♪ emily: i'm emily chang, and this is the best of "bloomberg technology," where we bring you all our top interviews from this week in tech. coming up, the broadcom bombshell. how the fight to close the biggest deal in tech history went all the way to the white house, and why it failed. plus, tesla's talent turnover, three senior executives hit the road just weeks before a critical progress report for the model three goes public. and blockchain seizes the spotlight out sxsw. -- at sxsw.

you will hear from bitcoin rival ethereum's ceo. first, to our lead. it was supposed to be the largest tech deal ever, but now it is dead. broadcom's $117 billion hostile takeover of rival qualcomm has been blocked by president trump , 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." so, what happens now? i spoke to glad by columnist -- gadfly columnist brooke sutherland who covers industrial companies in new york and bloomberg's ian king on tuesday after the news broke. ian: we were talking about how it might drag on and of the ceo of broadcom was in the pentagon yesterday afternoon trying to explain himself. he was trying to find a way forward. a matter of hours later, the white house comes out and says no you don't, that is the end of it. ,mily: very unexpected

right? ian: we expected to go further. emily: what kind of implications with us have more broadly on m&a? let's start with tech and the tech industry. brooke: i think the clearest signal the government is sending is that u.s. tech is off-limits to foreign buyers. you know, this is actually not the first deal that has been blocked under president trump's administration because of national security concerns. if you will remember, canyon was trying to buy a semiconductor company, and that 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 in concerns with this deal. their primary push back was what type of company broadcom is. they were worried that broadcom would use cost cuts and and got qualcomm's r&d and that would hamper the company's ability to compete in the race for 5g. that has broader applications on m&a, because that is what companies do when they have

large m&a. they cut costs and try to make these deals a credence. so if that's off the table and considered a security risk, that means that a number of people looking at deal will have to get the pot but and while advisors figure out what is going on here. emily: is there any way forward? or is this definitely dead? ian: we have to note that they haven't formally given up and we believe meetings are on the way. emily: meetings with who? ian: meetings between themselves while they are trying to decide what to 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 an explanation of why. emily: ok. and what is the explanation of why? ian: that is really a matter of conjecture. the thing about this, they do not have to explain themselves. security concerns, that's the end. but more broadly than that, they did say look, we do not like the fact that we don't believe --

that we believe you don't invest in technology. that's a security concern. apparently, the definition of what is a concern has spread. emily: this administration has sent up red flags about non-foreign takeovers. we are dealing with that with at&t-time warner. talk about what this means for m&a in general. brooke: sure. i think the signal that is being sent is that this administration is going to take a much tougher look at all types of m&a which, necessarilynot what we expected going in. trump pushes himself as his great deal maker but he's pushing back very aggressively against deals. the interesting thing with time warner and at&t, it's a vertical integration deal. the two companies don't necessarily have a lot of overlap. historically, the u.s. hasn't looked at that on an antitrust basis. they have only looked at specific businesses with distinct overlap. and it seems to be an attempt to shifting the purview to look at vertical integration the way chinese and european regulators do.

again, we have this expanding definition of what is a national security concern. and i think you will only see that expanded further. there is legislation in front of congress right now that would allow them to take a look at joint ventures, minority investments, real estate transactions and further define what a national security issue is to include technology and other issues. emily: and qualcomm shares dropped on this news, broadcom shares only slightly down. areexecutives at -- executives at qualcomm in san diego celebrating? they still have a lot to figure out. ian: you are absolutely right. this is by no means a victory parade for them. effectively, they won by default. the competitor was disqualified , they did not convince their shareholders to vote this down. indeed, going into that shareholder meeting which was canceled at the last minute, they were leaving and it was looking like that board was going to be largely taken over by broadcom. they have a vote of

no-confidence from the management, and this is something they will have to address pretty quickly. emily: so what are the next steps for qualcomm? ian: they have to get the apple situation sorted out. we have been talking about this for more than a year now. they are in a massive legal dispute with one of their biggest customers, saying they don't want to pay technology licensing anymore. that technology licensing revenue is importance for them -- important for them and has very high margins here that pays for the r&d. they need to get that back to don't want to pay technology licensing anymore.get shareholdr side. emily: talk to us more about broader markets and how they might react to this bigger idea that this administration is not going to be friendly to m&a. brooke: sure. i think one big open question out there is qualcomm's acquisition of nxt. we are waiting for regulatory signoff from china for a deal. it has been more than 15 months. there is some speculation among analysts whether china was purposely dragging its feet as

retribution for trump and the steel and aluminum tariff, but now, i think this only feeds the fire. it'll be interesting what happens with that. another deal might run into pushback, given one of these companies based in bermuda. is that now considered a national security risk? it opens the floodgates for all of these questions. these different dynamics that advisors, when they put these deals together, previously never had to consider. radcom executives are meeting amongst themselves. what is next for them should they decide not to move this forward? ian: broadcom is an american company, according to them. they are just registered in singapore for tax purposes. they came out of an hp spinoff. they bought companies that were all american. broadcom, which they acquired, was an american company. he's got 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. at least in their opinion, and at least as to what the arguments are saying. the concern here is if the policy is to buy new companies, and to grow the mechanism, are they going to be allowed to do anything? emily: do you think they will appeal? ian: i have no strong sense one way or the other at the moment. it's been a really difficult race to predict both ways all along. emily: so you can't take a day off, that is the bottom line? ian: bottom line. [laughter] emily: that was bloomberg's ian king and brooke sutherland. now to another top story of the week. goldman sachs has paved the way for copresident david solomon to become the next ceo. solomon will become the firm's soul president, and the other copresident, harvey schwartz, will be leaving. there is no timeline for the retirement of ceo lloyd blankfein. last month, we sat down with david solomon at the tech conference and talked about the tech sector this year. david: the year has set up in a way where it should be very

, very constructive for both m&a activity and for ipo activity. ipo activity started to pick up a little bit towards the end of 2017. we have a very, very healthy ipo backlog. but we also have an environment, for a variety of reasons, why 2018 should set up to be a pretty active year for strategic m&a in the technology sector. emily: coming up, our conversation with london's mayor from sxsw. his message to uber, next. and if you like bloomberg you , can listen on the bloomberg radio app. this is bloomberg. ♪

♪ emily: whatsapp is throwing a new curveball into india's financial market. they are launching a new payment service where users can transfer cash to one another.

-- caught fire after the government took 86% of paper currency out of circulation, which also temporarily disrupted markets. credit suisse estimates india's payment markets could be worth $1 trillion in five years. here in the u.s., sxsw is in full swing. attending the conference in austin, texas, the mayor of london to drum up business for his city. speaking to bloomberg, sadiq khan had stern words for companies like uber, saying they had to play by the rules if they want to do business in london. the mayor also explained why london is the place to be when sadiq: --o technology comes to technology. sadiq: there are a number of reasons why tech companies and startups and tech giants come to london. the main reasons are access to talent. we have a talented population in london. we are investing in the next generation to have the skills for tomorrow. second is access to capital. london has cultural capital in the country, political capital,

and financial capital. thirdly, our ecosystem. the proximity to culture, tack, -- culture, tech politics, , politicians, regulators. it explains why 40% of the world's companies have european headquarters in london. 40%. number two, by the way, is paris with 8%. and so london is a great city to start a business. to come if you are a big company. it is going to stay that way while i am there. and we've seen the likes of google and facebook investing in london as well. uber has been the one under fire under your administration. when it comes to their license getting revoked. what do you need to see from the company for them to continue to operate in the city of london? mayor khan: uber is a very popular service around the world. the idea of linking an app to a taxi is popular.

but my message to uber and everyone, no matter how many lawyers you employ or pr experts, you have to play by the rules. the rules are there for everyone. if you play by the rules, of course you can do business in london. i want london to be a place where disruptive and tech tech -- tech companies come. but you have to play by the rules. -- good news, the new wish new-ish global ceo of uber has a different attitude to the previous ceo. and the noises coming from him and the language from him bodes well for the resolution of the differences the regulator has with uber. emily: that was london mayor sadiq khan. investors are lapping up blue apron's planned entry into brick and mortar. shares spiked thursday after the company announced it will begin selling its prepared dinners in stores. no word on how much they will

cost, but the wall street journal reports the kits will be available by the end of the year. blue apron shares have dropped more than 75% since its ipo last june. coming up, the theranos endgame. the sec accuses elizabeth holmes of years and -- of lying and fraud. we will read the fine print. and space rockets, elon musk is when it comes to retaining space rockets, elon musk is the king rockets,en it comes to elon musk is the king.

emily: a former equifax executive is facing charges of insider trading. federal prosecutors announce that a grand jury has indicted him for selling off nearly $1 million of equifax back stock before the massive data breach was announced. he allegedly received information in late august alerting him to the breach, but the company did not disclose it until december 7. theranos ceo elizabeth holmes has been accused of fraud by the fcc. that's in addition to the two-year ban she was already

serving from operating blood testing labs. the lawsuit and settlement announced on wednesday detail how holmes and her chief deputy lied for years about the technology. they used the publicity to fork -- to get investors to fork over more than $700 million. you will recall that the company claimed they could run multiple tests on one drop of blood - but -- but at a fraction of the usual cost, but was forced to shutter their lab after thousands of results have to be corrected. elizabeth: a fascinating story and a fascinating filing that was dropped today, accusing her of this massive fraud which she used the media and defrauded investors. so really if you step back and look at this company, she was promising that you could do hundreds of different tests just from the prick of a finger. it turns out you could not do more than a few dozen tests and that they were using their

competitors' technology. they made statements such that million inhave $100 revenue in 2014. it turns out it was closer to $100,000. so all sorts of bold statements. i think it is sort of this symbol of silicon valley where companies feel the need to fake it until they make it and make bold promises, and actually say those promises are a current reality. emily: max, i remember the customers came forward, saying their tests were wrong and talking about critical test 'sabout one health. what is the scale of fraud that 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. so this company, in addition to defrauding investors, also ran, to what amounts 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 that people may have made health care decisions based on. so that is why i think that even though this sec investigation is settled for elizabeth holmes, this may not be the end of the story for her. or for theranos. there may be criminal charges filed as well. emily: i vividly remember when the wall street journal published its first investigation of elizabeth holmes in october 2015. she then 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. we think it was false and misleading. i know what we have done which is the decision to voluntarily work with the agency. we interact with them all the time. and we have chosen to take a path that is hard and i believe in it incredibly strongly because the right thing to do.

and 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: meantime, 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 the technology can do today, not just what they hope it would do someday. 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 are keeping an eye on this and using it as an example for other large unicorns here, especially ones that are staying private longer, and let them know they are not going to get away with making

false statements and they are watching very closely. emily: the penalty here, walk us through what the penalty is, does it seem reasonable? max: i was a little bit surprised. it is definitely severe in certain aspects. elizabeth holmes has to give up a large -- portion of her stake in theranos, she won't have voting control anymore. but it's only a $500,000 fine personally and considering the scale of the fraud, they raised $700 million while misleading and lying to investors, it really seems pretty surprising all that happened, especially when we have a recent point of contrast -- and other health care fraud with martin shkreli, and he got seven years in prison for what the government ended up pegging was a $10 million loss for investors. so this may not be the end of the story. emily: what is it mean for -- what does it mean for theranos investors? olivia: this is an interesting question. i think we will see a lot more

lawsuits. there is more to come. the chips will continue to fall. i think 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, so she is one of the largest investors herself. in many ways, she is sort of the victim of her own fraud. we know at this point, she needs to return $18.9 million to investors, but that is just a small, tiny portion of the $700 million she has raised. so i wouldn'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 at the company. emily: it's unclear how much the company is one of egregious -- is one egregious example, or whether other biotech and health tech companies out there are pushing the boundaries in a similar way. you know, what is your sense of that and whether there will be wider examinations or wider crackdown on other companies in this space? max: i think i come down on the side that this was an isolated, if not isolated, definitely

particularly egregious and unique example. you know, theranos operated in a regulatory gray area, where fda scrutiny and approval for lab tests is not quite as rigorous or consistent as you might get for drugs or other things. and i think there's still a lot of interest in the sector for companies that actually have a better track record of explaining what they do and how they do it. as opposed to this company, which was a lot more secretive. i definitely think you will see a lot more scrutiny and a higher level of diligence, especially in the case of theranos, where you had investors weren't really -- were not really subject matter experts investing in something that was a complex scientific task. 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. there are still interesting signs people are going to invest, but they are definitely

going to be more careful in the future. emily: olivia zaleski and max gleason. after conquering reusable space flight, billionaire elon musk is getting ready to take on -- comedy? after finding himself and tesla the butt of some satirical headlines, such as elon musk offering grants to any project that will make them feel complete, the billionaire has been hiring former staffers and writers from that same satirical website. this is according to the daily beast. no word on whether the secretive new comedy project will make its debut before musk gets us to mars. when it comes to shooting a rocket in space and landing it back on earth, for elon musk, not a problem. but getting the model three out the door and holding on to tesla executives, not so much. within two weeks, tesla has lost two more financial execs amid reports of quality issues with the model three, which continues to face production delays.

so what can elon musk due to get tesla fully charged? to answer that, we spoke with bloomberg columnist max jackman in new york. max: i think it is important to sort of point out and remember that tesla is not a normal company in any sense. elon musk is a very hands-on manager. you know, he has a reputation for being a hands-on manager, and there's always been this kind of churning going on. the other thing is we were sort of warned about this. musk has been talking about "production hell" and even discussing possible circles for production hell they might be in. so the idea that you are losing some executives, that makes sense as a sign that it's 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 or managing the factory or running the business, that's going to be a huge

problem. it is going to make it all the harder to get to these enormous numbers they want to get to by the end of this quarter, and later in the year. emily: quickly, max, bloomberg has built a tesla model three production tracker. how is the company doing? max: yeah, so all credit to our colleague, tom randall, on this. basically, we think that based -- tesla, based on the venn's they have been putting out there that customers have been reporting to us and sort of getting from the government, they are doing about the 1000 or a little less than 1000 a week. now, they are supposed to be up to 2500 by the end of this quarter. so there is a long way to go if you believe our model. now, we don't know how good the model is, but it's a slightly discouraging sign. ♪ emily: that was bloomberg businessweek's max

chafkin. coming up, dropbox scales back ambitions. the cloud company vowed to raise $648 million in an ipo, giving it a valuation well below the $10 billion it snagged in private fundraising. this is bloomberg. ♪ retail.

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♪ emily: welcome back to "the best of bloomberg technology." i'm emily chang. the first major tech ipo of the year is upon us. we have more details around the dropbox listing this week. dropbox is planning to go public at a valuation of anywhere between $6.7 billion and $7.6 -- $7.6 a number billion, well below what it clocked in during the last private funding round. we have the details from alex barinka, who first broke the news on the ipo plans. >> basically, they wall street they are marketing shares for a range of $16 to $18 a share. they are hoping to sell within that range for the initial public offering. that implies a market cap, as

you said, about 25% below the $10 million private valuation they clocked in their private funding round in 2014. so why is this happening? what i've heard from a lot of people today is that dropbox raised money at a time when valuations were really high. perhaps a little bit too elevated in private funding rounds, and now they are trying -- having to take their salt. if you look at the last few years in terms of what dropbox has done with their business, it has actually fundamentally improved. they have gotten positive and closer to profitability. revenue is still growing at 30%. cliff, which is what investors really want to see, but some of those premiums, for perhaps the fomo premium, are not something public market investors want to bake into what they pay for the stock. emily: a couple other interesting details. they privately agreed to sell salesforce $100 million in stock. they have also announced a

reverse stock split for current inside investors, 1.5-1, meaning those investors won't be as diluted. explain what this all means. alex: the dilution is to maintain that the employees in -- and the existing investors hold the rights that they had beforehand. the salesforce investment is really 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. and this comes on the heels of a partnership announcement with salesforce they announced late last week, saying they will integrate dropbox products with the salesforce customer relations management software. so they can basically upsell each other and integrate the products. but not only is it a partnership, now it seems that it's clear that salesforce does have some skin in the game with this large stake. it's akin to what we saw with comcast taking a big stake in snap when it listed about a year ago. but that happened after the ipo. so interesting move here from

the likes of salesforce, paring up with dropbox financially. -- pairing up with dropbox financially. emily: we had the ceo on the show last week. this was, of course one of , dropbox's biggest competitors. i asked him if he is concerned about dropbox. this is a company that's bringing in more money than box. take a listen to what he had to say. aaron dropbox's numbers are tale : of two types of companies. one is a consumer revenue business. that is about 60% or 70% of their revenue, and users are consumers like you and i using it for professional or personal use cases. and then about a third of the revenue is business-to-business. that's the only part of the business that looks anything like box. and that tilts towards small business or teams, where our revenue tilts towards midsize companies and large enterprises. emily: alex, would you agree with his take that they don't compete as much as we seem to think? alex: currently, that seems to the case.

dropbox has 500 million registered users. only 11 million of those are paying. they have not completely laid it out, but it seems like those are going to be enterprise accounts. one of the big differences is that box has a concerted sales effort dropbox doesn't. , 90% of their revenue comes from self service and you sign up for the products you pay for. and that's the difference. i know aaron is competing with but ituston at dropbox, does seem like he and his company have been focusing on large accounts while dropbox is the of pushing more of guerrilla approach, land and expand and get in with some teams internally at these companies, and try to figure out how to sell across the customer base from there. emily: thanks to bloomberg's alex barinka. now let's turn to spot of five's comeg public -- spotify's in public in butte. as we have been reporting, they are bucking convention with a plan for a direct listing on the new york stock exchange.

caroline hyde spoke with an early spotify investor in london. >> well, i think spotify doesn't really need to raise money. it's a company with lots of cash. as you can read through their filing documents, and they are also a really well-known brand. so i think this is rather unconventional, but it really serves the company's purposes. caroline: but they are up against competitors such as apple, which have phenomenal amounts of cash. surely at some point they will tap the market, because whilst have the availability of going -- 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. spotify has, since the launch back in october 2008, consistently been one step ahead of the competition. they have been extremely good at

delighting and surprisingly customers with products and suggestions, playlists, and duration -- curation that is heads and shoulders above what the others are doing at the time. and then apple, which is probably what everyone is thinking about here, they came to the market quite late. they bet on downloaded as being the predominant way to deliver music and it turned out that was the wrong choice to make. and they came too late to the party, consequently. thinkne: and so do you spotify will always be able to remain one step ahead, even looking at avenues becoming blocked? 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. will they not start putting up roadblocks to allow such a seamless use of spotify? >> it could be a change in how people want to consume their

music with voice assistants, but spotify is one of the skills of alexa. it's functioning really well there. also, we see no reason why it 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 pretty much every device there is. there is some integration that spotify caroline: they don't has done. caroline: they don't-- that spotify has done. caroline: they don't need to tap the market now. they can list in this novel way. why come to the market now? what is driving them? >> i think it is fair to say the founders early on understood this was a capital-intensive business and they needed to rely on the private capital markets. and they raised quite a lot of money over the years. the underlying promise to most of those investors is that at

some point in time there will be a liquidity event. and when you're building such a phenomenal company as spotify, the best way to get to the point is through a listing. caroline: so you will be sellers on that first day of trade? >> we are owners since 10 years and this is a fund that is in the very latest stage of its existence. so 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 hold to our fund investors. and we know that quite a few of our fund investors are really intrigued about the long-term prospects of spotify and, consequently, that could be a very well functioning option as well. caroline: what price would you have to see for spotify to exit?

>> it is very hard to say. there are obviously many good comparables and peers that you can peg spotify against. caroline: like who? >> i would say netflix is a pretty good one. .or many reasons caroline: is it because of the valuation, you think? >> in other similar growth margin. spotify has a stronger growth rate. it is international. it has a massive amount of subscribers. i think what is perhaps even stronger with spotify is that it's a much more cash efficient model. so spotify gets paid on day one for their 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.

caroline: you talked about how this is a liquidity event which investors such as yourself need. what does it mean for the -- what does this mean, the liquidity event mean for the european tech ecosystem? >> i think it's phenomenal that we have the biggest listing ever of a technology company now happening and coming from a small country up north. it has really fueled a dynamism andit has really fueled a -- and it has really fueled a dynamism of the stockholm ecosystem that during my 22 years as a vc has really surprised even me. there are lots of companies now springing up in the shadows of spotify and a few of the other big players.

that consists of people who have gotten their first experience with these great companies and spotify is probably the biggest and the finest of them all. caroline: will we see these listings be copied? will we see other people take the route that spotify did? >> very few companies could match the kind of branding required. so i think goldman sachs and morgan stanley can still see good business ahead. emily: that was bloomberg's caroline hyde. a story we are watching, one of vmware's biggest investors wants the board to end talks with dell about a merger. they argue it would be a terrible deal for the company and shareholders. billionaire michael dell controls vmware, as well as his namesake company. he's trying to bring all the

pieces together of his empire under one publicly traded roof. coming up later this hour, the majority of the venture capital in the u.s. is funneled into companies in california and new york. but the midwest, which has long been overlooked, may be the startup world's new darling. we will hear about one basin columbus, ohio about how silicon valley is no longer where it's at. and we head back to austin and sxsw and talk with the cofounder of the world's second-largest cryptocurrency. this is bloomberg. ♪

♪ emily: yahoo! could be on the hook for punitive damages for the 2013 hack. a judge has ruled that victims of the data breach could seek damages because yahoo! execs didn't do enough to protect consumers given what they knew about the breach. earlier this month, yahoo! reached an $80 million settlement with investors. now back to our coverage on sxsw in austin, which would not be

complete without a spotlight on blockchain. we talked to a man who aims to build tools and apps that enable a decentralized future through blockchain. but he is perhaps best known for for founding another cryptocurrency, ethereum. he explained the blockchain's role at the festival. >> we had an event where we had 4000 or so people in attendance. we are running the ethereum lounge. we have right now a women in blockchain event going on as we speak. we have had vince, from steven woolfe from of mathematica fame and a full slate over the last few days. also walking around, being all around the different events around the area, everyone is talking about blockchain either in the event or just peripherally. >> to what extent are they not really highlighting bitcoin?

i point that out, because the bitcoin bubble has seemingly first, even as there's a lot going on once you check out the price action from the other platforms and look into the demand for blockchain and cryptocurrencies at large. >> it may be hard to tell because we are focused on ,he theory him, we -- ethereum we are so focused on building decentralized actions on the platform. we are so much less focused on cryptocurrencies like bitcoin. i consider it to be a crypto fuel that powers decentralized applications on the world wide web, 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 built in our ecosystem and it's very early days for the ecosystem. >> joe, throughout the first

several quarters of 2017, we saw an explosion of initial coin offerings, many built to run on top of the network. of course, there has lately 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 theory him -- ethereum, if one of the main applications of it is understood -- under so 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 not -- would not be considered securities. that's actually in this country as well, in the united states. there are many great applications being built him --de on his theory ethereum and other blockchain technologies, but there are many bad projects in many fraudulent

projects, so it is perfectly reasonable for a bit of a pause in our ecosystem. it's important, i think, for many projects to do their legal homework and issue tokens properly. >> you talk about all the projects that have been launched you describewhich as promising. but the underlying platform is still not particularly robust with respect to scaling. a few months ago there was a card game thatch basically brought the whole thing to a halt. what is the timeframe for launching something without slowing down the network? >> it is remarkably robust with respect to security and drug history. software developers have been pushing the bounds of scalability for all platforms. we have traded high transactions for the new trust infrastructure that enables better collaboration. we are seeing technologies like state channels. we're seeing technologies like plasma that will ramify in the

next few months for different kinds of applications. this cryptocurrency application was one excellent test showing us where some of our clients were weak and some of those issues have been fixed already. and it shows us how we can build better, more scalable architecture. so short-term, there will be some excellent fixes in 2018 . over the next two years, we are going to see dramatic scalability increases. emily: that was joe lubin, the count -- cofounder of consensus speaking to bloomberg from sxsw in austin texas. still ahead, a new frontier for venture capitalists. why start up investors are starting to look 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. this according to the national venture capital association. but is half of all the innovation in the u.s. happening here? enter drive capital, an ohio-based venture-capital firm. drive is now on its second fund, $300 million, and is invested in 29 companies to date. chris olson, drive capital partner and cofounder, joined us from columbus, ohio. chris: i think what we're seeing here is they have dramatically exceeded our expectations. so to give you some statistics, when we first got here, we did many companies we would see on the year. we started out, we saw about 1800 companies on the year. last year, we saw about 3500 investment opportunities coming in to drive. these are inbound referrals of midwest technology companies.

that compares to what a typical silicon valley firm would see, about 4000. we are not quite silicon valley, but there's a lot more here than even when we first anticipated. -- then even we first anticipated. emily: leaving silicon valley for l.a., calling it toxic, the new york times just did a big story about silicon valley vcs visiting the midwest. it says that silicon valley is over -- a little tongue-in-cheek. you agree or disagree? chris: i don't know that silicon valley is over. to me, to say 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 what is happening out here is just starting. what we are seeing today is a thriving ecosystem of lots of technology startups with real innovation. entrepreneurs and founders that are creating next generation artificial intelligence platforms, next-generation

agriculture, all kinds of things in 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 what is going on here is starting to emerge and catch up to maybe what was initially started in silicon valley. emily: is the investment going to california and new york, is that a mistake or misallocation of capital? or are companies in the midwest just coming into their own and will garner more, you know larger share of the investment , a going forward? chris: i can only tell you what i see in our portfolio, which is that our companies are raising more money. forms coming the in. if i look at our portfolio now, we have raised about half $1 billion of capital from the coast. venture firms from silicon valley, new york, boston, they are flying on airplanes, coming here, saying they would rather invest in these companies in the midwest and the in my backyard.

ones-- then the ones 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. so i think it's inevitable that more of the ec's are going to start staying here. is that goes on, what you will find is that more founders will get more capital and the efficiency of that capital here goes so much farther. we've also seen a lot of technology companies that start on the coast, they are moving their businesses here. we have seven companies in our portfolio that have moved here. so i think this a trend you're going to read a lot more about , and as these companies get bigger, they are going to be more in the newspapers then they have been in the past. i think people are paying more attention. emily: hiring talent must be a huge hurdle. i know you just hired your first female partner. what is the argument to move that, as i from the fact it is surely cheaper, when most of the talent is on the coast? chris: cheaper does not help.

to me, the midwest as always been cheaper than the coast. we do not have a notion. it's always probably going to be we do not have an ocean. it's always probably going to be that way. the only reason people should move here and join jobs in 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, and you are somebody who has the opportunity to work in any place you could work and planet earth, you're going to choose to go the place for you to personally have the best opportunity. people measure that in different ways. one of those is certainly in looking at the amount of impact an individual can have in these companies. so we have certainly seen a plethora of people from companies like twitter and facebook, amazon, google -- go down the list of technology companies -- that are joining the senior leadership of our portfolio companies. those are great. but you know what, there is also an awful lot of people in these midwestern cities that are now trained as engineers who have a fundamental understanding of these industries in which they

have been working, and then if they apply that to what is now a west coast approach to building startups, they can really unleash a lot of potential. and we are the seeing -- and we are seeing the numbers -- 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. so access to talent here has actually been a lot easier than it is in markets that have a lot more startups that are competing for that same level of engineers and the same level of senior managers. ♪ emily: thanks to chris olson with drive capital. and that does it for this edition of "the best of bloomberg technology." we will bring you all the latest in tech throughout the week. be sure to tune in this tuesday when caroline hyde speaks with facebook's vice president for the ema region, nicholas mendelson. remember, all episodes of bloomberg technology are live streaming on twitter. check us out at technology

weekdays. that's all for now. this is bloomberg. ♪ mom, dad, can we talk?

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