S5 #1 Navigating investment and innovation in quantum computing

00:00:00] KRISTINA: Quantum computing promises to solve complex problems millions of times faster than classical computers. The applications are limitless, from drug discovery and financial modeling to climate research, cryptography, and much more. But how do you navigate the risks and opportunities of this space, understanding its applications, what's on the horizon, and what does it mean for your enterprise? How do you know when you've made a suitable investment?

[00:00:26] INTRO: Welcome to The Power of Digital Policy, a show that helps digital marketers, online communications directors, and others throughout the organization balance out risks and opportunities created by using digital channels. Here's your host, Kristina Podnar.

[00:00:44] ed quantum computing, and KRISTINA: Welcome back to the Power of Digital Policy. It's great to have you along for today's discussion with Charles Beyrouthy. Charles is the managing partner at Forma Prime, a fund that invests in Quantum Computing, Semiconductors, and Core Infrastructure. He's an innovation specialist and venture capital expert who cultivates innovation partnerships, startup initiatives, and due diligence operations. Our kind of person, Charles, thanks so much for coming to hang out with us today and being here.

[00:01:10] CHARLES: It's my pleasure. Thanks so much for having me.

[00:01:12] KRISTINA: Before we just dive in, can we just get a quick lay of the quantum computing land from you and what's really going on right now? How is this really going to revolutionize the various industries that listeners might be involved in?

[00:01:26] CHARLES: Well, I mean, I think quantum computing is a dynamic way to think about how to process information faster, but also how to reach out to the new dynamics of various aspects of sensing, as well as tracking information and location. So, for example, most people think about quantum computers as being able to process everything from financial data to health care data, to even the aspects of military applications in terms of scenario planning or even intelligence gathering. But that many people aren't familiar with other applications such as quantum GPS, so being able to use the capabilities of quantum computing, to be able to track location and the actual specific tracking capabilities without satellite applications. Or you could be using quantum RF and that actually has everything from signal intelligence to even mining and mineral exploration underground. So this capability is actually a paradigm shift and you have a lot of different thoughts on how quantum computing can be applied. So, for example, you have ion-based quantum computing, neutral atom-basphotonic-based quantum computing. These various approaches allow for different types of processing, as well as different speeds and applications. So, for example, in ion-based quantum computing, a lot of cooling is required, right? So that's why you typically see these massive enclosures. In our case, we actually invested in a company that's in the neutral atom space, and that allows for being able to apply that same capability in terms of speed application inside of a much smaller space without needing the cooling capabilities. So, hence, you're talking about a room temperature-based quantum computer, which is a whole different paradigm. But the idea here is, in general, quantum computing is something that's going to really revolutionize the way we look at information, the way we access information, and the speed at which we do it. There was recently a 60-minute video that talked about the capabilities of quantum computing and how you're able to take it. Information that would take millions of years on supercomputers today and be able to do that within minutes. That actually has life-changing implications. So we're really excited about this space. It's a really exciting opportunity for investors, innovators and the industry at large.

[00:04:03] KRISTINA: And as you're speaking, Charles, the one thing that's running through my head, which we all think about in this digital policy space are the risks and opportunities. And I always say to people who are in the startup mode, it's not so much that somebody isn't going to invest in you or buy your company or your technology. It's just maybe that you're going to have a much smaller return on investment. You might get 60 cents instead of the full dollar you are hoping for. As a managing partner at Forma Prime, what are your primary criteria for investing in a company, particularly considering the risks and the opportunities, one that you just. touched upon right now, which is enclosures, heating, and cooling, which isn't just about the technicalities and the logistics. It also goes into the heart of ESG and some of the things corporations think about daily.

[00:04:50] CHARLES: Absolutely. So we are a very, very much a technology-centric fund. We do look at technology first; frankly speaking, I've always been a believer that if the technology doesn't work, you just should not invest in it. If you look at the next iteration of where investors are looking, there's been a lot of interest in terms of deep tech, in terms of artificial intelligence, in terms of biotechnology, and defense applications; these are all very hard technologies to evaluate. If you look at what the last 10 to 15 years have been about, you're looking at financial services, FinTech, Health tech, some of the digital SAS, and cybersecurity applications. And while some of those are still relevant, we tend to find that they're not very IP-centric. And so what happens is, is that you're not really competing on whether or not the technology is the best technology or the best technology that can be offered to consumers and commercial customers. You're actually saying, well, who can sell better? Right? And that is, I think, a big pivot in thinking that VC is still trying to get through because many, much of VC has been run by financiers or folks who have been generalists in terms of their investment versus specialists in a specific field. So, for me, the way I think about our investments and the way I thought about our general thesis has been, can we get the best technologies in the spaces that we fully understand and then be able to also take them out of the lab? So many of these technologies are extremely sophisticated, and so it becomes a very big exercise in thinking about product market fit and thinking about how to penetrate the market with some of these commercialization perspectives. So for me, it's always exciting to see what those applications are. In my portfolio, companies, fortunately, have been tremendous at being able to provide everything from press releases to commercial partnerships. So we have just across our portfolio today over 60 different corporate partnerships that have been formed with everybody from government to financial services, to the defense sector, to telecommunications all across the board. And for us, that's an amazing application. That's an amazing feat to say you can take sophisticated technologies and have a high impact. Now you talked about ESG, which is a very exciting field today because now we're thinking about how do we start to incorporate some of these technologies for the betterment of society. And that includes everything from the environmental to governance, to even the basic social aspects. I'll use a perfect example. One of our company, FaradaIC Sensors, they're actually going through the process of building out the world's smallest gas sensor. And that application, you think about it and say, well, what impact does that have? Well, let's talk about the food industry. It has the ability to maintain a better tracking on food freshness so that you know that people are getting healthier and much more cleaner foods in their supply chain and in their grocery store at the end of the day, right? You talk about carbon emissions, right? So, being able to have a better handle on CO2 emissions and not have to replace gas sensors every month or every week, in order to be able to track it in industrial applications. And then be able to also translate that data in real time. Which I think is extremely exciting. So, for me what's really been an amazing opportunity is the cross functional aspects of the industries we invest in. So quantum computing can be used across all of those industries. So can the semiconductor industry. So can the sensor capabilities that we're investing in. And obviously that core infrastructure whether that be satellite technology, 5G technology, and even some of the networking technology, can be applied into supporting every single one of these verticals. So our market sizing just becomes tremendously ballooned as a result of that.

[00:09:06] KRISTINA: For folks sitting in the C suite and wondering where do I invest, how do I evaluate the potential of this novel technology? What advice do you have about due diligence?

[00:09:19] CHARLES: There is that conversation that's happening across a lot of boardrooms and a lot of corporate strategy teams today is what is my return on investment? So if we look at, for example, artificial intelligence, the question is not about just technology use. The question is, what will I be using the technology for, and how will it impact my bottom line? And so that is a fundamental question that's happening today. So that would be my first, if I'm sitting in the C suite, that's my first approach. If you're sitting in a technological development team, your first approach, obviously looking at the technology and saying, you know, we have an application which technology is going to really drive that application. There is a difference in mentality there. But again the biggest perspective that we've been trying to gain from many of these C suites today and many of these corporate strategy teams is where do you want to be in 10, 15 years? What kind of company do you want to be? So I can give an example in terms of banking today, banks are going to be faced with an identity problem. And I think that identity problem is going to come in the form of what are we going to offer our potential clients and potential investors that is going to be different from other banks as smaller institutions catch up, they're going to be looking at taking a piece or a slice of that environment. Same with digital, technology companies in the SAS space and in the digital health space, they're also going to be faced with an identity crisis where their technologies, especially because many of them are not IP centric, they're going to be faced with what's going to happen when a company, let's say a thousand, 2000 miles away can build that same technology for pennies on the dollar. And so that is something that has been embraced by corporate America, ironically, where they are bringing in development teams from various emerging economies in order to help to drive down the cost of development and in turn, they've actually become the stealth competitor to many of these typically innovative industries. For example, FinTech is a big, big proponent of that. You see that now you could bring in a development team. They'll build out a savings tool. They'll build out data analytics interfaces. They'll even build out some rudimentary AL, ML-type capabilities for organizations, and they don't have to license it from those FinTechs from those startups. That is a nightmare for any VC that is sitting in the FinTech or digital health space or in the SaaS space because they know that now they're not just competing with other VCs or other startups, right? They're competing against a behemoth in some cases where there's 60, 000, 70, 000 developers. It's an army, right? That's ready to build these capabilities for absolutely pennies on the dollar; in some organizations in corporate America and even in Europe and parts of Asia are willing to pay for that because now that they have the digital autonomy, I know it almost becomes like the corporates are actually looking to become startups themselves. When I started the fund, I made a very big point to say, we're not going to play that game. That's not a game we want to be a part of. That's not a cycle, a vicious perspective that we want to engage; in if we're going to engage in startups, and we're going to engage with the companies we want to engage in companies that simply have from a technological perspective, market supremacy, and this perspective is 1 that really puts them on par with the larger corporates and that's where corporate strategy teams start to say, all right, versus having to compete because we can't on the IP level, we start to think about M&A and that M&A starts to become not a question of market sizing. The question, right, or saying, does that company actually maintain that level of market presence or ARR or whatever other financial metric you're going with, they're basically saying, look, could we take this technology and turn it into a multibillion-dollar institution. Case in point: Androids acquisition by Google, back in the late two thousands, was actually one of the most impactful acquisitions that Google ever had, if not the most. And when you look at that perspective now, 75 percent of the phones across the world, or approximately that number are now all run on Android. So that gave them a positioning to be able to implement better applications like Google Maps, get a better efficacy on Gmail, get better efficacy on all of these ad platforms that they have. And so now you're really starting to see the dividends on that in the billions of dollars per year. So for me, technology always wins.

[00:14:28] KRISTINA: I'm curious, are there certain things that technological advantages don't overcome, for example, cybersecurity, and giving your background, how important do you see things like cybersecurity in the context of emerging technologies and the IP?

[00:14:44] CHARLES: It was interesting, I had a conversation with someone on our team yesterday about this. And that conversation went specifically around the cyber security industry and the idea that there is a disruption in the force. So the disruption has really become what is the problem that cyber security is really solving? And the issue has been that everyone's been accustomed to believing that we're going to be breached one way or another. We're going to try to go into mitigation mode. And so the mentality there is actually a very unhealthy one. And it's actually been what most cybersecurity companies have been building around, right? So they've been building around prevention to some degree and to some degree mitigation. And so many CISOs have been conditioned to go towards the traditional players because that's what their other counterpart at another organization might have done, and so they're saying, yeah, well, we're going to spend this money and basically black box and say yes, we fixed the problem and that's what we're able to report to the board. Now, in our case, we actually invested in a company called Gradient, and Gradient was basically the idea that you could eliminate the entire aspect of credential breaches, which is 80 percent of the breaches out there today. And when we looked at Gradient, we said, well, how would you do that? You're using hardware credentials. You're using parameters; rather, you're using aspects of various capabilities with varying keys. You're able to implement on top of your single sign-on solution. And that is an innovative piece, right? There are almost 25 patents and almost 13 000 hours worth of security testing with some of the top organizations in the United States to be able to prove this technology, which is amazing. But then, when you look at the rest of the cybersecurity industry, you sort of are saying, well, show me the differentiation between one company and another company. You almost start to see that there's a pattern where most companies are just not providing any real tangible value that their competitor could not provide. And most startups, when you look at the dynamics of security, can't access the cost structures of what many of these cybersecurity firms are charging today. So again, there are only so many enterprises. Many of the enterprises are cash-strapped. Meanwhile, the regulatory structure behind this is becoming more and more and more stringent, right? So we talk about artificial intelligence when, well, the thing is that the information that the AI is using is actually one of the most vulnerable assets out there. And so the idea is that we should be throwing everything we have into securing that, and yet we can't provide a business case for it. This period, and especially the last 2 years, is providing us a pivot in terms of thinking about cybersecurity, our digital transformation journey, how we're incorporating AI, and how we're incorporating additional processing capabilities. And so where I'm really interested in seeing the next, I would say, five to 10 years is how stringent the regulatory structure is going to become and how much they're going to actually be able to enforce it onto the corporates that are a big proponent of the day to day life of many consumers and even commercial entities. Cybersecurity, in my opinion, needs to be reformed, but it needs to have teeth to it. It's too impactful for us to just simply say, yes, we're going to black box it.

[00:18:29] KRISTINA: And are we starting to maybe box ourselves in a little bit by focusing on the wrong thing, which is I think what you're pointing towards. And the reason I bring this up is, recently I've been working on an effort around data providence, and it's very much about how can you trust AI and whatever the outputs of AI are. One way of course is to look upstream. And as you said, protect some of these assets it's in the instance, I think of AI, it might be the data. What is the role of some of these emerging technologies or advanced technologies even in helping us do that from your perspective?

[00:19:02] CHARLES: Yes, they do. But it has a big dependency, and the dependency is implementation the question is, who in these organizations is actually going to be implementing this, and who is willing to take the risk? Look, there is a very unfortunate scenario that's happening right now where, and obviously, you've probably seen, I'm taking this tangentially a little bit, but you've seen a lot of layoffs happen in the corporate environment. And a big reason for that is because, frankly speaking, many companies are facing economic issues and certainly, they're facing a different perspective on prioritization, but most importantly, it's that there is just a fight for survival, and you don't know if you're willing to take the risk, to risk your job with these new technologies in some cases. So many corporations right now, it's not because they don't have mandates for it. As a matter of fact, many of them do. The issue is, can you get it through the corporate pipeline? And can, if someone willing to risk their job in order to do this, especially in an environment where many people just simply do not feel secure enough to do it. And I think that's a big risk to some of these emerging technologies hitting some of their corporate milestones or being able to reach their potential in terms of efficacy. I am very concerned about the state of some of our corporates where you have product managers, and in some cases with the new McKinsey model, where you have towns and neighborhoods and all these other different directives, right on how to manage development, and BCG has done the same thing as Bain and others, they're wonderful models for making sure that you don't have overlap, but at the same time is the message getting through in terms of being able to implement new technologies. I look at this, and I say to myself, guys, we can do better. And I believe that especially for these new technologies to flourish and for corporations themselves to be able to reach their potential, they're going to be able to do it. Amazon, for its part, has been one of the most ambitious adopters of this and has really been able to streamline how to get some of those ideas, not only through the corporate pipeline but also to market because their workforce has become smarter, right? And it's not plagued by some of the political attitudes that you might have in other organizations. Today, I believe that there are many corporations that are plagued with this, and they need to sort of figure out who are going to be our champions in terms of being able to bring some of this technology and give them a streamlined; I will almost call it fast track. To be able to do it even outside of the business lines themselves, which I think is extremely a big necessity, to be able to sort of allow for some level of disruption. So it's almost like, let's do it and then apologize later.

[00:22:16] KRISTINA: In a global context, when several corporations or individuals inside of corporations say, no, I'm not going to risk my job. I'm not going to progressively challenge the status quo and maybe adopt some of these advanced technologies; there still is a market for those advanced technologies. It might not be within that corporation, within that corporate ecosystem, or even within that country. So, you have this global lens because you are operating globally. Do you see it as being very fluid and culturally driven to have some enterprises adopting the advanced technologies versus maybe others in other countries? How does that work from your lens?

[00:22:56] CHARLES: I think it's going to take time to see that chasm. I mean, I was just in the Middle East, for, for a couple of weeks and really got to meet with various leaders and folks from markets and even meeting with the startups. And it was interesting to me when I started speaking to the startups, they were saying, we want to develop our technology for this specific market. And so I was saying to them, well, you might have an amazing technology, but your market is not ready for that technology. What else would you do? And they were like, well, we don't know because our mandate has been to develop technologies for this market. And I've been like, that's amazing guys. That's great. But you need to think bigger. And I would say that for any company or any startup outside, in the U. S. or globally, just being able to say you need to be able to think about where your technology is going to be used the most. Now for any corporate leader listening to this, if they think that they are going to be able to remain, I would say, profitable or remain in business 10 years from now, they need to be able to open their doors and they need to be able to think about what the technology of the future is going to look like. And they need to start considering on being leaders, rather than followers. You have a lot of institutions right now, some of whom are thinking, well, if I stay the course and I just maintain my ARR, I'm going to get an acquisition, even if technology disruption comes, somebody will just buy me for my market share. I want to be very clear. I think that is very obsolete thinking. And so I think that technology is going to allow certain corporations to start grabbing market share from other organizations, and that will start to reduce that so-called ARR that I talked about and really just bring that together in terms of being able to provide a much more sustainable business model. So I believe that there are countries that have a tremendous mandate in terms of saying, yes, we have to adopt the best technologies because our economy depends on it. Our dynamics of being able to have GDP growth in order to be able to provide our population with the efficiencies, right? To be able to really use the best of our resources, those are the countries that are going to succeed. The countries that are mired up in saying yes, we're not placing those priorities first, we're placing either political priorities or business priorities or whatever they are, they are looking at this from a very short-sighted lens, and I think that on the whole corporations are going to have this reckoning moment. It hasn't come yet, But it will, I think, usually, and I look at things like, for example, in the cyber security space, the solar winds attack, it wasn't until that attack that companies said, oh, we need to be doubling or tripling our budget on cyber security. And the minute there isn't a solar winds attack, everybody just returns to modus operandi business as usual. So I think there is going to be a global paradigm view. Many places are not accelerating fast enough. And I think when that paradigm shift hits, you're going to find a lot of places unprepared. And I think that is going to provide a market opportunity for these technologies to move.

[00:26:32] KRISTINA: That's an excellent way to encapsulate today's conversation. And for everybody else who's listening, if you're not accelerating, you're being left behind. I love Charles, what you just said a few minutes ago, which is to be a leader, not a follower. I think that's a beautiful challenge to all of us as we look to balance out our risks and opportunities and not get trapped in fear of that risk, but understanding, embracing, hedging for that, and still being able to innovate, be creative, move the needle forward, because it's not just about not being a follower. It's about being able to sustain your business for decades to come. So appreciate all of this insight you shared with us today and look forward to our next conversation.

[00:27:12] INTRO: Thank you for joining the Power of Digital Policy; to sign up for our newsletter, get access to policy checklists, detailed information on policies, and other helpful resources, head over to the power of digital policy.com. If you get a moment, please leave a review on iTunes to help your digital colleagues find out about the podcast.

​