theCUBE + NYSE Wired: Capital Series | Noah Berkson, Austin Capital

theCUBE.net

Clips
More from theCUBE + NYSE Wired: Capital Series

Noah Berkson

Founder

Irreplaceable Institute

play_circle_outline Revitalizing San Francisco: The Crucial Role of In-Person Interactions and Capital in the AI and Tech Startup Landscape

play_circle_outline Strengthening Startup Success: The Role of Community Support and Shifting Institutional Investment Trends in the Founder Ecosystem

play_circle_outline AI is creating unprecedented opportunities for startups, attracting young talent to the field.

play_circle_outline Entrepreneurs are leveraging unique distribution channels for fintech and ancillary service offerings.

play_circle_outline HF0 House: Revolutionizing Entrepreneurship Through Collaborative Innovation and Iterative Learning for Founders

Info
Transcript

Noah Berkson, Austin Capital

Noah Berkson

Founder Irreplaceable Institute

At the HF0 House in San Francisco, Noah Berkson, managing director at Austin Capital, joins host theCUBE’s John Furrier for a high-impact conversation for theCUBE + NYSE Wired’s Capital Series on where AI and fintech innovation are headed. Berkson pulls back the curtain on the shifting dynamics of venture creation, from the resurgence of in-person hubs and founder-led funding to why today’s startups can scale at lightning speed with less capital than ever before.

Furrier and Berkson discuss the massive infrastructure gap in banking, highlighting how ... Read more

explore Keep Exploring

What trends are influencing the startup ecosystem and the location preferences for building businesses? add

What factors have contributed to the changing landscape of funding for startups, particularly in relation to founders supporting each other? add

What are the current trends and characteristics of entrepreneurship in the FinTech sector, and how is the mindset of entrepreneurs evolving? add

What attributes are sought after in companies within the FinTech sector, especially concerning customer acquisition and profitability? add

What are the benefits of a focused approach in a supportive resource environment for startups? add

bolt Powered by CUBE AI

Noah Berkson, Austin Capital

search

>> Hello, I'm John Furrier here with theCUBE in San Francisco at the HF0 House. This is a place known for its residency. It's a new way to build companies, it's a new form of entrepreneurship. theCUBE, NYSE Wire Community is here, investors are coming in. Chief Information Officer is going to be here, mingling in with top entrepreneurs in AI and technology. And it's super relevant because there's a lot of problems to solve and there's a lot of things to work on. These ventures are formed out of here. The founders lock in for multiple weeks and do basically two years worth of work in a short period of time. Everything's taken care of for them. It's a residency, it's kind of like a fellowship, it's all cool. Noah Berkson is here, founder of Austin... Sorry, Managing Director of Austin Capital, founder of many companies. Noah, thanks for coming on theCUBE, for joining us.

Noah Berkson

>> Thank you so much for having me.

>> Austin Capital, you're on the money side, but you also have an entrepreneurial career, and so you've seen both sides of the table, as they say. This is a unique place and San Francisco AI's hot. You've got other areas like New York, Austin booming. What's your view of this new form of company building?

Noah Berkson

>> I think for a little period, and this maybe revolved around COVID, there was this perception that everything could be virtual and teams could be virtual and employees could be virtual and you can get the same thing done with people being distributed. And I think that that worked to some degree. I think there were a lot of roles that kind of didn't necessarily need to be in the office or need to be local. But I think now what you're realizing with this AI boom and with the opportunities that have presented themselves, which I think are unlike anything I've ever seen in my life, it's requiring people to actually be in person again and in hubs that have all of the tools and resources to give you momentum and give you momentum quickly.

>> It's like COVID pulled forward the digital future that converged with the physical. And even in AI, we cover NVIDIA like a blanket. Physical AI is hot, robotics. I mean, a lot of the digital, physical coming together, so the face-to-face interactions just in life, not just venture creation. And that's how ventures start. Founders get together, they see a problem, they riff on it. They see an opportunity, they go after it, they capture it. In some cases they don't, but in some cases they do.

Noah Berkson

>> Yeah, I think the time, and even myself considering this, I'm not in San Francisco but I think about this would probably be a better place to be building a business right now just because of the influx of resources. Again, that's investors, that's capital, that's talent. And you're starting to see this resurgence of people coming back to San Francisco. I think it's a place to be, especially if you're building an AI company.

>> Yeah, it's interesting how demo days, the Y Combinators, the incubator wave hit, that came out of the Web 2.0. Super Angels was a term that was kicked around back in the day. Now you have micro VCs, now you have founders investing in ventures. That's usually the first check. So the whole capital allocation piece has changed, and so this is kind of an opportunity where you get all these founders here, all building and in comes the big money. It's almost perfect.

Noah Berkson

>> And I think it's great that founders are supporting each other. I think a piece of that is also there's just a lot more liquidity in the secondary market for growing companies, so founders are able to do that. But I would say in probably eight out of 10 pitches that I see today, it used to be listed as this VC is the first money in or first check, and generally now it's a founder's name and the company that they're part of in parentheses.

>> The beautiful thing about that point is that it doesn't cost as much to start a company and trust becomes a huge factor because in the early days, you didn't really want to get caught up in the board meeting mechanics. You're in formation stage, putting that core team together, testing product market fit and all the things that the entrepreneurs do. At the same time, the money has moved to the series A, which used to be the seed. And then now the later stage, Databricks just raised so much money and they're still private. Brian wants to go public on the NYSE, but they didn't decided not to yet. They could probably go next year when markets open. But companies are staying private longer on the later stage and then founders are investing in because with cloud and now AI, you can be up and running with customers generating cash out of the gate.

Noah Berkson

>> And I think investors are seeing that these companies that they never thought could be, and this is also just mistakes. Remember, OpenAI when they were raising at a $10 billion valuation, I thought, "That's crazy." People investing now, what could this get to? And those investors that invested then, they're killing it. And so I think people are seeing that companies are growing so much larger than they foresaw that they could. And also the public markets have opened up for a lot of these companies. And so I think Klarna just filed today to go public as well. And they filed at a huge premium to what the expectation was, which means that there's the investor demand.

>> Yeah, I mean, the IPO markets open, Klarna went out, you had all the crypto companies starting to go out. Actually, because you got the nice regime here in the US, the out migration that happened is now in migration back to the US and the international companies we're building big businesses in FinTech, so FinTech is hot. So you got FinTech. Just last night we had an event at the NYSE, there's financial entrepreneurship going on. I've never seen this before where a domain expert could come in and actually take territory down from the big banks and the big institutions because of the re-plumbing going on. It's infrastructure. And so these two worlds are interacting, the rebels and then now the incumbents.

Noah Berkson

>> The infrastructure opportunity is just an immense one. And we own a company in the core banking space, so we provide infrastructure to banks. And these numbers, you're going to have to double check me, but I think last year JP Morgan spent something like $20 billion on technology. And when you take the remaining community banks, which are all of the competitors, and there's 4,000 some, they spent maybe $3 billion total between the large providers that provide software to them. And so there's this big gap right now and this is a huge opportunity for people building in Fintech that understand these problems.

>> Yeah, that's a great example because what that shows is that JP Morgan's kind of in an elite category. They're like a Black Swan, I call them. They're a huge IT technology budget and they've got the blockchain stuff building. But all the other banks, they're right because they got data. They got customers, they got distribution, they got the data. They probably don't even know what to do with the data right now. Figure out what to do with the data and then how do I level up to JP Morgan?

Noah Berkson

>> Most of them have not monetized that data. And when you look at the average bank in the US, it would be a community bank, and community banks are really struggling. And that is the majority of banks in the US. Because kind of what happens or the trend that I see is that they may have had my parents' business or it may be a bank where I grew up in Iowa where I got my first credit card, but I'm not going to use that bank anymore because, well, their technology is not great, their mobile app is bad.

>> Fill out a form.

Noah Berkson

>> I have to fill out a form, right. And so they're seeing that when, let's say your grandparents or parents, when people pass away, all those deposits get swept out. So it's very hard for them to get new depositors because their technology is not great. And also, they're losing deposits at the same time.

>> Yeah, I mean, if they're not a technology company, they probably will be on the wrong side of history and that's basically the bottom line.

Noah Berkson

>> There are very few banks that are technology companies. I mean, you see the term like CIO, and the majority of the time that's a very glorified title for someone that was a Director of IT. And you don't want the same person that's setting up systems and computers that's leading your technology roadmap for the future.

>> We joke in the IT world, the Rack and Stack IT guys now have to figure out how to launch AI factories with NVIDIA, network fabrics, NVCash, NVLINK, what is this? Massive supercomputing is here, and that brings up the point why I like this entrepreneurship equation, and not just here at HF0 but in general, the infrastructure and the cost to get in, most people my daughter's age don't even know what a data center is because it's been so abstracted away. That's now democratized the entrepreneurship layer. If you have domain expertise, AI and say, crypto and FinTech, that those are the secret sauce, that's the secret sauce. So now you can just bolt on technology or use a managed service. This is a superpower for entrepreneurs. What's your view on that? Because people talk about, oh yeah, it's cheaper to start a company, but the actual global scale is significant.

Noah Berkson

>> A great example is I just saw a company recently that, they were kind of rebuilding a product that they had built in the past and they said, "The first time we built this, it was about two years and $7 million. And we had one engineer who was able to get about 90% of this done in two weeks." And you just think about how much that has changed even in the last three, four five years and makes you think, "What does that look like moving forward?"

>> Yeah, it's amazing. What are you investing in now? Obviously, given the landscape, you've got your finger on the pulse, you're seeing a new generation. It's a cultural shift definitely happening on entrepreneurship. What do some of the deals look like, what are the entrepreneurs like? Is there a systems mindset? I mean, we're kind of in a new world now where we've been through Agile, we've been through design thinking. Is there a kind of new view of entrepreneurs? Are they thinking differently? Can you put your finger on that?

Noah Berkson

>> I think especially in FinTech, which is what we focus on, we've always looked for distributors, which, this is actually changing a little bit. And what I mean by that is a lot of the traditional FinTech companies haven't really been technology companies at all, they've kind of been a nice layer on top of somebody else's technology. So at the end of the day, they're kind of like a marketing company. And so I don't think there's historically been a ton of value in that and less and less so. Now, we want people that have a unique distribution advantage because a lot of FinTech is distribution. It's being able to acquire customers at a low cost, which is very hard, and be able to monetize those customers and make a good margin, which also has historically been very challenging. There've been a lot of companies that have looked very successful early on, and then you look and you say, "Well, there's no path to you actually ever making money or making a profit in this business." You can get tons of users, but with all the fees and the different toll ways you're going through with different banking partners and whatnot. So we look for distributors. However, today with AI, there's a lot of new opportunity in actually that technology piece, where before there wasn't so much because it's really hard to rip and replace a lot of the old systems and providers who kind of monopolize the market. But I mean, each week-

>> Those gatekeepers are being torn down because they controlled the market. Most of the entrepreneurial activity in banking and finance was, I won't say, I use the word parasitic to be more illustrative. They were hustles. I get a prepaid calling card, I make some money. It was not a game changer. But now you can come in and say, "Whoa, whoa, there's a dislocation happening. I can actually take territory now, I can do credit better." I think the distribution thing's interesting. I did a story this week on the EZ Bitcoin app. I did a story on that, it was launched by a company that makes easyHotels and easyJet. They're democratizing flights and they're democratizing hotels. I stay at the easyHotel in Barcelona all the time when I'm there. Our team has too, we know that hotel well. They just bolted on a Bitcoin app, not to pay for services, for actually to be a bank. They're a neo bank. Why? They have customers and they just bolt it on. They can accumulate Bitcoin, you can stake the Bitcoin. So who would've thought of that? That's instant bank because they had the leverage and they had the vision from the founders like, "Oh, that's incredible." I think that's a great example. What's your reaction to that? Do you see that happening? Is that a one-off? Is that more of a feature or a bug?

Noah Berkson

>> I think you're going to start seeing that a lot more where companies are going to realize that there's these opportunities to bolt on because of how far technology has come and how easy it's become that, hey, if you have distribution, you can start to add in other financial services and ancillary products. That could be insurance, that could be a whole lot of other things. I mean, you see in other markets, super apps are very dominant, which hasn't really made its way to the US in any meaningful way. So I think you'll start to see a lot of that, but also the opportunity for just average companies that have a lot of customers to say, "Oh, well, we could add on this other thing." I founded a farmland marketplace and we are a farmland leasing marketplace. And we realized that crop insurance was actually a huge opportunity. We have hundreds of thousands of farmers that come to our site. We were only monetizing transactions and we said, "Wait, we could actually sell crop insurance to everyone that comes. And wait, that's actually almost more lucrative than the initial transaction fees are." And so I think companies are going to start realizing that.

>> Yeah, that distribution angle, I think that is a huge point. And that's usually misunderstood because most people love the speeds and feeds of the tech think, "Wow, I got a business model superpower here. I got customers sitting there, waiting for that." It's interesting, I want to get your thoughts on HF) and what they're doing here. And as an entrepreneur yourself, and now that you're on the money side, you got the chief investment officers coming in here tonight. But this place, what do you think about HF0, their approach? Rebecca, Emily and the team, they're on their seventh batch or cohorts, what do they call them? Batches?

Noah Berkson

>> Yeah.

>> Cohorts, yeah. So this is not like a one trick pony, this is now repeating over and over again.

Noah Berkson

>> I mean, I think you're seeing the power of focus in this, resources meet focus. I think being able to bring people into a place where they are going to spend all of their time and also with the right resources around them to help guide them. Because I think in the traditional kind of venture model, I don't know, maybe you have a board, you have advisors or mentors, you have your VC. And you'll bring something to them every once in a while if there's something that you can't solve yourself. But here, it's like you just ask somebody and you get that answer right away instead of waiting. And so it's just speed and having that speed to market. And not to say that speed is always the best thing, but I think it's speed to understanding what you're doing wrong. It's kind of finding the wrong things, because most of the companies will pivot two, three, four, five times. But it's just speed to understanding, "Okay, that's not it. Now we go here."

>> Yeah, we talked about the founder dynamic with founders investing in first checks in. We're seeing, at least I'm seeing a wave back, a slingshot back to value add, especially in the early rounds, because that's when they're most vulnerable. I mean, in the old days was 20 years ago, you get a check, $5 million series A, maybe $7 million if you're lucky, maybe $10 million if you're a superstar. They say, "See you later, get some office space." The founders just go off and then they call back, like you said, and they're kind of on their own. And some entrepreneurs are on their own all the time.

Noah Berkson

>> Yeah, the value add is a big piece. And I mean, it's been a joke forever because any venture fund will tell you they're value add. But I think it's becoming increasingly important. And you're seeing this even through, I mean, it's just getting so competitive to get into good deals, and that's why you're seeing a lot of these huge liquidity opportunities like these huge secondary opportunities. A lot of times that's a fund that says, "We really want in this deal." And they say, "Well, this is oversubscribed, we can't get you in." They say, "Well, what if we do a secondary transaction?" And that's their way in. And so I think it's becoming so much more competitive and that is value add. But it's becoming more of a prerequisite because especially for the good companies, money is plentiful.

>> For the record, I am pro taking money off the table in the C round, after the C round or later rounds because at that point the escape velocity is kicking in and the argument is, "Oh, they're not motivated." What are you talking about? Of course, they're motivated. So I think it's really healthy to give them a taste of some cash on the returns. It's liquidity anyway, it's happening. The VCs are doing it. Why not let the founders go in?

Noah Berkson

>> I completely agree with you. I think that's such a flawed concept that you shouldn't give people... Because in a lot of situations you have founders, right? You're starting a company, you're taking all this risk. In a lot of cases, you're not paying yourself or you're taking very little comp compared to what you were making before. And so the last thing you want is someone who's out there, who's supposed to build a business that's going to create incredible value for you to be thinking, "Oh, I need to pay rent this month." And, "Oh, I can't really afford that," or, "What else can I be doing?" Or, "What else do I need to cut back on?" And so I 100% agree with you.

>> Yeah, when we started theCUBE, one of the kind of our sayings was the ESPN of tech, because we all love sports. And we don't use teleprompters. We know the tech, so we cover it well. But it's interesting, now you're starting to see a culture of tech athletes, a term we used to kind of jokingly kick around. You got terms like, "Locked in." It's like Tom Brady. It's like, "Let's go." There is a focus. You mentioned focus, I think there's a culture. I mean, I just saw that tour here, they got a cold plunge. I've never taken a cold plunge, it's on my to-do list. But you got cold plunges, you got yoga, you got meditation. There's a huge health focus in entrepreneurship right now. You agree with that? And what would be your reaction and commentary to why that's happening?

Noah Berkson

>> I completely agree. I mean, I think people are seeing the value of wellness is just having its moment right now where, I mean, just even drinking, right? You're seeing, it used to be five years ago, anything you'd go do would revolve around alcohol. You go to events now, there is no alcohol. You go to dinners, nobody's ordering a drink, everyone's ordering a water. Again, I think it's back to focus. I think people are realizing that this is the opportunity. Something that I reflect on is seeing COVID, once in a lifetime opportunity for a lot of things and starting to realize what are those once in a lifetime opportunities. I think the AI opportunity right now is one of those and people realizing that you have a pretty finite amount of time, at least is what it appears to really capture it and win. And so if you want to do that, you got to go all in.

>> The cultural wave of generational wealth is up in the air. There's no doubt, we talked about FinTech, we're seeing that clearly on finance on the entrepreneurial side. I've never seen true entrepreneurship really in finance. It's been in tech, but now tech has AI, right? We want to hear from open AI research here and get the latest and greatest. If you're under the age of 30, everybody wants to be in AI right now because it's not so much a hype thing, it's not like a fashion thing. It's more of there's huge contribution opportunities. And also, the systems that run this are also old school thinking, too. It's like back in the '90s, I interview a lot of people and CEOs are like, "It feels like we're back in the '90s where a lot of the systems were built," so systems thinking is like a big deal. So it's a whole nother concept. The young blood coming in, seeing opportunities they can get, looking at the world that they live in. "Who did this? Let's change this." It's kind of a change the world vibe, real tech, and then now systems thinking. What's your reaction to that? How would you describe that to someone maybe in their 40s or 50s saying, "Hey, this is what's really going on, it's a combination of these things?" What would that be?

Noah Berkson

>> I think right now there's a lot of unknown. I think the known is that things are going to change. We don't know exactly how that is, but you've also started to realize that there's a number of companies that are going to have a mass influence in that change and probably an outsized influence in comparison to others. And so as a younger person, I would be thinking, "How do I get into these companies?" Anything I could do to go to these companies, I would go intern for free. I'd just show up and try and get a job there. Because not only are these companies going to be in that defining era, so even if you go and you're there for a bit, you're going to probably turn into a founder coming out of it if you leave and say, "Oh, I realize this is an opportunity, I realize this." So I think it's almost like you're living in the future, working for these companies. You're seeing the future a little ahead of everybody else and there's such an advantage to that.

>> It's really ground zero and the customers are also going customer zero, I call it, where they're actually reinventing completely differently, their environments. Look at the infrastructure. I mean, the enablement's amazing.

Noah Berkson

>> There was, I saw today, the deal between Oracle and OpenAI, which is a $300 billion deal. And you think about this is just kind of a, not even the big thing in the news. And you're like, "This is larger than almost every US company." The size of this deal is larger than almost any company's market cap, right?

>> Yeah.

Noah Berkson

>> And you're seeing, "Oh, we can commit to that." And what does that say about where OpenAI's going if they can spin that?

>> Yeah, and think about the incumbent Oracle, they had a maybe ranked fifth cloud if they were lucky. Amazon, top of the heap, AWS. Oracle aligns with OpenAI, you're starting to see now they're multi-cloud. Oracle is investing in a lot of the gear, as Larry Ellison would say, the servers in the cloud. So they went from essentially down here to up here almost literally overnight. And the stock was booming today.

Noah Berkson

>> And I think that's just the ability to act quickly and also be wrong or make mistakes. And I think people initially, when they saw a lot of the deals that were happening where Microsoft was investing $10 billion in OpenAI, and now I think they're investing in one of the other companies, you're seeing all these huge numbers and people are like, "That's crazy." Maybe that didn't work out the way that they thought it would, but that's just kind of the cost of being in the game and you're going to have to make those mistakes.

>> Well, Noah, great to have you here on theCUBE's special edition of the HF0 House, NYSE Wired. What's your goals here tonight? Again, through the presentations with some networking, what are you looking do here?

Noah Berkson

>> Yeah, I want to meet a lot of other incredible chief investment officers, see what people are focused on, see what deals people are finding. I think you realize all the best things come from it's all access, right? Every deal, it's just access. And so being around a lot of those people is always a joy to me.

>> Well, have a great time. Thanks for coming on, appreciate it.

Noah Berkson

>> Thanks so much.

>> I'm John Furrier with theCUBE and the NYSE Wired with special coverage of HF0, reinventing how startups are built with focus and intentional teams coming together for a short period of time and building companies. Thanks for watching.