Deep Tech Dive #17 | The Past will Present the Future

Meet Guy Perelmuter, Founder of GRIDS Capital and Author of Present Future. GRIDS Capital is a Deep Tech VC firm focused on AI, robotics, life sciences, and technological infrastructure. His book “Present Future: Business, Science, and the Deep Tech Revolution” focuses on the past to help illuminate the future — providing substantial reasons as to why and how Deep Tech is becoming less of fiction and more of fact.

Key Takeaways:

  1. You don’t see the present. You see the past. So let that guide your decisions towards the future.
  2. Markets will be unforgiving with companies that don’t accept technology’s acceleration, particularly Deep Tech. The rate at which organizations accept the acceleration of technology can be a powerful hedging strategy.
  3. Look for disruptions that are inevitable and technologies that are asymmetrical.
  4. Cogito, ergo sum — I think therefore I am. It’s unlikely that machines will ever be conscious like humans. When machines sit idle, an outside force must act on them to elicit a reaction — human beings’ thoughts alone manifest our presence, and we can sit idle while doing so much. Don’t mistake a machine’s imitation of human beings for consciousness.

”If it is inevitable and asymmetrical, chances are it’s a good investment.”

This interview was edited and condensed for clarity.

What brought you to starting GRIDS capital?

I’m a firm believer in trying to allocate people to the best of their abilities. In my particular case, I’m a computer engineer, and I have a Master’s in artificial intelligence, which I did back in the 1990s. I have been a risk manager and asset allocator in the financial markets for 20 years. The combination of those elements led me to venture into deeply technologically oriented opportunities.

I started investing in Deep Tech as an angel back in late 2000. I thought that Deep Tech was coming of age due to several advances that had been happening over decades, if not centuries, and that we would be able to leverage those advances in multiple areas. So, back in 2015, I felt that this combination would make a Deep Tech-focused VC firm an exciting and rewarding bet for the rest of my career, and I haven’t looked back ever since.

How did that lead you to write Present Future?

I’ve been writing ever since I can remember — it helps me organize my thoughts and strategies. In 2016, I started writing a column for a newspaper in Brazil, my current home, named The Future of Business. I write articles about technologies that are going to transform businesses — so we are aware of those changes, and so governments can look five, ten, or twenty years into the future and organize themselves accordingly — as opposed to trying to target the next election cycle, which is more often than not their focus.

After about eighteen months into writing those articles, I looked at them and took a step back. I noticed they all linked together, very much like the reasoning I was building. I knew one could read each article independently, but I thought the overall experience would be much more enjoyable with more context. It’s like watching Seinfeld; if you just watch a random episode, it’s going to work. But it’s so much more rewarding if you have watched the entire series.

So I decided to compile those articles and write a book without a newspaper’s natural format constraints. I wanted to write a book for a non-technical audience, making a broad overview of game-changing technologies and how our lives will be dramatically affected — in the near future.

In Present Future, you talk a lot about the past, why?

If you think philosophically about our daily experience — what you, I, and everyone else are seeing right now — it’s not the present, right? Because light takes a few nanoseconds to arrive at our retinas and for us to process the information in our brains. If you start looking at really far away objects — planets, suns, and other galaxies, we’re seeing now what happened billions of years ago. So in a very tangible way, the future that is waiting for us reflects the history that we have built as a species, over millennia, since we stopped being hunter-gatherers.

I always felt that most books written about technology and the progress of humankind try to predict what’s going to happen next — which we as a species are terrible at because the future is very non-linear. If you try to extrapolate the next ten years from now, you’re bound to fail. And this is why I start the book with several examples of brilliant people that were on the record trying to forecast what’s going to happen in the future. This book is about the recognizable trends that will be part of our lives.

Every chapter sets the stage for a particularly disruptive technology, telling its story, risks, and possibilities. Once you can couple past and present in your frame of mind, you’ll understand these technological trends more clearly. This is why I wanted to dedicate a significant part of each chapter to understand how we arrived here.

What do people misunderstand the most about Deep Tech?

A lot of people believe Deep Tech is always twenty years down the road. That it’s just another research project and that the technology isn’t mature yet. Most people still don’t fully grasp the dramatic acceleration of innovation we are experiencing right now — it’s unlike anything we’ve experienced throughout history. Civilization has always been driven by technology. That’s what has made societies thrive and decline.

What is misunderstood right now is the speed with which these technologies will be part of our lives. Nowadays, the gap between the time it takes for a patent to be filed and its commercialization is substantially shrinking. It will continue to shrink because technology is exponential, and as different sectors converge, execution becomes cheaper. Plus, now there is a tremendous appetite for new tech on both the business and the consumer sides.

Many will say, let institutions like DARPA, MIT, Stanford, Harvard, etc., deal with that; this isn’t going to make money, or it’s not investable. That’s just not true. These institutions — and many others — play and will continue to play a pivotal role in the ecosystem because the type of companies we invest in start their journey at the lab, often during doctorate programs. Much work has been done by the time they get to their Pre-seed or Seed rounds, and several significant barriers to entry are built-in the company’s technology. I think more and more investors will realize that Deep Tech is far less down the road than they initially suspected.

Indeed. These technologies are being democratized, so more intelligent people have the tools to push humanity further. The democratization of the internet allowed entrepreneurs like Elon Musk and Jeff Bezos to do what they did, and it will do the same for many more people. Kurzweil says it best with the Law of Accelerating Returns — advancements in technology will feed on themselves, increasing the rate of innovation. But there is a hurdle here, Martec’s Law — the idea that technology is accelerating, but the rate at which organizations, except that change, is logarithmic and slow. How do you think we can minimize this gap?

That’s the reality of innovation. There’s always going to be someone thinking about building the next iteration of something. I also believe that the markets will be ruthless regarding how companies and consumers will embrace technology. In the 1930s, it took 90 years on average before an S&P 500 company was delisted. By 2025 it could take only 14 years. Companies will be churning in and out of the index quicker, so the market will continuously push companies to be better, cheaper, and friendlier.

We’re becoming more accustomed to essential technologies that didn’t even exist just fifteen or twenty years ago. Companies will embrace new technologies, part of the reason venture capital has become so much more interesting to incumbents. Companies are using the entrepreneurial ecosystem almost as a hedging strategy — they know they have to be in the mix to stay relevant. Otherwise, they run the risk of sharing a similar fate as Blockbuster or Kodak.

In the chapter on AI, you talk about “Myths, Legends, and Geniuses” then reference Cogito, ergo sum — I think therefore I am. Do you believe machines will ever reach the same level of consciousness? If so, how soon?

The short answer for me is No. If you look at GPT-3, which was trained with 175 billion parameters, and the following models that will be even larger, you’ll get increasingly better experiences and interactions with artificial entities — kind of what they tried to achieve back in the day with the Loebner Prize. They wanted a computer system to fool a person into believing it was not a computer. Now look at what we’re achieving with digital assistants such as Siri and Alexa — but still, they don’t feel “sentient”. They respond to stimuli that you initiated, and even when computers compose music or draw paintings, you can argue that they were ordered to do so by a human.

You can dream of a computer as intelligent, subtle, and sophisticated as you want, but it’s not going to be like you and me when it is idle. When we are idle, we still get inspirations and thoughts we have never had before because so much is happening under the hood for us. We think we know a lot about our brain, thought processes, and reasoning, but a lot of what’s happening is deeply under the hood (Reference: Incognito by David Eagleman). I think computers will create new stuff, compose songs and paintings, and interact with us. But I’ve never seen a computer that, while in idle mode, had an original idea.

What do you think the world will look like in 10 years?

To my previous point about trying to predict the future, I think it’s a recipe for disaster. But we are in the business of picking up on technological trends built by extraordinary founders that will deliver on the promise of those trends. A few apparent trends guide me over my investment process, and they give me an idea of how the world will look in ten years.

So, for example, the number of people over the age of 65 will double in another thirty years when compared to the last ten years: we are going to have about 15% of the world population at 65 or older. That means the world will be ripe with new drugs and therapeutics for diseases typically associated with aging, both mentally and physically.

Now, consider urbanization: we’re looking at a trend where ~50 million people per year are moving from rural areas into the cities. That’s roughly the population of South Korea or Colombia. That trend means you’ll need more housing, transportation, security, telecommunications, and energy.

Then, there is climate change. The urgency of this challenge is creating the incentives that are driving dollars into new batteries, clean energy sources, carbon capture technologies, and advanced materials, just to name a few.

I believe those are three megatrends that will shape the world in the next decade: Life Sciences — including synthetic bio, diagnostics, therapeutics, drug discovery, and digital health; Smart Cities/Industries — including automation, robotics, cybersecurity — and Climatetech.

Value is permanently attached to applicability. There are a few areas, AI for one, where it’s not simply the technology applied to a specific business — it’s across every industry. When I first started in AI, I thought I should build a company based on neural networks, fuzzy logic, or genetic algorithms because they were going to create substantial market opportunities. But the market and the technologies weren’t there yet. You had to wait 20 years to see that vision come to fruition: now, they are embedded in pretty much every data-driven business model.

Looking at where we are, I have to go with the convergence of AI and biotechnology, such as drug discovery, diagnostics, and therapeutics. In Life Sciences, all of us have skin in the game. The TAM (Total Addressable Market) is every living creature on the planet because we all want the development of new technologies that will make us have longer, healthier lives.

British physicist David Deutsch’s once said, “Solutions create new problems.” Most of us are thinking about how to extend human life but not what happens when we do. As the average human lifespan grew, the structures of our principles like religion and law have changed. What do we do in 30 years when 60 is the new 40?

Hopefully, 60 is going to be the new 40 in far less than 30 years! Going back to what you said about the speed of adoption of innovations, if you look at sports, religion, education, these are constructs that are very slow to move, to change, to adapt, and they’re not the only ones. I believe change is going to come for them as well.

For instance, take the growth of the entertainment industry. A couple of generations ago, you had four TV channels to choose from and a handful of movies per year. Now, we have entirely different experiences thanks to cable — which is gradually losing ground — and multiple streaming services. This is where optionality and the flood of information will be hitting us permanently. It’s going to force us to be better at selecting, searching, and indexing.

One thing that few people anticipated was the harmful effects of social media. We’ve seen these platforms used as propaganda machines, spikes in suicides among young adults and teenagers, and even kids as young as ten or eleven. Your digital persona became as essential as your flesh and blood persona. As long as you have more followers, your opinion is more important than my facts. It’s gone entirely backwards, but unfortunately, this is now part of the process, and we will have to deal with it. Systematically, as we live in a more technologically oriented world, we’re going to have to put up guardrails around all those technologies that will be placed in our hands or suffer severe consequences. The way the world is shaping up, people will be connected to their digital personas in an intense and meaningful way. And if this relationship isn’t healthy, efficient, or positive, people will be hurt down the road.

What’s your special sauce for investing?

I usually have two guidelines that act as a barrier of entry in my portfolios.

One, invest in what is inevitable.

Two, it has to be asymmetrical. I know I can lose $1, but I can also make four or five or 10X that. In our business, 50–50 odds won’t really cut it. You have to be in a position where you have relatively little money to lose — for example, if you invest early enough and milestones are not met — but where a significant payoff occurs when things click.

What three nonfiction books, other than your own, would you recommend to those interested in being a Deep Tech investor and why?

There are a ton of great books, but if I had to choose three, I’d go with:

  1. VC: An American History by Tom Nicholas — Tom writes, among other things, about the early days of VC, which is not the early days of Silicon Valley but rather the whaling industry in the northeastern US back in the 18th century. There are remarkable parallels you can make between those expeditions and investing in venture capital now.
  2. Scale by Geoffrey West — The author writes about how Nature’s law of scaling applies to cities, companies, and populations. He shows this through many examples of how scaling brings multiple benefits and how you can argue that it’s almost inevitable. I believe it is critical to understand what runs deep within the phenomena of large-scale adoption.
  3. Why the West Rules — for Now by Ian Morris — It’s about how Western civilizations were able to capitalize on technological advancements. Dr. Morris dives deeply into the most important invention to date, the steam engine. The steam engine unlocked global GDP and the first industrial revolution, the most important step towards the world we live in right now.

How can our readers follow you online?

Twitter (@guyperelmuter), LinkedIn, and GRIDS Capital. I also publish a monthly newsletter, The Deep Tech Revolution, and my book has a splash page with links to many of my interviews/op-eds.