♪ emily: i'm emily chang in this is the best of "bloomberg technology." the broadcom bombshell. why went to the white house and why it failed. plus three senior executives at the road before a critical progress report for the model three goes public. plus, blockchain seizes the spotlight at sxsw.

you will hear from the cofounder of a theory of later this hour. first, to our lead. it was supposed to be the largest tech deal ever but now instead. billion hostile takeover of qualcomm has been blocked by president trump at citing concerns over national security saying, there is credible evidence that leads me to believe that broadcom, by acquiring qualcomm, might take action that threatens to impair the national security of the united states. what happens now? i spoke to brooke sutherland and ian king on tuesday after the news broke. ian: it might drag on and of the ceo of broadcom was in the pentagon yesterday afternoon trying to explain himself. a matter of hours later, the white house comes out and says no you don't, and that's the end of it.

we expected to go further. kind of implications with us have more broadly on m&a ? think the clearest signal the government is sending is that u.s. tech is off-limits to foreign buyers. this is not the first deal that has been blocked under president trump's administration because of national security concerns. if you will remember, canyon bridge capital got blocked by trump. i think the other more broad implication of this is that it's not necessarily china that is the problem here. at the end of the day, broadcom's nationality played a minor role. their primary push back was what type of company broadcom was. they were worried that broadcom would use cost cuts and hamstring the company's ability to compete in the race for 5g.

that has broader applications on him and a -- on m&a. if that's off the table and sit -- considered a security risk, that means that people have to hit the pause button. is it definitely dead? formally given't up and we believe meetings are on the way. we think they are trying to decide what is they can do. the only way forward for them would be a legal challenge but even then, according to what we have been told, the most they would get is a next donation of why. emily: what is the explanation of why? they don't have to explain themselves. security concerns, that's the end. but broadly, they say we don't

like the fact that we believe you don't invest in technology. that's a security concern. the definition of what is a concern has spread. hasy: this administration put over red flags about non-foreign takeovers. at&t time warner. talk about what this means for m & a in general. brooke: this administration is going to take a much tougher look at all types of m & a which is not exactly what we expected. -- trump pushes himself as his great deal maker but he's pushing back against deals. with time warner and at&t, it's a vertical integration deal. historically, the u.s. hasn't looked at that on an antitrust basis. it only look at specific businesses with overlap. it seems like they are shifting the purview to look at

integration the way chinese and european regulators to. see theyou only definition expand further. there is legislation that would allow real estate transactions and to further define what a .ational security issue is qualcomm shares dropped. broadcom shares only slightly down. our executive celebrating? executives celebrating? ian: the competitor was disqualified that it did not convince their shareholders to vote this down. going into that shareholder meeting which was canceled at the last minute, they were losing and it was looking like that board was going to be taken

over by broadcom. they have a vote of no-confidence from the management and it's something they will have to address pretty quickly. emily: what our next steps? -- what are next steps? ian: they have to get the apple situation sorted. they are saying they don't want to pay technology licensing revenue. it's very high margins. they need to get that back to get shareholders back on their side. emily: talk to us more about broader markets and how they might react to this bigger idea that the administration is not going to be friendly to him and m & a. still waiting for regulatory signoff from china for a deal. there is some speculation among analysts whether china was

purposely dragging its feet. this has fed the fire. it'll be interesting what happens with that. given what these companies is based in bermuda, is that a security risk? it opens the floodgates for all of these questions. many never produce the had to consider these. emily: what is next for broadcom? ian: qualcomm is an american broadcom believes himself to be an american company. a chinese name, his malaysian, but he's been a citizen of the u.s. for 22

years. he's had top security clearance. calling them a foreign entity is kind of a stretch. policy is to buy new companies, are they going to be able to do anything? it's been a really difficult race to predict. that was bloomberg's ian king and brooke sutherland. now to another top story of the week. goldman sachs has paved the way for david solomon to become the next ceo. he will become the sole president and the other copresident will be leaving. there is no timeline for the retirement of the ceo. we talked about the tech sector this year.

wayhe year has set up in a where it should be very ipotructive for m & a and activity. it picked up towards the end of 2017. we have a healthy ipo backlog. but we also have a lot of reasons why 2018 should be a pretty active year for strategic in the a --m & a technology sector. with: our conversation london's mayor about uber next. you can listen on the bloomberg radio act, bloomberg a calm, and others. this is bloomberg. ♪

♪ is throwing ap new curveball into india's market. they are offering an ability to do mobile payments.

mobile payments caught fire after the government to paper currency out of situation, which -- circulation, which affected markets. india's payment markets could be worth $1 trillion in five years. in the u.s., sxsw was in full swing. the mayor of london attended to drum up business for his city. speaking to bloomberg, con had stern words for companies like uber say they had to play by the rules if they want to do business in london. the mayor also explain why london is the place to be for technology. there are a number of reasons why tech companies and startups come to london. the main reasons are access to talent. we have a talented population in london. capital. the

political capital, financial capital. culture,proximity to tack, politics, politicians, regulators. 40% of the why world's companies have european headquarters in london. is pariso, by the way, with 8%. london is a great city to start a business. it's going to stay that way. we've seen the likes of google and facebook investing. uber has been the one under fire under your administration. you need to see from the company for them to continue to operate in the city of london? uber is a very popular service around the

world. the idea of linking an apt to a taxi is popular. my message to uber and everyone, no matter how many lawyers you experts, you have to play by the rules. if you play by the rules, of course you can do business in london. have london be a place where disruptive and tech companies,. at you have to play by the rules. global ceows is the of uber has a different attitude to the previous ceo. the noises coming from him and the language from him bodes well . that was london mayor sadiq khan. blue apron had planned an entry mortar.ck and they say they will sell their

prepare dinners and stores. no word on what they will cost but the wall street journal reports the kits will be available by the end of the year. shares have dropped more than 75% since its ipo last june. coming up, the endgame. accuses elizabeth holmes of years of line and fraud. rockets,omes to space elon musk is the king but when it comes retaining talent that's another story. ♪

♪ emily: a former equifax executive is facing charges of insider trading. accusing himt is of selling off stock before the data breach was announced. ceo elizabeth holmes has been accused of fraud by the fcc.

that's in addition to the two-year ban she was already serving. the lawsuit and settlement announced on wednesday detail how homes and her chief deputy lied for years about the technology. to forkd the publicity over more than $700 million. you will recall that the company company declared they could run multiple tests on one drop of blood that had to shutter their lab. we go to bloomberg tech's elizabeth zaleski. >> a fascinating filing accusing homes of this massive fraud. if you step back and look at this company, she was promising that you could do hundreds of different test from the perk of a finger. do moret you could not

than a few dozen tests and there were using their competitors technology. thatmade statements such they would have 100 million in revenue in 2014 it was closer to $100,000. all sorts of bold statements. it's the symbol of silicon valley where companies feel the need to's fake it till they make it. emily: i remember the customers who came forward same their tests were wrong. were talking about critical tests. fraud that scale of holmes is believed to have committed? max: i think that's something that gets forgotten when you have such a long, financial fraud focused investigation. this company in addition to defrauding investors ran what to at the very least a

badly run if not fraudulent company promising something they couldn't deliver. they went on to void a bunch of blood tests. people may have made health care decisions based on these. even though this sec investigation is settled for elizabeth holmes, this may not be the end of the story for her. there may be criminal charges filed as well. emily: i vividly remember when the wall street journal published its first investigation of elizabeth holmes. was october 2015. she appeared at a wall street journal conference to respond. take a listen to what she had to say. >> i read what was written in the article. we disagree with it and think it was false and misleading. know what we have done which is the decision to voluntarily work with the agency. we interact with them all the time.

we have chosen to take a path that is hard and i believe in it incredibly strongly because the right thing to do. i personally, in arizona, worked very hard to change the law to allow individuals the right to order lab tests directly and i can't do that without knowing the tests that are offered are of the highest quality. emily: the sec has said as a result of this investigation, innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what technology does today now what they hope it will do some day. olivia, what is the sec saying here? olivia: this is a huge statement coming from the sec which usually doesn't make such bold pronouncements. they are saying, we arts keeping an eye on you. they are keeping an i on large unicorns that are staying private longer letting them know they won't get away with

making's false statements. the penalty hair, walk us through what the penalty is. does it seem reasonable? little bita surprised. it's severe in certain aspects. she is supposed to give up a large portion of her stake in the company. she won't have voting control. a $500,000 fine personally and considering the raisedf the fraud, they $700 million while misleading investors, it really seems pretty surprising that that is all that is happening. especially we have a recent point of contrast with martin shkreli, and he got seven years in prison for what the government in the pegging is a $10 million loss for investors. this may not be the end of the story. emily: what is it mean for investors? olivia: i think we'll see more

lawsuits to calm. one of the most interesting things we're going to watch for here is that elizabeth holmes is one of the company's largest shareholders but she is one of the largest investors herself. she is the victim of her own fraud. we know at this point, she needs to return $18.9 million to investors for that's a small, tiny portion of the $700 million she has raised. i won't be surprised if there are more lawsuits and various investors go after members of the board and other people that may have known what was going on. emily: it's unclear how much the one agrees example or whether other biotech and health tech companies are pushing the boundaries in a similar way. what is your sense of that and whether there will be wider examinations or wider crackdown on other companies in the space? max: i think i come down on the side that this was an isolated,

if not isolated, securely egregious and unique example. they operated in a regulatory gray area for fda scrutiny and notoval for lab tests is quite as rigorous or consistent as you might get for drugs or other things. i think there's still a lot of interest in the sector for companies that have a better track record of explaining what they do and how they do it. this company, which was a lot more secretive. i think you will see a lot more scrutiny and a higher level of in the casepecially of investors who weren't really subject matter experts investing in something that was complicated and scientific. if you want a recent example, one of the biggest recent health tech private investments was in a company that is trying to develop a blood test for cancer. people are still going to invest

but they're going to be more careful in the future. ♪ emily: elizabeth -- olivia zaleski and max gleason. is gettinglon musk ready to take on comedy? after finding himself and tesco -- tesla be but of some onion such as elon musk offering grants to any project that will make them feel complete, musk has been hiring staffers and writers from that website. no word on whether the comedy project will make its debut before musk gets us to mars? when it comes to a rocket, not a problem. outgetting the model three the door and hold onto tesla executives, not so much. tesla has lost two more financial execs with reports of

quality issues with the model three, which continues to face production delays. we spoke with max jackman in new york. i things important to point out that the tesla is not a normal company. in any sense. a very hands-on manager. he has a reputation for being a hands-on manager and there's this kind of thing going on. we were sort of warned about this. musk have been talking about production hell and even discussing possible circles for production hell they might be in. the idea that you are losing some executives, that makes that it's sign happening. on the other hand, this is going to be a huge uphill climb and if they are not able to keep people in that factory are managing the factory or running the business,

that's going to be a huge for the huge numbers they want to get to by the end of this quarter. emily: bloomberg has built a tesla model three production tracker. how is the company doing? max: basically we think that based on the venn's they have been putting out there that customers have been reporting to us in getting from the government, they are doing about the 1000 or a little less than 1000 a week. they are supposed to be up to 2500 by the end of this quarter. it's a long way to go if you believe our model. we don't know how -- how good the model is. but it's a slightly discouraging sign. emily: that was max chafkin.

coming, dropbox scales back ambitions. a vow to raise $648 million in an ipo, giving them a valuation well below the $10 billion it snagged and private fundraising. this is bloomberg. ♪

♪ emily: welcome back to the best of bloomberg technology. i'm emily chang. fourth ipo attack of the year is upon us. publicx planning to go at between 6.7 -- six win $7 billion and $7.6 billion. -- $6.7 billion and $7.6 billion. ♪ dropbox told wall street their marketing shares at $16 to $18 a share.

that implies a market cap, as you said, about 25% the $10 billion valuation they clocked in their private funding round. is happening? what i've heard from a lot of people is that today dropbox raised money at a time when valuations were really high. perhaps a little bit too elevated. and now they are trying to take their salt. if you look at the last few years, it's actually a fundamentally improve business. positive andten closer to possibility -- profitability. revenue is growing at 30%. for -- those premiums, areaps the foam oh premium, not something public market investors want to bake into what they pay for the stock. they also privately agreed to

sell salesforce $100 million in stock. a reverseannounced stock split for current inside investors meeting those investors won't be as diluted. the dilution is to maintain that the employees in the existing investors hold the rights that they had before hand. the salesforce investment is interesting. this is a concurrent private placement that means at the same time they're doing the ipo they are selling $100 million worth of stock to salesforce. this comes on the hail -- the heels of an announcement last week that salesforce will integrate dropbox products with the salesforce customer relations management software. they can upsell each other and integrate the products. it seems that it's clear that salesforce does have some skin in the game with his large stake. it's akin to what we sell with taking a bigomcast

stake in snap. interesting here. emily: we had the ceo on the show last week. one of dropbox's biggest competitors. if he is concerned about dropbox. it's a company that's bringing in more money than box. tale ofox's numbers are two types of companies. one is a consumer residue -- revenue business. and then about a third of the business-to-business. that's the only part of the business that looks anything like us. our revenue tilts towards midsize companies and large and prizes. agree with hisu take that they don't compete as much as we seem to think?

alex: currently that seems to the case. aty 11 million users pay dropbox. is of the big differences that box has a concerted sales effort and dropbox doesn't. revenue comes from that. that's the difference. competing but it and his company have been focusing on large accounts while dropbox is pushing for the guerrilla approach. get in was some teams internally have the big companies and try to figure out how to sell across the customer base. emily: thanks to bloomberg's alex barinka. spotify's public debut, they are bucking convention with a plan

for direct listening on the new york stock exchange. we spoke with an early spotify investor in london. >> i think spotify doesn't really need to raise money. it's a company with lots of cash. they are also a very well-known brand. i think this is rather unconventional but it really serves the company's purposes. >> they're up against competitors such as apple which have phenomenal amounts of cash. surely at some point they will tap the market because why else have the availability of going public at all? >> i think it really starts with a relationship with the consumers that are using the product. , since the launch back in october 2008, consistently been one step ahead of competitors.

it's extremely good at surprising customers with products and suggestions, playlists, and duration. it's heads and shoulders above what the others are doing at the time. is probably what everyone is thinking about here, they came to the market quite late. on downloaded as being the predominant way to deliver music and it turned out that was the wrong choice to make. they came too late to the party, consequently. think spotify will always be able to remain ahead? we are looking at voice assistants as a way of consuming music. i use my google home. we have speakers coming out from apple as well. are they not putting up roadblocks? it could be a change in how

people want to consume their voice assistants but spotify is one of the skills of alexa. it's functioning really well there. why itno reason shouldn't be in all the other devices. that has been one of the hallmarks of spotify's success that they have been ubiquitous in every device there is. they don't need to tap the market now. they can list in this novel way. why come to the market now? say theates fair to founders early on understood this was a capital-intensive business and they needed to rely on the private capital markets.

they raised quite a lot of money over the years. underlying promise to most of those investors is that at some point in time there will be a liquidity event. when you're building such a phenomenal company as spotify, the best way to get to the point is to do a listing. >> so you will be sellers on the first day of trade? are owners for 10 years and this is a fund that is in the very latest stage of its existence. it's natural that we will, at some point in time, exit our position there. it can be done in various ways. one is to sell and another is to distribute our shares that we investors. fund we know that quite a few of our fun investors are really intrigued about the long-term prospects of spotify and consequently that could be a very well functioning option as well. >> what price would you have to

see for spotify to exit? >> it's hard to say. many goodviously comparables and peers that you can pick spotify against. >> like who? >> netflix is a pretty good one. >> the think it's a that valuation, you think? >> in other similar gross margin. it is a stronger growth rate. it's international. it has a massive amount of subscribers. i think what is perhaps even stronger was bona fide is that it's a much more cash efficient model. spotify gets paid on day one for the subscriptions and they don't have to fund entire productions like netflix does.

consequently, the cash required to run the operation at spotify is less. isyou talked about how this a liquidity event which investors such yourself need. what does it mean for the european ecosystem? >> i think it's phenomenal that we have the biggest listing ever of a technology company now happening in coming from a small country up north. fueled a dynamism of the stockholm ecosystem during my 22 years as a vc that has really surprised even me. nowe are lots of companies springing up in the shadows of

spotify and a few of the other big players. haveconsists of people who have their first experience with these great companies and spotify is probably the biggest of the finest of them all. >> will we see these listings be copied? havewe see other people take the same route? >> very few companies could match the kind of standing required, so i think goldman sachs and morgan stanley can steal see good business ahead. emily: that was caroline hyde. one of the world's biggest investors once the board to in talks with dell about a merger. they argue it would be a terrible deal for the company and shareholders. michael dell on's vmware his

namesake company. he's trying to bring all the companies together under one roof. coming up later, the majority of the venture capital in the u.s. is funneled into companies and new york. the midwest may be the start of world's new darling. we hear about one bc in colonus ohio is a silicon valley is no longer where it's at. sxswd back to austin and and talk with the cofounder of the world's second-largest cryptocurrency. this is bloomberg. ♪

♪ on theyahoo! could be hook for. it damages from a hotbed exposed all their users. a judge has ruled that victims of the data breach could seek damages because yahoo! execs didn't do enough to protect in sumer's given what they knew about the breach. yahoo! reached an 80 million settlement with investors.

now back to our coverage on sxsw in austin which would be complete without a spot on blockchain's. we talked to a man who aims to build tools and apps that enable to have a decentralized future through blockchain that is perhaps best known for founding the theory him. he explained the blockchain's role at the festival. we hadn't event where he had four or so thousand people in attendance. we are running a lounge. we have right now a women in blockchain event going on as we speak. we have had offense with steven woolfe from of mathematica fame and a full slate over the last few days. walking around, being all the different events around the area, everyone is talking about blockchain either in the event or peripherally.

>> to what extent are they not really highlighting bitcoin? bubble has seemingly burst even as there's a lot going on once you check out the action from the other platforms. demand forto the blockchain cryptocurrencies at large. >> and may be hard to tell because we are so focused on a theory am. or so focused on building decentralized applications and less focused on cryptocurrencies ife bitcoin and consider there am to be a crypto fuel that powers decentralized applications but i would argue that we have seen a correction in our space but calling the bubble to have been popped is a little shortsighted. i think there is tremendous foundational fundamental work being done in our ecosystem and it's very early days for the

ecosystem. >> throughout the first several quarters of 2017, we saw on explosion of initial coin offerings, many built to run on top of the at. network. lately there's been a lot of anxiety about a regulatory crackdown and the status of many of these coins. how much does that threaten the interest in it. if one of the main applications of it is understood much regulatory scrutiny? we are extremely happy about how things are going globally with regulators. there are many different jurisdictions that are excited about tokenized securities or utility tokens that would be considered securities. that's true in this country as well in the united states. greatare many applications being built worldwide on a theory of and with other blockchain technologies. but there's many bad projects in

many fraudulent projects so is perfect a reasonable for a bit in our ecosystem. it's important, i think, for many projects to do their legal homework an issue tokens properly. theou talk about all projects launched on it. that you describe is promising. the underlying platform is still not particularly robust respect to scaling. a few months ago there was a collectible card game that brought the whole thing to a halt. the timeframe for launching something without slowing down the network? best with respect to security and drug history software developers have in pushing the bounds of scalability for all platforms. we put this new trust infrastructure in that enables better collaboration. we are seeing technologies like state channels.

we're seeing technologies like plasma that will rim of five in the next few months. the crypto kitties application was one excellent test showing us where some of our clients and some of weak those issues have been fixed already. short-term, there will be some excellent fixes in 2018 over the next two years. were going to see dramatic skill ability increases. that was the cofounder of consensus speaking to bloomberg from sxsw in austin texas. still ahead, a new frontier for venture capitalists. why start of investors are looking harder at america's midwest. this is bloomberg. ♪

♪ emily: more than half of all venture capital in the united states goes to companies in california alone. but as half of all the innovation in the u.s. happening here? into an ohio-based venture-capital form -- capital firm. it's now on its second funded through in a million dollars and is invested in 29 companies to date. , the cofounder, joined us from columbus, ohio. >> i think what we're seeing is they have dramatically exceeded our expectations. to give us some statistics, we first got here, we did no harm the companies we see on the year. we saw about 1800 companies on the year. last year we saw about 3500 investment opportunities. these are inbound referrals of

inbound -- of midwest companies. this is what a typical silicon valley would see at about 4000. than's a lot more here even when we first anticipated. leaving silicon valley for a lay, calling a toxic, the new york times just did a big story about silicon valley vcs visiting the midwest. you agree or disagree? >> i don't know that silicon valley is over. the amount of $50 billion or so that gets invested into bay area companies from the venture world on an annual basis, to see that's the end, i don't know how that happens. what i do see is was happening out here is just starting. but we are seeing today is a thriving ecosystem of lots of technology startups with real innovation. entrepreneurs and founders that are creating connection ration

agriculture, all kinds of things and robotics. it's hard for me to look at what is going on here and seeing anything but the frontier of innovation. i'm seeing this emerge and catch up. emily: is the investment going and new york, is that a mistake for misallocation of capital? in the midwest as companies -- just coming into their own and going to garner a larger share of the investment going forward? our companies are raising more money. our portfolio now, we have raised about half $1 billion of capital from the coast. airplanes,ing on

coming here, insane and rather invest in these companies in the midwest than those in my backyard. that's a new thing and it's a growing number. the number for us continues to double on a year on year basis. it's inevitable that more of the cc or to start staying here. ff starts to emerge, what you will find is that more founders will get more capital and the efficiency of the capital go so much farther. we've also seen a lot of technologies that start on the coast, they are moving their businesses here. i think this a trend you're going to read a lot more about as his companies get bigger. there going to be more the newspapers and they have been in the past i think people are paying more attention. it must did you turn it must be a huge hurdle. you hired your first female partner. what is the argument to move their aside from its cheaper than most the town is on the coast?

cheaper does not help. the midwest as always been cheaper than the coast. it's always probably going to be that way. shouldy reason people move. join jobs the midwestern technology companies is because they believe this is their opportunity of a lifetime. if you are somebody who is highly skilled and highly technical newer somebody you as the opportunity to work in any place you could work and planet earth, you're going to choose to go the place for you personally have the best opportunity. people measure that in different ways. one of those is in impact an individual can have in these companies. we have seen a plethora of people from companies like twitter and facebook and amazon, google, go to the list that are joining the senior leadership of our portfolio companies. those are great. but there's also an awful lot of people in these midwestern cities that are not trained as engineers who have a fundamental

understanding of these industries in which they have been working and if they apply now a west coast approach to building startups, they can really unleash a bunch of potential. we are seeing that if we have 1800 people in our portfolio, that's up from about 900 a year ago. the number will probably double again this year. accepts to talent here has been a lot easier than it is in markets that have a lot more startups that are competing for that same level of engineers in that same level of senior managers. ♪ emily: thanks to chris olson with drive capital. that does it for this edition of the show. we will bring you all the latest throughout the week. tune in this tuesday when we speak to facebook vice president for ema, angela nicholson. all episodes of bloomberg technology are live streaming on twitter.

check us out weekdays. that's all for now. ♪

♪ >> regulation will back, u.s. senate passes regulations duties restrictions on community banks but will the house go further and slashing dodd-frank rules? mifid ii has been in limited but how much disruption will we see? we hear what europe's future and further integration. welcome to bloomberg markets: rules & returns. i am nejra cehic,