A peculiar deal that raises many questions — Yubico’s SPAC listing

April 19, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 19th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

When Bure’s SPAC vehicle ACQ wants to take security company Yubico public, it raises many questions. The main one: why are the buyers and sellers largely the same people from the same firms?

At Wednesday morning’s press conference, Patrik Tigerschiöld, chairman of ACQ Bure, posed the question that every ACQ shareholder ought to be asking.

“And then perhaps you ask yourself — ACQ has been looking for a company to acquire for two years, and ends up buying a company that Bure already owns a stake in. This fact has been a challenge for me and the entire team.”

Yes, that does sound like a challenge. A communications challenge in particular. How do you spend two years searching for something your own parent company already had in its portfolio?

No such explanation was forthcoming, unfortunately. And it leaves a long list of questions unanswered in the wake of today’s announcement about security company Yubico — founded by Stina Ehrensvärd — which may soon be listed on Sweden’s Nasdaq First North Growth Market.

Investing in a SPAC is a kind of bet more than anything else. The idea is that the SPAC’s management will scour the market for strong listing candidates, evaluate them, and ultimately execute a merger that results in a fast and efficient public debut for a promising company. That’s how it’s meant to work in theory.

In practice, it’s worth noting that there was a considerably cheaper and faster way to get Yubico to market. To understand why, you only need to look at the names on each side of the deal.

Among Yubico’s largest sellers: Bure (via Bure Growth), AMF Tjänstepension, and AMF Fonder.

Among ACQ Growth’s largest owners: Bure, AMF Tjänstepension, and AMF Fonder.

The conflict of interest is obvious, and it has led several board members to recuse themselves from the decisions. Valuation is another problem. How do you price a company when the buyer and seller are largely the same people?

The proposed structure solves a headache for ACQ Bure, whose SPAC format has completely fallen out of favor with investors. In 2021, 791 new SPAC vehicles were created worldwide. In February this year, that number was 10. The SPAC concept is currently dead.

But for SPACs that are already listed, the obligation remains: find a merger partner or return the money to investors. ACQ Bure had until March 2024 to find a suitable company. That problem is now solved.

Even for technically listed SPAC companies, the current market backdrop can’t be ignored. Over the past year, the tech-heavy American Bessemer Cloud Index has fallen 24 percent. In Sweden there are many examples of tech companies down far more — sometimes over 80 percent.

When SvD asked management directly about the tech market environment, they acknowledged it had been poor both last year and this year. But according to Bure CEO Henrik Blomkvist, Yubico is something “special and unique.”

There is indeed something unique about this deal. But it isn’t only the impressive technology that Swedish-American Yubico has developed over its 16 years as a company, or the fact that it has helped set the global standard for cybersecurity — an impressive achievement by any measure.

What may be rather more unique and special here is how majority owners Bure and AMF have handled their responsibilities toward other shareholders and pension savers. It took them two years and significant costs to identify a company they already owned — in order to then list it in the toughest tech market since 2008. That does sound uniquely special, in its own way.

Note: Yubico is one of the nominees for SvD Affärsbragd 2023.

Apple’s savings account could be just the beginning for big banks

April 19, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 19th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Apple’s latest product isn’t a gadget — it’s a savings account. But the real threat to traditional banks is what the tech giant might do next. Because Apple, as usual, has several aces up its sleeve.

In a dimly lit, elegant restaurant in Palo Alto, California — at the heart of Silicon Valley — a major Swedish bank’s board and senior leadership are gathered. It’s the early 2010s, and the bank’s executives are in town to be inspired by digital technology and learn from it. The invited guests are local entrepreneurs with some connection to Sweden. I’m one of them.

The conversation turns to challengers in the banking and finance world. Apps are demonstrated, potential disruptors described. The bank’s board is not particularly impressed.

They reference a recent customer satisfaction survey. Customers are happy — therefore competition from new players is not a problem.

That’s the usual script. Among the headlines about “new challengers,” very few in practice actually challenge large and established players. Especially in heavily regulated areas like banking and finance.

Even Klarna — themselves a sort of challenger — recently dismissed the threat from Apple’s relatively new “buy now, pay later” feature. Klarna has many customer offerings and is established across its markets. There’s therefore no reason to worry, you could infer from the interview with CEO Sebastian Siemiatkowski.

When Apple launches a savings account in its mobile app for American customers, Swedish banks are therefore unlikely to be particularly concerned — despite the generous interest rate of 4.15%. They’re used to being able to write off new competitors as ambitious but irrelevant.

A savings account here or there probably doesn’t make much difference.

But it would be a mistake to underestimate what a company like Apple can do when it has decided to take on an industry.

Apple’s financial services are built in partnership with investment bank Goldman Sachs — which has itself had difficulties breaking into the more consumer-facing side of banking.

In January, Goldman Sachs announced that its consumer division had lost around 30 billion kronor since launch in December 2020. Given this, the relative calm among big banks is understandable — even a major bank from a different part of the financial sector appears to find it hard to compete on their home turf.

But Apple is not like other companies. Even setting aside its capacity for innovation, it has an asset that is difficult to compete with: a great deal of money.

A very great deal, in fact.

At the start of the year, Apple held over 210 billion kronor in liquid assets — plus around 350 billion kronor in securities. That’s roughly equal to the combined market capitalization of Handelsbanken, Swedbank and Danske Bank. There are resources to work with.

There is also a strategic ambition for growth, with Apple having identified financial services as one of its chosen areas. iPhone sales are stable but no longer growing the way they once did. Building out an ecosystem of software services to complement the hardware has therefore been CEO Tim Cook’s focus in recent years.

Apple Pay — the ability to pay by tapping your phone, with no physical card needed — is popular with users. It could be seen as something of a Trojan horse in this context. Customers are already paying with their iPhone. Which card handles the underlying transaction becomes, in that way, rather less important.

Apple also has something that the big banks neither have nor can acquire quickly — a brand that people actually like.

That became clear when the company finally opened the doors to its new store in Mumbai, India, drawing enormous crowds.

It’s also visible in surveys. Consulting firm Interbrand publishes an annual ranking of the world’s most valuable brands. Top of the list in 2022? Apple. The first financial name doesn’t appear until position 24, with bank JP Morgan Chase.

If we set aside Apple’s savings account and instead focus on the direction of travel, a picture emerges that should be more troubling for the financial establishment.

Imagine Apple acquiring Goldman Sachs’s struggling consumer division. They already work together. Apple could then integrate banking services and payments directly into the operating systems running across more than 1.8 billion active devices in the market.

They could offer exclusive deals to everyone who has — or buys — a new iPhone. And they do it with a brand that stands far higher in public esteem than any of the big banks.

Last but not least — Apple can afford to do it.

In fact, they can afford to lose money on this for decades. Because they have what no other bank has — entirely different revenue streams.

Core parts of the big banks’ business would, in this scenario, become something of a side benefit for a company like Apple. That is something worth feeling threatened by.

Banning TikTok could become a geopolitical game of cat and mouse

April 17, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 17th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

While American politicians try to ban TikTok, a similar app — with the same owner — is climbing the charts. The stage is set for a geopolitical game of cat and mouse.

“Mr. Chew, can TikTok access home wireless networks?”

Republican congressman Richard Hudson looked concerned as he questioned TikTok’s CEO, Shou Chew, at the end of March. Together with colleagues, he grilled Chew for five hours in an effort to better understand the popular social media app. The quality of the questions varied considerably, and often seemed more focused on looking good on television than on actually learning anything.

The backdrop to the hearing is the geopolitical tension between the US and China. TikTok first ran into trouble during the Trump presidency, when it came close to being forced into a partnership with American IT giant Oracle — to ensure that data from American users didn’t end up with the Chinese government. President Biden reversed that decision, but has since had to return to something resembling the original plan. After it emerged that TikTok had spied on journalists, the app is now under investigation and faces the prospect of being banned entirely from the American market.

The question to ask is: how much effect can banning a single app actually have?

In the US, an app called Lemon8 is now rapidly gaining popularity. It resembles TikTok in many respects and has received over 650,000 downloads in the past two weeks. The company behind it is called Heliophilia Pte Ltd — a name most people are unlikely to recognize. Its registered address, however, is more familiar: it’s identical to TikTok’s office in Singapore. Both apps share the same majority owner — Chinese conglomerate ByteDance.

As an ordinary mobile user, it can be difficult to know who actually owns the popular apps you use. In Sweden, for example, the video editing app CapCut sits high on the app charts. It is also owned by ByteDance. A few positions lower is FaceApp — the digital face filter app whose parent company is registered in Cyprus, but whose founder, Yaroslav Goncharov, previously sold companies to — and worked at — Yandex, often described as “the Russian Google.” The app was investigated by the FBI a few years ago over concerns about Russian counterintelligence.

Banning a single app may sound like a simple solution, but the situation is more complex than that. In some cases — as above — it requires genuine detective work to figure out who actually owns the apps in question.

China has made things easy for itself in this regard. For many years, it has blocked the largest American internet companies. Facebook, YouTube, Reddit and Pinterest are all on the list of products shut out of the country. China’s strong censorship means many of these sites fall foul of existing laws. It was therefore somewhat ironic when China protested to American authorities about the prospect of TikTok being kicked out of the US. There is no symmetry here.

Successfully regulating this messy situation is no easy task. The poor technological literacy of American lawmakers doesn’t help either. Congressional hearings with tech executives over the years have been near-parodically bad, and have produced no concrete legislation. Focusing a hearing on a single foreign app is one way to simplify the critique. Politicians — both Democrats and Republicans — appear to be saying “we believe China can spy on us via TikTok,” and have through this managed to find common ground. The proposed legislation, however, doesn’t name TikTok specifically — it would enable bans on technology services from any country the US has designated as an adversary. A list that can change over time.

It is now quite possible that TikTok will be forced into a sale or IPO to shed its Chinese ownership. A full ban from the US market is less likely. But even if that happened, the problem wouldn’t be solved. Lose one app and a thousand more appear. Should every popular app undergo a national security review? That’s not sustainable in practice. New services and apps that could pose a risk emerge every day. But that reality doesn’t make for good television hearings.

Aimed for space — crashed on the stock exchange

April 5, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 5th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Virgin Orbit is filing for bankruptcy. The story of how the company was listed on the stock market is part of a larger tale about a financial instrument that created enormous expectations — and has now largely collapsed.

Richard Branson said that he started an airline to fund his dream of building a space company. The airline was Virgin Atlantic; the space company, Virgin Galactic.

Between them came Virgin Orbit — a rocket company whose innovation was launching satellites from a converted jumbo jet. The idea was that a plane could carry a rocket to altitude and release it midair, reducing the cost and infrastructure needed for launch.

In January, that mission failed. A rocket launched from a modified Boeing 747 over the Atlantic failed to reach orbit. The company now has around 85 employees left after mass layoffs, and has filed for bankruptcy.

The fact that Virgin Orbit ran out of money is partly explained by the January failure. But the underlying story involves a type of financial structure that became extremely fashionable and is now — just as rapidly — falling out of favor.

Virgin Orbit went public through a so-called SPAC — a Special Purpose Acquisition Company. A SPAC is a listed shell company with no operations of its own; its purpose is to find a real company to merge with, thereby taking that company public without a traditional IPO process. Virgin Orbit merged with a SPAC called NextGen Acquisition Corp in 2021, at a valuation of $3.7 billion.

For some time, SPACs were seen as a smarter and faster path to the stock market. The SPAC raises capital first, then hunts for a target — effectively a blank check with a deadline. High-growth companies that might not yet meet the requirements for a traditional IPO could instead merge with a SPAC and arrive on the market with relatively little scrutiny.

If SPACs sound like a phenomenon from an era of cheap money, there’s a simple reason for that. Back in 2020 — when tech stocks were still sky-high — analyst Byrne Hobart called the entire category a “call option on hype.” In a low-interest-rate environment where everyone was chasing yield, SPACs — even without knowing which company they would eventually merge with — were exactly that: an option on an opportunity that would materialize somewhere down the line. In 2021, 791 SPAC vehicles were listed. In February this year, the equivalent number was 10.

The problem with SPACs, however, isn’t just the growth — it’s that the promised future arrives on a tight schedule. Most SPACs must find an acquisition target within 18 to 24 months of listing. If they fail, the vehicle can be liquidated and investors repaid. So far this year, 70 SPACs have been forced to do exactly that. That list will grow longer as the 24-month windows from 2021 come due.

Among the companies that did manage to find a partner and reach the stock market, the next blow came anyway. In 2022, tech stocks crashed across global markets, and many newly listed SPAC companies fell with them. News site BuzzFeed, for example, has dropped a full 80 percent in a year. It is far from alone. Electric vehicle company Faraday Future is down 93 percent.

In an era of both high inflation and high interest rates, SPACs are unlikely to make a comeback. Neither the structure itself nor the results of those that went through with it show much success to point to. The SPAC chapter can therefore be considered closed for this cycle.

But before it’s fully shut, there’s still some clearing up to do. The hundreds of companies that have already listed still need to either complete a deal or return the money to investors. One SPAC — unwilling to pay its bills — is now being sued by its law firm after the deal fell through. Expect a similar wave of claims from contractors, employees, and investors.

Listing quickly and easily sounded too good to be true. Perhaps it was. And perhaps there was a very simple reason why these companies weren’t publicly listed in the first place. They just weren’t ready for public markets. Not yet — and in some cases, not ever.

There is an urgent problem with AI — and it isn’t what the open letter says

April 4, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 4th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

When 50,000 researchers and business leaders warn against AI development, the uproar is enormous. But the truly serious problem isn’t the development itself — it’s that a handful of companies hold all the power.

“Humanity swallowed by its machines — body, mind and soul — and civilization poisoned to its encroaching death.”

The illustration showed a person being sucked into their own sausage-making machine.

That was the New York Times in 1921.

The website Pessimists Archive has compiled examples from every decade since, dystopian visions of how machines, robots and computers will replace us and take all our jobs.

Now it’s 2023. This time it’s AI that will obliterate the workforce and destroy the world. Plus ça change.

Few things seem to unsettle a society quite like a technological shift. The sudden availability of new, well-developed AI language models has unleashed an explosion of creativity, entrepreneurship — and anxiety.

When an open letter signed by 50,000 researchers and business figures calls for a thoughtful six-month pause in AI development, it adds more fuel to that anxiety.

The fact that signatories include serial entrepreneur Elon Musk and Apple co-founder Steve Wozniak amplifies it further. They want development of the next generation of language models — what would be called GPT-5 — to pause for six months while society considers the risks.

But a pause in development is unlikely to materialize, regardless of how many signatures are gathered.

The letter references a set of principles drawn up by AI enthusiasts at a conference in Northern California in 2017. Those principles were created as a form of self-regulation within a field that, at the time in particular, almost entirely lacked laws and structure.

Following principles is, as we know, voluntary. And without all AI developers simultaneously making the same voluntary decision — including Russia and China — we won’t have added any thoughtfulness to the process. We’ll most likely have done nothing more than hand a head start to those with arguably worse intentions.

The question of how this should be handled — and potentially regulated — is not uncomplicated. Sweden’s EU Council Presidency is a reminder that nascent legislation is emerging from Brussels to try to bring order to the field. The AI Act and the AI Liability Directive are two relevant initiatives, for instance. Sweden appears to have delegated the question there.

Looking at the EU’s history of regulating technology companies, however, there is reason to be skeptical. It took them over 20 years to create laws preventing monopolistic behavior among the largest tech companies.

When they set out to protect our data, we got GDPR — which for the average person has mostly resulted in an endless stream of cookie consent boxes on every website, and the disappearance of class lists from schools.

At a time when Europe essentially lacks any major tech companies on a par with Apple, Google and Meta, it’s hard to imagine that regulation will do more than worsen the continent’s ability to compete.

The most significant AI development is already happening outside the EU. Laws there therefore risk being a swing at thin air. It would be like Sweden imposing strict rules on viticulture — well-intentioned, but largely meaningless in the bigger picture.

If legislation isn’t sufficient and voluntary principles aren’t followed — what’s left? In these technophobic times, one seemingly radical idea would be: optimism.

Instead of only worrying about the end of the world, let us also consider how we can distribute these superpowers fairly and equitably across the world.

If AI development creates the productivity boom that is widely predicted, this is an excellent opportunity not to recreate the kind of de facto tech monopolies that the Western world and China live with today.

Emily M. Bender, one of the researchers whose paper the open letter references, says her conclusions have been misread. Rather than warning about a hypothetically dangerous AI future, she argues, the real and far greater risk is that too few people will be able to access its benefits. It is about “the concentration of power in the wrong hands,” she writes, among other things.

It is therefore of great value that we discuss the future of AI. But an optimistic and pragmatic version of that discussion would focus on how we ensure that as many people as possible can benefit from the productivity-enhancing capabilities being developed.

Do we want the world’s leading AI development to happen and be controlled by a handful of privately owned companies? As things stand, Microsoft (through its investment in OpenAI), Google and China’s Baidu are among those at the frontier.

They don’t just control how the models are built — they also control what data those models are trained on.

That is the really hard nut to crack.

The most important question, therefore, is not binary — whether we should pursue AI development at all. The question is rather how we ensure it is done in a way that benefits as many people as possible.

The Pope’s viral puffer jacket raises a bigger question about AI

March 27, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 27th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The Pope’s new puffer jacket became a sudden viral hit on the internet. The explosion of new AI tools is making it harder than ever to tell what’s real and what isn’t.

Dressed in a very long, white, and elegant puffer jacket, the Pope is caught on camera. The jacket could just as easily have been worn by Kim Kardashian, and he looks like he’s walking a fashion runway.

The image went viral over the weekend and Twitter flooded with tributes to the apparently oddly dressed religious leader.

There was just one problem — the image was fake, created by the AI service Midjourney.

The person who started spreading it, Nikita Singareddy, apologized for having accidentally created a viral hit around something intended as a joke.

The commotion points to a larger and more interesting question than the Pope’s possible winter wardrobe. How do we know what’s real and what’s fake, when AI-generated content is starting to get this good?

It’s easy to see how AI development — exciting as it is — could create considerable disorder. Previously, conspiracy theorists and others with a particular agenda had to rely on interpreting existing images in ways that served their perspective. A simpler route now would be to just generate the material you need. Images of world leaders in compromising contexts? That’s now just a few clicks away.

Of course, you can also use the tools without bad intentions. Sometimes laziness seems to be the motivation. Recently, Donald Trump posted an AI-generated image of himself kneeling in prayer. The image could reasonably have been produced with a regular camera — had the event occurred in reality.

The problem isn’t entirely new — it’s been possible to create and manipulate media for some time. The difference now is one of scale and quality.

Tools like ChatGPT, Stable Diffusion, and the aforementioned Midjourney do more than just edit existing material — they create text and images that are entirely new. The AI tools have been trained on existing information from the internet, but what they create is meant to be unique. What counts as unique is, however, a question headed for the courts. Image library Getty Images has sued Stable Diffusion, arguing that the service used their images — without compensation — to train its model.

Access to AI tools has never been easier or cheaper than it is now. What is called generative AI — tools using artificial intelligence to create content of various kinds — has existed for several years. But it hasn’t been available to the public in the same way until now. And creativity breeds creativity. Already — just four months after ChatGPT launched and took the world by storm — there are daily examples of how the new AI tools can be used.

Back to the question of what’s real and what’s false. There’s a certain irony in the fact that what is difficult for the human eye to detect as fake may be relatively easy for AI to spot. To catch students cheating on essay assignments, OpenAI launched a tool that could determine whether a text had been written by a machine or not. The methods aren’t perfect, but they point in a direction for how these questions might be handled. Technology makes some problems larger, but can also help provide some of the solutions.

That framing is useful for AI development as a whole. Rather than seeing how AI replaces jobs, you could think about what jobs that use AI might look like. Computers may have replaced a few typist positions, but they created far more jobs of a different kind. Choosing to use new technology to enhance your skills could produce a workforce with superpowers rather than unemployment.

Or to put it more simply: at first glance, it may be hard to know whether the Pope has bought a stylish new winter jacket or not. But a reasonably skeptical person working with an AI tool can probably find the answer very quickly.

And unfortunately, it wasn’t true — this time.

The next big games deal is being struck in the hotel bar at GDC

March 20, 2023
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on March 20th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

When the gaming industry’s most important conference, GDC, opens its doors this week, there’s only one question on everyone’s lips: who is going to buy whom?

Going to GDC? That’s the most commonly asked question in the games industry at the start of every year. This week sees the single most important trade event in the sector — the Game Developers Conference. It takes over the convention halls at Moscone Center in downtown San Francisco, and is a mandatory stop for all the major games companies.

Those who’ve been before know you don’t actually need a ticket. The most important meetings don’t take place on the conference floor, but in hotel bars and rented meeting rooms in the blocks around it. That’s where the foundations of all the big deals are laid.

And there have been many deals. In 2022, games companies were acquired for a combined 1,340 billion kronor. Yet there’s much to suggest the consolidation wave will continue this year — in particular when it comes to mobile games.

There are three main reasons for this.

First, mobile games companies are operating in a market that shrank 5 percent in 2022 and is forecast to have a tough 2023 as well. The pandemic years were a boom for the entire industry, and lifting the restrictions became a challenge. Driving organic growth — meaning increasing revenue and profit under your own steam — is difficult when the market headwinds are strong. One solution is not to bet on organic growth at all, and instead buy up competitors. Many games companies are sitting on well-filled war chests after several good years.

The second reason is Apple. They dropped a bombshell on the mobile games market around 2021–2022 with a software update that was said to increase the protection of individual users’ personal privacy. The result was that virtually all mobile advertising performed worse and became harder to measure. Getting around the problem requires larger investments — and if you have more game studios to spread them across, you get better returns on that money. It’s now more advantageous than it’s been in years to be big. And if you can’t get big on your own, you have to join forces with others.

The third and final reason is price. It’s simply become cheaper to buy games companies now than it was when the market was at its hottest around 2020. You can also add in certain currency effects that have put those with US dollars in a better position than they’ve been in for many years — and the reverse for those holding Swedish kronor. American companies can effectively buy at a discount just by relying on their currency.

But not everyone is happy with this development. The sudden political interest in competition law is now hitting the games industry directly.

Microsoft’s blockbuster deal to acquire Activision Blizzard for $68.7 billion is currently stuck with regulators in the UK, the EU, and the US. Negotiations are ongoing about what kinds of concessions Microsoft may need to make to get the deal approved — and whether they’ll still want to go through with it if they do.

Most conceivable deals are substantially smaller than that, but the games world is still watching the outcome of this process closely.

What we haven’t seen much of yet is the geopolitical dimension of games ownership.

In recent days, the White House has reportedly been threatening to ban the app TikTok. The risks of valuable data being shared with the Chinese state are considered too great.

But TikTok’s parent company — the Chinese firm ByteDance — is also a major games owner. Reports this summer indicated their annual revenue from games was around 10 billion kronor.

Then there’s Chinese tech giant Tencent. The company is one of the world’s largest owners of gaming properties, and is, for example, a major shareholder in Ubisoft.

For now, games companies don’t appear to be considered a threat to national security. But the industry has long been misunderstood and underestimated by policymakers. If it took until 2023 to regulate social media, it’s a reasonable assumption that the games industry could be next in line.

Until then, the deals — with and without Chinese involvement — will keep flowing. In the hotel bars around GDC this week, the acquisitions we’ll be reading about in the coming months are getting started.

The Silicon Valley Bank crash is a wake-up call

March 13, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 13th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The collapse of Silicon Valley Bank is a financial wake-up call for the tech industry. In 48 hours, the lowest-priority questions shot to the top of the agenda.

“Move fast and break things” was one of Facebook’s old mottos. It was printed on posters that hung around their offices.

Over 48 dramatic hours, Silicon Valley got to experience that speed and involuntary destruction aren’t always a good thing. When Silicon Valley Bank was halted from trading on Friday, the entire tech world received the basic finance course most of them had never had.

Around half of America’s venture-capital-backed companies had some connection to SVB. And unlike the largest tech companies, most startups have a poor grasp of financial matters. These tend to be prioritized much later in a company’s development. What founders spend their time on is getting money into the business — not how that money is then managed and risk-minimized once it’s there.

In practice, that meant thousands of companies had received millions of dollars each in investment and simply parked it in an account at SVB. They then used the account with the same simple logic as a private customer — you spend the money until it runs out, more or less. Many startups had no diversification, no redundancy — nothing but a regular bank account. That suddenly became inaccessible.

SVB had lending arrangements that worsened the situation for many companies. In its lending to businesses — a substantial part of the bank’s operations — companies were often required to move all their other banking relationships to SVB as well. It resembles how many banks negotiate with homeowners — you get a certain discount on your rate if you also start saving with the same bank. Structures like these also made it harder for companies to spread their financial risk.

Timing played a large role here. Americans get paid twice a month, and the next payroll is due this Wednesday, March 15th. Which means it has to be sent on Monday to arrive in time. Garry Tan, CEO of the well-known incubator Y Combinator, stated that 30 percent of the 40,000 small businesses banking with SVB would not be able to make this payroll if their funds remained frozen.

Not receiving a paycheck is obviously devastating for employees. But it can also hit the people behind the companies hard. In California, there is a law stating that if wages are not paid out — even if a company goes bankrupt — individual executives and owners can be held personally liable. This applies regardless of why the payments were missed.

The heated rhetoric from many American venture capitalists over the weekend had its reasons, in other words. They almost certainly had their own money at SVB, but also risked having to personally cover their portfolio companies’ payroll costs.

Now it’s the American authorities that are picking up the tab, while what remains of SVB is potentially sold to other industry players.

For the tech world, the collapse of both Silicon Valley Bank and Signature Bank comes as a financial wake-up call. Questions of liquidity and access to capital have long been taken for granted and treated as low priority. A reasonable assumption in many ways, it should be said — who expects their bank to fail? But today there isn’t a tech CEO who doesn’t need an iron grip on these questions. Especially as the pressure continues to build on other similar banks.

Trust takes a long time to build but can be lost very quickly. Silicon Valley Bank took over 40 years to establish its position. It took half a week to destroy it. And for tech companies, things will never be the same again.

Silicon Valley Bank crashes — and the shockwaves reach Stockholm

March 10, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 10th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Silicon Valley Bank — an institution in the startup world — is being shaken by a crisis of confidence. Customers now fear a bank run, and the Stockholm Stock Exchange is falling.

Hope, as they say, is the last thing to abandon you.

“I would ask everyone to stay calm and support us just as we have supported you through difficult times.”

Those words were spoken by Greg Becker, CEO of Silicon Valley Bank, during a call with American venture capitalists on Thursday. The bank has since the 1980s been an institution in the tech world, and one of the few financial institutions that took on all the startups and unproven companies the big banks turned away.

It’s a moment that calls for keeping hope alive. SVB’s stock crashed a full 60 percent on Thursday. In after-hours trading it fell a further 66 percent before trading in the stock was finally halted. Reports now indicate that efforts to raise new capital are over, and SVB is instead looking for a buyer.

Greg Becker feels his bank deserves support from its customers now that the storm has well and truly broken around SVB. Instead, he received a considerable shove toward the abyss from the very customer base his bank has stood behind for over 40 years.

It all began when SVB surprised the market on Wednesday by announcing it would conduct a share issue and sell securities worth several billion dollars to shore up its balance sheet. Rising interest rates have made it more expensive to borrow money, and its customers — who are overwhelmingly tech companies — have been having an especially tough time.

A bank being perceived as unstable is never good.

But when its customers — including some of the most influential people in all of Silicon Valley — come out and warn against it, things get much worse very quickly.

Founders Fund, founded by venture capitalist Peter Thiel, immediately told its portfolio companies to withdraw their money from SVB. The incubator Y Combinator warned against keeping more at the bank than the deposit guarantee covers. Many others followed.

In Silicon Valley, this is the equivalent of people like Marcus Wallenberg and Christer Gardell jointly telling everyone to pull all their money out of a bank like Nordea. It creates enormous ripple effects that nobody is entirely immune to.

And the waves are already hitting companies.

SVB’s systems for processing transfers appear not to be functioning, blocking access to customer funds. A Swedish venture capitalist SvD spoke with said one of their portfolio companies currently cannot access its assets held at SVB. This comes just days after crypto bank Silvergate decided to wind itself down.

There are Swedish connections too. Last autumn, SVB opened an office in Stockholm, and Swedish occupational pension company Alecta owns around 4.5 percent of SVB — a holding that has already lost billions in value. The full extent of Swedish exposure is not yet clear, but Swedish bank stocks and stock markets broadly fell on Friday.

The market is therefore judging that the risks could spread — despite SVB being a relatively small and niche bank that isn’t particularly representative of the major banks in either the US or Sweden.

It’s worse for the tech sector, which now faces an extremely pressured situation.

The mere thought of a potential crisis is enough to trigger a bank run. If SVB were to collapse, it could wipe out hundreds — if not thousands — of smaller companies on its customer list. These are companies with both limited liquidity and limited financial expertise, and many have likely not diversified their capital at all. When the money runs out for a company — regardless of why — it’s also the end of the company itself.

The question now is whether SVB can survive this difficult situation without outside help. In all likelihood, all the major banks are looking at whether deals can be struck to increase stability. An acquisition or takeover, as occurred in the 2008 financial crisis, is a plausible scenario.

Silicon Valley Bank has — through its name if nothing else — been a hub at the center of the most dynamic industry of the past 20 years. The brand is strong. They have financed, lent to, and helped the companies the big banks consistently rejected.

One can understand why that feels ironic for CEO Greg Becker in a situation like this.

The bank that took on the risk for all these tech companies now finds itself shaking badly — not because the underlying companies are performing poorly.

But because its customers, the tech companies, have suddenly stopped trusting their own bank.

Frustration over Siri — but Apple’s AI ambitions are larger than they look

March 8, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 8th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Apple is currently pressing its competitors hard with its focus on privacy. But there’s one area where the tech giant has a real problem: artificial intelligence.

The normally somewhat reserved Apple executive Phil Schiller was in excellent spirits when he stepped onto the stage.

He was about to present the company’s entry into artificial intelligence — the recently acquired voice assistant Siri. It was the autumn of 2011, and the tech press was gathered in a cultural center in downtown San Francisco.

The thoughts of those in the audience weren’t on Schiller, though — they were on someone else. On Steve Jobs. Earlier that year he had gone on indefinite medical leave. The day after the presentation, he died from cancer.

Jobs was the man behind the acquisition of Siri, made the year before. At the time it was an app that claimed to be a virtual personal assistant. Today it’s the foundation of Apple’s investments in artificial intelligence.

But there’s a great deal to suggest that Steve Jobs would not be particularly pleased with Apple’s progress in this area.

During the 2011 presentation, Schiller complained about having to learn a particular way of speaking to these voice assistants to get them to work properly.

Ironically, Siri has barely moved beyond that stage itself, over a decade later.

On the contrary, Siri has been seen — even by some employees who work on the product — as inferior to the likes of Amazon’s Alexa or Google Assistant.

Then Microsoft entered the picture.

ChatGPT has exploded in popularity and been integrated into Microsoft’s search engine Bing. Asking the same questions of ChatGPT and Siri yields near-parodically poor answers from Apple. This obvious weakness was something Jobs would have neither accepted nor tolerated.

But the AI market is still in its early stages, and major changes at Apple could be closer than people think.

The clearest sign of this is found in Apple’s hardware — specifically the new M-series chips they’ve been using since the autumn of 2020.

These are custom-built chips used only in Apple products, which means their design and function tells us something about the company’s strategy for the future.

The M-series chips contain what’s called a “neural engine,” used specifically for machine learning and artificial intelligence. The M1 chip handles these types of tasks fifteen times faster than the Intel chips Apple previously used. The second generation, M2, is also 40 percent faster than its predecessor.

Apple’s custom hardware signals that a better and more powerful artificial intelligence is an internal top priority.

The tight integration between Apple’s hardware and software demonstrates this in a way that competitors can’t match. Google Assistant or ChatGPT run their computations in the cloud and work regardless of what hardware you use to access them.

Apple works differently — to a much greater extent keeping data on each individual user’s device for privacy reasons. A decision that has led to weaker results until now. But with new custom hardware, Apple may be able to correct this imbalance.

Apple is also investing heavily in building out its internal AIML team (“artificial intelligence machine learning”). At the time of writing, there are over 170 open positions to apply for in this area alone.

170 positions isn’t an enormous number given how many employees the tech giants employ in total, but it’s happening at a time when large layoffs are being reported almost daily. Apple is clearly moving in the opposite direction and hasn’t had layoffs in other units either — at least not yet.

“For decades we’ve been enticed by the dream of being able to talk to technology and get it to do things for us. But it never comes true. […] It’s such a disappointment,” Schiller said in 2011.

It has been a disappointment until now, in fact — for Apple and Siri in particular.

But everything points to Apple’s ambitions in this area being substantial, with internal resources to make world-class investments. There are therefore plenty of reasons not to write off Siri just yet.