a16z Podcast: Entrepreneurs, Then and Now

0:00:03 – Hi, and welcome to the A16Z podcast.
0:00:05 I’m Amelia Salyers.
0:00:07 Today’s episode is a special one,
0:00:09 since it’s the 10th anniversary of Andreessen Horowitz,
0:00:12 which was founded in late June, 2009.
0:00:14 So we decided to turn the tables
0:00:17 by asking Stuart Butterfield, founder and CEO of Slack,
0:00:20 to interview our founders, Ben Horowitz and Mark Andreessen.
0:00:22 The three of them discussed the differences
0:00:24 between founders in 2009 and today,
0:00:28 the business model of VC in A16Z’s history,
0:00:31 and technology trends then, now, and into the future.
0:00:32 And they also throw in a few good
0:00:35 summer book and TV recommendations at the end.
0:00:36 Please note that the content here
0:00:38 is for informational purposes only,
0:00:40 should not be taken as legal, business,
0:00:41 tax, or investment advice,
0:00:44 or be used to evaluate any investment or security,
0:00:45 and is not directed at any investors
0:00:48 or potential investors in any A16Z fund.
0:00:52 Any investments or portfolio companies mentioned, referred to,
0:00:53 or described in this podcast
0:00:56 are not representative of all A16Z investments,
0:00:57 and there can be no assurance
0:00:59 that the investments will be profitable,
0:01:01 or that other investments made in the future
0:01:03 will have similar characteristics or results.
0:01:05 A list of investments made by A16Z
0:01:08 is available at a16z.com/investments.
0:01:13 For more details, please see a16z.com/disclosures.
0:01:15 – One question I wanna ask is,
0:01:18 has the nature of the entrepreneurs or the founders changed?
0:01:22 So 2009, you have raised some money, you have some LPs,
0:01:24 now you’re out there looking for ways to invest.
0:01:26 Who are you meeting, where are they coming from,
0:01:27 and what are they like?
0:01:31 – Yeah, well, you know, I really feel like in retrospect,
0:01:35 that class of 2009 entrepreneurs were some of the most
0:01:38 special ones that we’ve met in the entire history
0:01:40 of the company, and when we see that again,
0:01:42 we always say like yourself,
0:01:45 Todd McKinnon, Martine, Brian Chesky.
0:01:47 You know, the thing all of you had in common
0:01:51 is you had gone through something like just unbelievable
0:01:53 to get to the position you were to start the company.
0:01:55 You know, earned your stripes.
0:01:59 Like everybody in 2009 seemed like they pay their dues,
0:02:03 like in a pretty serious way to get into position.
0:02:05 And I think, you know, one of the great things
0:02:07 that’s happened over the last 10 years
0:02:09 is it’s just become easier to start a company.
0:02:13 But as a result, you don’t have, you know,
0:02:16 people who know exactly what it is and what that means
0:02:21 and what they’re about to face, and still wanna do it,
0:02:25 which is, you know, that’s a very special thing,
0:02:26 but that’s an unusual person.
0:02:28 And then I had two categories of entrepreneurs
0:02:30 who have really risen in the last decade.
0:02:32 So one is, you know, we, Alex, our partner,
0:02:34 Alex kind of coined this term, O2O, you know,
0:02:39 kind of B2B, B2C, now O2O, and O2O is online to offline.
0:02:40 So it’s this whole broad category.
0:02:43 It’s, you know, Airbnb and Lyft and Uber
0:02:44 and many of these postmates in DoorDash and all these,
0:02:46 it’s sort of these companies that you have an online
0:02:48 experience that culminates in something happening
0:02:49 in the real world.
0:02:53 And so those founders are much more,
0:02:55 I would say, operationally focused maybe
0:02:56 than the previous generation, right?
0:02:57 Which is, it’s not just software,
0:02:59 but even beyond that, just being software, you know,
0:03:01 those companies have a big real world, you know,
0:03:04 logistical infrastructure operations component.
0:03:06 And so that has turned out to be different kind of founder,
0:03:08 which is really interesting.
0:03:09 Almost actually even a little bit of a throwback model.
0:03:12 There, those people arguably are a little bit more like
0:03:14 the semiconductor founders from like 30 years ago.
0:03:16 They’re like, they’re harder core.
0:03:17 They’re grouchier.
0:03:18 They’re dirt under the fingernails.
0:03:21 Yeah, and they have to worry about more real world stuff.
0:03:23 Yeah, stuff can go wrong, you know, people can die.
0:03:24 Like, you know, all kinds of, you know,
0:03:25 all kinds of stuff can happen.
0:03:29 So that’s been a particularly interesting kind of rise
0:03:30 of a new kind of founder, which has been super interesting
0:03:31 to work with those people.
0:03:33 And then the other on the bio side is we’ve gotten more
0:03:35 involved in bio and in healthcare.
0:03:38 The other is the rise of the deep domain expert
0:03:40 in a science like biology.
0:03:41 So somebody might come, you know,
0:03:43 biology PhD or chemistry PhD or something
0:03:45 where, you know, 10 years ago,
0:03:48 if you met a newly minted biology PhD out of Stanford or MIT,
0:03:50 they really wouldn’t know that much about computers.
0:03:51 It was kind of an afterthought
0:03:53 and they wouldn’t really know, you know,
0:03:54 they know a little bit how to code, but not much.
0:03:57 And now you meet a newly minted biology PhD out of Stanford.
0:04:00 They basically have a dual PhD in computer science.
0:04:02 Like they basically, you know, it’s kind of the story.
0:04:04 They’ve been programming since they were little kids
0:04:06 in most cases and then they kept current.
0:04:08 And in fact, a lot of the research that they did
0:04:10 to get their bio PhD often had to do with computer science
0:04:13 and math and algorithms and machine learning, right?
0:04:14 A lot of that stuff’s happening now.
0:04:17 And so you’ve got these kind of dual discipline founders
0:04:18 for the deep science stuff.
0:04:22 So dual discipline, biology CS, mechanical engineering CS,
0:04:24 physics CS, chemistry CS.
0:04:27 And that’s a real, like that those,
0:04:28 those people are like super enticing.
0:04:30 ‘Cause those are, you know, it’s like two superpowers.
0:04:32 Like, you know, he can, you know, he or she can fly
0:04:33 and they’re vulnerable.
0:04:35 Like is a really good combination.
0:04:37 And so a lot of the companies we’re seeing on the bio side
0:04:39 and in the harder sciences is that kind of founder.
0:04:40 I think that’s new.
0:04:41 – Yeah.
0:04:44 – Or like Satoshi economics and computer science.
0:04:45 – Actually, it’s funny.
0:04:46 There’s actually a revolution happening
0:04:48 even apart from crypto in the field of economics.
0:04:51 There’s a wrote in the, in the actual academic field
0:04:52 of economics, there’s a revolution happening
0:04:54 towards what’s called empirical economics,
0:04:56 quantitative economics in which a lot of the new economists
0:04:58 who are kind of 40 and below are very focused on data
0:04:59 and machine learning.
0:05:01 And, you know, the economists that are in their fifties
0:05:02 and sixties were more inspired by physics
0:05:04 and they’re, they’re much more into formulas
0:05:05 and they’re, they’re much more abstract about what happens
0:05:06 in the real world.
0:05:08 And so there are actually, there are actually,
0:05:10 there are companies increasingly driven by, started by,
0:05:12 or, you know, new invent, new inventions being created
0:05:15 by economists with a very strong CS background.
0:05:16 – That’s true. That’s true.
0:05:18 So from the beginning, I’m not sure if this was intentional
0:05:21 or not, but certainly the positioning in the press was,
0:05:24 this was different, like you’re going to blaze a new trail,
0:05:25 kind of a different model.
0:05:28 And right out of the gate, there was the investment in Skype,
0:05:30 which was not a thing that VCs normally did.
0:05:32 How, how intentional is that?
0:05:33 – Yeah, a lot of it was intentional.
0:05:35 So there, there was a big kind of throwback element
0:05:37 to what we were doing, which was basically,
0:05:38 we wanted to work with the best founders
0:05:39 to build the most important companies.
0:05:41 And there’s, we could talk a lot about kind of the history
0:05:43 of venture and the art and science of the whole thing,
0:05:45 but there is a rich tradition there
0:05:47 that we definitely drew from.
0:05:48 And we actually, we spent a lot of,
0:05:50 we, we, to get Ben and I leading up to this,
0:05:52 spent a lot of time really digging into the history
0:05:54 of kind of where all this stuff comes from
0:05:55 and kind of what made it work across various areas.
0:05:57 And so, so we were, you know, very inspired
0:05:59 by a lot of the people who came before us.
0:06:01 And then there were a bunch of new ideas.
0:06:03 And so, you know, maybe list several of the new ideas.
0:06:05 And so one of the new ideas was just that we thought
0:06:07 that a lot of the venture firms had lost their way
0:06:09 in the sense that they had been started by founders.
0:06:10 They’d been started by founders and operators
0:06:11 who had built businesses.
0:06:13 And so you would, you know, raise money from, you know,
0:06:15 a firm and you would get, you know,
0:06:17 somebody who’d been a CEO or general manager
0:06:18 of an important business on your board
0:06:20 and they could really help you figure things out.
0:06:21 And then over the years, the, a lot of the venture firms
0:06:23 just quote unquote, professionalized
0:06:24 and they ended up with a lot of GPS
0:06:25 who didn’t have that experience.
0:06:27 And so it started to get,
0:06:28 the advice started to get more abstract
0:06:30 and maybe less helpful.
0:06:31 So that was one difference.
0:06:33 Another difference was, you know, we, we took seriously
0:06:35 the, the, the idea of building the institution.
0:06:37 And then in particular around that building a network
0:06:41 and an ecosystem and making a real long-term systematic
0:06:42 and actually very costly investment in building a,
0:06:44 you know, building a network and that had to do
0:06:46 with the fundamental staffing model of the firm.
0:06:47 And then that, you know,
0:06:49 that’s why we have all these operating functions.
0:06:51 We have all these, all these, all these professionals here.
0:06:53 And then that rippled over even into things like compensation,
0:06:56 like we get paid very differently than most, than most VCs.
0:06:57 And so that was a big difference.
0:06:58 The Skype deal you alluded to,
0:07:00 we did start at the very beginning
0:07:01 with the idea of being stage agnostic.
0:07:03 And that was probably a pretty new idea at the time.
0:07:05 And the idea there basically was
0:07:07 if the priority is to work with the best founders
0:07:09 to help build the most important companies,
0:07:11 it shouldn’t matter that much what stage the company’s at.
0:07:14 I mean, ideally you’d like to start working with people early,
0:07:15 but like, you know, you make mistakes.
0:07:17 And so you miss things.
0:07:18 And we were starting from scratch.
0:07:19 And so there were a bunch of companies
0:07:20 we thought were very impressive
0:07:21 that we wanted to get involved in,
0:07:23 you know, even though they already existed.
0:07:25 And so we kind of had this idea
0:07:26 that there should be multiple entry points
0:07:27 from an investment standpoint.
0:07:28 And then there would be things
0:07:30 that we could actually do to be able to help
0:07:32 and work with the entrepreneur.
0:07:33 And so we kind of put ourselves in business
0:07:36 from the beginning to operate across all the stages.
0:07:37 You know, now that took time to get,
0:07:39 I would say it took time for us to get good at all the stages
0:07:41 and maybe we’re still, we’re still working on it.
0:07:44 But that core fundamental idea was in there.
0:07:45 – You referenced looking back at history
0:07:50 for some context and thinking about the investment theses.
0:07:52 For us, 10 years doesn’t seem like that long ago,
0:07:55 but then we hire people who have like three or four years
0:07:56 of experience, which means that they were born
0:07:59 even in college, sometimes 10 years ago.
0:08:00 – Yeah, we experienced that a lot.
0:08:02 – Increasingly frequently, yeah.
0:08:04 – But that’s interesting ’cause that was a very
0:08:08 particular moment in history that I have vivid memories
0:08:13 of the 2008 crisis that then like almost immediately
0:08:15 after that, the idea that we were in a tech bubble
0:08:17 and kind of the whiplashing back and forth.
0:08:18 What was that like?
0:08:20 – Well, you know, it was interesting when we started
0:08:23 and we had, we of course had been through
0:08:25 the actual tech bubble.
0:08:26 – The 2000.
0:08:27 – 2001 tech bubble, yeah.
0:08:31 The, you know, the 2008 crisis was a banking crisis,
0:08:33 not a tech crisis, it was a debt crisis,
0:08:34 not an equity crisis.
0:08:37 So it was very different in nature for startups.
0:08:39 So a big advantage we had was,
0:08:43 it really did not bother us at all.
0:08:46 And so walking in, one, like everybody said,
0:08:49 you can’t possibly raise a fund in 2009,
0:08:50 you can’t raise a venture capital fund.
0:08:53 So the only two new funds were raised that year,
0:08:56 us and COSLA, and because we, you know,
0:08:57 we didn’t know any better.
0:08:59 We were like, come on, like this isn’t bad.
0:09:02 This is like not bad at all.
0:09:04 And then like the, the other thing that really helped us
0:09:07 was the just grouchiness of a lot of the other VCs.
0:09:10 I remember I’ll go unnamed venture capitalists
0:09:12 ’cause I remember it so well
0:09:14 ’cause I ran back to tell Mark, you know,
0:09:15 he asked me, he’s like, well, like,
0:09:16 what are you interested in?
0:09:17 And I was telling him about OCTA
0:09:19 and how like important it was gonna be
0:09:20 in a SaaS world and so forth.
0:09:22 And he gave me like a 30 minute lecture
0:09:24 that SaaS was a bunch of BS.
0:09:26 It was never gonna happen
0:09:29 that the only successful SaaS company was Salesforce.
0:09:32 And that was ever gonna be the only SaaS company
0:09:34 was gonna be Salesforce and all this stuff.
0:09:35 And so it was just like that kind of,
0:09:38 like everybody was just like pretty grouchy
0:09:41 and like crusty and we were, you know, new.
0:09:44 So we were excited to invest in all that stuff.
0:09:47 – So thinking back to that point,
0:09:48 I don’t remember the exact year that everyone started.
0:09:51 Obviously, my company started in 2009.
0:09:54 I think Airbnb was like maybe that same year or year later.
0:09:56 Something’s happened a couple of years earlier
0:09:58 like AWS came out in 2006.
0:10:01 iPhone and nominally in 2007 or really 2008.
0:10:03 But a lot of those things hadn’t actually picked up.
0:10:05 So certainly my recollection is
0:10:08 none of that was really visible at that time.
0:10:09 But we were at this, in retrospect,
0:10:11 was an incredible inflection point.
0:10:13 To what degree do you think that worked to your advantage?
0:10:14 ‘Cause you hear you are starting to fund,
0:10:16 people are skeptical.
0:10:18 But meanwhile there’s these massive secular trends
0:10:21 which were pretty much invisible to everyone at that time.
0:10:22 – I think the two things that are true.
0:10:24 So one is the big secular trends do drive
0:10:25 a lot of what happens in this industry.
0:10:27 And so like it is absolutely the case in the last decade
0:10:29 that mobile and cloud in particular
0:10:31 like drove just giant growth and social as well.
0:10:35 So they made a lot of people look like geniuses,
0:10:36 including a few actual geniuses.
0:10:37 So that’s also true.
0:10:39 But I think it’s also true what Ben mentioned
0:10:40 is like super important underline,
0:10:42 which is like people don’t think these things
0:10:43 are obvious in the beginning.
0:10:45 Like they’re only obvious after the fact.
0:10:46 They really don’t look that obvious in the beginning.
0:10:48 And so you like you mentioned the iPhone came out.
0:10:50 Like I remember the iPhone in 2009,
0:10:51 it was like a cool gadget,
0:10:53 but like it couldn’t hold a phone call.
0:10:55 Like that was the era in which like it wasn’t even,
0:10:57 was it on 3G at that point?
0:10:59 It was like a big- – No it wasn’t, it was pre-3G.
0:11:01 – The original iPhone was actually pre-3G, right?
0:11:02 It had like edge data connection
0:11:04 and then the 3G iPhone was a big upgrade,
0:11:05 but then you couldn’t hold a phone call on the thing.
0:11:07 And that was in the era when Steve was telling people
0:11:08 that you were holding the phone wrong.
0:11:10 – Yeah. – If it was dropping
0:11:11 phone calls, you need that.
0:11:12 – And they built that crazy room
0:11:14 to prove it to the journalists.
0:11:16 – Exactly, and then they shipped everybody the bumper, right?
0:11:19 And so it’s like, okay, to squint from that to like,
0:11:20 okay, now it’s the mobile boom of all time
0:11:22 and we’re gonna be sitting here 10 years later
0:11:23 and they’re gonna have, you know, whatever it is now,
0:11:25 a billion and a half of these things, you know,
0:11:26 in the field and it’s gonna be kind of the defining,
0:11:28 you know, device and interface for a generation.
0:11:30 Like that wasn’t super obvious.
0:11:32 And then cloud, you know, cloud, I just, you know,
0:11:36 there were lots and lots and lots of companies of that era
0:11:37 that were incredibly powerful,
0:11:40 that were in the server business or networking business
0:11:41 or storage business or software business
0:11:44 where this whole cloud thing like AWS, like it’s a toy,
0:11:46 it’s a gimmick, like it’s never gonna make any money.
0:11:47 It is really interesting.
0:11:49 There is a big leap that has to happen
0:11:51 even when they are the really big megatrends.
0:11:54 Like it’s not, I had this in the early, the internet,
0:11:56 like a lot of people in the early 90s,
0:11:57 a lot of people in the press,
0:11:58 a lot of people in the investment community,
0:11:59 a lot of entrepreneurs.
0:12:01 – Well, the entire, actually you should tell the story
0:12:02 about like when you went to raise money,
0:12:04 you and Jim went to raise money
0:12:06 from all the magazines and the newspapers.
0:12:08 – Yeah, so we started in Escaping early ’94
0:12:10 and we went out and pitched all the media companies
0:12:11 to become customers, partners, investors
0:12:13 and every single big media company.
0:12:14 And in fact, at that point, they said,
0:12:16 no, no, the future is AOL
0:12:18 because AOL pays us for our content.
0:12:20 And on the internet, we have to spend money
0:12:20 to put our per content.
0:12:21 So that’s never gonna work.
0:12:22 And of course they all knew
0:12:24 that normal people wouldn’t use the internet
0:12:25 if it didn’t have Time Magazine on it.
0:12:26 Right, ’cause Time Magazine
0:12:28 would obviously be the killer for the internet.
0:12:29 You know, and by the way, it’s like,
0:12:31 a friend of mine says that this thing is happening.
0:12:32 It’s going to fundamentally change the world
0:12:33 and people poo poo it.
0:12:35 Like that might actually be the logical response
0:12:37 because there are many new things to come along
0:12:39 where people claim it’s going to change the world.
0:12:41 And then most of those things don’t change the world.
0:12:43 And so maybe, you know, on average,
0:12:46 the correct response is no, this thing is stupid.
0:12:48 And then maybe our lot in life as founders and VCs
0:12:50 is to, you know, be the fringe element
0:12:52 that like, that bucks that.
0:12:53 – Who’s wrong 97% of the time.
0:12:54 – Right, right, exactly.
0:12:55 And by the way, you know,
0:12:56 we looked dumb a lot of the time except, you know,
0:12:59 during the times we looked, you know, really, really smart.
0:13:01 And you know, and the reality is we’re probably neither, right?
0:13:02 We’re probably neither super dumb or super smart.
0:13:04 We’re probably just willing to take the risk
0:13:05 at a time when other people aren’t.
0:13:07 – So let’s fast forward a couple of years,
0:13:10 kind of like the middle era, 2012, Facebook went public.
0:13:12 But I think that, I don’t remember what year that happened,
0:13:14 but we started talking about unicorns
0:13:16 and there was another round of this is a bubble.
0:13:17 What was that like?
0:13:20 And what do you remember about the investment?
0:13:21 Like basically the partner meetings
0:13:24 after I would leave the room
0:13:26 and the debate was happening.
0:13:29 How much did, is this too expensive factor
0:13:30 into the conversations?
0:13:33 – Yeah, you know, we have in the entire time.
0:13:35 And I can say we’re totally consistent on this.
0:13:37 And I think it’s because of our history,
0:13:41 never thought it was a bubble in our entire time
0:13:42 doing the job.
0:13:44 And I think a lot of it has to look,
0:13:48 prices of companies are always incorrect,
0:13:49 like always, always, always incorrect
0:13:52 because they’re valued on like future performance,
0:13:53 which nobody knows what that is.
0:13:55 So most people are optimistic,
0:13:56 the prices go a little higher.
0:13:58 Most people are pessimistic.
0:14:00 At that time, the prices go a little lower.
0:14:01 But to get to a bubble,
0:14:03 everybody’s got to be optimistic.
0:14:07 And that’s what happened kind of in the 99, 2000 era.
0:14:08 And like in our whole time,
0:14:10 we never signed anything close to that.
0:14:13 Like they never went anywhere,
0:14:15 anywhere like within an order of magnitude
0:14:18 to what it did in 99, 2000
0:14:20 for similar kinds of companies.
0:14:22 And so we were always, no, there’s no bubble.
0:14:23 Like, what are you talking about?
0:14:24 There’s no bubble.
0:14:27 But people want to believe there’s a bubble so badly.
0:14:30 I think 2011, I was in a debate
0:14:32 with Steve Blank and the economist,
0:14:34 and I argued it wasn’t a bubble.
0:14:38 And he argued it was in 2011 tech bubble, right?
0:14:41 And at the end of the debate, he called me
0:14:44 and he said, Ben, like, I voted for you.
0:14:45 You won.
0:14:49 The economist readers voted 78%, 22% for him.
0:14:51 ‘Cause like that’s how much people wanted to believe
0:14:52 we were in a bubble.
0:14:53 – That still do.
0:14:55 – Yeah, there’s a, I’m not sure if it’s quite
0:14:58 a cognitive bias, but I feel like there is a predisposition
0:15:00 that a lot of people have to take the cynical bet.
0:15:03 So how that seems smarter, ’cause either way,
0:15:04 there’s a payoff.
0:15:06 And the payoff, if you said that’s bullshit,
0:15:08 and then it turns out you are right,
0:15:11 seems greater to people than the opposite.
0:15:11 And also there’s a little bit
0:15:13 that you can’t prove a negative,
0:15:16 popper, the valid hypotheses and stuff like that.
0:15:19 – Plus you get the victory as the most smug person
0:15:20 in the room too.
0:15:23 – Yeah, so you’re generally betting against the cynicism
0:15:24 in your business.
0:15:26 Is that like something you can actually take advantage of?
0:15:27 Or is that something that works in your favor,
0:15:29 that cynicism?
0:15:30 – Oh, 100%.
0:15:33 In fact, like we have this thing that our friend came up
0:15:35 with, which is the East Coast, West Coast arbitrage,
0:15:38 which is anything that the people in the East Coast
0:15:41 think is ridiculous in a toy and people in the West Coast
0:15:44 think is the next big thing, that’s the thing to bet.
0:15:46 – And we said, you just keep flying back and forth.
0:15:48 – Yeah, and you find out what those things are,
0:15:50 and then you just invest all your money in that.
0:15:53 – That really suggests a question for today.
0:15:56 There are some big things happening today
0:15:57 that aren’t obvious.
0:16:00 What kind of energy do you put in to find that?
0:16:02 Are there like specialist researchers?
0:16:06 Is it just every partner’s kind of contribution?
0:16:07 How much time do you spend looking
0:16:09 for what isn’t obvious today,
0:16:11 but will be obvious in retrospect?
0:16:14 – Yeah, I think that ends up being like half the job
0:16:18 is trying to understand like,
0:16:21 what is the next big platform?
0:16:22 Where are things going?
0:16:25 What’s going to be the user interaction model
0:16:27 after the iPhone?
0:16:29 That’s a big open question right now.
0:16:31 Like what’s the next platform?
0:16:33 What is AI really going to mean?
0:16:37 Is this whole crypto thing real?
0:16:41 These are all like VR and AR, like at what point?
0:16:42 It’s hard to imagine.
0:16:44 20 years from now, it’s not working.
0:16:47 So like how many years from now will that take?
0:16:51 – Yeah, and these are the kind of fundamental questions
0:16:54 always in the venture capital business, I think.
0:16:56 – And you might add genomics, you might add CRISPR,
0:16:58 you might add synthetic biology.
0:16:59 – Absolutely.
0:17:00 – It’s three of the big new frontiers
0:17:01 on the biological front.
0:17:02 They all have that characteristic.
0:17:04 – CRISPR seems like one to me
0:17:06 that is going to have really dramatic impact.
0:17:09 Obviously there’s big moral debate to be had
0:17:11 and policy debate to be had.
0:17:13 How do you take something like that
0:17:15 and try to look for the opportunities?
0:17:17 – Yeah, so the big thing is we default into thinking,
0:17:18 okay, this is going to happen.
0:17:21 We don’t spend a lot of time on, okay, will this happen?
0:17:23 Like is this going to be a thing?
0:17:25 We try, in fact, I tried one of my things,
0:17:26 I tried it at the firm, it started very hard
0:17:28 to actually kind of prevent us from having the discussion
0:17:29 of like, okay, is this going to happen?
0:17:30 It’s more a question of like, okay,
0:17:32 let’s assume it does happen, right?
0:17:34 And so then there’s kind of two really critical questions
0:17:35 that follow from that, which is like, okay,
0:17:37 if it does happen, then where does it go?
0:17:39 And so the financial version of that question
0:17:41 is kind of how, we call how high is up,
0:17:43 which is like, okay, how big could it get, right?
0:17:45 Which is sort of a very interesting question
0:17:46 for venture capitalists, because it’s like,
0:17:47 if you make an investment in something,
0:17:49 even if it happens, it turns out to be small,
0:17:50 then it’s still not worthwhile.
0:17:51 And so you’re looking for the things
0:17:52 that could get really, really big.
0:17:53 And then you’re obviously looking for,
0:17:55 you know, you’re then looking for the founders
0:17:56 and looking for the specific ideas
0:17:57 and applications that you spend a lot of time on that.
0:17:59 The other thing you think a lot
0:18:00 about in this business is timing.
0:18:02 And so like my observation is basically,
0:18:04 basically everything happens,
0:18:05 like my entire history in this industry,
0:18:07 and at least for 25 years is basically everything
0:18:09 that people said was going to happen happened at some point,
0:18:11 up to an including online pet food delivery,
0:18:13 like it all actually happens.
0:18:15 – All the things they made jokes about
0:18:19 in all the early 2000s movies are all actually.
0:18:19 – They’re all actually happening,
0:18:21 but it’s like, okay, when is it going to happen?
0:18:23 And like, is it ready now?
0:18:24 You know, is it going to be on this cycle?
0:18:25 And then how do you bet this?
0:18:28 Like sometimes these things take three, four, five cycles,
0:18:30 right, for the founders to really figure things out
0:18:32 for the technology to kind of fall into place.
0:18:33 So it’s kind of like, what are the exploratory bets?
0:18:36 How are you kind of vetting whether the stuff is real?
0:18:37 And then there’s this kind of multi-dimensional question
0:18:39 of like, you know, kind of to your point,
0:18:40 there’s this multi-dimensional question of like,
0:18:42 okay, is the technology ready?
0:18:44 And then you got to kind of cross that with like,
0:18:45 do you think the market’s ready?
0:18:47 Like, do you think people are going to want this?
0:18:48 And then you might have to cross like,
0:18:49 in CRISPR, you might have to cross other issues
0:18:51 like regulatory issues,
0:18:52 like are the regulators going to buy into this?
0:18:55 And so, and that’s where I think you have to kind of explore
0:18:56 as you go, right?
0:18:58 Which is you have to kind of feel your way through it.
0:19:00 Like it’s often not the first company in a category
0:19:01 that ends up being the winner, right?
0:19:03 Well, this is a Peter Thielism that we quote a lot.
0:19:05 It’s not the first company that gets all the money.
0:19:06 It’s the last company in the market
0:19:07 that gets all the money, right?
0:19:08 In other words, it’s the company
0:19:09 that actually takes the market, right?
0:19:11 It ends up actually being the dominant company
0:19:13 and forecloses the opportunity for there
0:19:14 to be new startups behind it.
0:19:17 And so sometimes that’s a pioneer, sometimes it’s not.
0:19:19 And so you’re kind of having this constant discussion
0:19:21 about timing.
0:19:23 And then, at the end of all that,
0:19:25 we kind of try to park that to a certain extent
0:19:26 and just start talking to entrepreneurs
0:19:28 and figure out who is the person
0:19:30 who’s got this the most decoded,
0:19:32 how much time and effort has that person put into it?
0:19:34 How qualified are they to pursue this?
0:19:35 What’s their personality?
0:19:36 And can they build a company around it?
0:19:39 Yeah, that’s what I was gonna actually go right there
0:19:42 because knowing you, as I do, I can’t imagine it’s ever,
0:19:44 we have a thesis that this thing is going to work out,
0:19:46 now we’re going to look for the entrepreneurs
0:19:47 who are doing this thing.
0:19:50 It’s much more gonna be the confluence of who you’re meeting,
0:19:53 who you get to talk to, what people are up to,
0:19:56 and these background theses that give you the opportunities.
0:19:57 Yeah, that’s right.
0:19:58 Yeah, I think that’s right.
0:20:00 And actually, I mean, I think for a while,
0:20:04 it was always like started with the entrepreneur
0:20:06 in the early days of it, just ’cause they were allowing
0:20:08 the two of us and we couldn’t cover all the spaces
0:20:10 and enough depth to do it any other way.
0:20:14 But the other thing kind of related to that
0:20:18 is the platforms that kind of we think
0:20:19 are getting proximate from a timing standpoint
0:20:22 are the ones where like the smartest entrepreneurs
0:20:24 are all working.
0:20:27 So if we see 20 genius entrepreneurs all working on crypto,
0:20:30 that makes us pay attention, for example.
0:20:30 Right.
0:20:33 So Mark, you’ve talked about five-year cycles in tech.
0:20:36 Is that something that you think is a good way
0:20:40 to imagine what’s going on or to picture it in context?
0:20:42 So I would say there’s two big sites.
0:20:43 It’s hard to, you know, the stuff is just,
0:20:44 these are just general frameworks.
0:20:46 And so they vary a lot in practice,
0:20:47 but they’re two big general concepts.
0:20:51 And so like I would say, one is the big technology changes,
0:20:52 like the ones we’ve been talking about,
0:20:54 like they’re generational changes,
0:20:54 like they’re quite literally,
0:20:56 they’re human generational changes.
0:20:59 So it’s like the typical cycle in those is like 25 years.
0:21:02 And the reason literally is because a lot of the time,
0:21:04 you just, the people who are in positions of power
0:21:06 and decision and influence when the new thing comes out,
0:21:08 they just will not accept it.
0:21:10 They won’t accept it, they won’t adapt to it.
0:21:11 They won’t recalibrate to it.
0:21:15 And fundamentally they need to age out of the cohort
0:21:16 that has the power, right?
0:21:18 Purchasing authority and all the decision-making authority
0:21:19 and all these other things.
0:21:21 And so they, and then you need a new generation
0:21:22 that like takes the stuff seriously
0:21:23 ’cause they grew up with it, right?
0:21:25 And you need them to age into the cohort, right?
0:21:27 So it’s like, it’s literally a generational turnover.
0:21:29 And so you see these, and that’s why you get these things.
0:21:31 You’ll see these, you know, some of these new things
0:21:32 that’ll grow for 25 years.
0:21:33 And I’m convinced like a big part of it
0:21:35 is just simply that generational effect.
0:21:37 So that’s the good news is like when they work,
0:21:39 you can have literally decades of growth
0:21:43 off of enormous skepticism from day one.
0:21:46 You know, the bad news is, as you’re well aware as a founder,
0:21:48 no individual company gets 25 years, right?
0:21:49 To prove something, right?
0:21:50 (laughing)
0:21:53 Nope, in fact, something well short of that, let’s say.
0:21:57 And so like our basic mental model is a company on average
0:21:59 gets maybe five years to prove something,
0:22:00 to prove the hypothesis.
0:22:01 Like, and you can kind of like,
0:22:03 if you’re a top end founder and you’re super credible,
0:22:04 you could probably raise the seed around,
0:22:06 you know, series A, series B,
0:22:07 you can get yourself five years of runway,
0:22:09 you can get engineers to some product people
0:22:11 to sign up for that and you can prove it or not.
0:22:12 But after five years, if it’s not working,
0:22:14 like you start to have a problem and,
0:22:16 or I should say you have two problems.
0:22:18 One is you start to have a morale issue
0:22:19 where people start to lose faith
0:22:21 and they spin off and go to other things.
0:22:23 You can also end up with an architecture issue, right?
0:22:25 Which is like, even if you’re right,
0:22:26 even if it starts to happen,
0:22:28 you’re built on the prior architecture, right?
0:22:30 And so, you know, imagine being a mobile developer
0:22:33 that started in, you know, 2002, right?
0:22:36 And even if they were still around when the iPhone came out,
0:22:37 you know, they’d built their entire, you know,
0:22:38 system on brew and, you know, Java
0:22:40 and all these technologies that were now archaic.
0:22:42 And so, so you kind of have this,
0:22:45 this kind of aging in place thing that happens.
0:22:47 And so each company kind of has a five year shot.
0:22:48 So then what happens is-
0:22:49 – There are exceptions.
0:22:50 – Yes, there are particular founders
0:22:51 who can, who can, who can get through this,
0:22:53 but it does tend to be the exception.
0:22:55 And so, but, but then you think about it,
0:22:56 then there’s sort of the psychological thing
0:22:57 that happens as a consequence,
0:22:59 which is if the founder starts the company
0:23:00 in the first cycle, runs for five years
0:23:02 and it doesn’t prove the hypothesis,
0:23:03 that founder usually ends up,
0:23:06 so bitter about the whole experience
0:23:07 that they become cynical about that category
0:23:09 for the rest of their lives, right?
0:23:11 And then, and then somebody else in sort of, you know,
0:23:13 cycle to generation two, three, four does figure it out.
0:23:15 And like, you know, that, by the way,
0:23:17 I’m speaking out of also myself out of experience,
0:23:18 like talk about upset,
0:23:19 the fact that you couldn’t get it to work
0:23:22 in this other person did, it’s just like absolutely maddening.
0:23:23 And that’s just human nature.
0:23:25 The part of it that really bites the VCs
0:23:27 is the VCs do that too.
0:23:29 If you as a VC make a bet and go on a board
0:23:31 and you’re in the board meetings for five years
0:23:32 and it doesn’t work and the company shuts down
0:23:36 and then a new kid shows up, you know, three weeks later
0:23:38 and says, hey, I’ve got an idea.
0:23:40 Why don’t we do that, right?
0:23:41 And of course, what really makes you frustrated as a VC
0:23:43 is that kid half the time isn’t even aware
0:23:44 of the previous failed experiments
0:23:47 ’cause like they literally weren’t paying attention, right?
0:23:49 And so what happens is actually the VCs will free,
0:23:52 it’s actually, the VCs will actually freeze themselves out.
0:23:54 And so, and it’ll be VCs who are much more naive
0:23:56 and much less aware of the previous failures
0:23:57 that will actually make the bet.
0:23:59 And so that puts you in this very weird spot.
0:24:00 If you think about being a VC
0:24:01 or running a venture capital firm,
0:24:03 which is you would like to say that the person
0:24:04 who knows the most about the domain
0:24:06 is the person who should make the investment decision.
0:24:07 But it may also be the case,
0:24:09 the person who knows the most about the domain
0:24:10 has the most scar tissue
0:24:11 and has the most followed up psychology.
0:24:14 And so a big part, exactly to your comment,
0:24:16 like a big part of this job, just like being a founder,
0:24:18 is like you have to suppress your natural instincts
0:24:20 to get bitter and resentful and envious and upset.
0:24:22 And it goes to even a more fundamental question is,
0:24:24 like, can you learn lessons, right?
0:24:26 Like what do you learn, like in this business,
0:24:27 what do you learn from a failure?
0:24:29 And maybe the answer is you should learn a lot
0:24:31 from a failure ’cause like it’s those are all hard-won lessons
0:24:33 and maybe the answer is you should learn absolutely nothing.
0:24:35 Maybe all the lessons are wrong, so.
0:24:37 – Yes, it is a lesson to just, that didn’t work.
0:24:38 – Yeah.
0:24:41 – That’s something that I spent a lot of time trying to,
0:24:44 to convince people on the team of that,
0:24:46 it’s the right brothers or Thomas Edison.
0:24:49 It’s just every day, what’s the best idea we got?
0:24:50 That didn’t work.
0:24:51 All right, what’s the next best idea we got?
0:24:55 And the characterization of celebrating failure
0:24:58 sometimes misleads people to characterize that as a failure.
0:24:59 ‘Cause if this plane didn’t fly
0:25:00 or this light bulb didn’t light up
0:25:02 or it blew up or whatever, is that a failure?
0:25:04 Or is that just the process of getting to the light bulb
0:25:06 that works, that they are playing that flies?
0:25:09 – Yeah, Edison tried 3000 compounds, I think,
0:25:10 for the light bulb.
0:25:11 – Yeah.
0:25:11 – Before he figured out the filament.
0:25:15 – That is a level of persistence I would like to hire.
0:25:18 So Mark, you just mentioned a little bit of like control
0:25:20 over your own emotions or your reactions, the cynicism.
0:25:22 Ben, that’s something that you talked a lot about
0:25:23 in the hard thing about hard things,
0:25:24 just like the power to overcome.
0:25:26 To what, I mean, obviously you’ve seen a lot of this,
0:25:29 you’ve experienced it yourself, to what degree
0:25:32 do you think you’ve been helpful and let me just say,
0:25:34 you have been helpful to me personally
0:25:36 in helping entrepreneurs through some of that.
0:25:38 Whether it’s the overwhelming emotional reaction
0:25:40 to a bunch of good stuff happening
0:25:42 or a bunch of bad stuff happening.
0:25:44 – Yeah, so I think, I mean, that’s probably
0:25:47 that the number one kind of consistent thing
0:25:49 that I get back on that book is like,
0:25:52 you know, what I’m feeling is so intense
0:25:55 and there’s nobody to talk to about it.
0:25:58 And then the book kind of goes like,
0:26:01 this is what it feels like, this is what it looks like.
0:26:05 And I think that just knowing that you’re not
0:26:07 the stupidest entrepreneur of all times
0:26:10 is like really valuable.
0:26:11 And it’s something that I always wish that I had.
0:26:13 It’s a lot of the reason I wrote the book
0:26:17 ’cause I used to go around, you know, and I, you know,
0:26:21 and I was like in the kind of horrible period of 2001
0:26:24 and I would talk to other founders and I’d be like,
0:26:25 you know, how’s it going?
0:26:27 And they’d be like, it’s amazing.
0:26:30 I can’t, this is the greatest experience of my life.
0:26:32 And I’d just be like, wow, I am like
0:26:34 the stupidest motherfucker of all times.
0:26:37 Like, ’cause my business is in horrible trouble.
0:26:38 And it just seems so bad.
0:26:40 But then like, you know, as because I’ve lived long enough
0:26:43 to see like most of those guys went bankrupt.
0:26:44 So they were all going through it.
0:26:45 I was going through.
0:26:46 They just like nobody would tell each other
0:26:48 ’cause it’s so embarrassing.
0:26:50 So it was, you know, one of those, those kinds of things.
0:26:53 But it’s been, you know, it’s been great help to me
0:26:57 in the work because when I sit down with an entrepreneur,
0:27:00 they go, okay, yeah, I know, you know what I’m talking about.
0:27:03 So we can talk about the real like horrible shit
0:27:06 and not just, you know, the happy stuff.
0:27:08 – I feel like there’s an obligatory question here
0:27:10 to talk about the things that you guys tried
0:27:12 that didn’t work and the failures.
0:27:14 But before we get there, just on the way,
0:27:15 there’s a bunch of things that obviously did work.
0:27:20 So building up a bunch of capabilities in the firm
0:27:21 and in the partnership with something
0:27:23 that is now pretty widely emulated,
0:27:26 like having those services that the companies can call on,
0:27:28 being a little bit more stage agnostic
0:27:32 and even like industry technology vertical agnostic
0:27:35 has been something that’s worked out really well.
0:27:38 When you look back before we get to the failure question,
0:27:40 what do you think the best decisions you made are
0:27:42 in the way that you set up the firm?
0:27:44 – Yeah, so it’s a great question.
0:27:49 I think, you know, at the core, I think just this belief
0:27:54 that a venture capital firm has got to be able
0:27:57 to help the technical founder grow into a CEO.
0:28:00 It’s just so, you know, in retrospect,
0:28:02 that turned out to be profound
0:28:04 and just differentiating and important.
0:28:06 And it really is the work.
0:28:08 So when we think about what do we do
0:28:11 and why are we here, that’s it.
0:28:13 And then kind of backing that up,
0:28:15 the thing that helped us the most
0:28:19 is just taking what Michael Ovitz had done at CAA.
0:28:22 And that jump started us, I mean,
0:28:24 we probably saved five years by copying his model.
0:28:27 So that, and I can’t even believe how well it worked,
0:28:29 like every aspect of it worked.
0:28:32 So, you know, those are probably the two things.
0:28:34 – What was it from Michael Ovitz that you were copying?
0:28:35 – He has censor it in the book.
0:28:36 And so there’s a great book.
0:28:38 – Yeah, he finally revealed some of it.
0:28:40 – Some of it’s in the book, not all of it’s in the book,
0:28:42 but it’s the book is called “Who is Michael Ovitz?”
0:28:45 And it’s a highly entertaining book and we recommend it.
0:28:46 I mean, it’s actually really funny.
0:28:48 He kind of sat down and described the whole thing.
0:28:50 And it basically was this idea of, you know,
0:28:51 we’re not just going to be a collection of individuals.
0:28:53 We’re going to be an actual true team.
0:28:55 And then it’s not just going to be the principles.
0:28:57 It’s going to be an entire system, right?
0:28:58 It’s going to be an entire operating platform,
0:28:59 an entire infrastructure.
0:29:00 It’s going to be professionals
0:29:02 across all these different domains.
0:29:04 And, you know, we’re going to build this
0:29:06 enduring long run network that’s going to, you know,
0:29:08 it’s just going to constantly compound year after year
0:29:09 and build more and more value.
0:29:11 And then the next client comes longer,
0:29:12 the next, you know, founder comes along
0:29:14 and they can plug into this entire system, you know,
0:29:15 that’s been built, you know,
0:29:17 and we’ve been building the system now for a decade.
0:29:19 And so, you know, a new founder who works for this today,
0:29:21 like they’re walking into a, basically a system
0:29:22 that’s been built for a decade.
0:29:23 So then he said, basically what happens is
0:29:24 then it’s compounding advantage,
0:29:25 which is every year that goes by,
0:29:27 you just get more and more differentiation
0:29:28 off of the status quo.
0:29:30 He was competing at the time with William Morris,
0:29:31 which was this huge talent agency.
0:29:33 And it’s like, well, why wouldn’t they just copy you?
0:29:34 And he’s like, well, they’d have to vote themselves
0:29:36 big salary cuts, right?
0:29:38 Like they’re paying themselves all the money right now, right?
0:29:40 And so they had to go hire, you know,
0:29:41 100 people to go do the stuff that we’re doing.
0:29:42 They’d have to like,
0:29:43 they’d have to free up that money from something.
0:29:45 So they’d have to vote themselves giant salary cuts.
0:29:47 And he’s like, they don’t like each other.
0:29:48 Like they don’t get along to start with.
0:29:50 And so imagine getting into the room.
0:29:50 And they’ve all got like, you know,
0:29:52 they’re like very successful people.
0:29:53 They’ve all got very high personal burn rates, right?
0:29:54 They’ve got all kinds of hobbies, you know,
0:29:56 they’ve got vineyards and yachts and all this stuff.
0:29:59 And so, you know, they’re going to now decide
0:30:01 to give themselves an 80% pay cut, right?
0:30:03 To compete with the startup, like no chance.
0:30:05 And so anyway, that was his explanation.
0:30:07 – Yeah, that’s been a long lasting advantage.
0:30:08 I think so.
0:30:10 – Yeah, but yeah, that continues.
0:30:11 As it actually turns out,
0:30:13 that didn’t just happen in the talent agency business.
0:30:16 What I discovered doing more research after that was that,
0:30:18 it was also exactly what happened for law firms.
0:30:20 It’s exactly what happened management consulting firms.
0:30:22 It’s what happened to ad agencies, accounting firms.
0:30:23 And then also investment banks,
0:30:25 private equity firms, hedge funds.
0:30:26 All these other industries have gone
0:30:27 through this transformation.
0:30:30 They basically professionalized and upleveled.
0:30:31 And it just happens that the venture industry
0:30:33 is doing that now.
0:30:34 And in fact, I think at this stage,
0:30:36 like it’s beyond just us.
0:30:36 – There’s something else there
0:30:38 that I actually hadn’t really realized,
0:30:40 but maybe it was implicit the whole time,
0:30:43 is CA’s investment was to make the people
0:30:44 that are representing more successful.
0:30:47 Smart idea, given that you got points
0:30:49 on their success is a little bit of the same thing.
0:30:51 ‘Cause you can make an investment decision
0:30:54 that it’s just like I’m gonna buy some copper futures
0:30:56 or oil or something like that.
0:30:59 And I can’t do anything about to make oil more valuable
0:31:01 for people or copper more valuable.
0:31:02 I invest in the startup
0:31:03 and there’s a ton of stuff I can do.
0:31:05 I have my connections and I know that personally
0:31:08 I benefited from being able to call on both of you
0:31:11 from John O’Farrell who joined our board,
0:31:14 from Margaret, from Jeff Stump on recruiting,
0:31:16 from the whole team running the EBCs.
0:31:18 There’s more than I can mention here.
0:31:20 And I think that has,
0:31:24 I don’t know what the ROI for you is on that,
0:31:26 on top of the dollars that you put in,
0:31:29 but I would say it’s probably 70% of the value to us
0:31:31 and 70% of the value created came
0:31:33 from that additional support beyond just the money.
0:31:36 – Yeah, and there’s also this little knock-on effect
0:31:37 which you appreciate, I’m sure,
0:31:42 which is part of the trouble with an inventor becoming a CEO
0:31:46 is you just don’t feel like a CEO.
0:31:48 You don’t know the people who CEOs know,
0:31:50 you don’t know how to do the things CEOs know how to do.
0:31:54 And so a lot of what you get out of the firm is,
0:31:55 no, I’m a CEO.
0:31:57 Like if I need to know how to do it, I’ll call Margaret.
0:32:00 Like, you know, I can do that, I can step up.
0:32:03 And so like that’s a lot of what it conveys
0:32:06 at the end of the day is just like that confidence
0:32:08 which is often that little difference
0:32:10 between being able to stay in the job
0:32:13 and having to raise your hand and tap out.
0:32:15 – All right, so I promised that I was gonna ask
0:32:20 about any dumb decisions, mistakes, failures along the way.
0:32:21 What do you got?
0:32:22 – We haven’t made any.
0:32:24 I don’t really know why you would even ask that question.
0:32:26 There’s obviously nothing to talk about.
0:32:29 So we have a very specific philosophy on that
0:32:30 and the book I’d really recommend.
0:32:32 We were lucky enough to have her in the podcast a while ago.
0:32:34 So Annie Duke wrote a book called “Thinking in Bets”
0:32:36 where she talks about basically what is the nature
0:32:39 of a mistake in a probabilistic domain,
0:32:41 you know, with uncertainty of outcome.
0:32:44 And she uses the term in the book “resulting.”
0:32:46 It’s basically the process of looking at a bet
0:32:48 that was made in a probabilistic domain
0:32:49 that did not pan out.
0:32:51 And then concluding that that was a mistake
0:32:53 as compared to a bet that didn’t pan out.
0:32:54 And so basically what she says in the book,
0:32:57 she says the book is basically resulting
0:32:59 is the root of all evil if you’re in a probabilistic business
0:33:00 ’cause you will learn the wrong lessons
0:33:03 and you’ll torture yourself mentally to death by doing that.
0:33:06 And so she says the thing to do is basically
0:33:08 to very clearly separate in your own mind process
0:33:09 and outcome, right?
0:33:11 So you’re in a probabilistic domain,
0:33:11 you don’t know the outcome
0:33:13 of any particular bet ahead of time.
0:33:15 And so you need to design the best possible process
0:33:18 to generate the best possible set of outcomes over time.
0:33:21 And then basically when things go quote unquote wrong,
0:33:23 you don’t second guess the outcome.
0:33:24 You go back and you just make sure the process
0:33:26 was as good as it could have been.
0:33:28 And so, you know, from the outside,
0:33:30 the mistakes of venture firm makes are always like,
0:33:31 well, what’s the investment that you didn’t make
0:33:33 that worked or the investment that you made
0:33:34 that didn’t work inside the firm?
0:33:35 What we try to do is say, okay,
0:33:37 what have we done well in our process
0:33:39 and how can we improve our process?
0:33:41 You know, that’s a much more boring topic to talk about
0:33:42 ’cause it has to do with things like meeting structure
0:33:44 and memo documents and, you know, research
0:33:46 and due diligence and all these topics.
0:33:49 But that is the actual answer to the question, which is,
0:33:51 you know, when we started with a, as Ben said,
0:33:53 we started with a relatively lightweight process
0:33:54 on investments because it was just Ben and me
0:33:57 and then over the time we’ve evolved
0:34:00 to a much more rigorous process.
0:34:01 Today we do a lot more work on the investments
0:34:03 than we used to.
0:34:05 And then the other side of that is to try to keep all that
0:34:06 work from preventing us from making
0:34:07 the controversial investments.
0:34:08 – Getting people to that position.
0:34:11 And I wish I could remember who gave me this analogy,
0:34:14 but if you got super drunk and then you drove home
0:34:16 and you didn’t have a crash,
0:34:18 it’s not that that was a good decision.
0:34:18 The result was good.
0:34:21 And we really, it’s a tough thing to build structures
0:34:23 inside the company to celebrate.
0:34:26 That was a great idea to change the homepage
0:34:28 so that whatever, and it turned out that it was wrong,
0:34:30 but you still got a bonus.
0:34:32 You get a bonus, you get a promotion,
0:34:35 you get recognition, even though it didn’t have the result
0:34:37 ’cause people do get super result fixated.
0:34:40 – Yeah, Bisa says real good thing where he says,
0:34:42 “We rate people on the inputs, not the outputs.”
0:34:45 – One of the last questions I wanted to get to
0:34:47 is the nature of the entrepreneurs.
0:34:48 Now it’s been long enough.
0:34:51 You’ve seen some two-time, three-time entrepreneurs
0:34:53 and you’ve backed some of them.
0:34:55 What kind of difference do you see between that,
0:34:56 the first time and the second time?
0:34:59 – So for top-end venture, basically the rule is
0:35:00 if you’re a first-time fund,
0:35:01 to get funded by a top-end venture firm
0:35:03 as a first-time founder, you have to have something working.
0:35:04 You have to have a product.
0:35:06 You have to have some of a product market fit.
0:35:08 Google.com already existed.
0:35:09 Facebook already existed.
0:35:11 Airbnb already existed when they raised money.
0:35:13 So that’s the general pattern.
0:35:15 And then the question of the first-time founders is,
0:35:16 do they know what they’re doing, right?
0:35:19 Can they then do the job of being a founder CEO
0:35:22 of a scaling company and some can and some can’t?
0:35:24 The second-time founders are like a huge relief
0:35:25 to deal with on the one hand
0:35:27 because it’s like, okay, they’ve been through it before.
0:35:28 Now they know what they’re doing, right?
0:35:30 They’ve got some experience and some gray hair
0:35:32 and some operational experience.
0:35:34 The problem with the second-time founders,
0:35:37 they can raise money before they have something working.
0:35:40 And then there’s this question of like, okay, what’s the idea?
0:35:41 And then we talk a lot about like,
0:35:44 is it an organic idea or is it like a synthetic idea?
0:35:45 Was the process, I have a great idea there
0:35:46 for I’m going to start a second company
0:35:48 or was the process, I want to start a second company
0:35:50 and therefore I have to come up with an idea.
0:35:52 And what you often find is they want to start
0:35:55 a second company so badly that they come up
0:35:58 with basically a fragmentary idea, partial idea.
0:36:00 It’s a conceptually interesting idea,
0:36:02 but with nothing underneath it.
0:36:03 And we have this other concept
0:36:06 we use called the idea maze, which basically is the process
0:36:08 that a founder uses to figure out what the actual idea is,
0:36:09 which is like a hundred-step process
0:36:11 to work your way through all the different permutations
0:36:12 of the idea before you actually finally figure out
0:36:13 the real thing.
0:36:15 And the second-time founders often just haven’t gone
0:36:17 through the idea maze, but it’s really bizarre as a VC
0:36:19 because it’s like, here’s this founder who you love
0:36:21 and like they’ve showed incredible persistence
0:36:22 in the last company and like you so badly
0:36:24 want to work with them again and you can just tell like,
0:36:26 for the idea has almost become interchangeable.
0:36:28 Right, and it’s just like, that’s a super bad sign.
0:36:30 And so that’s what tortures you on those.
0:36:32 – Yeah, from the entrepreneur side, I can tell you,
0:36:33 having a whole bunch of money does take away
0:36:36 a very critical forcing function, which is like,
0:36:38 I’m about to find out of money, I better figure this out.
0:36:41 So we added overcorrect for that.
0:36:42 – What’s the job of the founder?
0:36:45 Is the job of the founder to figure out the product,
0:36:47 figure out the market and get the idea nailed?
0:36:49 Or is the job of the founder to staff
0:36:51 an executive team and an employee base, right?
0:36:54 And those are two like, they’re overlapping responsibilities,
0:36:55 but there’s a lot of-
0:36:57 – The first one turns out to be a lot more important.
0:36:58 – Yeah, it’s like the startups where it’s like,
0:37:01 they’re doing all the outward facing things
0:37:03 involved with being a startup, but like there’s nothing there.
0:37:05 – Well, you know, and you always kind of know it
0:37:09 because the founding team is all vice presidents
0:37:10 and no engineers or something like that.
0:37:13 It’s just like, okay, what are you doing?
0:37:16 You can’t execute your way through like no ideas.
0:37:18 – 10 people in the company, they’ll have a chairman,
0:37:20 they’ll have a CEO, they’ll have a CEO, they’ll have a president,
0:37:21 they’ll have a VP of sales, a VP of marketing
0:37:23 and a VP of engineering.
0:37:25 That’s not a good, yep.
0:37:27 – A little bit of a pet peeve for me too.
0:37:30 So the first time that I met Ben, it was with Mark
0:37:32 and it was at the Creamery in Palo Alto.
0:37:34 And I think you were about probably about six months away
0:37:36 from starting the fund.
0:37:40 I never would have predicted how things would have turned out.
0:37:42 Did you predict how things would have turned out?
0:37:47 – You know, no, I think we dreamed that we would kind of
0:37:48 get to where we got to,
0:37:51 but it was a much longer timeframe on the dream.
0:37:54 I mean, things worked out way, way better
0:37:58 than I think either of us set out and expected.
0:38:01 And, you know, we had a lot of good luck along the way.
0:38:03 And then a lot of, you know, great help
0:38:07 from a lot of people, you know, people like actually starting
0:38:08 with like people like Jim Breyer,
0:38:13 who kind of taught us what it meant to like create an LP base
0:38:16 and how to think about investors and those kinds of things.
0:38:19 And then, you know, we ended up getting like very lucky
0:38:21 on the hiring, I think our first hire was Scott Cooper,
0:38:25 who we probably kind of built the firm with that.
0:38:28 And then, you know, our first consultant was Margaret.
0:38:31 And, you know, there’s no way we would have like
0:38:32 pulled off the marketing thing without her.
0:38:35 So a lot of, a lot of really great luck
0:38:36 and a lot of really great help.
0:38:38 Oh, and Andy Rackliffe, yeah, he helped us understand
0:38:39 what venture capital was.
0:38:41 – It turns out to be.
0:38:43 – Neither of us had any experience.
0:38:44 – Then obviously all the partners who have joined us
0:38:47 and so about 150, 150 people now,
0:38:49 by definition numerically, they get almost all the credit.
0:38:52 – So one thing I definitely want to get to is the transition
0:38:57 from a VC firm to a financial advisor for whatever that means.
0:38:59 And you were a little bit iconoclastic and different
0:39:00 from the beginning.
0:39:04 This also seems, we’ll see looking back at iconoclastic,
0:39:05 but definitely different.
0:39:06 What was the idea there?
0:39:08 – Yeah, so, you know, kind of the thing that catalyzed it
0:39:10 was actually crypto.
0:39:14 There’s a rule that exempts VCs from having to do
0:39:17 a bunch of kind of regulatory compliance stuff.
0:39:21 And part of the thing that keeps you as a VC
0:39:26 is you can’t invest more than 20% of your funds
0:39:30 and things that aren’t like primary equity investments.
0:39:33 So crypto would fall into that category secondary
0:39:34 and so forth.
0:39:37 And look, we believe crypto is going to be important.
0:39:39 Now there’s a lot of VCs who do,
0:39:41 who won’t take the step that we did to become regulated
0:39:43 in the way that we have.
0:39:46 But, you know, like this is kind of another advantage
0:39:49 from our background is we’re not afraid of governance
0:39:50 or regulation or these kinds of things.
0:39:52 And that, you know, it’s something that we understand
0:39:54 pretty well from being a public company.
0:39:55 We’ve done it before.
0:39:57 And it opens up a lot of opportunities
0:39:59 that we can now think about
0:40:02 because, you know, we’re in another category.
0:40:05 – Yeah, so this changed the categorization
0:40:06 and then the regulatory environment,
0:40:07 but you’re still a V-serfer.
0:40:08 – Yes, yeah.
0:40:11 Now we still are in the exact same business we always were.
0:40:13 – Mark, I gotta also do TV shows that you recommend
0:40:17 ’cause you are a source of excellent viewing.
0:40:18 – There we go, good.
0:40:19 All right, well, I’ll struggle.
0:40:20 So I can’t help myself.
0:40:23 Deadwood is the best TV show of all time.
0:40:24 And it’s actually very relevant for founders.
0:40:27 It’s basically, it’s the story of the American frontier
0:40:29 through kind of a modern lens.
0:40:31 And it’s just astonishingly high quality.
0:40:32 And it’s basically the creation of a city.
0:40:33 It’s basically the creation of a city
0:40:34 and ultimately the creation of a state,
0:40:36 the state of North Dakota.
0:40:39 And it is, you know, in the face of just like, you know,
0:40:41 horrifying obstacles.
0:40:42 You know, and by the way, you know,
0:40:44 many ethical issues along the way and everything else.
0:40:45 If you think starting a tech company is hard,
0:40:47 you wanna watch a couple of seasons of Deadwood.
0:40:48 It’ll put you in the right frame of mind.
0:40:50 – And then the movie that it got canceled,
0:40:51 it gave us a decade ago
0:40:52 and it got canceled after three seasons
0:40:54 and it really should not have been.
0:40:56 And so they did a very rare thing.
0:40:56 They went back 10 years.
0:40:59 And all these other people in the movie became huge stars
0:41:00 afterwards in the show.
0:41:01 So they got them all back
0:41:03 and made the fourth season into a movie.
0:41:04 – Wow.
0:41:05 All right, can’t wait to see it.
0:41:06 – Yep.
0:41:07 You can give me two books if you want, two books.
0:41:09 – Yeah, give me two books, give me five books.
0:41:11 – Favorite two books of the year.
0:41:14 Book number one, “Why History is Always Wrong?”
0:41:18 is not written by a historian and it is basically,
0:41:19 if you’ve read Nassim Taleb,
0:41:21 he talks about something called the narrative fallacy,
0:41:24 which basically is, okay, why did something happen?
0:41:25 And then there’s some story as to why it happened.
0:41:27 And then it usually turns out,
0:41:28 like if you talk to the principles involved,
0:41:29 it wasn’t that story at all.
0:41:31 It was something much more complex.
0:41:34 And so this is like the next level of that theory
0:41:36 that basically says all of recorded history
0:41:37 is the narrative fallacy.
0:41:39 And so everything that we think we understand
0:41:41 about why the American revolution happened
0:41:44 or why Rome fell, right, or why Christianity emerged
0:41:45 or like any of these stories that we,
0:41:47 all the, any of these things that we teach you,
0:41:50 we’ll take 12 years of history class in school
0:41:51 and all this stuff, like it’s all wrong.
0:41:53 Like it’s worse than wrong
0:41:55 because it’s not like it could be corrected.
0:41:57 You couldn’t actually make a bunch of edits
0:41:59 to the book and make it correct.
0:42:00 You can’t do that at all.
0:42:02 And the reason why it’s worse than wrong
0:42:03 and you can’t ever get it right
0:42:06 is because reality is so complicated, right?
0:42:07 Reality is a complex adaptive system
0:42:09 when you’ve got human agents involved in everything.
0:42:12 And so you’ve got, and anything big that happens,
0:42:13 you’ve got thousands or millions of people
0:42:15 who are making all kinds of random decisions every day
0:42:16 for all kinds of random reasons
0:42:19 and it just happens that things result in a certain way.
0:42:21 – Is this wrong in the same way to think that
0:42:22 it didn’t rain because God was mad
0:42:24 or it did rain because we performed the ritual
0:42:27 in the right way, like puts some agency into a system
0:42:29 that there isn’t anyone making decisions.
0:42:30 It’s just the emergence.
0:42:31 – Yeah, exactly, in reality, the weather system.
0:42:33 I mean, you know, this is after 100 years
0:42:33 of meteorological science
0:42:35 and they still can’t predict it’s gonna rain tomorrow.
0:42:37 And it’s ’cause the atmospheric system
0:42:38 is a complex adaptive system
0:42:40 is too complicated to model.
0:42:42 And just like, and you can keep throwing supercomputers at it
0:42:44 and it’s still too complicated to model.
0:42:46 So, by the way, it’s the same thing, the human body.
0:42:47 Like we don’t, it’s actually,
0:42:48 we think about this a lot in the bio fund.
0:42:49 It’s like, we don’t understand.
0:42:50 Like we don’t even, there’s not even settled
0:42:51 in traditional science.
0:42:53 Like we still don’t know, like there’s still,
0:42:55 and there’s no, a whole new category revision of science
0:42:58 now questioning this whole, the whole protein fat,
0:42:59 you know, the whole protein fat thesis.
0:43:02 And so like it’s, the example he uses in the book
0:43:04 at the fall of Rome is like the, you know,
0:43:06 the single most studied kind of historical story
0:43:07 is like the rise and fall of Rome.
0:43:09 And it’s like, and basically what happens is like,
0:43:10 if like a science is working properly,
0:43:12 you converge on the correct answer.
0:43:13 Like you converge on Newton’s law.
0:43:15 So you converge on quantum mechanics
0:43:16 or something like that.
0:43:18 He’s like, the problem in history is that
0:43:19 the more time goes, Pat,
0:43:21 the more explanations they come up with,
0:43:23 the more new explanations they come up with.
0:43:24 And there’s like historians have documented,
0:43:26 there’s like 250 now different causes
0:43:28 for the fall of Rome, right?
0:43:30 And so like, it just, it leaves you with nothing.
0:43:33 And so it’s, it’s, it’s a, it’s a disconcerting theory
0:43:34 ’cause it basically says getting a handle
0:43:37 on cause and effect in the world is impossible.
0:43:38 It’s a very convenient theory
0:43:41 ’cause it means you can just ignore history.
0:43:42 That saves you a lot of time.
0:43:43 It saves you a lot of time.
0:43:45 And then it’s an inspiring story.
0:43:48 Our theory, I find, ’cause it’s like, okay,
0:43:49 things can change.
0:43:51 Like nothing is actually carved in stone,
0:43:53 like not even a little bit.
0:43:55 And who knows what’s going to be the next person
0:43:56 who’s going to make the decisions
0:43:56 that’s going to cause everything
0:43:57 to go one way or the other.
0:43:58 And that could be you.
0:43:59 And so I find that inspiring.
0:44:03 And then the other book I love to tell people about
0:44:06 is David Goggins, who’s a, the only guy in history,
0:44:08 he’s a triple qualified as an ABCL and army ranger
0:44:11 and what’s called an Air Force tactical air controller,
0:44:13 which is a special forces unit of the Air Force.
0:44:15 So triple qualified special forces.
0:44:18 He wrote a book called “Can’t Hurt Me.”
0:44:19 And it is one of the most amazing stories
0:44:20 that anybody has ever written.
0:44:23 His story is really amazing.
0:44:25 He’s one of the only African-American Navy SEALs
0:44:29 in history and just manages incredible accomplishments
0:44:30 both inside and outside the military.
0:44:32 And it’s the book.
0:44:34 Like if Ben’s book is about like the struggle in business,
0:44:36 like David’s book is about the struggle in life.
0:44:39 And so anytime anybody feels mopey.
0:44:43 About what’s happening in their startup or in their life.
0:44:44 This is the book to read,
0:44:46 to kind of reset all the expectations.
0:44:46 All right, great.
0:44:48 Well, thank you so much.
0:44:51 It was a pleasure and an honor to be able to do this with you.
0:44:52 All right, Stuart, thank you so much.
0:44:53 Thank you, Stuart.