revenues year on year. We’re talking about 200%. It’s just amazing.
Nuno
Overall, may be the last positive in our world of startups and venture capital. Obviously, it’s been a cooler year dramatically in terms of fundraising for funds, startups as well. It’s not fully imploded. It’s not nuclear winter. It doesn’t feel like end of 2000, 2001, 2002, 2003, there’s still activity. You guys are investing and startups are still raising money. It’s been overall positive. It really hasn’t been nuclear winter.
Bertrand
I think that if 2022 might have been more a nuclear winter, it didn’t feel that way in 2023. I don’t know if I would call it positive or maybe it’s more neutral that business is done.
Nuno
It’s positive versus what we expected. Certainly, I expected, for example, valuations to come down a lot more. Maybe it’s negative to us as investors. Maybe valuations should have come down a lot more. Maybe they still will. It wasn’t that bad, certainly for entrepreneurs and startups, and that’s great.
Bertrand
Yes, in a surprising way. Maybe should we go to the negatives or the neutral next?
Nuno
Yes, we’re going to spend a bit of time there.
Bertrand
If we go on the negatives, maybe we go from the bigger picture, some of our macro picture as well. We still have a war in Ukraine, in Europe, and a new one in Israel. It’s pretty scary to have this. If you are pretty young, you might feel the world coming to an end. The older you are, the more you feel back to what you used to know. A world more full of uncertainty from a macro perspective and some lack of control.
Bertrand
Obviously, very sad just to be clear what happened. It’s beyond belief that you could have terrorist activities of that level. From Hamas, I am in full support of Israel about what’s happening. We hope and pray for the best possible outcome for everyone involved. Israel, of course, with the right to defend and people of Qatar.
Nuno
A war of the scale of Ukraine, obviously with the Russian invasion or attempted invasion, we’ll see where that ends up, was already a total tragedy and the loss of lives. What’s happening in Israel has even taken this to the next level and it’s just tremendously sad. I do think the situation with Israel, Palestine, Hamas, the way you position it and everything that’s happening is much more complex. The good guys, the bad guys. Who are the good guys at what point in time? Who are the bad guys at what point in time?
Nuno
It’s certainly much more complex, much more nuanced. A lot of fake information as well being circulated, a lot of things that are not accurate being circulated. The only comment I would make on it at this stage is, that we do hope that this comes to a peaceful resolution that is sustainable, at least for the immediate future. This would be my wish. We didn’t need a second large kill war for sure.
Bertrand
To your point on Ukraine, I feel so sad that hundreds of thousands of people died in a brutal conflict. It feels like the last year has been more of a stalemate. I hope that it comes to somewhat a conclusion.
Nuno
The current numbers showed tens of thousands died in the Ukraine in Russian war or around 14,000 to 15,000 people. Anyway, we don’t know the exact. It’s always a tragedy, obviously, Israel and Palestine as well. Post that, we just wish for the best that things… We’re not geopolitical experts. We don’t pretend to be. We hope we get sustainable peace. That’s what we hope for. China.
Nuno
Obviously, it’s become an increasingly frosty relationship between China and the rest of the world and US and China. We just had APAC in the Bay Area. Maybe a little bit less frosty than I expected.
Bertrand
San Francisco was finally cleaned up, but just for a few days.
Nuno
San Francisco was cleaned up for a few days. The relationship seemed a little bit less frosty than I expected it between President Xi and President Biden. Maybe there’s some hope there. We’ll see. Do you want to go more into the CHIPS Act and everything that’s going on?
Bertrand
The US definitely has up somewhat the economic fight with the CHIPS Act. We just saw, actually, that it is impacting Nvidia in term of revenues and maybe other players.
Nuno
Can you tell people what the CHIPS Act is, in case they don’t know?
Bertrand
Basically, the CHIPS Act is trying to limit the amount of technology transfer in term of product, in term of IP to China that could be considered dangerous from a military perspective. It’s limiting what you can sell to Chinese companies in term of chips. That’s mostly what it is about.
Nuno
It’s also putting a bunch of money to the market, right? 280 billion of new funding into everything.
Bertrand
Yes, there is a positive side to that where it’s about building in the US or in other places some alternatives, some new factories. Not everything is depending on the current factories from TSMC. In Taiwan, in term of most up-to-date and most advanced factories, obviously, Intel’s and others are pretty advanced factories, but is considered state-of-the-art today is done by TSMC in Taiwan.
Nuno
Then very poor economic numbers from China, right?
Bertrand
Yeah, it’s pretty catastrophic. You could argue the numbers are very bad. Interestingly enough, I read that the number of economic indicators in China have started to decrease significantly for the past few years. We used to know more about China, now we know less. It’s never a good sign, usually you want to remove numbers when it’s not when things are going well.
Bertrand
There was a recent article on the Wall Street Journal where they were looking at Chinese GDP relative to the US, and it’s clear that it has been stalling. Stalling of 2023, it looks like we are not far from actually six years ago in 2017. It’s pretty surprising what’s happening. I’m not sure we have seen that. There is some flattening of the curve, significant decrease of the past few years. Overall, it looks like we are going back, and if not 2017, actually maybe even 2015.
Bertrand
On one side, obviously, the US is doing better than they expected, so it’s great news. China is definitely doing worse. Maybe the latest policies finally caught up with the economic strengths of China. In some ways, maybe some policies should have come sooner in term of cleaning up the Chinese economic system. We see real estate after real estate companies going under. Definitely, there was an approach in China. If you keep building and you hope they will come, but at some point it’s not needed anymore.
Bertrand
There is no point in having multiple homes for one person, for one family. There is no point to reach to nowhere. The economic value of the Chinese model of building, building, building has a limit. There is no need for more high-speed train rail lines. Some of the easy stuff, quote-unquote, because it’s not so easy, but I would say what has been the approach of China in most developed countries, becoming developed countries in terms of economic approach has been done basically. What do you do next from here? It’s a big question.
Nuno
When we lived in China, we were talking around high 7% GPU growth, and it started slowing down into the high 6s. Obviously, let’s forget a bit COVID around the middle 2021 was a bumpback year. 2020 was obviously an awful year. 2022 was again a relatively awful year. This year, the expectations, many expected it to be in the high 5s. Maybe 5.7%, 5.6%, then it was revised down. Now people are expecting it’s going to be below five, maybe 4. something %. We don’t know yet where we’re going to end up.
Nuno
We obviously, when the numbers come out, we will also need to unbundle what is official statistics versus the expectations certainly of analysts around the world as well and triangulate that and figure out where the number lies. Certainly there’s a slowdown. Now you don’t have the whole… Oh, we still have COVID going on thing. Now the numbers are looking a little bit more real. If we go on this trajectory where 2012 it was around 7.85% the GDP growth, this is looking very linear. It’s not a very nice trajectory on that line. China needs to grow. We’re not talking about, “Oh, but 3% is great.” I’m not sure it’s great for China.
Bertrand
It’s pretty hard because GDP is what? It’s productivity times population growth. China has zero growth in population and is going negative soon. That will make life very hard in term of trying to generate growth when your population is contracting. That’s really a tough place to be. Some regulations like the CHIPS Acts have impact on the China GDP growth. It might be a tough place. Let’s not forget some indicators.
Bertrand
I was reading 25% unemployment for some young graduates. Some people say, “No, no, no, no. The real numbers are probably closer to 40%.” That’s super scary. This is not some things China has known in the past 40 years at any point in time. The whole contract with the population is really, “Hey, I’m giving you growth. I’m giving you opportunities. Your kids will get a better life. Now it’s looking like the kids are going to get a worse life.” It’s pretty scary for parents, for the population, and what it means in terms of stability for China.
Nuno
Maybe moving to interest rates around the world, they’ve gone higher than anyone expected to control, obviously, inflation. Now certain Central Banks are starting cutting those rates. The Fed really hasn’t yet. We’ll see what happens next year. We’ll talk about it in a bit, but definitely very high-interest rates in general. That affects the whole market because with high-interest rates, then you start having discussions around, What else should I invest in? I should just basically ride this, put money and cash, run on some saving accounts, treasury bonds, whatever thing, and just see what happens.
Bertrand
Yes, it’s high rates changed dramatically how you rationally value companies. That’s probably really the big point. How you rush, especially rationally value fast growth companies are the one impacted most, and even more fast growth money-losing companies are being impacted. It’s a tough place to be, especially for tech, because of high interest rate. It has come very fast, very high, at least for the US.
Nuno
Again, hope that that will get reestablished, maybe realigned next year and things will come a bit more normalized and clear for everyone involved in these markets. Switching maybe to market caps and to the valuation environment, certainly public markets seem to be a little bit more normal valued. We expected the private markets to have gone down probably a lot more, but they really haven’t in some ways.
Nuno
I was just looking at some numbers. It was from the Cooley numbers. Cooley, obviously the law firm that does this analysis on the deals that are involved in. This was for Series C, if I’m not mistaken, but we see a lot more down rounds and a lot more flat rounds than we saw before, but still nothing silly.
Nuno
At the same time, the market still feels a bit frothy. It still feels that the balance of power we kept talking about that it will go back to investors, that investors will have a lot more command on what are the clauses we put in, what are the things we’re going to go with. It hasn’t actually happened in some ways. It’s a bit in the middle still.
Nuno
I don’t know if it’s because we still have great companies. I don’t know if the worst is still to come. A lot of people believe that the worst will come next year. That will be the year of debt companies. I don’t know. Maybe it’s a negative that the market caps haven’t come down more for us investors. Maybe it’s a positive for entrepreneurs that they hasn’t. Maybe it’s a negative in the sense that actually is a signal for us to observe something that will come next year that will be more severe and more significant. Let’s keep it monitored and see what happens. Definitely, it’s been a bit of a weird year in that sense.
Bertrand
Yes. One thing that is seemed to be quite clear is that there is a real recession in the commercial real estate market. I’m not sure we are experts on this, but the news are everywhere that buildings are selling 50, 60, 40 cents on the dollar right now. It’s a very bad place to be. Obviously, banks are going to be impacted significantly. It looks like a lot of medium-sized banks are going to suffer from this. It’s not clear how they are going to be helped. Are they going to be able to just renegotiate some deals? Taking back the building is not going to help if there is no buyer, or if the buyers are willing to provide very low price.
Bertrand
It’s coming from the fact that people are working more remote. It’s just a dramatic change, especially in some cities, especially West Coast. If people are not going back at the office, and if your downtown is scary and not properly policed, definitely you have an issue to try to convince businesses to come back.
Nuno
The market, on the other hand, has become a little bit more exciting on the secondary side. We’ve discussed it at one of our previous episodes, a lot more secondary transactions. You can listen to our episode on exits and liquidation and all that thing. As I said, still a very ambivalent market.
Nuno
Media advertising also going through its own recession, some of it. Natural because people are spending probably less time looking at their screens in some ways now that they can go out again. Part of it is also driven by the polarization that we see globally around the variety of topics. We talked about the war, obviously in Israel and Palestine. We’ve talked about people maybe saying the wrong things on platforms that they own and pissing off advertisers.
Nuno
Anyway, also a complex market. It felt in the past that we were at peak streaming, Peak TV, it still feels like that. Now with movie theaters back open, et cetera, there’s still some discombobulation around that. How does this work? When can I watch the movie? When is it coming out? There’s definitely a lot of interesting stuff happening around that.
Bertrand
Another recession that happened, the freight recession, we have seen some companies actually go belly-up or some companies going through a big turnaround exercise. It’s definitely a tough space because prices in freight went up like crazy during COVID. Now that there is less demand, it’s a different story. Price are going back to where in some ways where they used to be. It’s not yet totally at crash recession level term of economics, but it is definitely a recession if you compare to a year ago or two years ago.
Nuno
One of our favourite ones, the Silicon Valley Bank crisis, those exciting moments earlier this year where we’re all like, “Oh, my God.”
Bertrand
Yes.
Nuno
Silicon Valley Bank still exists. It’s now owned by First Citizens. We obviously had First Republic also being taken over by JPMorgan Chase. We’ve talked about it in previous episodes, but that was exciting in a really dramatic way.
Bertrand
In a very bad way, by the way. That’s not a fun drama.
Nuno
It was not fun. It was a tough couple of days until that famous Sunday announcement from Janet Yellen and the Fed. Everyone was like, “Thank God for that.”
Nuno
Then obviously, we had the Credit Suisse thing in UBS piece, and everyone thought, “Oh, we’re going to have more of this. We’re going to have more banks.” Nothing then happened. I guess that was good news that should go in our positive column. Once that whole UBS thing happened with CSFB, or they were just called Credit Suisse by the end, everything stopped, which was good. We haven’t had any other bank runs. The world doesn’t seem to be dying on the financial services side. That was good.
Bertrand
Saas, B2B SaaS, Software as a Service, it has been tough for most companies in SaaS since 2022. 2023 was also a tough year. Definitely, there is consolidation happening from companies buying from vendors. That means that if you are just a nice-to-have product, life is probably very hard.
Bertrand
The more necessary you are, the better your position, especially if you are not easily displaced. It has been now two tough years for or B2B SaaS. I would say investors, entrepreneurs are reviewing valuation and target in term of growth. It’s a different world.
Nuno
There was definitely a huge bubble there. We talked about it in the past, and now it’s less of a bubble. Now it’s obviously a little bit more neutral. Maybe some assets are still too downmarked. We’ll see how it evolves into next year. Honestly, I feel it’s now more… Valuations now are evolving more naturally. There was definitely a bubble there that needed to pop. Now we will go hopefully back to a state where valuations, a little bit over time, go back to normal.
Nuno
Crypto winter is not coming. Winter has been here for a while. From the drama of obviously FTX, SBF, and at least he’s been convicted, we’ll see what happens next year on a sentencing.
Nuno
We just saw the SEC situation with Binance and CZ. That’s a huge settlement for Binance. Obviously, CZ not involved anymore in the company, but it’s more than that. It’s been a rough year. It’s been a year where very visibly, everyone was very, very bullish on crypto, on blockchain, et cetera. In most cases, has had to step back a bit.
Nuno
At the same time, we have seen, finally, things coming out that are interesting and some interesting applications. Again, it’s definitely almost like now a scarlet letter, and you have to be a bit thoughtful on how you mention it and thoughtful about it. It’s natural. It’s the cycle that we know happens with all these big shifts in technology or in technological trends. It’s natural that this happened. I’m pretty sure next year will be better. Well, fingers crossed, at least on it, that we don’t have any more fraud or any more significant issues that involve SECs and stuff like that. We’ll see.
Bertrand
It’s not clear. Just to clarify, I’m not sure it’s fraud versus anti-money laundering, violations of sanction.
Nuno
No, fraud was SBF. He was convicted of fraud.
Bertrand
Oh, okay. Yeah, SBF, yes. Sorry.
Nuno
CZ, I was saying it’s related to other aspects of what happened at Binance. It was around KYC and it was around AML, et cetera.
Bertrand
Yeah, KYC. Right now, it’s a deal with the DOJ, but my understanding is that there are still some pending other lawsuits, including from the SEC. It’s not yet fully over yet.
Nuno
Understood. Okay, so it’s DOJ that they did the settlement with?
Bertrand
Yes. Maybe another point is that it looks like they’re in good shape, at least from far. It’s not great what happened, but at the same time, it feels like it’s not like an FTX where it’s a house of cards and the next few weeks, this is over. I don’t have this impression from Binance, at least at this stage from what I read.
Nuno
Interesting. Okay, so it might not be over on that side. Fascinating stuff. Regulators also doing their job, hopefully. More regulation, more deregulation.
Bertrand
Yes, more regulations coming. It looks like, especially in AI, there has been an executive order on AI in the US a few weeks ago. There has been a new responsible AI association started by some VCs.
Nuno
Which, by the way, is done to avoid that the actual regulation is significant because the executive order seems to behave or else type executive order. They’re like, “Then let’s be responsible.” I feel it’s like a pre-emptive move.
Bertrand
I’m not so sure because regulation require an act of Congress, real regulation. That executive order could be rescinded in a day by a new president. It’s a very weak type of regulation.
Nuno
That’s exactly my point. The whole association that’s created by VCs, et cetera, is a pre-emptive move. That the industry starts getting its act together around how it behaves.
Bertrand
Yeah, my point is more that I was not seeing Congress doing anything because it’s gridlock. It’s a pre-emptive move against what? Something that would not have happened anyway. It’s a question mark for me. I don’t have the impression that Congress will legislate anything in 2024. I could be wrong. On the AI topic, it might not have gone through at all anyway. You’re right, it might have pre-empted that. It’s tough to say.
Bertrand
What is clear is that in the EU, it looks like it has been derailed because there was an AI Act in preparation, but it looks like it was derailed. It’s not clear when it will go back on track. Interestingly enough, the US has more regulations now on AI than the EU, which might be a first.
Nuno
Surprising, yeah.
Bertrand
It might be a first. EU still passed the EU Digital Service Act, DSA, in 2022 with enforcement starting in 2023. A lot of people in the US have raised question around, “Is it stiffening free speech?” I would be shocked if it really impacts how American users of any service would be impacted. I could be wrong. It would be clear that in Europe, it might be a different story at this stage. At the same time, pure free speech is not as a clear given right in Europe versus the US.
Nuno
The Digital Services Act, Digital Markets Act, we’ll see what’s the impact of that and how that ripples, for example, in the US as well. Because we know that sometimes the US, certainly some states like California, tend to go and look at what the EU has done and see, “Oh, maybe is there something there we can do.” We’ve seen that, for example, with privacy laws in the past.
Bertrand
Indeed, California is so big as an economy, and it’s so hard to make an exception for California when we use such services or when you propose products online that you might be forced to basically be regulated by the first state ready to regulate until Congress comes with more federal-level regulations.
Nuno
Maybe to finalise the recap on 2023, on the neutral side, we’ve already alluded to a couple of these points, but public markets have been up and down, but overall they’ve been okay. Then valuations have come down in public markets. Less down on the private market side, in particular in early stage, and I expected it. As I said, I’m not sure there’s a delay here or if it just will not happen at all, but we haven’t seen really the dramatic decreases in valuation.
Nuno
As I said, there’s been definitely more down rounds and flat rounds this year for sure. The data is showing that. At the same time, the deaths of companies have been not as much as I would expect it. I know I’m probably just wishing for the worst, but I’m not. I just expected that to be a little bit more companies failing that would have difficulty in raising, that really hasn’t happened at the scale that maybe, at least, I predicted.
Bertrand
Yeah. Valuations went down in late stage. It went down more strongly. What has also probably helped is that there has been a lot of investors willing to provide bridge financing, trying to bridge the gap if valuations would have been too harsh for a new run led by new investors. That has helped buffer, but it’s not clear it will be there for next year.
Nuno
Overall, Bertrand, what’s your verdict? Was this a positive year, neutral year, a negative year, something in between, slightly negative, slightly positive? What’s your view?
Bertrand
I would like to say I was in a way positively surprised that it didn’t go worse, but definitely the new war in Israel, the bad economic situation in China, that’s tough ones. I would say overall was probably slightly positive on 2023. AI is definitely, at least Generative AI, LLMs have been very game-changing, and it’s always amazing to see so much innovation happening all at once.
Nuno
I agree with you. For me, it’s a slightly positive year. It’s been a super weird year. Super weird. A lot of different signals coming from our very noisy, very complex. Slightly positive, definitely above my expectations for 2023. In some ways, on the more micro side, a lot driven by AI and the fact that that has probably pulled the private market and the early-stage private market up in terms of funding unduly so and also in valuation. That might have been the pushing of the boats up that we didn’t quite anticipate for this year.
Nuno
On the macro side, in general, it’s been okay. No real significant recession. Obviously, we’ve seen recessions in some specific industries, but not like an overall macroeconomic stage.
Nuno
The war in Israel and Palestine is not just a tragedy, a human tragedy, which is the biggest of all tragedies, but also it’s just but coming at the time that it did, it’s just… We’ll see what happens next year. This was not good. It will not be good for a long time. Besides, as I said, the most important piece, which is the human tragedy.
Bertrand
Sometimes I have the impression that the macro side of the world was on pause for a decade or so, and these big natural disasters were on pause. No, the real world is coming back with a vengeance in some ways.
Nuno
It’s not Black Swan anymore. If they are happening all the time, they’re not Black Swans anymore. It’s like we’ve had three years and a bit of things that we would say are Black Swans. We’re just like, “They’re not now happening all the time.” A Black Swan now would be a time of prosperity and peace? Would that be a Black Swan? I guess. I don’t know. It’s just very sad to see where we are when it comes to wars. Obviously, we had the pandemic. Wishing for the best, wishing that we get out of this.
Bertrand
Let’s not forget also that these wars are the ones on our radar because of where we live, who we are. At the same time, there has been some wars killing lots of people, happening for years. We should not forget about that either, even if they were not on the first page of most newspapers.
Nuno
We do not wish to underplay any wars or military conflicts that are happening all over the world, some of them, as you said, for quite a long time. Moving to 2024, what do we expect? Let’s start at macro level, election year in the US. This is going to be fun.
Bertrand
The fun is back. It will be this year, this election year, 2024. I don’t know how it’s possible to imagine even more big titles in the press, on Twitter. Next, I don’t know how more divisive it can even become, but I guess it would be all the time. It’s for people in the US, we will keep hearing about it. It will have, just to be clear, a very significant impact on end of year 2025 because as we just discussed, every executive orders can be rescinded in a day.
Bertrand
Typically, new president means, “Let’s rescind as fast as possible what my predecessor did.” Where he can do it easily. There will be the question of what will this new Congress look like? There will be a lot of question marks or a lot of bets waiting to see what’s going to happen. Maybe some decision will wait this year until end of year.
Nuno
We have everything happening for the nominations for the Democrats and for the Republicans beginning of the year, right up to mid of the year. Then we have election in November 5th, 2024. We’re going to have a lot of media cycles and all of this stuff. We’ll see what happens.
Bertrand
Then weeks of opening the ballots.
Nuno
Then weeks of opening the ballots. Then when the election happens, we know something is going to happen. We know that something is going to happen because last time something happened, and we know that something is going to happen. Something’s going to happen. There’s going to be fights on both sides. There’s going to be questioning the votes and fraud. Was there fraud? There wasn’t fraud. Close election. It’s going to be, again, a mess of epic proportions. We are interested in seeing what happens.
Bertrand
Yes. Let’s hope for a good election. As good as it could be.
Nuno
Let’s hope for no violence. Let’s hope at least its words this time around, there isn’t actual violence and stuff happening. I laugh not because this is funny, I laugh because I hope for the best.
Bertrand
Let’s hope for the best. Of course, there is a question, can China go back to growth and growing faster than the US? That would be a big question. I certainly hope for China that it grows better and find a better path. I cannot say I’m very confident at this stage. Looks like some problems are pretty endemic. It’s been maybe two decades and decades we talk about the level of bad debt that has been issued in China. That has been rolled over for years. It looks like it might be the time where all of this is not working anymore. I would say some policies in China have not been business-friendly at all to say the least. I’m not super positive economically. I hope it changed the action, but I’m not positive.
Nuno
At least let’s hope that the discussions we have about China are around economy. That we have no other discussions around China around something else. Like military stuff. Let’s hope it’s economic discussions around China and what’s happening around China economically and how the relationship with the rest of world is going, et cetera. That would be a good year, 2024.
Bertrand
Yes, that would be the question. It’s probably more and more clear that the world is becoming more multipolar. It’s not just the US leading the world, but China as well. What does it mean? Does it mean that we have more conflicts happening over the years? Azerbaijan seems to be pretty restless. Serbia could be restless. Hopefully, nothing happens around Taiwan. It’s not clear where the next one might come from, and hopefully nothing comes. It feels like there are quite a few possible hotspots for next year and beyond.
Nuno
As I said, we’re not experts in geopolitics or military advancements or wars. We are definitely not your source of truth on that. The strategist in me says, I mean, if we’re having a hotspot in the Middle East, if we have the hotspot around Eastern Europe into Central Europe, I just hope there isn’t anything funky that happens more around those regions because at some point this becomes propagated and everyone keeps saying, “Hopefully no world war. No world war, no allies versus whatever.” Let’s hope that we get to peace. As I said, sustainable peace in these places. That’s the wish that we don’t have more conflicts next year. Obviously, there’s a significant amount of risks there.
Bertrand
Yes. Of course, all of this has an impact on the business world. That’s why we talk about it. Rates, higher, longer? That’s the big question?
Nuno
Hopefully not. Hopefully, there will be cuts. Hopefully, we’ll see cuts in rates and things will go back to normal a little bit. It’s a bit silly. No?
Bertrand
I don’t know. I’m definitely worried that there is still some price pressure on salaries, on rent. We have seen bargaining from unions. We have unions who sign 40% salary increase over four years. That’s what happened in Detroit. They were even higher increase of salaries negotiated within airlines.
Bertrand
This is going to hit and I don’t think they will be the only one to realise they can collectively bargain. We got Hollywood also going on strike. I’m pretty worried that there are some elements that are not going to make it easy to go back to 2% inflation, which used to be the target. I don’t know. It’s tough for me to say for sure. There will probably be less demand. That should help. At the same time, it’s not clear that some root cause of inflations will really be taken care of. And are not already deeply embedded for the next few years.
Nuno
We’ve had the discussion around recession for a while, as I said in one of the previous episodes that I’ve now given it away because it’s been over a year that we’ve been talking about it and it hasn’t happened. There’s still some doubts whether it will happen next year. Overall, actually, we’ll have economic recession in countries like the West or other parts of the world. It doesn’t look like it.
Nuno
Growth is still really nice and healthy. Will there be recession, for example, in retail? The big reckoning. People went back out, they started buying things, they started doing things. Now everyone’s like, “Oh, wait a bit. Maybe we need to save a bit now. We’re not all going to die. There isn’t going to be a pandemic, hopefully, anytime soon.” That’s still areas of great risk. Will we see recession in specific spaces or not? This economic stability, will it start to propagate into 2024 and we’ll have a nice uplift through the year?
Bertrand
Yeah, there are some ominous sign in terms of credit card default. Of course, credit card rates depend on the overall rates from the Fed. They are higher than ever, which just in itself increase risk of default. It seems clear there is some economic weakness, at least from some groups, and that might trigger a retail recession. Obviously, we know pretty soon because Thanksgiving is coming, Black Friday is coming, end of year is coming. We’d have a big visibility on Q4, which is a huge indicator that every retailer is following. In a way, we will know very soon.
Nuno
My belief is this year was going to be strong. I have questions about next year. We’ll see what happens next year. I believe this year is going to be strong. It’s a year of people going back out. To your point, default has increased. We see that with businesses as well. I don’t mean businesses having a bad debt, increase in tax liens, and a couple of other things that are happening in the market.
Nuno
Things are not as rosy as they may seem. There is a lot of propagation here of economic growth that is really induced by leverage. By people borrowing or using their credit card. Businesses borrowing as well and using their credit card. I don’t think the reckoning is going to happen anytime soon, but there might be reckoning next year. Let’s keep fingers crossed on that.
Bertrand
I was reading that car loans were very bad. That car repossessions were at all-time high. People have trouble to pay some of these big loans, pay them back. It’s a bad indicator. Let’s see.
Nuno
In terms of tech, hopefully, we’ll have public markets coming back and so there will be more IPOs next year and certainly more successful IPOs next year. Probably not early in the year we’ll see. That first quarter into second quarter is always a good proxy, but maybe later in the year.
Nuno
We think likely there’s going to be certainly more M&A, maybe even more mid-market and high-market cap M&A, so big deals. Although it wasn’t a bad year. I mean, it was a bad year in terms of volume and obviously overall scale. Certainly, we had some big blockbuster deals as well, as we discussed in the last episode.
Nuno
I hope the valuations will realign a little bit more that we go to a market where the norm is now a little bit different, that the norm is not, “You’re coming out for a CFC, you have to be at least worth 20 million plus money.” That’s not normal. Hopefully, there will be a further realignment there. I also do hope that there isn’t a full implosion of valuations, because if there is a full implosion of valuation, it means that the market has just gone nuclear for a bit. Certainly the early-stage market.
Nuno
Something in between we think would be good. The current signals we have lead us to believe that’s a possibility at the very least. I won’t make any prognosis in it. Those two markets for me are interesting. What happens to public markets, IPOs, M&A, and then what happens early-stage valuations is pretty important and pretty vital for the health of equities in general.
Bertrand
Yes. I don’t have anything to add here.
Nuno
Cool stuff. Regulation and tech, we think there’s going to be more, right?
Bertrand
Whether you like it or not, whether you want it or not, there might be more.
Nuno
It’s likely going to be more. You’re going to have more stuff next year and more enforcement. Fingers crossed on that. Let’s see if we don’t destroy innovation through it all. At the same time, both of us have manifested that in the past. I’m speaking for Bertrand, he can speak for himself as well. Certainly, I do believe that there was more regulation warranted in technology, and certainly in consumer protection, privacy, and all that stuff. There’s definitely a few areas where we definitely need more protection.
Bertrand
There is somewhere we need and somewhere it feels like really way too early. Pick AI, for instance. AI is doing some great stuff, but SQL database were great 40 years ago. Did we started to regulate SQL database once they started? No. Actually, that’s raising a lot of questions. Do you regulate the core technology or do you regulate the application of the technology? If you need any regulation at all, I would definitely go in the later camp of regulating the application, not some core technologies.
Bertrand
That gets me really worried that that bright, shiny spot in the US and maybe around in the world has been tech. Because tech is basically today, it’s not as if there is population that keeps growing. If you want to keep growing GDP, you need to keep increasing efficiency and productivity. How is it going to happen? Mostly through technology development. If you destroy that pillar of growth and it’s really that one pillar of growth, then it’s going to go bad. I’m very worried we are regulating before it make any real sense because it’s just too early, too young. You don’t know where it’s going.
Nuno
It’s a good segue to precisely AI. We’re trying to regulate AI. We’re trying to regulate the technologies and not their application or interfaces, et cetera. We’ve talked about that in the past as well. Shouldn’t you focus on the interfaces and the apps? Shouldn’t you focus on what can AI do rather than what is AI?
Nuno
We know regulators are not well-educated in technology understanding. I mean, they can’t be. That’s not their role. Just applying it to technology is not the way to go. Understanding what the implications are, understanding what the use cases are, understanding what the interfaces are, and then having some regulation and boundary conditions around that, I do feel is necessary. Hopefully, better thoughts will prevail.
Bertrand
I certainly think it’s way too early. It’s going to hurt the economy, it’s going to hurt innovation. My take, some winners will be the countries who are regulating less, not more. That’s a danger because it means it won’t be innovation in the US or in Europe, but it might be in other places.
Bertrand
Maybe one point I personally think at this stage, regulating AGI before it even happens is crazy. I’m very, very sad to see some people creating fear, uncertainty, and doubt. It’s not a new thing. It’s way too early. It makes strictly no sense. We have some really, really more scary things that could happen before we think about AGI.
Nuno
We’ll have the Vision Pro next year, which we discussed in the previous episodes as well, and special computing. Do you think it’s going to be the rise of special computing next year? Or it’s going to be just, we’re all going to be marvelled, but still not at scale?
Bertrand
It’s clearly not at scale. I mean, the price is very expensive at 3.5K USD before taxes. It’s super expensive for something it’s not clear there is value for most people. There is value, just to be clear. I believe there will be some value. The question is how much? For how many people? Which segment? It will have to be very significant value given that price point.
Bertrand
It’s more, in some ways, some baby steps towards a bigger role for special computing and VR in general. I mean, special computing is a word used by Apple to not say VR. They probably believe for maybe good reason that it has some bad connotation, VR, AR. At the end of the day, it doesn’t truly change what it means.
Bertrand
I’m excited. There will be more competition. There will be more innovation in the space once Apple is a clear player and you see what you can do with it. I would call it more a developer year maybe, but I have some hopes that in the next three, five years, it will have more significant impact. As big an impact as mobile? I don’t think so, but a significant impact, at least for some geographies and some use cases at some point.
Bertrand
Another point, we just got the second flight of SpaceX Starship. Pretty exciting, but it’s sad, honestly, to see how the mainstream press treated that like, “Oh, yeah, it just exploded after a few minutes.” Showing either a click-bait approach or a lack of understanding of what’s going on. You have to make trial and error. There’s never a big new rocket working without that. If it was not a pass you have to go through then everybody would already be there, I guess.
Bertrand
It’s impossible to simulate perfectly everything that happened in these extreme conditions. We simply don’t have enough data to model that properly. It’s normal. It’s a cost of doing business. I would say you have more to congratulate each time it’s going better. The second flight seemed to have done way better than before because it went to separation between the launcher and the Starship itself.
Bertrand
I would say exciting times. Maybe 2024 might be the year where the cost of space has been transformed dramatically. We are talking about that 10X range. We will see exactly where it lands. If you have a 10X difference in the cost of space, many things will be different.
Bertrand
It will be new startups, new venture, new opportunities. It’s going back to the Moon, it’s going back to Mars at some point. Personally, I’m pretty excited and looking forward to see sometime probably in ’24, a successful Starship. From there, I guess improvements will be swift.
Nuno
Absolutely exciting times. I mean, space exploration, et cetera. If all else sadly goes to hell and we mess up the whole AGI thing, then hopefully we won’t take the AI agents with us.
Bertrand
Don’t take the AGI above the Starships, but given the AI inside every Tesla car, maybe that would be big AI.
Nuno
Maybe we will just stick it with us.
Bertrand
Maybe they would just leave us and who knows?
Nuno
Same question for 2024. What’s your expectation? Is it going to be positive, marginally positive, negative, neutral? Versus this year?
Bertrand
I would say I’m quite hopeful that from a pure technology perspective, we will see more and more progress. More progress in AI, more progress in access to space, to Starships, and the Vision Pro really changing the landscape, and its competitors changing the landscape in visual, spatial computing, and VIR. On the macro side, I’m probably more concerned about where it goes.
Nuno
Agreed with you. On the tech side, in terms of core technologies, in terms of the venture capital, entrepreneurs, startup landscape, public markets in general very hopeful and looking forward to a positive year. On the macro side, who the hell knows what’s coming next? I just hope nothing. I just hope nothing and that the current conflicts get sorted. Just that nothing would be great.
Bertrand
At the end of the day, what it means is let’s keep building and focus on building cool stuff because this is working as long as it’s not over-regulated. Let’s hope for the best for the rest.
Bertrand
This concludes our Episode 50 around what happened in 2023. We talk about the positives and negatives and what we would expect to happen in 2024 from a macro perspective and from a tech perspective. Overall, 2023 may be better than expected. 2024, certainly big hopes in term of technology evolution, but big questions on the macro side. Thank you, Nuno.
Nuno
Thank you, Bertrand.
#33 – Winter Has Arrived – Part 1 – the Burst of the Bubble and the Crisis Upon Us
#32 – Leadership and Management – Part 2 – How to execute, values systems and our core beliefs
#31 – Leadership and Management – Part 1 – Often spoken about, rarely understood
#30 – The Metaverse Part 2 – Final Episode – Straight talk on the Key Players and what they are up to, and Implications for Entrepreneurs and Investors
#29 – The Metaverse Part 1 – What is it? When will we have it?
#28 – Strategic investors – a Mistake or real Value-Add?
#27 – Start-up and investment landscape in Europe – the good, the bad and … the reasons for optimism
#26 – The Bubble we are in and its implications – Part 2
#25 – The Bubble we are in and its implications – Part 1
# 24 – #Exodus or #NoExodus – our most contentious episode, yet
# 23 – The mythology (and reality) of Silicon Valley
# 22 – The (no BS) truth about Silicon Valley – Start of Season 2
#21 – Recap on 2020 and Outlook for 2021 – End of Season 1
#20 – Recruiting Primer – Part 3
#19 – Recruiting Primer – Part 2
#18 – Recruiting Primer – Part 1
#17 – SaaS Primer – Part 3
#16 – SaaS Primer – Part 2
#15 – SaaS Primer – Part 1
#14 – The wonderful world of productivity – our own habits, tools and hacks – and… how to best get in touch with us
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