Jan 9, 2019
| 7 min read

Podcast #41

Investing in Convergence: AI, Blockchain and IoT - by Rumi Morales

 is a Partner at Outlier Ventures, an investment firm focused on early stage companies with an investment horizon of 10-20 years driven by an investment thesis focused Rumi Morales on convergence of AI, Blockchain and IoT. Our conversation covers her experience surviving the Asian Financial crises, the burst of the dot.coms and the global financial crisis - and how lessons from those experiences helped shape her views. She shares her experience managing venture investments at CME Group, navigating the digital disruption in trading and the appeal of AI and blockchain technologies in financial markets. The discussion also covered promising use cases for blockchain and IoT, the implications of “Crypto Winter” and comparisons of Blockchain and AI as the “troubled child who talks about everything” and the “quiet teenager that goes to their room and closes the door without saying anything”. Companies discussed include SparkCognition, Haja Networks, IOTASovrn, Fetch.AI, Ocean Protocol and Botanic/SEED

 

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Good day everyone, and welcome to another episode of the Momenta Edge Podcast. This is Ed Maguire, Insights Partner, and today our guest is Rumi Morales who is a partner at Outlier Ventures. Outlier is one of the teams doing some of the most interesting work that I’ve encountered in looking at a lot of investment thesis and startups. They focus on the convergence of artificial intelligence, IoT, and blockchain, and they’ve done some fantastic work on their website, their thesis and their reports are required reading for anybody who’s interested in the convergence of the technologies! Rumi is a partner there, and I’m thrilled to have you Rumi. Thanks for joining us.

It’s my pleasure, it’s my first podcast so this is going to be fun for me, I think.

Fantastic. I had a chance to hear Rumi speak at a conference, so I know you’re quite an articulate advocate of technology investing, so really looking forward to it. First question is about your background, can you tell us about what are the experiences that have shaped the way you view the world, and what led you to end up where you are, focusing on investing in converging concepts?

It’s funny, I remember a while back I was putting my resume together, I was staring at it looking really confused because I’m thinking, ‘It’s a weird career, but it’s been a great life’, this was 10 years ago, and it’s been weirder since then. But I’m really grateful for it, because I think it’s the combination of every experience that’s kind of led me up to this point. My father was a government guy by career, so very stable; my mum was a stay at home mom, but on the other hand my dad was also a diplomat, so we were being moved around all the time. My mother was Japanese, whilst my dad’s American, so I was kind of mixed up in terms of my own cultural identity.

So, it’s kind of this combination of being grounded, but also having to omnify all the time, and being comfortable in your own skin. So, I’ve lived at this point in seven different countries, I’ve lived in even more of a number of cities, I began my career in Venture, I found myself by complete luck or dumb luck depending on who you ask at the time, I was working for a Malaysian firm that exploded with the Asian financial crisis back in the nineties. That was a tremendous learning experience for me. I then moved onto my next venture experience that also exploded with the dot-com bubble when I was in New York. So, I do not have the best track-record, but again a good life-learning record.

I found myself in Goldman Sachs for seven years, I began in the office of the chairman where I helped to launch new initiatives within the firm, so again this combination of being grounded in an institution but being very entrepreneurial within it. They moved me out to Hong Kong, I helped launch something called the Global Markets Institute, and in Asia I headed up that arm until my third crisis, which was by the global financial crisis, and Goldman Sachs should not be talking to people about financial policy, which is what the Global Markets Institute was doing at the time. I decided that I loved what I was doing there when I started my own consulting firm, until I had the chance to join the CME Group in Chicago. So, I moved to Chicago and was part of the exchanges business development arm, until they launched a Venture Capital Unit.

Despite my track record, I was the only one with the VC experience, I helped to launch and lead that group, and that ultimately led me where I am today, because we were investing with the mind towards transformational technologies, so we were thinking about what tech will become FinTech in the future. So, we were very early-on as institutional investors in blockchain, whether it was as investors in Ripple, Digital Currency Group, Digital Asset Holdings, but that was just a third of our portfolio, the other third was focusing on AI, as well as next generation data especially around geospatial data, even quantum computing. So, it’s not a traditional VC background especially for a corporate VC, but all those roads helped me end up with Outlier, because as you know, and as you mention, Outlier’s been doing very interesting things in similar spaces that I was doing them at CME Ventures, and it was just by completely good fate that I got to know them, and I joined them the summer of this year.

Was there a specific path that had led you to focus on technology, or was that where you found the most interesting opportunities?

That’s a great question. I give all credit to the board of directors of the CME Group, who lived through the most important disruption, which was the switch from Pip trading to electronic trading. That was something that happened through technology, so on their end they were thinking, ‘What’s that next generation of disruptive technology, and doesn’t it make sense to go through a venture initiative?’ that way just to gain greater optionality. So, that remit to look years ahead in the future was not something that was driven by the Ventures Group, but as something that I took to immediately; it called for a lot of creativity, a lot of imagination, but also a lot of grounding I think in being aware of past patterns, and just getting my own experience as an entrepreneur even within institutions, it all kind of made sense, it clicked for me although a lot of it is crystal-ball gazing! I get that. The thing is, as long as you’re grounded and some basic fundamentals that guides you in your investing journey.

That’s an interesting perspective having been at ground zero as it were, with the company that’s undergoing a complete digital disruption of the industry. Were there some lessons that you learned from seeing Pip trading being displaced by electronic trading that reminded you of an echo of what you’d seen before, or parallels which you see about to play out in other industries which you think have been relevant to you?

For sure. I think at the heart of it is everything that we continue to pursue in this life is usually based off of a human need, whether its shelter, communication, transportation, or finding money and protecting it. So, it's only technology that changes that along the way, but it’s still a basic human need, so if it’s shelter its Airbnb, if its communication its Facebook, if its transportation its Uber, and in this case about making money and protecting it, that is the function of an exchange in the financial market. So, many times I think about the first exchange, the first regulated established exchange was actually the Rice Features Market in Japan in the 1600s, obviously things have changed along the way, but people still need to do what they do. So, when I looked at the shift from Pip trading to electronic trading, and the way as we closed-down the floors which we did during my 10-year at CME, I wasn’t necessarily sad, this is just the arc of history and technology will continue to change it.

Now, does it stink for those people that kind of are not able to adapt? Of course it does. So, I guess for myself personally, investing is one thing, but being a good human being is another, and I try to do both as I continue in this VC space.

What are some of the considerations, going back again to the decision of an organization that’s undergoing a transformation, frankly a secular shift in the nature of its business, what were some of the considerations that came into play when you were looking at investing new technologies? Were there concerns about the potential impact on your organization, whether there might be an immune response to the industry if you’re introducing approaches, new technologies, or applications that could end up displacing existing processes or people?

Certainly, but that should never keep you back from what is also a glaring opportunity, as much as it could be a glaring disrupting force. So, whilst you have to take considerations into account, and especially in a corporate VC where you don’t have to raise external capital, you have to raise political capital, so you have to get people who support you in your vision; you have to make the arguments that everything you see is an opportunity as much as it is a threat. Investing can only be one part of it, you also have to execute on incorporating these technologies internally, if you choose to be able to adapt and continue to thrive. For the CME at the time when I was at least thinking about in this case particular blockchain, and digital assets, we saw almost the exponential importance on two side.

  1. With the clearing house, it currently serves as the trusted central counterparty between any buyer and seller. And, as you know, the promise of blockchain is the blockchain becomes that trusted or trustless central kind of party, organizing mechanisms so you don’t need a clearing house ostensibly.

 

  1. On the digital asset side, if you look at the products of a future exchange, the contracts. Whether it’s a gold contract, an oil contract, these are standardized contracts almost begging to be coded. And as you think about a universal smart contract and other types of digital assets, well that’s another exponential component where you see that yes, it could be a threat, but it’s also things that exist today, it’s just a technological upgrade of what exists, so any smart institution should want to take that, because they already have a competitive advantage in that field if that’s the business that they’re in.

Certainly that was our approach at the time, and that’s why we were very early investors in this space.

That makes total sense as the domain expertise becomes where you’re at a sustainable competitive advantage, that the technology to apply process into a core business really is in many respects is secondary to competitive advantage.

I wanted to turn to Outlier, can you share a little bit about Outlier and some of the background, and what brought you to work there?

Outlier is very interesting, people call it a fund but it’s not.  Outlier Ventures is an LLP, it’s a partnership, and the partners for the past almost five years now have been underwriting and incubating, if I can use those words, very advanced open-source protocols where usually there is a token mechanism as a means of communication or value transfer. These protocols or networks are really focused on what we call convergence, or convergence ecosystem, it’s almost like the whole value life of data…

  • How data is captured or collected.
  • How that data then becomes organized or exchanged, and then…
  • How that data can be acted upon, or how you can learn insights from that data.

So, put buzzwords on that…

  • IoT would be the collection mechanism,
  • DLT (Distribute Ledger Technology) of blockchains is the organizing mechanism,
  • AI would be the insight mechanism of data in and of itself.

So, it’s really like the whole data platform on that our protocols are trying to find solutions for the challenges in these areas. For example, IOTA was one very early investment of ours, if you know of IOTA, which is focusing on device-to-device communications, payments and transactions. Other ones include Sovrin which is focusing on identity, Fetch is focused on distributor ledger intelligence, so everyone talks about, oh you put data on the blockchain and there it is, ‘Yeah, its immutable!’ In fact it’s like, ‘Well wait a minute, that’s a lot of data that can learn from each other and be able to make better decisions on behalf of people that are posing problems.

So, these ae the types of things that Outlier focuses on, it’s really the convergence of advanced technologies, we do this by as I mentioned investing in them, but also helping them to build and sell. We’re a 30 percent platform, so our functions cover everything from token design to research, legal, marketing, operations, finance, you name it, basically doing what we believe is in the best interest of creating a robust network that can be widely adopted by institutions and machines, going into the future.

The convergent thesis I think again is one of the most articulate eloquently written arguments in favor of what I like to call combinatorial innovation, the fact that no single one of these technologies by itself will end up creating enormous value, but it’s the combination of these different technologies ends up generating a hole that’s greater than some of its parts. I’d love to get your thoughts when you saw the convergence thesis, and maybe a bit of insight for our listeners to understand some of the principles behind the convergent thesis.

The first time I saw a convergence thesis, I was about to speak with Jamie Burke who is the CEO of Outlier, somebody had said, ‘You two should talk. Rumi you like IOTA, Jamie he’s an IOTA investor, talk! It’s like, ‘Well, okay’, and it wasn’t much of an introduction. So, two months later we finally got on the phone with each other, and right before I called him I thought, ‘Well, let me take a look at this Outlier Ventures Group, let me see their website’, and my jaw hit the floor when I did, because everything I felt at a gut level, or I knew anecdotally, or through my own experience, they had written about with such thoughtful analysis and fact-based research, that I was both jealous but also incredibly comforted that I wasn’t crazy just by myself, and we could be crazy together! But what they had done was really rooted in so much good work. It’s available to the public, everyone please feel free to just go to outlierventures.io and look at the research, because its available to everyone. They were so thoughtful about their approach I was floored, and I knew this was an organization that I wanted to be part of, right away.

But again, to your point, what is the convergence ecosystem, as I mentioned it’s really the convergence of data production, or data distribution and data consumption, and you almost look at the flow of data like, ‘Well, it needs to be collected, and then how is it authenticated or validated? How is it secured? How is it transported and what marketplaces exist? And then finally how does this become automated? If you look at our report you’ll see an infographic of that, you’ll see there’s different buckets that fall out of this value-life of data, whether it’s around IoT data marketplaces, AI data marketplaces, personal data marketplaces, but there are also issues around storage, identity and reputation, value and profitability, so-on and so-forth, and what Outlier is choosing to do in terms of what we’re investing is, we’re investing in these different pockets, so for example if it is IoT data market, IOTA is a representative investment there, in AI data market there’s a group Ocean they’re we’re represented there, decentralized machine learning, this is where Fetch falls in to play. So, we’re making our investments not blindly, they’re in a very discipline manner based on this true north that we have, which is convergence.

The concept of true North really resonates I think, certainly to sustain any longer-term investors against the short-term volatility that you’re going to see. I’d love to get some of your thoughts. You have mentioned that you’ve been in a couple of organizations that impacted with bubbles and crises, but on the flip-side at least the way a lot of constructive folks look at that sort of experience is that if you haven’t failed enough, you haven’t tried hard enough. Right now blockchain technologies, or cryptocurrencies are going through I could say its crypto winter again, are there some lessons that you’ve learned from your prior experience that served you well today, or other patterns that you see playing out, if history is in fact rhyming again?

How long is this podcast! I could go on forever.

Don’t worry I won’t truncate your thoughts, so you’ve got the floor, absolutely.

It’s funny, I was talking about this with a friend the other day, I know people compare this crypto winter to the dot-com bubble-bursting which I went through, but for me this is much more similar to the Asian financial crisis and my experience there. I was working for a Malaysian VC but based in London, and the things that we were investing in were primarily sterling, pound assets, or US dollar assets, and when the financial crisis happened in South East Asia, the ringgit was devalued by 40 percent in two weeks, but our obligations were in pounds or dollars. It was really painful for many people. I was managing the head office based in London at the time, I was trying to pay every single bill that I could, we had portfolio companies looking at me asking, ‘What in the world is going to happen to me?’ I had creditors come, they seized our creditor, I remember once getting a judgement because I didn’t pay for fire extinguishers, and I thought that was so ironic because I was fighting fires all the time!

I was a director of this company, so I was liable for everything. Then finally I was able to get the Power of Attorney of the CEO in Malaysia and I sold off every asset I could, that he had, and personal assets of his, found a lawyer to get out of the lease, and then that was it. I was not a British citizen, I was a US citizen, so I thought, ‘Well, I’ll move to New York’, they say if you make it there, you can make it anywhere, so that’s what I did. I was 22 years old at this point.

That’s diving into the deep-end of the pool.

Right! So, compared to that I recognized there’s so much pain right now for people in crypto winter, and I compare it to the Asian financial crisis because of the speed with which it’s happened, and certainly what was happening in SE Asia prior to that was a nice big bubble, it felt really good until it popped and then it went down really fast.

But I’d also say what it got me when I went to New York was that very few people knew what was happening, they weren’t experiencing what had happened in SE Asia, directly. I see this now as I look around, the crypto community is still kind of small. I talk to friends who are not involved in this space and they’re like, ‘Oh, so what’s going on? I heard something about maybe bitcoin’s not doing well’. So, it’s hard because you don’t have a broader community that is trying to get through this with you together, versus in a dot-com bubble I felt almost everyone knew there was a run-up in the internet stocks, and everyone saw it go down as part of the collective conscience. So, crypto winter can feel really isolating I think for people in it right now, because not enough people more broadly are involved in it.

With the holidays coming up, you’ll be around the Christmas tree, no one will understand your pain! Except if you’re involved in it directly. But the lesson for me in that was, ‘Oh my gosh!’ Looking back on my time 20-years ago when that happened, it was really the best thing that happened for me, and I would hope others that are enduring the crypto winter right now can feel the same way. I will say that what got me through back then was that I was not in it for the money, I wasn’t at a VC because I thought I was going make tons of money, I really believe in the companies that we’re investing in. So, for those who make it through this crypto winter, it will be those that believe in the longer-term vision and value of digital currencies, and distributor ledgers. For those who came into it for quick buck, you’ve lost that quick buck, and that’s it.

It’s funny, when the initial Internet bubble peaked and started its slow painful death by 1,000 cuts as it were, one of the jokes was that the people who were least competent in companies, were the ones that got laid off first and cashed out their stock options. Many companies, some of the most competent people rode their stock all the way to the bottom. It was a slow painful process, but in retrospect when you look back at some of the initial ideas that fueled a lot of the most robust IPOs, people like to laugh at Pets.com; I was actually at Merrill in the wake of the dot-com crash, and Merrill Lynch was involved with a lot of deals that in hindsight had questionable merit. But 20-years on when you look at how Amazon and how eBay and many other companies that were born out of that time have really realized that vision, and of course at the same time you had a number of other new factors, voice over IP for instance which had been eating away at the Telco carriers, and software as a service which really launched around that time, it takes a long time in hindsight, but you see these revolutions unfolding in very powerful ways.

I would love to get your perspective back to the concept of what attracted you initially to blockchain, as you move to CME, and now that you’ve got some perspective, we have had this unusual bubble of digital assets which were a unique overlay on an emerging technology that you didn’t necessarily see with other technologies like AI, but what initially has been your attraction to blockchain, and decentralized technology, and what keeps you still excited about the whole space?

I want to go back to your experiences at CME, and understand what had driven your initial excitement and optimism around blockchain technologies, what do you see that’s different, what do you see that gets you excited, and what are some of the use cases that are most compelling for you?

I will say whether it’s my time with the CME, or even today, I knew from the start that this is what I wanted to pursue, always. Obviously grateful to the CME for giving me my start, but I’m still as excited about the opportunities and applications of blockchain as I’ve ever been. But certainly back then, it’s funny, I think most people have a story; when I first learned about bitcoin, I completely dismissed it, very skeptical about it. But then I would go to some of these conferences back when they were more like medieval renaissance fairs, or Star Trek conventions in their field! But I really admired the vision, the creativity of their approaches to a possible new financial service order, however you want to say it.

I think people who are in financial institutions tend to feel a little bit arrogant and protective about what they know, and say, ‘Well, this is the way it’s supposed to be done,’ and it’s very interesting for me to hear from a bunch of other technologists who may not have had financial services experience come at possibilities in a completely new way. For me it was actually a conversation with a gentleman named Micah Winkelspecht is the CEO of a company called Gem, Micah is not from the financial services industry, and I would love to tell you what it was that he said; for me and for him it was just a very simple conversation, but it was one of those the heavens parted and the angels sang kind of a thing, but I realized the applications of blockchain technology was in financial services industry just in terms of that for me, the most important part was the decentralized components of it, and the fact that you don’t need counterparties everywhere, you don’t necessarily need middlemen everywhere, so I started to understand it from an infrastructure perspective.

But then for me today in terms of what gets me excited about it today, is again it’s still decentralization, and the fact that now I realize it’s probably not going to take away the federal reserve, nor should you at least in the short-term, you may still need that central authority. But with trillions of devices coming online increasingly as we think about machine-to-machine communication transactions from trading, that’s where we really get excited, this is the decentralized used case, it’s something where we know there’s going to be more and more value interoperability, blockchain makes sense in this regard, and it might make sense that the CME coming from an exchange is very relevant as well in this regard. Working in Outlier centers and with my partners now, I think we’re very well positioned to be able to forge ahead with new protocols and applications in this space.

That brings me to the connection with IoT, I’d love to get your thoughts on the different types of applications that you see as promising when you apply combinatorial approaches that incorporate blockchain to IoT.

Sorry for hedging or not being direct here but, again I’ve always felt that it’s not just these technologies in isolation, but in combination with each other, so it’s not just IoT, but also AI together. But where I get most excited is what we call Web3.0, or for Outlier it’s the convergence ecosystem, so really thinking about the digitization of all industries, more traditional ones, whether it’s in automotive or shipping, or logistics and so-on and so-forth. This is where I think a lot more possibility, up until now I would say financial services came into blockchain and digital assets really fast, but I don’t think those are the best used cases for them. As we think about industry 4.0, whether it’s around supply chain and machine-to-machine communications and transactions, whether some are around smart cities or mobility, that’s where we have a lot of things that I personally get excited about, and we’re focusing on.

I’ll also give a shout-out to Chicago in this regard, which is where I’m based. As I look around the landscape of competitive advantage, and the tools that are needed for these next general digital industries to survive and comply, Chicago to me is the only city, at least in the United States, where you have a combination of both exchanges, financial exchanges, plus traditional industry around manufacturing and transportation, so-on and so-forth. So, that’s one of the reasons I’m based here, it’s because of the combination of the two as all physical assets become digital ones.

I think that’s a great point. We were briefly chatting with some other folks from Chicago, I had a podcast guest earlier in the year, Dan Yarmoluk who was talking about the incredibly robust ecosystem of manufacturing companies, and innovation that’s based in the Mid-West. When you compare pure technology companies to dealing with traditional manufacturing, are there some key differences in terms of how potential customers view adopting cutting-edge technologies, that may not necessarily have been proven; but in your experience in helping small companies grow, what are some of the key differences when you’re selling say to an information-based exchange versus working with a manufacturing company as a potential customer?

It’s a great question, one that I sadly haven’t thought deliberately enough about before. I would think an information technology company its within their DNA that continually iterates and understand technology innovation every step-step-step-step of the way, versus I think some of the larger manufacturing enterprises is like boom! ‘This is what we do’, and they wait for the next boom! of what they do. So you don’t have as much fine-tuning, but when they decide to go all-in on something, I feel like they embrace it in a major way. So, I’ve been very surprised, perhaps I shouldn’t be surprised but here in Chicago for example Bosch have their IoT center here, they have a huge initiative called UI LABS where it’s really focused on smart cities and digital manufacturing, as well as something called mHUB which is a digital manufacturing hub, and they’re working very-very closely with more traditional industries who kind of understand that, yes there’s a new digital way of coming, this is going to be our next boom and we want to be able to get there.

So, the corporate partners as well that Outlier has, whether it’s with companies like Bosch, Siemens, or Samsung, these are companies that understand they do need to make big efforts here, and that when they do, they almost go all-in.

Coming back to the companies that you invest in, or you take a stake in, are there any notable differences or characteristics that can distinguish those investments that succeed, versus those that fail to meet the expectations. This is kind of a broad question, but in your experience in VC what does separate the winners?

It’s a question that every VC tries to answer correctly, right!

Of course.

I’ll speak to you from my own experience of leading the CME portfolio, because I was not directly involved in the current Outlier cohorts, and I joined as mentioned over the summer. But I was very proud of the companies that we invested in at CME, they say, ‘If you don’t have failures in Venture, you’re not doing Venture correctly. But out of the 16 companies all of them have either been acquired, or they’re still very strong going concerns, even in the highly risk-key area, companies like Ripple as mentioned, or Digital Asset, Orbital Insight, or SparkCognition, Nervana Systems, these have survived. Why? I think for us as CME Ventures we were always grounded in technology, and the differentiated technology. I know sometimes people say, ‘Well, you need to invest in the right management’, like yes, but we’ve seen management come and go, sometimes in startups often, and many times they also say, ‘Oh, you need the right business model’, but many times startups will need to pivot, so for us at the end of the day when the zombie apocalypse comes and all the cockroaches in your technology, how does this differentiate us, is what is the value there, what is the unique way of approaching a problem that you’re trying to go through? For us that is core, that is the heart of the company that we chose to invest.

At CME we were very lucky, we had 1500 people in the technology division who assisted us with our research, so we had subject matter experts to draw upon. But at Outlier we have a fully-staffed technology group called Outlier Labs, and we lean on them heavily for their technology guidance, because I think that’s a differentiating feature there.

I was going to ask how you go against the conventional wisdom? The trick of being an investor is finding potentially that under-valued asset, much less in venture than when you’re trading public equities, but what does give you the confidence to go against conventional wisdom?

I think this may go back to your very first question for me, which was, ‘How did you end up here to begin with!’ I come from an unconventional background, so maybe I’m comfortable here in advocating for technologies like this, as I have needed to advocate for myself throughout my life. So, I think as an investor you have to be a little bit unconventional yourself if you choose to play in this playground. But at the same time I think you have to have a very core belief of what you’re driving towards at Outlier, I’ll say it again, and again, and again, but actually Convergence Ecosystem that’s what drives us in the investments that we choose to make, or not make. So, it’s always very important to have a guiding light, than for me then to dig very deeply into the technologies.

One other thing I will say, and maybe this is easier as a Series B or C investor, as opposed to a pre-seed or seed investor, but what are the other things that really carried us through at CME Ventures, we went through as A and B then but, for our fellow co-investors, as I mentioned we were in startups where the CEOs would change, or the business models would have to pivot, but at the end of the day what stays usually are the other investors that you went in with, to begin with, and many times as part of our diligence process we would talk with the other investors, ‘What do you see here?’ ‘What do you think is going to happen in three to five years’ time?’ As long as you could check each other, that’s also very helpful, and I think I was very grateful with our portfolio that we had really good co-investors in each of our companies.

That’s great and a perfect lead into my next question, as you look forward what are some of the key forces, technologies, and potential outcomes that you’re most optimistic about?

That’s a great question, I was expecting you to say that I’m most terrified about!

Well I’ll ask you about what keeps you up at night later, but I always like to start with what wakes you up in the morning!

I’m most optimistic about distributor ledger technology and blockchain technology, I recognize we’re going through a rough patch right now, but mentioned I think of its applications especially in IoT, machine-to-machine communications and transactions, it’s very exciting. But I’m also really optimistic about it because so many people seem to be aware of it, and engaged in it, the community as crazy as it is, is very communicative, and as a result I think that even when the blowups happen, they happen in the wide-open, and then people hopefully then work together to resolve them.

I thought you was going to ask me what frightens me, I was going to say AI, as much as I love it today. I think about blockchain and AI as children, blockchain is the child who gets the face tattoo, drops out of school, they overshare everything. The good thing is you’re very emotionally involved with this child, but they’re talking to you all the time, their ideas may be crazy but they’re really excitable children that communicate everything, versus the AI child who comes home, ‘How was school honey?’ ‘Fine’, and just goes into the room and closes the door, and you’re not really sure what they’re doing in there, but they’re coming home with straight A’s, so you’re like, ‘Oh, I guess he’s doing something right’, but I get worried because it’s a little bit of a black box, I’m not sure what my AI child is doing in his room. He’s getting the straight A’s, but I’m not sure.

So, I get frightened about AI because I don’t feel as a community around it, it’s ever transparent, they don’t cooperate/share as much as the blockchain community does certainly, and there is a black box of too many people. I think about for example, financial services industry where you have a number of banks and other institutions having internal blockchain groups for investing in blockchain startups, but when it comes to AI, most of them do not have internal AI groups, and are not investing in AI startups, although I think there’s broad recognition of the importance of artificial intelligence, and the potential impact that it can have on industries, going forward. So, to the extent that a number of financial institutions or other organizations will then say, ‘Well, we won’t develop an in-house, we will utilize vendors for AI’, this, that, or the other. You’re just concentrating the risk then amongst a number of unproven companies, and as I think about living through the global financial crisis 10 years ago, think about it in the future with AI that people don’t really understand, and/or have outsource. So, that’s where I get concerned.

That’s a great point, there have been some efforts to cognify at least some ethics around that, there are the 23 Asilomar principles that a bunch of tech leaders and scientists have put together. Certainly I think there is a big debate and a big divergence in terms of the potential impact, certainly a lot of concerns about technological unemployment, and of course ethics of AI are really important, but ultimately I think what’s so interesting as well is that when you apply these machine-learning technologies to physical processes, and connective devices, that really opens up this universe of possibilities of new applications, and value creation too, on the positive side. So, it’s not easy to come to a final determination on, whether the benefits are going to outweigh the risks at this point.

For sure.

I just want to ask you more broadly, are there any particular industries where you’re seeing exciting applications of the most interesting used cases of combinatorial technologies, or you’re most optimistic about the converges thesis playing out?

I think it is again is in the more traditional spaces, I say traditional, but industrial is something that I like a lot, whether its oil and gas, and energy; one of the companies that we had invested in at CME Ventures is called SparkCognition. I love SparkCognition because I don’t know what the buzzword is to describe it! And I think that as an investor where you want to be is in a company where the buzzword doesn’t exist yet, but they’re doing incredible things around AI and IoT, and increasingly utilizing blockchain technologies as well. Yes, very much interested in that universe of basic activity, as I talk again about the human needs, things around food; food supply is a big thing that’s taken off well here in Chicago with food blockchain startups, but there’s issues around supply chain, identity, provenance, so-on and so-forth. So, for many people this is not techy stuff, I’m not a crypto-kitties type of girl either! I’m more of a plumber in the space, I get excited about digital plumbing really.

I think we’re very much of the same mind on that. At Momenta we’ve been much more interested in the practical applications, and advance technologies applied to industries that have been around for a long time and are going to continue to be around.

You’ve had a chance to mention a few companies, but I just want to circle back and see if there are any particular companies that you’re keeping your eyes on, that really excites you?

Everything in the Outlier portfolio! Whether it’s Ocean, Haja, Sovrin, SEED, and I mentioned IOTA very early-on, I do believe that they’re solving some very interesting problems, not just for today but for the future, digital economy as we are going to understand it. It’s funny, for us our investment horizon is 10 to 20 years out, so we’re very I guess imaginative, but because we are so grounded in our investment features, I think we have core convictions about where to invest in these areas. So, I’m excited about them, not because they’re going to make a quick buck tomorrow, but this is going to be a long-term infrastructure for our industries, and our economies, 10 to 20-plus years from now.

It will be much more transformative. I would share your view on IOTA, I had Kevin Chen whose an evangelist here in New York from IOTA on one of our webinars a little while back. I saw him the other night and he was demoing a new physical IOTA coin that he was using to demo a lot in transactions. He’s a super-smart guy and really interested in doing a lot of work with drones, and applying the technology for things like micropayments, so it’s pretty amazing.

Our final question is, are there any interesting books that you would recommend to friends or colleagues, or other resources that are near and dear?

Yes, it’s nothing related to technology, however it’s probably anti-technology. I’m a big Henry David Thoreau person, his sentiments on nature. For me it’s very inspiring in the technology role, it doesn’t make any sense. He too was kind of an unconventional fellow I suppose, so maybe that’s why I feel a lot of his work is inspiration for what I do. The other day I posted on Twitter something he had written, as I think about crypto winter, if it’s okay to quote it because I think it’s very appropriate?

Absolutely.

It’s from Waldon, but he had said, ‘If you have built castles in the air, your work need not be lost. That is where they should be, now put the foundations under them’.

I’m like ‘Hey! Hey, Thoreau that’s absolutely right’, we should have bold visions, and even if they’re up in the air it was worth it, your work is not lost, but you do need to put foundations under them. That is the call to action for everyone involved in this space today, don’t walk away, just make the foundations even more robust. That’s what we’re doing at Outlier, and even without Outlier that’s what I would choose to do as an individual.

That’s great counsel, and I think its applicable to so many aspects of life. Applying the technology, that makes a lot of sense. Our second podcast guest Nick Gogerty had written a book called, ‘The Nature of Value’, where he looks at the evolution of biological systems as an analogue to how value gets created through companies, industries, and in economies. It’s so fascinating that you brought that up. But I think when you go back to Thoreau, there’s some powerful sentiments and amazing timeless insights as well. So, thank you for that, its inspired me to pick up a couple of his others. It’s been great talking to you Rumi.

Again, this has been a conversation with Rumi Morales, who is a partner at Outlier Ventures. I’m Ed Maguire, Insights Partner at Momenta with another episode of our Edge Podcast. Thank you so much for joining us.

Thank you, it was wonderful.