San Diego Tech News Weekly – June 16th, 2023

Hello.

Hello. Great to have you here. This is Neil Bloom from Fresh Brew Tech and Interlock Capital. And we are excited to bring you another edition of this week in San Diego Tech news. I am thrilled to be joined here with two co hosts today, Fred Greer and Mike Freeman. Fred, quick intro, Give your background.

Hey Neil, thanks for having me. I'm a journalist and author of SD Founder Substack where I wrote about the tech industry in San Diego for the Business Journal for about two years covering ins and outs of the startup world, breaking news on ipo, fundraising and M and A. And happy to be here.

Awesome. We also have Mike Freeman from the Indian Tribune. Hey Mike, thanks for being here.

Yes, thanks for having me. I'm a business reporter with San Diego Union Tribune, been there for 24 years as of last week, and I'm happy to be here. Wow.

Wow, you're an institution.

I'm a cockroach. I can't be killed with a Twitter.

Handle like Tech Diego though, you know, like you've, you've carved out quite, quite the beat in town and have seen quite the tech scene growth. You probably have seen maybe the start and founding of our first story here, Illumina. Right. I think illumina founded maybe 20ish years ago. Do you remember their founding?

I don't remember exactly when Illumina was founded, but I do remember attending a biotech conference like in 2000, maybe 1999 where Craig Ventner was speaking. And the most memorable takeaway from that was you would have thought he was Mick Jagger. And the audience, I mean, it was a standing over rock star, total science rock star. It was really eye opening to me, just the enthusiasm for it. So I don't know exactly when Illumina got off the ground, but you know, it was about that time that they really started to grow.

It looks like 98ish timeframe. So probably right around then, which I think was right around the human genome kind of being broken in that regard. That makes sense.

Wow.

Well, in that time Illumina has boomed as in terms of just creating the genomics industry, building tech to, you know, decode the genome quicker and cheaper, obviously went public and even Market Cap has become, you know, top, top 10, top 5 largest company from a public company perspective in San Diego at times, you know, and then even in the startup world have seen them create a venture fund and a startup accelerator as well too. And then so start to get into that space as well as well as buying up a bunch of companies, many that, you know, I grew up with and great talent kind of going there and flowing out and starting new companies as well too. So they're in an institution in San Diego as well. But they're in, they're in a little bit of change right now. We had the CEO resigning, but that is a multi year story happening. Take us back a little bit, Mike, of what you know of the recent years with, with Illumina.

Yes. So Illumina has tried to grow through acquisitions before one of their. And they made many of them in spaces like, you know, that were additive to their core genomics business. So but you know, they've also failed in a couple and one of the big ones was PacBio. I think they tried to acquire PacBio and that was shot down by regulators and along the way they were doing genomic testing of prenatal genomic testing to find birth defects when women were pregnant. As part of that, they were actually finding cancers in the women and identifying them. And that launched them on an effort to create a diagnostic. And that was Grail, obviously the holy Grail analogy there. And they had that company internally for a while. But I think just as you guys know, if you're going to be a public company and you had to fund a really large R and D effort internally, it's not something that's very palatable to shareholders often, especially when it's a big, long, expensive project like Grail was. So they spun it out to get, you know, additional investors. I think they did that around 2015, 2016. And then in 2020 they tried to bring it back in house. But Grail was far enough along with their technology and their diagnostic test which was supposed to be able to deliver 50, you know, diagnose 50 different types of cancer out of a single blood draw. And they thought that bringing them back into the fold would help Illumina A, diversify a little bit, B, get their make genomics kind of more ubiquitous. Not so much research lab, not so much in niche medical fields like neonatal and get it really ubiquitously used in oncology and tried to get make that deal happen and basically it's, it's been a mess. It's. They are a victim. A little bit of timing, a little bit of, you know, kind of what the market, what they paid for it. Aggressiveness too and being very aggressive with regulators.

Yeah, I mean with, you know, saying I don't think I've ever seen, I haven't been at it nearly as long as you, but I don't know if I've ever seen a company before, regulars Say they're okay with or not. Say we've closed the acquisition and just say we're done. They folded them in. Even though, you know, FTC and the European equivalent have one already teased out that we don't think that there's. We don't think this is going to work out. And yet they still did it. Have you seen other companies be that aggressive before?

No. Yeah, no, I haven't. Personally, I'm sure that there are a few. If you put it in a little bit of context, you know, this is a, this, you know, PacBio and the others that they've tried to acquire were horizontal mergers. So they're in the same space. Right. And you can see where that was going to be a problem. I mean, Illumina's got 70% market share in the gene sequence. So, you know, you could see, boy buying a rival that's doing kind of the same thing you are, just so you can get another flavor of it. You know, long reads that, you know, that's not going to work. This is a vertical merger. It's like Activision and Microsoft, you know, with the. They're not exactly in the same space, but because Illumina, you know, makes the equipment that the grail test would run on, similar to Microsoft making the Xbox that, you know, those games, when Activision games run on, regulators had a problem and in the past they wouldn't have. So when, when they entered this deal in 2020, you know, those vertical mergers were not as scrutinized. You know, they, they. There was reason for Illumina to believe that this was okay. Right. The thing that happened though was when it became obvious that it wasn't okay, they went ahead and took the risk anyway of closing.

Yeah.

Yeah.

Interesting. So already when the regulators are already saying, I don't think this is going to work out, and now you just went against us, like that's not a good sign. And so existing investors obviously were, you know, perked right up there. That's seemed like a good time for a activist investor to get involved. Is that when Carl Icahn got involved at that point?

Yes, exactly. You know, so Illumina, you know, went through the process. A couple of things are unfortunate for them, timing wise. One is that, you know, there's a change of administration. And the administration's FTC in particular's view of vertical mergers or any, any merger in the tech space has been really ramped up. It's gotten a lot tighter. You know, I don't think that if there hadn't been a change administration. If this had happened earlier, that this would have been a problem. Right. And secondly, and the European Union is kind of trying to establish itself as the regulate, the tech regulator du jour, you know, of the world. And they've changed some of their rules to do that. And that has also made it more difficult. That's one, two is, you know, they bought it in September of 2020, I think they announced it in September 2020, closed it in August of 2021. You know, the deal was running out of time. Right. They hadn't gotten regulatory approval. They had their year. They were going to have to pay a breakup fee. So they had that kind of poor timing because regulators kind of were not approving it as they thought they would. And then finally, just think back then, valuations were crazy, and Crail's valuation was crazy. They paid a lot of money for it. They've written down 3.9 billion in goodwill off of this thing. That's what makes it activists go, okay, you know, there's something wrong here and we can get in and maybe, you know, make some changes, get the stock price up. A typical activist story.

Got it. Okay. Yeah. I mean even there's been a lot of talk most of this calendar year about the proxy battle, right. Of getting Carl Icahn getting more board seats or at least just changing the board right in his favor. And it looks like. Looks like he won in getting the CEO ousted in that regard.

Yeah, well, no, I mean, so he didn't actually win in the. In terms of getting all of his candidates onto the board. He got one of three onto the board. But he did win in terms of, you know, I think laying the groundwork for shareholders unrest. And one of the main shareholder gripes about this particular acquisition is two of them, actually. One is the price overpaid. I think Jay Flatley was even Jay Flatley's the ex CEO was quoted in the Financial Times as saying, if you'd have waited two years, you'd have got it for half. So there was that. And the second thing is that icon brought up and brought into focus for shareholders, the fact that Illumina has a really high burn rate and they're not bringing in revenue that's close. And Illumina has not been able to, in part because of this regulatory environment that they're in, really tell shareholders, hey, you know, this is how big this business can be for us. You know, this is. This is what your outcome is. So, you know, in the interim, you know, the company may is not bringing In a ton of revenue, 30, 50, 100 million. They're spending, you know, 600 million. And you know, the company hasn't been able to walk up to shareholders and say, yeah, but if you wait this out for two years, you know, it's all going to flip and we're going to have a $2 billion or $5 billion or whatever business here. They've been unable to do that because that would be a red flag. They plan a, you know, waving the red flag in front of the bull, you know, with regulators. And that's. So they haven't, they haven't said what the end game could be and shareholders are not happy about that. I think that's, that's at the end of the day where Francis de Souza got in trouble.

Interesting. Okay, well, it clears away for obviously new leadership which the board is going to get to choose, which then will that new leader will probably get to bring in, you know, some leaders that they want to surround themselves with as well too, which could be new board members too. So. And a lot, a lot of like you mentioned on the burn, a lot of potential change to come to the company itself. So and I know from years in past, their biggest era that they were always hiring before was software development and data science areas now that are being impacted by AI lately by the way, that, you know, could be a cost cutting mechanism. So a lot to to watch going forward with Illumina for sure. You never want to see a company downsize, but this is the time the times that we are in is it is happening macro level and to the company itself.

Let me add two quick things here. I mean, one is, I think, you know, the question now is without Francis there, and he was an ardent supporter of bringing Grail back in house, you know, are they just going to divest? It doesn't matter, you know what happens in court, that they're just going to divest it. And then you know how that works, right? Is that an ipo, is that selling it to somebody else? You know, kind of how that will unfold is, was going to be interesting the watch. The second point I would make is I've talked to some legal experts on this. They got, they actually have a pretty good case Illumina does legally. So, you know, it's not like, yes, the regulators have, you know, fought it, but it's not like they're going to win in the end. That's particularly true in the US but also in Europe. What the Europeans did to change their rules to allow them to have jurisdiction over this deal, if you took out the European Union and put in China as the entity or the country that did this, I mean, you know, Congress and everybody and their dog would be up in arms because that's ridiculous. They do not have jurisdiction to regulate Grail. And Grail does absolutely no business there. So that is going to be a stickler. And yeah, they might end up winning if they take it that far. End up winning legally, but divesting anyway. It would be interesting to watch that.

Okay. All right. Well, a lot more to watch and I know you're watching it close, so thanks, Mike, for some of the background there. I'm going to throw a curveball for our next story because there's a little bit. I got reminded of another big company in town that ran into some regulation issue and had a potential merger that they staved off called Qualcomm a few years ago, had the big horizontal potential merger that Trump stepped in and stopped. Remember that, Mike?

Oh, yeah, I covered that a lot. That was a pure hostile takeover bid by Broadcom. Interesting point on that was that the most Broadcom ever offered for Qualcomm was $79 a share. Oh, if you look today, they're trading at about 115, 120 shareholders would have left that on the table if they'd have taken that Broadcom deal. But I tell you, at the time, with the Apple lawsuits and the FTC lawsuits and the lawsuit in Korea and all that stuff that was swirling around them and their stock price had fallen from the high 80s to the 40s. Investors were ready to hand the company to Broadcom if Trump hadn't stepped in. My view is that hostile takeover would have succeeded and Broadcam has a completely different business model than Qualcomm and it would have been not a good thing for San Diego.

Did that coincide with kind of the entire turnover of the leadership at that time? I feel like like Derek Abberley and Matt Grob and another CEO all left simultaneously right around then. Was that that coincide there? Am I remembering that Right?

So, so yes, Derek and Matt and, and, and Paul Jacobs all about the same time. You know, Derek was president, Paul was vice chairman or executive chairman and on the board. And then, you know, Matt was the cto though. Yes. All of that happened in the big throes of this hostile takeover situation and this huge court fight with Apple and the ftc. So there was a lot of. Yeah, there's parallels here. There's definitely parallels.

And so that group went on to do two things Start their own startup called xcom which is a privately venture backed startup and formed a few of them formed their own SPAC target to go during the height of SPAC time to go find a company to go take public which they just finally found a target for in a Canadian sensor company I believe. Right? Yes, with the Stones who have. Which leads to actually another story down the road. They had. They're originally part of Stalker City and bringing a stadium to Qualcomm. So foreshadowing of our next story. But take us through what happened now with, with what just happened with the new SPAC candidate that these guys originally.

Yeah, so SPACs, as you know, you know, they were haunted for a time and then they completely fell off the planet in terms of their popularity largely because you know those companies are very young. I mean like a spac, your idea is get in early, you know, raise a bunch of money. It's a kind of a way to take a company public before it is actually ready to go public. And then you know, hopefully it hits real quick and grows into it. They haven't performed very well at all in this downturn. Stock market wise they're terrible. And so they're, you know, their popularity is dropped off. But you know, Derek and Steve Altman and the Stones, you know, they kind of found this sensor company in Canada that does a new fusion sensing for the cameras and other sensors on autonomous, on vehicles that would help in autonomous driving. Obviously a lot of the sensor fusion technology there and, and they're going to take it public with their SPAC. Their SPAC actually expired. SPACs have a 2 year limit before they expire, but they extended it. The shareholders wanted to extend it for a year to make this deal. So yeah, we're going to get another one. It's going to be interesting to see how this works. I think that their timing could be good with that in terms of they're getting it in, they're getting it public, they're getting it early and it's kind of working with a lot of OEMs, a lot of suppliers to carmakers to embed this technology not only for autonomous, but also adas. And ADAS is going to be, you know, that's going to be like the step, just step up the stair ladder to autonomous is more and more sophisticated.

Adas interesting at a time where Qualcomm is heavily diversifying their product line and have gone deep into auto as well too and very recently have heard how deep they're trying to get into other markets like AI you know, data centers for that. So all kind of interesting to see where, how timing works and the leaders who play their cards at the right time.

Yes, very much.

Yeah. Okay. Well that's interesting. Prospector capital, you know, deploying and their SPAC sponsorship. We alluded to a stadium conversation. So part of the SPAC group were the Stones who previously had a ballot measure I believe for Cap for Soccer City to bring build a new stadium at the former Qualcomm site to bring an MLS team to San Diego. Well, that got defeated, didn't happen and we know it happened eventually Snapdragon built a state or SDSU built a stadium called Snapdragon Stadium. But a whole new billionaire is coming to town to develop another stadium at the Midway District area which is super interesting to see Fred, where I know you've been following some of the, some of the soccer, sorry stadium news. Tell us a little about this news that's happening.

Yeah. So from San Diego's perspective, the sports industry couldn't be hotter. I think we covered it in the last podcast we had the MLS come to San Diego which was big news. And then now we have news that billionaire real estate group is taking over a new project in San Diego. It's called the Midway Rising. It's going to be a 16,000 seat arena, thousands of new housing units, hotel, retail space and the ability to house an NBA team or in a NHL team. And it could be open as soon as 2025. And I just think that with the Padres is doing it's MLS team coming in and now this project San Diego is going to be coming emerging, you.

Know, sports hub, pretty exciting, you know, especially with Stan Kronecke who in the last I think 13, 14 months has won four different championships between all the teams that he owns. Denver Nuggets just this week, super bowl with the Rams last year, the Colorado Avalanche I think won last year's Stanley cup and he's got like a minor league NHL or minor league hockey team that also won last year. So you know, he's probably pretty juiced up and excited. I don't know necessarily what the rules are about bringing either buying a new team when you're already owner in the league. So maybe it sounds like bringing a team to San Diego from elsewhere and it could be a championship winning team. So yes, all the. That part of the sports piece is interesting. The stadium news, man, we've been talking. I feel like that stadium news has talked about a lot and I know your colleague Jim Van Grove has been covering a lot of this Mike, there is a ballot measure that then got to raise the height limit. But then a court took back and said, nope, that wasn't legal. So that's still, I know, at play right around the development piece there. Anything else that you're seeing or interesting around this stadium deal or the new group coming to town?

You know, I haven't followed it as closely because Jen is covering it and covering it well. But I agree completely with Fred here. It's interesting that Kroenke is making a bet on that. And I think what struck me about the story was that the arena itself in this redevelopment project, from a city point of view and a housing point of view had always been like this appendage. You know, I mean, some, some proposals for that redevelopment of that site wanted to get rid of the arena completely. Right. That this puts that arena like right back in the center of the conversation. And so that makes it, you know, a very interesting piece. Also, you know, financing in this environment is not in a real estate deal. Not easy. Not easy. And the fact that they got this guy is a big thing. He.

Can you still hear me?

Yeah, I can hear you.

Yeah. I mean, I think what was interesting with what we saw in LA when he built the Ram Stadium is how much development he did around that as well too, which I think has got to have been attractive for people to see kind of this big mixed use plan in Midway as well. So, yeah, being, you know, very SoCal focused now as a real estate developer and team owner is super interesting. So a lot to watch. Nothing more than that is to watch here. And we'll continue to report back as we see more and get excited. I know this was in the last week or so there, there was a big event that happened locally for the startup community at Connect Summer Social, which Fred and I both attended. I didn't even get to bump into you, Fred. There's so many people there. How was the event for you?

The event was amazing. It was, I think it was over 500 folks there from, you know, tech backgrounds to startups to, you know, late stage companies. I got to talk to a couple startups myself. Cooler Heads was one of them. We giver a lot of the cool companies that come out of Connect's program where they're showcasing, you know, their company and got to just connect with a lot of folks that follow me on Twitter and read my news and so it was great to meet some great folks and meet new people. What were your thoughts?

Yeah, one, the second time seeing the new 2023 cool companies, so I love FaceTime with them as well too. It also is kind of like the seminal event that a lot of newer people who've moved here. I saw a lot of people coming and this is kind of their first introduction to town, which is cool in that regard. It was up in Encinitas, which we don't do a lot of tech events up there. So it was nice to see that happen at the coastal Roots farm. And it's just beautiful, like ocean views on this grassy hill. So that was pretty cool. Yeah, I. These events I love, I do get stuck in one spot because I'm just inundated, which, which is awesome. Just, it's like a big reunion, tech reunion. Just because we don't have enough tech events happening. Still coming out of COVID so hope to see more. I know their big event. Next Connect's big event is at Petco Park, I think mid September, maybe September 15th for Innovation Day. Mike, maybe you're coming out to that. Did you go to the last Petco Park Innovation Day that happened last year?

I did not attend that, no. Okay. But I'm looking forward to going to, I think the EVO Nexus demo day is coming up. Yes, 26th I believe, and looking forward to doing that.

Yeah, it'll actually. And it'll be at Qualcomm in that big theater, I think 500 person theater. And I've already heard they've already got, you know, 2, 300 tickets sold for that. So first EVO Nexus demo day back since COVID It's great to have it back. It's a good way to showcase a bunch of up and coming startups that are being incubated there. So yes, I look forward to seeing you there as well too. Another event that just got announced I think today. It's been in the works for a bit, but great to see happening is the San Diego AI Hackathon. The team who originally were part of Ethereum San Diego, Chad and crew have been working behind the scenes to do a hackathon on the AI side. So I'm very excited to see that. Fred, do you have a date, Andy in front of you by any chance?

So it looks like it's gonna be July 15th and the 16th. It's a two day event at UC San Diego's campus.

Awesome. Love that. I love seeing in person events and especially hackathons which are fully immersive events where people from random backgrounds are gonna, you know, crash into each other and create new technologies, new companies. So I am very pro hackathon this year. I'm working on one that a year two of our Ag Tech hackathon later this fall. So more news on that as well. But yeah, the summer is in full swing and events are happening. So we look forward to seeing all of you out there in the community. Our next Fresh Brew Tech event is the founders hike on July 5th. So coming right hot out of 4th of July. Come join us for a hike and sweat out some of that Americana with us at Torrey Pines. And with that, that's a wrap on this week in San Diego Tech news. Mike, Fred, thank you so much and appreciate the time.

Thanks, Neil.

Thanks, Neil.

Thanks, guys. Take care.