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VCs say tech investing is ‘tough’ amid IPO lull and ‘nuts’ AI hype

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Edith Yeung, general partner at Race Capital, and Larry Aschebrook, founder and managing partner of G Squared, speak during a CNBC-moderated panel at Web Summit 2024 in Lisbon, Portugal.

Rita Franca | Nurphoto | Getty Images

LISBON, Portugal — It’s a tough time for the venture capital industry right now as a dearth of blockbuster initial public offerings and M&A activity has sucked liquidity from the market, while buzzy artificial intelligence startups dominate attention.

At the Web Summit tech conference in Lisbon, two venture investors — whose portfolios include the likes of multibillion-dollar AI startups Databricks Anthropic and Groq — said things have become much more difficult as they’re unable to cash out of some of their long-term bets.

“In the U.S., when you talk about the presidential election, it’s the economy stupid. And in the VC world, it’s really all about liquidity stupid,” Edith Yeung, general partner at Race Capital, an early-stage VC firm based in Silicon Valley, said in a CNBC-moderated panel earlier this week.

Liquidity is the holy grail for VCs, startup founders and early employees as it gives them a chance to realize gains — or, if things turn south, losses — on their investments.

When a VC makes an equity investment and the value of their stake increases, it’s only a gain on paper. But when a startup IPOs or sells to another company, their equity stake gets converted into hard cash — enabling them to make new investments.

Yeung said the lack of IPOs over the last couple of years had created a “really tough” environment for venture capital.

At the same, however, there’s been a rush from investors to get into buzzy AI firms.

“What’s really crazy is in the last few years, OpenAI’s domination has really been determined by Big Techs, the Microsofts of the world,” said Yeung, referring to ChatGPT-creator OpenAI’s seismic $157 billion valuation. OpenAI is backed by Microsoft, which has made a multibillion-dollar investment in the firm.

‘The IPO market is not happening’

Larry Aschebrook, founder and managing partner at late-stage VC firm G Squared, agreed that the hunt for liquidity is getting harder — even though the likes of OpenAI are seeing blockbuster funding rounds, which he called “a bit nuts.”

“You have funds and founders and employees searching for liquidity because the IPO market is not happening. And then you have funding rounds taking place of generational types of businesses,” Aschebrook said on the panel.

As important as these deals are, Aschebrook suggested they aren’t helping investors because even more money is getting tied up in illiquid, privately owned shares. G Squared itself an early backer of Anthropic, a foundational AI model startup competing with Microsoft-backed OpenAI.

Using a cooking analogy, Aschebrook suggested that venture capitalists are being starved of lucrative share sales which would lead to them realizing returns. “If you want to cook some dinner, you better sell some stock, ” he added.

Looking for opportunities beyond OpenAI

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Why JPMorgan hired NOAA’s Sarah Kapnick as chief climate scientist

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Sarah Kapnick started her career in 2004 as an investment banking analyst for Goldman Sachs. She was struck almost immediately by the overlap of financial growth and climate change, and the lack of client advisory around that theme.

Integrating the two, she thought, would help investors understand both the risks and opportunities, and would help them use climate information in finance and business operations. With a degree in theoretical mathematics and geophysical fluid dynamics, Kapnick saw herself as uniquely positioned to take on that challenge.

But first, she had to get deeper into the science.

That led her to more study and then to the National Oceanic and Atmospheric Administration (NOAA), the nation’s scientific and regulatory agency within the U.S. Department of Commerce. Its defined mission is to understand and predict changes in climate, weather, oceans and coasts and to share that knowledge and information with others.

In 2022, Kapnick was appointed NOAA’s chief scientist. Two years later, JPMorgan Chase hired her away, but not as chief sustainability officer, a role common at most large investment banks around the world and a position already filled at JPMorgan.

Rather, Kapnick is JPMorgan’s global head of climate advisory, a unique job she envisioned back in 2004.

Just days before the official start of the North American hurricane season, CNBC spoke with Kapnick from her office at JPMorgan in New York about her current role at the bank and how she’s advising and warning clients.

Here’s the Q&A: 

(This interview has been lightly edited for length and clarity.) 

Diana Olick, CNBC: Why does JPMorgan need you?

Sarah Kapnick, JPMorgan global head of climate advisory: JPMorgan and banks need climate expertise because there is client demand for understanding climate change, understanding how it affects businesses, and understanding how to plan. Clients want to understand how to create frameworks for thinking about climate change, how to think about it strategically, how to think about it in terms of their operations, how to think about it in terms of their diversification and their long-term business plans.

Everybody’s got a chief sustainability officer. You are not that. What is the difference?

The difference is, I come with a deep background in climate science, but also how that climate science translates into business, into the economy. Working at NOAA for most of my career, NOAA is a science agency, but it’s science agency under the Department of Commerce. And so my job was to understand the future due to physics, but then be able to translate into what does that mean for the economy? What does that mean for economic development? What does that mean for economic output, and how do you use that science to be able to support the future of commerce? So I have this deep thinking that combines all that science, all of that commerce thinking, that economy, how it translates into national security. And so it wraps up all these different issues that people are facing right now and the systematic issues, so that they can understand, how do you navigate through that complexity, and then how do you move forward with all that information at hand?

Give us an example, on a ground level, of what some of that expertise does for investors.

There’s a client that’s concerned about the future of wildfire risk, and so they’re asking, How is wildfire risk unfolding? Why is it not in building codes? How might building codes change in the future? What happens for that? What type of modeling is used for that, what type of observations are used for that? So I can explain to them the whole flow of where is the data? How is the data used in decisions, where do regulations come from. How are they evolving? How might they evolve in the future? So we can look through the various uncertainties of different scenarios of what the world looks like, to make decisions about what to do right now, to be able to prepare for that, or to be able to shift in that preparation over time as uncertainty comes down and more information is known

So are they making investment decisions based on your information?

Yes, they’re making investment decisions. And they’re making decisions of when to invest because sometimes they have a knowledge of something as it’s starting to evolve. They want to act either early or they want to act as more information is known, but they want to know kind of the whole sphere of what the possibilities are and when information will be known or could be known, and what are the conditions that they will know more information, so they can figure out when they want to act, when that threshold of information is that they need to act.

How does that then inform their judgment on their investment, specifically on wildfire?

Because wildfire risk is growing, there’ve been a few events like the Los Angeles wildfires that were recently seen. The questions that I’m getting are could this happen in my location? When will it happen? Will I have advanced notice? How should I change and invest in my infrastructure? How should I think about differences in my infrastructure, my infrastructure construction? Should I be thinking about insurance, different types of insurance? How should I be accessing the capital markets to do this type of work? It’s questions across a range of trying to figure out how to reduce vulnerability, how to reduce financial exposure, but then also, if there are going to be risks in this one location, maybe there are more opportunities in these other locations that are safer, and I should be thinking of them as well. It’s holistically across risk management and thinking through risk and what to do about it, but then also thinking about what opportunities might be emerging as a result of this change in physical conditions in the world.

But you’re not an economist. Do you work with others at JPMorgan to augment that?

Yes, my work is very collaborative. I work across various teams with subject matter experts from different sectors, different industries, different parts of capital, and so I come with my expertise of science and technology and policy and security, and then work with them in whatever sphere that they’re in to be able to deliver the most to the bank that we can for our clients.

With the cuts by the Trump administration to NOAA, to FEMA, to all of the information gathering sources — we’re not seeing some of the things that we normally see in data. How is that affecting your work?

I am looking to what is available for what we need, for whatever issue. I will say that if data is no longer available, we will translate and move into other data sets, use other data sets, and I’m starting to see the development out in certain parts of the private sector to pull in those types of data that used to be available elsewhere. I think that we’re going to see this adjustment period where people search out whatever data it is they need to answer the questions that they have. And there will be opportunities. There’s a ton of startups that are starting to develop in that area, as well as more substantial companies that have some of those data sets. They’re starting to make them available, but there’s going to be this adjustment period as people figure out where they’re going to get the information that they need, because many market decisions or financial decisions are based on certain data sets that people thought would always be there.

But the government data was considered the top, irrefutable, best data there was. Now, how do we know, when going to the private sector, that this data is going to be as credible as government data?

There’s going to be an adjustment period as people figure out what data sets to trust and what not to trust, and what they want to be using. This is a point in time where there is going to be adjustment because something that everyone got used to working with, they now won’t have that. And that is a question that I’m getting from a lot of clients, of what data set should I be looking for? How should I be assessing this problem? Do I build in-house teams now to be able to assess this information that I didn’t have before? And I’m starting to see that occurring across different sectors, where people are increasingly having their own meteorologist, their own climatologist, to be able to help guide them through some of these decisions.

Final thoughts?

Climate change isn’t something that is going to happen in the future and impact finance in the future. It’s something that is a future risk that is now actually finding us in the bottom line today.

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Daniel Loeb’s next task as his hedge fund turns 30: Avoiding becoming ‘AI roadkill’

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This is why Jamie Dimon is so gloomy on the economy

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Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of Wall Street Firms, in the Hart Building on Dec. 6, 2023.

Tom Williams | Cq-roll Call, Inc. | Getty Images

The more Jamie Dimon worries, the better his bank seems to do.

As JPMorgan Chase has grown larger, more profitable and increasingly more crucial to the U.S. economy in recent years, its star CEO has grown more vocal about what could go wrong — all while things keep going right for his bank.

In the best of times and in the worst of times, Dimon’s public outlook is grim.

Whether it’s his 2022 forecast for a “hurricane” hitting the U.S. economy, his concerns over the fraying post-WWII world order or his caution about America getting hit by a one-two punch of recession and inflation, Dimon seems to lace every earnings report, TV appearance and investor event with another dire warning.

“His track record of leading the bank is incredible,” said Ben Mackovak, a board member of four banks and investor through his firm Strategic Value Bank Partner. “His track record of making economic-calamity predictions, not as good.”

Over his two decades running JPMorgan, Dimon, 69, has helped build a financial institution unlike any the world has seen.

A sprawling giant in both Main Street banking and Wall Street high finance, Dimon’s bank is, in his own words, an end-game winner when it comes to money. It has more branches, deposits and online users than any peer and is a leading credit card and small business franchise. It has a top market share in both trading and investment banking, and more than $10 trillion moves over its global payment rails daily.

‘Warning shot’

A review of 20 years of Dimon’s annual investor letters and his public statements show a distinct evolution. He became CEO in 2006, and his first decade at the helm of JPMorgan was consumed by the U.S. housing bubble, the 2008 financial crisis and its long aftermath, including the acquisition of two failed rivals, Bear Stearns and Washington Mutual.

By the time he began his second decade leading JPMorgan, however, just as the legal hangover from the mortgage crisis began to fade, Dimon began seeing new storm clouds on the horizon.

“There will be another crisis,” he wrote in his April 2015 CEO letter, musing on potential triggers and pointing out that recent gyrations in U.S. debt were a “warning shot” for markets.

That passage marked the start of more frequent financial warnings from Dimon, including worries of a recession — which didn’t happen until the 2020 pandemic triggered a two-month contraction — as well as concerns around market meltdowns and the ballooning U.S. deficit.

But it also marked a decade in which JPMorgan’s performance began lapping rivals. After leveling out at roughly $20 billion in annual profit for a few years, the sprawling machine that Dimon oversaw began to truly hit its stride.

JPMorgan generated six record annual profits from 2015 to 2024, twice as many as in Dimon’s first decade as CEO. JPMorgan is now the world’s most valuable publicly traded financial firm and is spending $18 billion annually on technology, including artificial intelligence, to stay that way.

While Dimon seems perpetually worried about the economy and rising geopolitical turmoil, the U.S. economy keeps chugging along. That means unemployment and consumer spending has been more resilient than expected, allowing JPMorgan to make record profits.

In 2022, Dimon told a roomful of professional investors to prepare for an economic storm: “Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this,” Dimon said, referring to the Federal Reserve managing the post-pandemic economy.

“That hurricane is right out there, down the road, coming our way,” he said.

“This may be the most dangerous time the world has seen in decades,” Dimon said the following year in an earnings release.

But investors who listened to Dimon and made their portfolios more conservative would’ve missed on the best two-year run for the S&P 500 in decades.

‘You look stupid’

“It’s an interesting contradiction, no doubt,” Mackovak said about Dimon’s downbeat remarks and his bank’s performance.

“Part of it could just be the brand-building of Jamie Dimon,” the investor said. “Or having a win-win narrative where if something goes bad, you can say, ‘Oh, I called it,’ and if doesn’t, well your bank’s still chugging along.”

According to the former president of a top five U.S. financial institution, bankers know that it’s wiser to broadcast caution than optimism. Former Citigroup CEO Chuck Prince, for example, is best known for his ill-fated comment in 2007 about the mortgage business that “as long as the music is playing, you’ve got to get up and dance.”

“One learns that there’s a lot more downside to your reputation if you are overly optimistic and things go wrong,” said this former executive, who asked to remain anonymous to discuss Dimon. “It’s damaging to your bank, and you look stupid, whereas the other way around, you just look like you’re being a very cautious, thoughtful banker.”

Banking is ultimately a business of calculated risks, and its CEOs have to be attuned to the downside, to the possibility that they don’t get repaid on their loans, said banking analyst Mike Mayo of Wells Fargo.

“It’s the old cliché that a good banker carries an umbrella when sun is shining; they’re always looking around the corner, always aware of what could go wrong,” Mayo said.

But other longtime Dimon watchers see something else.

Dimon has an “ulterior motive” for his public comments, according to Portales Partners analyst Charles Peabody.

“I think this rhetoric is to keep his management team focused on future risks, whether they happen or not,” Peabody said. “With a high-performing, high-growth franchise, he’s trying to prevent them from becoming complacent, so I think he’s ingrained in their culture a constant war room-type atmosphere.”

Dimon has no shortage of things to worry about, despite the fact that his bank generated a record $58.5 billion in profit last year. Conflicts in Ukraine and Gaza rage on, the U.S. national debt grows and President Donald Trump‘s trade policies continue to jolt adversaries and allies alike.

Graveyard of bank logos

“It’s fair to observe that he’s not omniscient and not everything he says comes true,” said Truist bank analyst Brian Foran. “He comes at it more from a perspective that you need to be prepared for X, as opposed to we’re convinced X is going to happen.”

JPMorgan was better positioned for higher interest rates than most of its peers were in 2023, when rates surged and punished those who held low-yielding long-term bonds, Foran noted.

“For many years, he said ‘Be prepared for the 10 year at 5%, and we all thought he was crazy, because it was like 1% at the time,” Foran said. “Turns out that being prepared was not a bad thing.”

Perhaps the best explanation for Dimon’s dour outlook is that, no matter how big and powerful JPMorgan is, financial companies can be fragile. The history of finance is one of the rise and fall of institutions, sometimes when managers become complacent or greedy.

In fact, the graveyard of bank logos that are no longer used includes three — Bear Stearns, Washington Mutual and First Republic — that have been subsumed by JPMorgan.

During his bank’s investor day meeting this month, Dimon pointed out that, in the past decade, JPMorgan has been one of the only firms to earn annual returns of more than 17%.

“If you go back to the 10 years before that, OK, a lot of people earned over 17%,” Dimon said. “Almost every single one went bankrupt. Hear what I just said?

“Almost every single major financial company in the world almost didn’t make it,” he said. “It’s a rough world out there.”

Watch CNBC’s full interview with JPMorgan CEO Jamie Dimon

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