Influential Analyst Gene Munster Reveals His Startling View on the Future of Tech
In the conference room of Loup Venture’s Uptown HQ, a large flat-screen TV adorns a wall. That’s hardly unusual in corporate America. But that Munster often uses his to loop Wes Anderson films.

Influential Analyst Gene Munster Reveals His Startling View on the Future of Tech

The venture capitalist has a grand vision of retail’s future, and Target or Best Buy likely won’t be in it.

Projecting Apple’s explosive success years before the iPhone and predicting its move into the living room with the AppleTV six years before its announcement made Gene Munster a legendary figure among tech investors worldwide. But it’s only more recently—after leaving investment firm Piper Jaffray after 21 years and launching his technology-focused research and venture capital firm Loup Ventures in 2017—that Munster has become a fixture in business news as he shares his takes on Tesla, Apple, and the tech industry at large.

Munster’s controversial take on Target is a function of his knowledge of Amazon, which he sees inevitably needing a brick-and mortar strategy beyond Whole Foods. He sees Target as the most logical acquisition. In an exclusive interview with TCB, Munster details what a high-tech future will look like across America and how he expects it to further change the retail landscape.

TCB:  You’re running a venture capital firm geared toward cutting-edge technology—but out of Minneapolis? Why not Silicon Valley like a large share of the VCs in your field?
Gene Munster:  When I worked for Piper I spent time living in New York and San Francisco, but I think the family piece is also a part of this. There’s also something unique about the Midwest. It’s a good intersection between the quality of people and how much it costs to bring them on board. We’re a research-driven venture capital firm, so at our core is pumping out great research. We can do world-class research here in the Midwest for less than what it would cost us to do in other places.

Q  An SEC filing last year said Loup raised about $20 million. Where are you at now?
A fraction more. We raised $25 million and closed that at the end of 2017. In the context of the venture world, $25 million is a micro-fund. It’s the smallest of small funds. The VCs we typically work with are $500 million or $1 billion funds, so we’re a very small player, happy to be there, and we know we need to take that $25 million and think about our north star every day, which is our limited partners. If we make good on our goal to make them a boatload of money we’re going to be VCs for a long time, and if we mess that up we’re going to be out of a job. We needed to take an amount of money we knew we could be comfortable raising and show we know what we’re doing in venture, because we’re learning as we go.

Is your goal to be one of the $500 million or $1 billion players in venture?
I’m 47, I love to work, and if everything works out great I could see myself working for another 40 years. I think Loup has an opportunity to be one of the foundational VCs in tech. I think we have the talent and we’re building this as a big company. It’s not like an eight-person startup; it’s run more like a $500 million venture fund than a $25 million micro-fund.

Q  In what way?
The biggest difference is a typical $25 million fund is one person and an admin. What’s unique about us is I think there are people here who are committed to suffering—we talk about it as a five-year daily commitment to suffering [long hours and intense labor]. It sounds like it’s negative, but it’s actually something we embrace. In the case of Loup’s three partners, Andrew Murphy runs operations, Doug Clinton runs the investment piece, and I oversee the broader company and research. VCs don’t usually have that research component—that’s unique to us. Most of the other micro-funds are just gunslingers, but we’re very systematic about what we do.

Q  You’ve brought up your research; most of what’s available on your company’s website is free and about today’s tech mammoths, like Apple and Tesla. What’s your strategy here?
These big tech companies are driving the next wave. If you look at the amount they can invest, from a cash perspective it’s about 10 times more than it was 15 years ago—the amount of cash on their balance sheets. Their market caps are much higher, too, which they can use to buy companies and fund this next wave. So it’s important for us to be close to the biggest companies because we know that those companies are the potential acquirers of the companies we may invest in, but they could also be the potential competitors. Having a good sense of what’s going on with the later-stage stuff gives us an ability to invest better in the early stage.

Q  What has Loup invested in to date?
Big picture, 15 investments; not all have been announced. Of the $25 million, we’ve invested just under $5 million of that. Half of the fund is going to be invested in follow-on investing. Think of it as $12.5 million is going to be initial investment and [then] we’ll fund the winners. Of those 15 investments, 10 of them are in California or New York; the other five are outside of those areas.

What type of companies are you investing in?
We think of five areas that we’re more broadly investing in, and they are artificial intelligence, robotics, neurotech, and augmented and virtual reality. We’ve probably done more around AI and robotics, but we’ve only made one investment in VR. If you think about the winners, they need to be around 100 times [return on investment]. Many of our companies won’t succeed, so you have to have this power returns model where one or two companies drive all of the return. In order to make returns of 100 times you have to invest in things that are not that logical.

Neurotech [making computers part of the human body] is the lesser known of the bunch you mentioned. What activity are you seeing there?
It’s coming. It’s buckle-up kind of stuff. If you think of foundational tech right now—the internet, smartphones, autonomy, crypto, blockchain more importantly—neurotech is going to be one of those foundational pieces. There’s implantable and non-implantable. Some devices are used for therapy or healing, and then there are some that are used for human enhancement. It’s just so futuristic you almost lose credibility talking about it, but the ability to fuse a computer with a human is coming, whether we invest in it or not. Loup Ventures will be a leader in neurotech venture investing.

What are your thoughts about Minnesota’s tech and startup climate?
Broadly speaking, I think there’s work to be done here. It’s always compared to Silicon Valley, which is the wrong comparison because that’s the gold standard. How does Minneapolis compare to other cities, though? It’s pretty close. What’s missing here to take it to the next level is having a network of support, whether it’s lawyers, accountants, venture funding. There’s a humility that I love about the Midwest, but sometimes that’s at the expense of the confidence to change the world.

You made headlines for your prediction Amazon would buy Target this year. What’s your take today?
I think it’s less likely it’s going to happen this year at this point. Cutting to the chase, though, I’m still confident Amazon and Target are going to come together. It may be next year; it may be the year after. It’s not going to be 10 years from now. There’s too much at stake for both companies for it to not happen. Depending on the numbers you look at, 10 to 20 percent of what you buy is bought online. We’ve gone back and looked at the numbers and believe over time slightly more than half of what we buy will be offline in brick-and-mortar. If you think about a big retailer like Amazon, to be able to have a real presence at brick-and-mortar is important. Whole Foods doesn’t get them there; Amazon wants to own multichannels. Both Amazon and Target also value tech and innovation. You don’t see that same kind of innovation from Walmart, for example.

Q  To your point, Best Buy values tech and has long been viewed as a showroom for electronics that people later buy on Amazon. The two companies partnered earlier this year, and it could be argued that a Best Buy acquisition would make just as much sense.
Both of them make sense. Best Buy has done a great job over the last five years becoming a place where you can try tech. That’s kind of their calling card right now, and obviously that’s harder to do online. The reason we think Target makes more sense is the idea that Best Buy is still generally considered electronics and appliances, where Target can kind of play in a broader wallet. We think that Amazon has done a good job of owning the electronics vertical, but I think their ambition is expanding more in food and owning the broader family wallet versus the techie wallet.

Q  Which brings us to Amazon’s AI and robotics grocery concept Amazon Go. Do you see this going mainstream?
I don’t think they’re going to scale a stand-alone Go. I think it’s an experiment they want to work into a bigger strategy, and we think that’s Target. It’s logical to think in the future we aren’t going to have checkout lines—I think that’s safe to say—but to get there is hard, and Amazon Go is essentially an experiment to prove it can work.

Q  Which leads to a smaller brick-and-mortar head count?
Robots are going to take jobs is the short answer. I’m a believer in innovation, and I hope that there can be other opportunities for those people, but there’s definitely going to be a displacement in the next 10 years.

Q  What about VR as a retail experience?
There are some foundational things that need to be worked through, but we’re still believers. VR gets a bad rap right now, but once they solve things around the weight of the device and motion sickness, people will realize how it opens up a whole new world.

Q  What’s AR’s greater application as you see it?
I think Apple eventually is going to win in AR. They’re waiting for other [companies] to test it out, such as Magic Leap and Microsoft’s HoloLens. In the future, we’re thinking of AR as painting the world with data. Anything that we look at can have some data that can come out to us, although painting the world with data is going to create use cases that we can’t quite envision yet.

Q  Do you look at the future of robotics largely the same way?
The two areas that are going to be the most exciting are how we live and how we move. The move stuff is pretty straightforward: Self-driving cars will take longer than we think but will be bigger than we think. It’ll have a radical change for productivity—imagine being able to sleep in your car. One that’s less obvious is the idea of robotics built into your home. There’s a company called Bumblebee—it’s an investment of ours—that designs robotic ceilings. So when it’s bedtime, you summon your bed from the ceiling; when it’s time to get dressed, your closet comes down; when you’re watching TV, your couch comes down.

Q  What major utilities do you see for AI in our lifetime?
It’s going to impact everything, but it’s not like there’s going to be an AI company out there, just like there’s not an internet company. It’ll just become the fabric of every company, and it’s mandatory that any company we invest in has to have some form of AI.

Q  Elon Musk and Stephen Hawking have famously warned us against the rise of AI and robots. What do you have to say about the potential danger of this technology?
I’m a believer that the vast majority—99.9 percent of it—will be good.

Q  You gave Elon Musk a one-in-three chance initially to take Tesla private. You revised that later to a two-thirds chance he would. With the result now known, is Musk better off keeping on course or was there an opportunity missed?
Tesla was going to create more value as a private company. What they’re trying to do is so big that to be held to quarterly expectations hampers their growth. I think there is still a ton of value to be created in a public Tesla. This is one of the most entertaining sagas that I’ve seen covering tech, because you have two camps that are equally informed which have vastly different views about how this is going to turn out. I’m in the camp that he’s going to pull it off as a public company.

Q  What’s your thought on the buzz this August that Apple could buy Tesla?
We refer to it as a fairy tale because it’d be a dream situation. Both companies win. Especially more recently, Tesla gets a steady hand with Tim Cook, and they get a bunch of cash, so they can build this thing for the long term. They have a ton of [movement] of talent between the two companies; they have a relentless view of product design. Apple wants to do more in cars and autonomy—everything lines up. The reason I think it’s a fairy tale is because central to both companies is design, and neither of them is going to relinquish design control. Apple would not make an acquisition of Tesla unless they had design control, and Tesla would not want to be acquired. Now if Tesla runs out of money, it’s not about them wanting control of design, it’s about viability. Tesla would most likely give in, and I think Apple is the logical acquirer.

Q  Finally, how do you see the Fortune 500 companies from Minnesota faring in the future?
UnitedHealth Group is in probably the best position of all of them. Despite what we’re hearing about Amazon wanting to get into health care, it’s difficult; that’s probably the understatement of understatements. I think, longer-term, Target and Best Buy need some sort of big online partner. Can Target survive over the next 20 years by just going at it alone? Probably not. Amazon’s going to do something bigger in retail, and it will either be I’m wrong and they end up building their own stores or they acquire Best Buy or Target. They’re going to make some bigger move in brick-and-mortar and, well, it’s musical chairs. One of them is not going to have a place.

Sam Schaust is TCB’s digital editor.