Points on the Board

Welcome to the latest show of the Meaning of Money live podcast. My name is Stefan Whitwell, and I am the host, the CEO and Chief Investment Officer of Whitwell and Company. The Meaning of Money is a live show for founders, investors, and families who have already made money and are now focused on what that wealth should actually make possible. Each episode explores what comes after financial success — freedom, family, health, purpose, investing in legacy. And I'm excited to have Richard join us on today's show. Richard Samuelson is both a CFA and the founder of the Swan Venture Group. Both he and I have spent time living in Japan, and I'm looking forward to today's conversation. Welcome, Richard. Thank you, Stefan. So I have to ask, since we were both in Japan: where are you today? I know you probably travel and are in a couple of different places, but where are you taking this conversation from today? And when did you first travel to Japan? As I recall from one of our previous conversations, you've worked literally around the world, not just in Japan. Give us a brief overview, so people watching can get a sense of the broadness of your perspective. Well, the first time in Japan was as a graduate student in the '80s. I spent a summer at the Industrial Bank of Japan, which then was considered the granddaddy of all banks, perhaps the most prestigious bank in Japan, in that iconic building that looked like a ship, actually. And then I went back — I went on business trips there a number of times, but I didn't go back as an executive until the early 2000s, when I was appointed to be the Managing Director of UBS Securities in Tokyo. I spent several years there building up that business, competing with Goldman Sachs. I knew Tom Montag quite well; his kids and my kids went to school together at Nishimachi. I really enjoy working with the Japanese. They've always been great business partners. It takes some understanding of what their goals are; they don't always express them clearly, so you need to read the tea leaves a bit. I've had a lot of experience in Asia, so I think that helped me with my job in Japan. We built that up from a $200 million-plus business to $600 million-plus, mainly brokerage, but also corporate finance work.

Japan as an Overlooked Source of Capital

I think Japan since has not gotten as much attention as it deserves as a source of capital, and that is one of the things that Swan Venture Group tries to address very directly. Japanese firms are technologically advanced, obviously, and they're very interested in acquiring technologies from around the world, but particularly from the United States. So in order to service that requirement, we have partners located in Tokyo, and we have partners in the United States. We help to marry the stated interest of our Japanese institutional partners — which is to meet with technology companies, acquire technologies, invest in technologies, sign distribution agreements and sales agreements, and even set up incubators in the United States — to attract more and different technologies, ranging from MedTech to all kinds of software applications, robotics, you name it. One identifying characteristic that you find across all the Japanese institutions we talk to, whether it's Mitsubishi Bank or Shinipu on Bio or Toyota, is that technology comes first. In other words, they aren't only interested in returns. They are interested in returns ultimately, but first and foremost is: will this technology advance their existing product lines, or does it complement product lines they already have, particularly within Asia? They're always looking for technologies or products that they can sell into Asia, where they have huge distribution networks. And the technology doesn't have to be ultra-advanced. It can be a modified sort of footwear enhancement, I would say, but if it's applicable to Asia, they're all in.

Meeting Japanese Institutions in Seattle

One of the things that I really appreciate about Asia, having lived in Japan for seven years and traveled to a number of other countries in Asia, is their long-term perspective. That's not to say that there aren't a fair share of users of TikTok and YouTube and all the other stuff out there, but there's still a longer ability to think long-term. And I think it's important to couple that with paying attention to the short term. When you look at some of the greatest US investors, the Warren Buffetts of the world, they've had that similarly long-term thinking. It's a reflecting aspect, I think, of the culture over there. How much time do you spend building Swan here, versus in Asia or in Japan? We arrange things so that I really don't have to go to Japan very often. What I do is meet Japanese institutions mostly in Seattle, because we spark their conferences. We work together with the Department of Commerce of the State of Washington. A lot of the companies — not entirely, but a lot of them — are concentrated in the Pacific Northwest and the West Coast, and that's convenient for the Japanese as well. They tend to have a lot of representatives in Silicon Valley and elsewhere across the West Coast, so it makes perfect sense to have your conferences concentrated there, and you'll get them to come. That's been very effective — showing a willingness to assist them on the ground. For example, we signed a contract a few years ago with Shinepon Bada Provide Research. That led to their establishing an incubator in Everett, Washington. We served as advisors. They also relied on Plug and Play, a SoftBank, and so forth, but we were one of their partners that moved them from really being more of a bystander — watching the development of MedTech and biotech in the United States from a distance — to being an active participant, interacting especially with the University of Washington and sponsoring companies. They've got a $40 million corporate VC fund now. So I sense, and I strongly believe, that Japanese corporations are upping their game and increasing their appetite and acquisition of technologies, because they see what the US has to offer in particular, and they want a part of it.

Which MedTech He Backs — and Which He Avoids

Let me ask you about MedTech and AI. Those are two areas in which you have actively invested and continue to play. What areas of MedTech are most interesting to you? Which ones do you avoid? Let's start with that, and then I'll ask you a couple of questions about AI. Okay. Let me make a distinction between biopharma and medical equipment technology. With biopharma, only about 10% of the experimental drugs ever make it to market, and you have to be a lot smarter than I am to figure out which ones they are. It takes an incredibly long time, and understanding how the FDA works is beyond anything I can conceive of. You're supposed to be reading tea leaves, though, Richard. There are many people better than I am, but my investors don't have the patience, in most cases, to go the ten-plus years needed to get a drug product to market. And the returns for the successful drugs can be incredible, but that doesn't align with our timeframe. We see quicker exits. So non-biopharma, then. Yeah. And it doesn't have to be groundbreaking technology. It can be an enhancement of an existing sort of device — cheaper, better, faster, more efficient, more accurate — that we know will be widely accepted. Obviously, when you're looking at the purchase, you're thinking about the exit. And if something is — not to downplay it — marginally better rather than groundbreaking, like you said, you've got to worry about encroachment from other competitors. What are you looking at in that case to give you that comfort? Is it their go-to-market success or focus? What are two or three things at the top of your list to look at to get comfortable in that scenario, where it's not groundbreaking, it's just better, but it's a competitive world and you want to hit that exit? Well, ideally, some patent protection. That doesn't stop the competition; it kind of slows it down and makes it more expensive for them, so that's a factor. More important than that, though, is you'll want a management team that's done it before. And when I say done it before, I mean taking the product to market and selling the company successfully. That's critical. If they haven't done that, then it's not likely we would invest. We have invested in a few first-timers, but not many. Yeah, one of my favorite questions to ask is: have you done this before? Not a very technical question, but an important one nonetheless, to make sure you don't gloss over it.

What Excites and Worries Him About AI

Jumping to the AI side of things — obviously there are a lot of different perspectives out there. Some people are focused on just the extraordinary brilliance of the intellect behind the modern language models. Others are focused on the underlying infrastructure that's supporting it. Other people are panicking about the potential impact it'll have on the job market. Other people are coming out, as we saw recently in the last week, with arguments that no, it's going to actually increase demand for labor. What's your high level? What gets you excited about AI, what worries you about AI, and where within that space are you looking to focus your investment dollars? I'm excited. I think, on balance, AI will enable the human workforce to become vastly more efficient. That doesn't mean everyone will benefit equally, but those who make the effort to learn how to use the technology will become maybe several times more productive than they are currently. It's a moving target, of course — the models get better every week — so it's hard to fully anticipate where this will end up. We are invested in a company called Looper AI, and what it does is spot defects on assembly lines. It's a combination software-sensor offering, but it's used widely. They have large customers like Daimler-Benz and other big manufacturers. We like the specialized applications where you can see how much more — all you need to do is, say, 5% of the cost of a manufacturing operation by effectively eliminating the defects. That's a massive boost to the bottom line. That's all you need to do. We like a situation like that, where this and other similar technologies will become de facto standards. It won't be a want-to-have; it's going to be a got-to-have. Because once Daimler gets it running, of course Chrysler is going to want it, and GM, and everybody else. So the whole game moves on. We're always on the lookout for specialist applications of AI. Another one would be digital identity. With fraud being the problem it is, the infrastructure for digital identity verification, which involves AI as well, is being set up as we speak. It's unavoidable that the world moves in that direction. Unfortunately, a lot of the fraud is AI-driven now. People who commit fraud are smart — always have been — and now they're just using the most available tools.

The Cat-and-Mouse of Data and Fraud

Absolutely. Identity theft and data is an increasingly challenging issue — not least because a lot of corporates today, most corporations today, have a pretty deep abstract. They might have 30-plus applications in their tech stack, and each of those today feels compelled to offer some aspect of AI. Most of those companies don't actually own the models themselves, so they're subcontracting out to one firm or another. Suddenly the question is: who has access to your data, and how secure is that? It's a fascinating cat-and-mouse game, but scary too. The more these tools allow you to give them more power to do things, the more effective it is for you — but the more control you're giving it is also scary. What could go wrong? We've all seen technology glitch before, and there'll be a day when people load up their credit card numbers and say, go ahead and buy this for me online, book my tickets, do this, do that — and next thing you know, it glitches, and you've bought a quarter of a million dollars in airline tickets. Whoopsie. That's a tough dinner-table conversation with your wife. It's not one I want to have. It's real challenging. There's no doubt that... well, I think we're seeing that in all aspects. With Nithos, and just cybersecurity in general, I think it's very much a double-sided sword, which in turn creates opportunity for the firms that are helping protect us. But it's a real issue. Yeah, I also see new products spinning off of AI efficiency. AI is really good at writing code, we're finding.

Will Consulting Survive AI?

I know a company we're looking at that has a sweet little business — a million in revenue turnover, run by two guys — that deals with construction of solar sites and optimizing those, and they run the whole thing on Excel spreadsheets. As a consulting model, you can never make more than a certain amount of money, because these two guys are heads-down all the time running spreadsheets. But if you were to migrate — and this is what we're encouraging them to do — to a software, code-driven product, for which you could charge licensing fees and which is replicable, and you build a company around that, the market alone would easily handle a $20, $30, $40, $50 million revenue offering for a company like that. Those sorts of low-hanging-fruit migrations — I don't see how the consulting business survives in its current form, actually. Any consulting? Well, I'll challenge part of that. I agree with most of that. Worcestershire, I agree with that. One of my kiddos works for a nameless high-end strategy consulting firm that charges their industrial clients a ridiculous amount of money. And I don't know whether their clients understand that 99% of the work they are doing is really just a bunch of people in the back room talking about how they're going to spend the airline miles they accumulated on the back of all these engagements — and doing most of the work through Claude or ChatGPT. That's right. Not that I don't think there's great value in using those as assistive tools to accelerate or deepen what you're doing, but we both know it's also easy for the human being to get lazy. And when people are pushing for efficiency and relying more and more on just the output as it is, it starts to make you wonder: why are they hiring those people at all? Why don't they just hire somebody internally — one person to replace all those consultants? They'll save a ton of money and get the same product. So I share that. I do think the consulting industry is about to get exposed in a significant way. Where I have a slightly different opinion is that often what holds people back from taking the actions they know they need to take is emotion, not lack of data or logic. If you were to, maybe pre-GLP-1, poll a room of a thousand Americans and say, everybody who feels they need to lose ten pounds or more, put your hand up — I'd venture to say a good chunk of the room put their hands up. And then you say, ask yourself, of those people with their hands up, how many really have no idea what they need to do, versus how many know what they need to do and just can't get themselves to do it? They know they need to get more sleep, they need to eat right, they need to stop drinking 24 Cokes a day, they need to move a little bit. It's not hard. I think often senior decision-makers in firms face existential decision points when they know they need to make a decision. It could be as simple as: I know I need to let this person go, but I just can't, or I'm slow to do it; or I know I need to shut that division down; or I need to face the fact that this other business of ours is not doing well more squarely in the face. But there are human, emotional reasons that hold those people back. And I think the opportunity for leadership, and in the consulting realm, comes from engaging that side of the leadership and helping them confront that, or grow through that, or step up to deal with whatever needs to be dealt with. But as far as the tomes of analysis being produced by consultants, I agree — that's going to be replaced. Well, I'm just amazed that large corporates continue to pay what they do. You've got to wonder — whoever's writing those checks, do you understand that it's a bunch of young 20-year-olds who are just doing this to chat to you? Well, there's that. But at the risk of being cynical — and we were both in investment banks — there's a lot of CYA that goes on at the managerial level. So if it's the wrong decision, you can blame the consultants. So maybe there's a continued role for consultants. Yeah, that's interesting. And true. Whose idea? McKinsey's idea. Exactly. I had the exact experience in China. So maybe there's a true leadership — or true scapegoat — role for consultants yet.

Knowing When to Sell

You're touching on a very important point, though. One of the problems we continue to see with dynamic, venture-funded managers is they often don't know when to stop. They don't know when to sell. Their mindset is just: keep going. They bowl through everything, and mostly they're successful. But I know one nutraceutical company — and you speak of GLP-1s — well, what that has done to the nutraceutical business in a very short period of time is astonishing. It's just destroyed it. They're too convenient, right? So this company, where I'm a shareholder — I advised them to sell several years ago, and the entrepreneur-founder said, well, I just want to add on another business line and get it to a certain level. And lo and behold, the GLP-1s arrived, and his revenue declined 80% in a year. Ouch. Yeah, so that happens too. Indeed.

How Wealth Changes Repeat Founders

How many of the early-stage venture investments are you making in first-timers? You mentioned that you will talk to first-time founders, but more often you'll talk to founders who have been through it once or more. There's a school of thought that says the first-time entrepreneur is extra hungry, extra driven, because they don't have anything — they're trying to increase their wealth or make money for the first time in their life. The second-time or third-time founder, who's had the exit and has some money and wealth set aside — how does that wealth impact how they go about building business number two or three, good or bad? I think it helps them, on balance, if they have a cushion. There's nothing worse than being kind of desperate all the time while you're building up a company. Unfortunately, for first-time founders in particular, because they don't have the network of investors, they spend an awful lot of time raising money. And that oftentimes hurts the business, because they're doing effectively two full-time jobs. If you don't get both right, chances are you're not going to succeed. One of the problems, of course, is they get in the habit of doing both things at once and not relying on a complete governance structure. So you'll often find that they will not appoint additional board members for quite some time. They won't have the muscle memory associated with good governance of the sort you see with the CFA Institute, for example. They shoot a lot from the hip, and so more mistakes get made when that happens. And so I think, if you don't have agreement up front that we're in this to exit — we're in this to make money from our investment, we're not in this to build an empire; the empire is just a means to get to the sale of your company or the IPO, whatever it is — if you don't have that understanding and agreement in advance, the chances that you're going to get an optimal exit are low. Really low. Yeah, I think that's 100% right. Absolutely. It's got to be open, it's got to be explicit.

When Money Becomes Points on the Board

At what point do you think money stops being about security for people and starts to become more about meaning? For most entrepreneurs, the money's secondary, frankly. That's points on the board. And I would say that about a lot of investment bankers too. These are highly motivated people. They're smart. But when you're making 200, 300, 400 base plus millions of dollars in bonuses every year — where's the time to spend it? It's about putting points on the scoreboard. It's about beating Morgan Stanley, or beating UBS, or beating Goldman. You're always measuring it. It's like an athletic race. Although, in New York City — you asked where the time is spent? I think January 1st through June 30th is spent working for the government. You get to start working for yourself in early July. That's right. It's the wonder of New York. I live in South Carolina. There's a reason. And I'm in Austin, Texas — we are severely allergic to taxes here, and lots of entrepreneurs, and may that continue for a long time. But it's interesting: I was looking at the history of tax rates in the U.S. If you look at the top federal tax rate within the last 100 years in the U.S., it's been as high as 90%. Yes. It seems like a shocking number, at least to my mind, having grown up in what I then would have described as a pro-capitalist, generally capitalist economy — and I still believe we are, in many ways. But it's just so hard to imagine, looking back at economic history, living in an environment where that was the case, or even levels between here and there — forget 90, try 80, or 70, or 60. Yes. And it's interesting, too, when you look at things like inflation. We're living in a fairly benign era; we get really worked up over slight movements in inflation. But you go visit Buenos Aires, and they're celebrating when it's come down to 15%. Right. Could you imagine how the New York Stock Exchange here would react if we had a print in the 15% range? So we are truly blessed, and for all of our imperfections, I think we have a lot to be grateful for. But if you study history, there are periods where we've gone through significant stretches of up and down. For all that we're obsessed with the current market and the current extremes — the biggest IPO in history that's coming later this week, if all proceeds as planned — there have been a lot of other times that have had periods of stretch and craziness on the upside or the downside. Wasn't it 1928, when the market was up 20 or 60-some-odd percent, leading into the beginning of the bubble that led to the Great Depression? So, interesting times.

Why Venture Capital

Amidst changing times like this, what gets you excited about venture capital versus other types of investment strategies? All of them have to deal with the fact that we live in a dynamic environment where things can change. Even though we are relatively spoiled here with pretty darn good fundamentals and macroeconomic tailwinds, we're still subject to periods of great volatility and risk. Tell me what draws you to venture capital, and why you think that's the best place for your investors' dollars. Well, I think innovation is both accelerating and democratizing. One of the unheralded developments associated with the AI revolution is that the cost of starting a business is going to drop dramatically. You'll essentially be able to use AI agents to do, call it, 70% of the work, or more. So someone with a good idea can get up and running and start a business with much less capital than we've seen historically. And that alone will increase the pace of innovation, and, I believe, the rewards to innovation and ultimately the wealth-creation ability of a country. And, call it patriotism, call it experience having lived in many other countries — you can say whatever you want about the United States, but we are really, really good at assembling capital and innovating. There's something to be said for the spirit of innovation, in all areas of life, and I celebrate that. I guess we as a country are celebrating that this year as well. On that note, Richard, if people want to learn more about you and what you're up to, what's the best way for them to get in touch, or learn more about what you're doing at Swan? Sure. We have our website at swanvg.com. And my email is rs@swanvg.com, so please contact me. Richard, it's been great having you on the show. Thank you for making time today. I look forward to staying in touch, and good luck with your next fund and your ongoing investments. Great. Thank you very much, Stefan. Great pleasure. See you.