AI transcript
0:00:09 here’s what i would encourage people to do here’s the thought experiment to do write down a piece
0:00:13 paper two lists what are the things that i believe that i can’t say and then what are the things that
0:00:19 i don’t believe that i must say and just write them down what happens when startups don’t just
0:00:25 sell the tools but decide to take over the entire industry on today’s episode mark andresen co-founder
0:00:31 of a16z six down with jack altman co-founder and ceo of lattice to unpack how the venture industry is
0:00:37 changing from small seed funds to multi-billion dollar barbell strategies and what that means
0:00:42 for founders funders and the future of innovation mark explains how the classic playbook of picks and
0:00:47 shovels investing gave way to full stack startups like uber and airbnb and why the biggest tech
0:00:53 companies today are not just building tools but replacing entire sectors he also talks about the
0:00:59 realities of fund size venture returns power laws early stage conflict dynamics and why missing a
0:01:05 great company matters far more than backing a bad one and then it gets even bigger mark dives into ai
0:01:11 as the next computing paradigm u.s china geopolitical risk and why mark thinks we’re in a capital t test
0:01:17 for the future of civilization this episode is about asymmetric bets ambition at scale and the deep forces
0:01:21 the next one is reshaping tech and power let’s get into it
0:01:27 as a reminder the content here is for informational purposes only should not be taken as legal
0:01:33 business tax or investment advice or be used to evaluate any investment or security and is not directed at any
0:01:39 investors or potential investors in any a16z fund please note that a16z and its affiliates may also maintain
0:01:44 investments in the companies discussed in this podcast for more details including a link to our
0:01:49 investments please see a16z.com forward slash disclosures
0:01:57 i am so excited to be here with mark andreessen mark thank you so much for doing this with me today
0:02:04 jack it’s a pleasure so what i wanted to start with was the topic of small funds big funds we had josh
0:02:10 compliment on the podcast and he made a point that resonated around fund size the outcomes in venture
0:02:14 and sort of just like looking at the math of all of it and i think as venture funds have grown it sort
0:02:19 of spoke to a lot of people about like kind of what the plan is and sort of how tech is going to go
0:02:25 and so i guess to start i’d be curious to hear your thoughts around that whole dynamic obviously you know
0:02:29 you’ve got a big venture firm and so i just want to hear kind of your perspective on this whole topic to
0:02:34 start so start by saying like josh is a longtime friend and i think is a hero of the industry
0:02:39 and i say that because you know he started first front ventures back in the very dark days i forget
0:02:44 the exact year but you know back during the dark days of after the 2000 crash um and in fact you know
0:02:48 there was a period of time back there when you know the total number of angel investors or seed investors
0:02:54 operating in tech was you know maybe eight total and and you know actually ben and i were two of them
0:02:58 but you know this was sort of the heyday of you know ron conway and and um you know kind of a
0:03:03 you know reed hoffman and a very small group of people who were kind of brave enough to invest in
0:03:06 new companies at a point in time when you know basically everybody believed the internet was over
0:03:10 like the whole thing was was done and so he like i just think like that was an incredibly heroic brave
0:03:13 act it obviously worked really well it you know turns out by low
0:03:18 sell high actually it’s a good strategy it’s very good um it’s it’s very nerve-wracking when you’re
0:03:22 trying to do it but it does work and he he had brilliant timing for when he started and you know
0:03:25 the companies that he supported have gone on to become incredibly successful and we’ve worked
0:03:30 with him a lot um so you know we’re a big fan uh of his and then second is i would say i didn’t
0:03:33 actually i heard i heard there was a discussion yeah i never as a rule i never i never read or watch
0:03:37 anything i’m involved in so i told you well it wasn’t about you know and i totally missed it and
0:03:41 to summarize basically what he was saying is he coined this like venture arrogance score idea but
0:03:46 basically the idea is you know if you’re going to own 10 percent of a company at exit and you want
0:03:50 to have a 3x fund and you’re probably going to have a power law of outcomes you basically need your big
0:03:54 outcome to be like really big and so like how’s the math shake out and basically you know the
0:03:59 question he was sort of posing broadly is are the outcomes going to be much bigger you can own a lot
0:04:03 more you can hit a lot more winners but it was sort of like that math question so i’ll say a couple
0:04:08 things so one is look venture is a is actually a customer service business in our in our view so start
0:04:12 with this so uh it’s actually a customer service business there are two customers there are the lps and
0:04:16 there are the founders um and we think of them both both customers and so you know at the end of
0:04:19 the day the market’s going to figure this out and the lp money’s going to flow to where
0:04:23 obviously they think the opportunities are and the the founders are certain you know as you know the
0:04:26 best founders definitely pick who their investors are it’s actually very unusual right asset class
0:04:31 it’s the only asset class in which the the recipient of the capital picks the yeah you know picks the the
0:04:34 you know actually actually cares where the money comes from and picks picks picks it so the market
0:04:39 will figure this out um i i think the big thing to respond in your general point i think the big thing
0:04:45 is the world has really changed um and so you know modern venture capital uh in the form that we
0:04:49 understand it is basically um you know there were examples of venture capital going back to like the
0:04:53 15th century or something with like you know queen queen isabella and christopher columbus and
0:04:57 whalers off the coast of maine in the 1600s and so forth but modern venture capital was basically a product
0:05:01 of the 50s and 60s originally this guy jock whitney from the whitney family sort of created the model
0:05:06 george dorio who’s a mit professor created a version of it and then you know and then the great you
0:05:10 know the great heyday of the 1960s vcs arthur rock and those guys um and everybody that followed
0:05:14 don valentine and pierre lamond and tom perkins and so forth gene kleiner you know all those guys
0:05:21 basically it basically from that period it’s called the 1960s through call it 2010 there was like there
0:05:25 was just there was a venture playbook and it became a very well-established playbook and it sort of
0:05:29 consisted in two parts one was a sense of what the companies were going to be like right and then the
0:05:33 other was what the venture firm should be like and so the the playbook was the companies are basically
0:05:38 tool companies right basically all successful technology companies that were venture funded in that
0:05:43 50-year stretch we’re basically tool companies right pixel shovel companies so uh mainframe
0:05:51 computers desktop computers smartphones laptops um internet access software sass databases routers
0:05:57 switches um you know disk drives all these things word processors tools right and so you know you buy
0:06:01 the tool you you the customer buys the tool they use the tool but it’s a general purpose technology
0:06:06 sold sold to lots of people basically it around 2010 i think the industry permanently changed and
0:06:11 and and and and the the change was the the big winners in tech more and more um are companies
0:06:16 that go directly into an incumbent industry right like insert directly and and i think the big turning
0:06:21 point on this was like uber and airbnb right where uber could have been like uber in 2000 would have
0:06:27 been special specialist software for taxi dispatch that you sell to taxi cab operators uber in 2010 was
0:06:32 screw it we’re doing the whole thing airbnb in 2000 would have been booking software for bed and breakfasts
0:06:39 right running on a windows pc um uh right and then airbnb is just like screw it we’re doing we’re doing the
0:06:43 whole thing and so and you know chris dixon came up with this sort of term the full stack startup
0:06:47 which he kind of meant but the other way to think about that is just you’re you’re actually the the company
0:06:51 is delivering the entire basically promise of the technology all the way through to the to the actual
0:06:55 customer which is basically quicker to get there also i suppose you get more margin capture when you do it
0:07:01 that way and you just get the technology seeped in rather than having to sell it through is that the idea prior to 2010 there were two kinds of tool companies
0:07:06 consumer tool companies and and business tool companies right so you know b2c b2b right as we
0:07:10 called them in those days and you know the consumer side was great but like you know consumer you know
0:07:14 it’s just like selling you know video games and consumer software is great you know flying toaster
0:07:19 screensavers it was great but there was only so far you know that was going to go and then and then the
0:07:25 b2b side for things like taxi dispatch or for you know bed and breakfast bookings the problem is like
0:07:29 you’re you’re selling advanced technology into incumbents that are not themselves technology companies
0:07:34 right and so are they actually going to take those tools and then actually build the thing
0:07:38 that the technologists know should actually get built more modern version of that is what you see now
0:07:43 happening with cars right so who’s going to build the self-driving electric car right is it going to be
0:07:48 a incumbent who’s able to adjust who’s buying you know good components to be able to do that or you know
0:07:53 is it going to be a tesla or a wemo yeah right that’s going to do that same with spacex and nasa i suppose
0:07:58 exactly yeah you could there are many companies that sell technological components that go into
0:08:02 rockets but was any of that going to lead to the existing rocket companies making the rocket that’s
0:08:07 going to land on its butt and then you know be relaunched within 24 hours right and so it’s and by
0:08:13 the way same thing airbnb or uber it had had you sold a the uber uberized version of taxi dispatch
0:08:17 software to the taxi would have been very good yeah would it have resulted in the uber customer experience
0:08:22 and so i think basically what happened was and there’s sort of you know these as peter says these
0:08:25 things are overdetermined so it’s a bunch of things that happened but it was sort of the it was sort
0:08:30 of the smartphone completed the diffusion kind of challenge for getting computers in everybody’s hands
0:08:34 and then mobile broadband completed internet access in everybody’s hands and then the minute you had
0:08:38 that there was just no longer you just had this ability to get directly to people in a way that you
0:08:42 just never had you didn’t have to like have a giant marketing campaign you didn’t have to you know have
0:08:46 a giant established you know consumer brand and so there was a way to kind of get to market that
0:08:49 didn’t previously exist and then you know and then look also consumers just evolved and you know
0:08:53 people especially you know kind of gen x and then millennials were just much more comfortable with
0:08:56 technology than than the boomers were yeah and they you know the sort of gen x was entering you know
0:09:00 and boomers and millennials were kind of entering their consumer prime at the time this happened and
0:09:04 then you started having these big successes and so you started lining up uber airbnb and lyft and
0:09:08 spacex and tesla and you know you kind of you start stacking these up and at some point you’re like
0:09:12 all right there’s a pattern here right there’s there’s a thing that’s happening and and that’s what’s
0:09:16 happening we’re 15 years into that and what’s happened now is basically that idea now has blown
0:09:21 out basically across every industry right and so so so the tech industry used to be a relatively narrow
0:09:28 tools picks and shovels business today it’s a much larger and broader and more complicated uh basically
0:09:33 process of applying technology into basically every area of business activity the result of that is that
0:09:36 the companies are much bigger like when you’re the whole company when you’re both the picks and the
0:09:41 shovels to yourself of the whole company you’re much bigger and that changes venture math yeah you eat the
0:09:45 market right and so and so tesla ends up being worth more like there have been points in time in the last
0:09:49 five years when tesla has alone been more valuable than the entirety of the entire auto industry put together
0:09:56 right and spacex is you know like you go through this and uber is worth far more than the totality of every
0:10:00 black cab operator yeah and taxi cab company that ever existed everybody and b is worth far more than the bed and
0:10:04 breakfast industry ever was and by the way it turns out some of these markets just turn out to be much larger than
0:10:08 people think right when we do a retrospective on our analysis over 15 years like one of the things that’s been
0:10:13 hardest for us to do is to do market sizing and and and sometimes we overestimate market size but it’s
0:10:18 more often it’s the other way more often well for the winners more often it’s the other way yeah i guess
0:10:24 the uh the net blend is that you underestimate it yeah for in this this goes to venture economics you’ll
0:10:28 talk about so the the core thing on venture the core thing on venture bets right is because because
0:10:33 venture doesn’t run on leverage yeah right because nobody will bank yeah we’ll bank a startup or a
0:10:37 venture firm for leverage because there’s no assets when these things start yeah it’s asymmetric you can
0:10:42 only lose one x yeah um but you can potentially make a thousand x yeah and so that means right then
0:10:47 there’s two errors in venture there’s the error of of of commission where you invest in the thing that
0:10:52 fails and then the area of omission where you don’t invest in the thing that succeeds and of course over
0:10:56 just in the math overwhelmingly the error the error that matters is the error of omission and and so if
0:11:00 you run an analysis and by the way lots of people did this you run an analysis that says ride
0:11:05 sharing is only ever going to be as big as taxi cabs yep that leads you to the error of omission and not
0:11:09 making the bat and and and therefore the difficulty with market sizing in your view is this only is does
0:11:16 that only apply up to a certain size or you know and you look at some of the rounds that now happen
0:11:21 at huge valuations and companies that would otherwise you know be a large ipo like let’s say somebody’s
0:11:25 raising 10 billion at 100 billion or something like that does the power loss still apply up there like
0:11:30 how do you think about that type of round or do you see venture capital sort of turning into private
0:11:35 equity at some level at the higher end of things yeah so i think there’s two questions
0:11:40 kind of embedded in there one is why aren’t these companies public right that’s one question yes and
0:11:43 then and then the second question is like even whether they’re public or not like right can they
0:11:48 actually is it still the lose one win 20 type of dynamic yeah so i think there’s a bunch of ways to
0:11:51 look at that so like the smartest public investors i’ve met with basically have the view that the
0:11:54 public market actually works just like the private market with respect to this dispersion of returns
0:11:59 the the extreme case case i’ll make sometimes is um it may be that there’s no such thing as a stock
0:12:04 it may be that there’s only an option or a bond right like so so so and the reason is because there’s
0:12:08 there’s fundamentally two ways to run a company one is to try to shoot the moon one is to try to build
0:12:11 for the future and then the other way is to try to harvest the legacy right and if you’re shooting
0:12:16 for the moon the big risk the big then you’re the big risk of that is you know you might fail right
0:12:20 you might it might not work but if it works you have this telescoping effect in the public market just as
0:12:24 much as you have in the private market yeah and and historically the returns in the public market
0:12:27 have been driven by a very small number of the big winners in exactly the same way they’ve been driven
0:12:32 by that in the private market in fact you see that playing out right now in the s&p 500 so one of the
0:12:36 things i’ve been saying for years now is the s&p 500 is not it’s no longer the s&p 500 it’s like the
0:12:44 s&p 492 and the s&p 8 so there’s like 492 companies in the s&p that have no desire at all right
0:12:48 just like watching their behavior to like really charge hard at the future like they don’t want to do it
0:12:52 they won’t do it they’re not doing it and then eight are betting everything eight are all in
0:12:55 right and and you and then i always say say you know who are they and everybody always knows who
0:12:59 the eight are because it’s completely obvious yeah who the eight are because they’re the ones that are
0:13:03 building all the new things and then and then and then again if you if you disaggregate like public
0:13:08 market returns over the last 10 years you see the it’s just you see this just dramatic you know
0:13:12 explosion of value among the eight and and you see a you know relatively modest you know growth of the
0:13:18 of the 492 so even the s&p 500 is like having a portfolio of like bonds and options yeah and it’s it’s like
0:13:22 it’s like incredibly barbelled and and so i i just i think and then and then people people get cynical
0:13:26 on this and they say well you know if not for the eight you know the the stop you’re like yeah but
0:13:30 that’s the whole point that’s the whole point right if you have a healthy functioning capitalist economy
0:13:34 the whole point is some number of these things are going to go non-linear this is like when someone
0:13:37 says ah they’re not a very good investor but they invested in name that hundred billion dollar
0:13:41 company so they got lucky well you’re like okay yeah that’s the point like that’s the job
0:13:46 that’s the desired outcome that’s the thing you know any of us who you know this like you know
0:13:50 kind of classic joke like joke adventure is like isn’t there just a way to invest in the good
0:13:54 companies and not the bad companies it’s like yeah like yeah okay for 60 years we’ve been trying to
0:13:59 figure that out yeah here’s a fun fact in finding the analysis over the last 60 years every one of
0:14:03 the really great venture firms through that period missed most of the great companies while they were
0:14:07 while they were investing right they the best firms in the world whether it’s you know kleiner
0:14:11 perkins in the 90s or benchmark in the 2000s or sequoia in the 2010s or whatever like they just
0:14:16 like flat out missed most of the winners in each cohort right on the one hand you’re just kind of
0:14:20 like wow i can’t can’t you do better than that but you’ve had these super geniuses for a very long time
0:14:23 trying to do better than that and i you know we could have a whole separate conversation about why
0:14:28 this is so difficult the thing you said about companies building you know their the whole stack
0:14:34 roll-ups are super popular should i is it fair to take from what you said that you’re bullish on that
0:14:38 strategy or not necessarily and basically just you know to walk out what i mean you know instead of
0:14:42 you know building accounting software and selling it to the accounting firms just buy an accounting
0:14:46 firm become an accounting firm ai for yourself which i think is becoming like a more popular
0:14:51 strategy do you like that or is there a nuance why it’s different to buy something rather than build it
0:14:54 yourself from the beginning what do you think of this whole roll-up thing yeah let’s let’s come back
0:14:59 to the venture question because i was still i was still winding up into that but however this is
0:15:03 actually also relevant to that so yeah so there are a bunch of great really good firms that are trying to
0:15:06 do this roll-up thing i you know that i mean the opportunity with it is kind of very obvious
0:15:11 um the the challenge with it is just cultural change of an incumbent is just a legacy company
0:15:15 is just really difficult yeah uh charlie munger was once asked you know a few years ago uh he said
0:15:20 you know ge i think was the company’s going through a big issue at the time and he was asked at a
0:15:23 shareholder meeting how would you fix the culture at ge and he’s like i have no idea i don’t even know
0:15:27 how you would change the culture at a restaurant yeah that’s funny right like how do you do that
0:15:31 it’s really hard right it’s really hard yeah um and so you know you have to have a theory on that i mean
0:15:35 people they do have the people doing it do have theories um i i think we’re much more oriented
0:15:39 towards just trying to back well i think it gets a little into this like private equity mind it’s a
0:15:43 it’s a little bit of the venture private equity blend i see happening is related not even just in
0:15:47 dollar size but in the mindset here well this is where i go back to my bonds versus options thing
0:15:52 like fundamental the way i always describe venture is like fundamentally we are we are buying long dated
0:15:56 out of the money call options which like seems completely insane except when they pay off they pay
0:16:00 off like spectacularly well but like a lot of them expire out of the money and like you know you know
0:16:04 statistically top in venture capital has a 50 plus percent yeah yeah okay yeah i just want to get your
0:16:07 hot take i really wanted to hear about this but yeah we can go back to the venture math thing because i
0:16:11 think there’s a lot more in there okay good so so look so so anyway so what’s happened is the world has
0:16:16 changed the the the the the number of companies that are that are being founded that are going to be
0:16:19 important it keeps expanding the number of categories that those companies are in
0:16:23 keeps expanding those companies are more complicated now yeah because they’re they’re they’re full stack
0:16:28 they’re they’re in these incumbent industries um and then the winners are getting bigger right and
0:16:32 you and again you just look at that in the market i mean look we have you know of the of the s&p 8
0:16:35 they’re like oh they’re all venture backed right every single one of them was venture backed yeah
0:16:40 they are on any given day any one of them is bigger than the entire national stock market of
0:16:45 countries like germany and japan and the uk yeah right and so the the telescoping effect i mean
0:16:51 numbers are just absurd the telescoping effect of a victory is is is just incredible um right and so so so
0:16:54 what ben and i did is we looked at it we kind of we started our firm kind of as this was happening and
0:16:58 we looked at it we said all right like this is different this this is you could you could you could
0:17:01 you could sit here and do things the old-fashioned way but the world is moving on and then this goes
0:17:05 back to the customer service aspect the founders who are starting these kinds of companies need
0:17:09 something different yeah it’s it’s not sufficient anymore to just you know to have let’s say to have
0:17:13 investors who were operating the way that they were investing you know for the previous 50 years
0:17:17 that that that that’s not the value proposition that they need that’s not the that it’s not the
0:17:20 the help that they need and so there’s a different way to do it and so i i think what’s happened is
0:17:26 like the the industry the venture industry it it had to restructure in order to basically accommodate
0:17:30 the change in the market now having said that i don’t think that’s an argument that it’s just
0:17:34 therefore big big firms win everything that’s definitely not my not my thesis and by the way that’s
0:17:38 also not how i’m deploying my own money which which i want to talk about because i’m i’m living what
0:17:43 i’m about to say yeah um which is i think what happens is what nasim taleb calls the barbell and the way
0:17:47 to think about the barbell is basically you you basically draw you basically have a continuum and
0:17:51 on the one side of the continuum you have high scale and on the other side you have high specialization
0:17:56 and what you see in industries that mature and develop in this way including many industries in
0:18:00 the last hundred years basically what happens is as they as they mature and enter their kind of full
0:18:06 state as they kind of flower what happens is they often start with generalists that are neither
0:18:11 subscaled nor particularly specialized um and then uh over the fullness of time what happens is
0:18:14 they get disintermediated and then there’s scale players on the one side and there’s specialist
0:18:17 players on the other side the most obvious example of this in everybody’s lives is retail
0:18:21 um when i was a kid there were these things called department stores pretty good selection
0:18:25 at pretty good price but not a great selection and not a great price right and then sitting here
0:18:29 today those are all out of business like they’re just gone it gets crushed by amazon on one end
0:18:33 and then like amazing retail on the other end exactly exactly right and so and why do you go to
0:18:38 amazon or walmart or you know what the big and by the way there were even these big box guys you
0:18:43 toys r us and so forth and then over time like amazon and and walmart even even ate that because
0:18:47 when you go to amazon or walmart what you get is just like an unbelievable selection of basically
0:18:52 anything that’s a commodity right um you just buy at like super low prices and it’s basically impossible
0:18:56 to compete with that if you’re subscale yeah on the one hand and then your point and then the
0:19:00 specialist retail experience is like the gucci store the apple store yeah you know the the 15
0:19:04 candle they gave you some perrier when you walk in oh they love you like they’re so happy to see you
0:19:08 exactly right you know they’ll they’ll do private showings for you and you know they pour the champagne
0:19:12 and it’s like it’s like it’s like an entire experience yeah and and so what’s happening is
0:19:15 and and you just again you see this in like the return you just look on this return standpoint like
0:19:19 this is what’s happened this is where this is this is how the value is and then what happens is that
0:19:23 just like gaps way out and it never comes back together again yeah and then what the consumer does
0:19:28 is they build a portfolio of of their experiences and so they they buy things at unbelievably cheap prices
0:19:31 at walmart and amazon and then that gives them more spending money to be able to spend on the boutique
0:19:37 so so this middle the uh the the bar that’s in the middle that’s kind of screwed yes what is the
0:19:43 mechanic by which they’re in trouble is it because the customers go away the the the founder customers
0:19:46 go away yeah yeah the founder customers go away and then the office who are neither getting sort of like
0:19:51 the size and scale value nor are they getting like a special focus correct exactly can you do focus
0:19:57 can you be a specialist with a two billion dollar fund let’s say so obviously we’re at scale but we do
0:20:00 have a specialist approach inside the scale and so we have we have investment verticals they’re
0:20:05 discrete teams they have in some cases discrete funds and by the way they have like trigger pull
0:20:10 trigger puller trigger puller authority they can make investment decisions like we don’t run the firm
0:20:13 where ben and i sit and decide is this a good investment or bad investment like our specialists who make
0:20:19 those and you basically determine that by this is the size we think you can function this is the biggest
0:20:23 you can function as a specialist in a highly successful way and then we’re just going to put a bunch of
0:20:28 those together is that like what defines the size yeah well so it’s sort of it’s it’s stupid yes yes
0:20:31 but it’s two parts one is what’s the what’s the external view is what what’s the size of the
0:20:37 market opportunity just how much money does this does this strategy does this vertical need how many
0:20:41 companies are going to be how many different you know kind of how come how complex is it and then
0:20:45 the other is the internal dynamic which is like you know you want to like if you’re gonna have a team
0:20:48 you need everybody around the table being able to have a single discussion and that puts natural
0:20:54 limits on how big that can what’s your limiting reagent to building an even bigger firm is it number
0:20:59 of productive partners that can do this then like conflicts conflict policy conflicts conflict that’s
0:21:05 the that’s the single biggest issue by really so if you had 50 kill if you had all the great gps all
0:21:11 wanted to work here and you had like that would still be the issue yeah there would be issues there
0:21:15 will there would be issues for sure yeah point that would come with so what’s the conflicts thing the
0:21:19 conflicts thing so the conflicts thing is the the main line venture firms forever meaning meaning the
0:21:24 firms that do series a series b series c’s especially series a’s and b’s yeah the relationship with the
0:21:28 founder is just so too deep so it is too deep and if you as a venture firm invest in a direct competitor
0:21:33 it’s it’s just it’s a giant issue that the founder you’re already invested in will be extremely upset with
0:21:36 you by the way do you think that’s practical do you think it’s all emotions like do you think it’s correct
0:21:41 that firms shouldn’t do conflicts i would say when we were startup founders we felt this
0:21:45 very deeply it’s just it’s it’s okay so when you’re a startup founder i’ll channel the other the other
0:21:49 side of when you’re a startup founder the whole thing is so tenuous right it’s just like is this
0:21:53 thing gonna work there’s like 18 000 things and go wrong yeah people are telling you no every day no
0:21:57 i’m not gonna come work for you no i’m not gonna invest in you no i’m not gonna and then your board
0:22:00 member invest in a competitor and you’re like dagger to the heart dagger to the heart and then you
0:22:04 literally what happens is the founder is you have to go to the all hands meeting and explain why
0:22:07 your investor has given up on you yes right and and you go in there and you do some song and
0:22:11 dance about and they’re just and your employees are just like your employee basically your employees
0:22:15 look at you and they’re just like you the founder are so weak and lame yeah right you can’t even get
0:22:19 your board member to not invest in a competitor exactly what about the marginal stuff though because
0:22:24 like you know all these companies are near each other they blend they evolve over time so like how
0:22:29 is this how does this play out on a practical level for firms it almost never plays out the way that
0:22:33 the founders think it’s going to play out and i say that in two dimensions number one the company
0:22:36 this historically what we’ve seen is that the founders who think that they’re directly
0:22:40 competing with each other generally end up not doing so because one or the other of them changes
0:22:44 strategies and then they diverge which which by the way is natural because it’s like specie it’s
0:22:48 specialization the company specializes they end up not competing but the other thing that happens is
0:22:52 two companies that were not competing that you’re already invested in pivot into each other yeah and
0:22:55 then they’re mad at you and then they’re yes and then they’re very upset and you have to remind
0:22:58 them that like that you know you didn’t know that that was going to happen and it’s not your fault
0:23:04 and then they’re still upset um and so so i would say the the the founders are not the founders
0:23:08 and and also we have very low predictability of terms of where the conflicts are going to be
0:23:14 but that doesn’t ameliorate any of the emotion at the time and so it does it doesn’t actually help it
0:23:17 doesn’t help for us to explain to the founder oh don’t worry about this guy who you think is directly
0:23:21 competitive because he won’t be in a year yeah because you can’t prove that and and and the issue
0:23:26 is the issue is in the moment what does that leave your how does that impact your strategy meaning
0:23:33 like um if you know conflicts are this huge issue and you’ve got you know a big aggregate fund and so
0:23:38 it’s very important to catch winners and then you invested in you know blue origin which is really
0:23:43 good but spacex is you know bigger or whatever happens yeah what does that imply for your strategy
0:23:48 when it comes to like should we you know doing seeds and a’s and things like that correct versus like
0:23:52 say you know what let’s just wait till like the d correct let’s have d be our early stage that’s right
0:23:55 so the most obvious thing you do is you’re just like oh we just need to wait because we need we
0:23:59 need to wait for clarity just don’t deal with this whole issue right just wait just wait keep just
0:24:02 keep keep delaying and keep delaying until it’s obvious what the what the answer is if it’s big it’s
0:24:05 gonna be really big so we can buy later but then the problem with that is all right now you’re out of
0:24:09 the venture business right because now you’re doing as you came as you said now you’re basically doing
0:24:12 serious d’s now you’re a pure growth investor and by the way there are very good pure growth
0:24:17 investors um but like our determination is to stay a venture investor yeah because we think that that’s
0:24:20 kind of the whole point why is it so important is it just because it’s what you like or is there a
0:24:25 strategic reason that it’s important to stay doing early so we’ve always wanted i mean that’s
0:24:28 the way we’ve always thought about it is we’ve always wanted to kind of be the founder’s best
0:24:32 partner um and like to be to be the one who’s like the closest in the one that can really be relied
0:24:35 upon the one that’s gonna be around for the longest amount of time the one who they can really trust and
0:24:39 it only happens early yeah like it’s yeah it’s your it’s your early guys and so it’s hard to insert
0:24:43 after that yeah and then look the other thing is like there are great growth firms that do invest
0:24:47 later and have done very well but i we just think there’s so much information at the early stage
0:24:51 like so for example when we when we make a growth investment because we have the active
0:24:54 venture business that we have by the time we make a growth investment uh you know we have either
0:24:58 invest in the company for several years or at the very least we’ve met with them repeatedly yeah over
0:25:03 time and so we just we end up with just like enormous amounts of of information and then the
0:25:06 other thing by the way is you know there’s there’s there’s kind of time arbitrage which is you know
0:25:11 sometimes the right and the right answer is just like okay just invest in spacex or whatever later on
0:25:14 but sometimes the answer is no there’s actually a new thing you know totally do you invest in the
0:25:18 my space growth round at the you know the facebook the facebook seed round like and if you if you’re
0:25:22 not in the early stage you you won’t know that because you won’t see the you won’t see the early
0:25:25 things yeah um and then by the way the other thing i just say is financially one of the one of the things
0:25:29 people say that is inaccurate as they say if you’re running a big fund you’re not going to have
0:25:33 the time to spend on the early stage opportunities because you can’t justify it before you’re putting
0:25:36 the money but that’s actually not true in venture because the aggregate dollar return
0:25:40 opportunity on early stage is just as high as any growth investment right because if you get the right
0:25:44 venture investment and you can make 10 billion dollars on the upside case it’s definitely worth
0:25:48 my time to spend with your so i spend as much time as i can with the early stage founders you know for
0:25:53 that reason so the barbell there’s you know there’s big on one end there’s something sort of like me on
0:25:58 the other end selfishly i’d love to know like you know i would assume you think it’s better to be the
0:26:03 big version but you know if you were conditioned on needing to be me um at the small end of the barbell
0:26:06 like how would you approach it and what’s they’re both good they’re both good this is the thing is
0:26:09 they’re both good they’re both good and if i were for some reason not doing this i would immediately
0:26:13 do what you’re doing right so okay that’s good to hear yes 100 and then and then i and then i would
0:26:18 say i i actually invest this way so my liquid assets are basically tied up in either a16z funds on the
0:26:24 one side or i run a very aggressive personal investment program in early early basically angel and early
0:26:28 stage seed funds it’s because i believe in the barbell i believe in the barbell so much and so
0:26:33 but the conflict thing i wanted i wanted to explain because that’s the issue so the the big for like
0:26:37 we do seed investing it’s just we have this problem every single time we’re looking at a
0:26:40 seed investment which is like are we really fully convicted that this is going to be the winner
0:26:44 even at seed it creates a conflict so for a board seat there’s debates there’s there’s always debates
0:26:48 on this is like you know do the seed ones care as much do the growth ones care as much do the
0:26:52 ones care as much what i tell you is it’s not a logical question it’s an emotional question and
0:26:56 we’re just very sympathetic to the founder that needs to be able to yes justify their you know
0:27:00 authority also definitely can’t ask while you’re like if somebody asked me while they were making
0:27:03 investment hey is it okay if we invest in a conflict in a couple years i’d be like what are you talking
0:27:06 about you know we’ve done these things we’ve tried that we used to have this thing we used to have
0:27:10 this separate branded thing called a16c seed and we were like well we have a different conflict policy
0:27:14 on this and it’s it’s a great in theory but it’s like no it’s a16c and so the way i think about it
0:27:19 basically is like the more successful you are as a as a as a venture firm the bigger the issue this is
0:27:23 going to be because the more the people that you were investing in are going to care yeah and so it’s
0:27:27 it’s just it’s like the downside of success but like success you know right sure right the only
0:27:31 people who like the only investors you don’t care whether they invest is if they if they literally
0:27:33 if you don’t care what they think about anything right if they if they just don’t matter at all
0:27:38 and everybody knows that they don’t matter at all so so so so there’s that so so so therefore it can
0:27:42 be simultaneously both of these things are true number one is we still we we definitely do lots of
0:27:46 early stage investing and we will do we will do we do make seed beds but it’s just also true that
0:27:51 we can’t structurally for for this we cannot do all of the seed investments that we would like to do in
0:27:54 fact we can’t even do a tiny fraction of them it’s just like strategically we just
0:27:59 structurally we just we just can’t do it um and so and again this goes back to the barbell so so
0:28:03 that means structurally it’s the same reason why amazon can’t give you the champagne you know
0:28:06 experience right it’s the same thing they can’t they’re not set up for it they can’t do it it’s not
0:28:11 a scaled strategy and so what has to happen is there has to be the other side of the barbell there has
0:28:17 to be the specialization and intense focus and deep relationship yeah um right um uh thing and and
0:28:21 that’s and that’s the role of the angel investor and the and the seed investor and that’s and of course
0:28:27 in startups that’s incredibly important because that’s the most formative right fraught time in
0:28:31 the life of these companies is when they’re first getting started right and as you know right half the
0:28:34 time these are people who haven’t you know they haven’t started a company before they haven’t run
0:28:38 a company before some of them haven’t had a job before yeah and so like they they need to learn a
0:28:42 lot and they need people to work with them on being able to do this and they need to figure out how to
0:28:47 actually you know do these things and so there there have to be and there are like incredibly high
0:28:52 quality seed investors angel investors um on that side of the barbell um the the the big firms
0:28:56 presumably you know if we succeed we succeed by generating large numbers of aggregate dollars and
0:29:00 a very good you know percentage return the seed investors have you have this perpetual opportunity
0:29:04 to just absolutely shoot the lights out yeah right on upside and you can you know you know there are
0:29:09 seed funds that generate like 200x 300x returns yeah right yeah and so these are both good strategies
0:29:14 they’re both adapted to the current reality market there’s just two things that fall out of that
0:29:17 one is the death of the middle which is it just doesn’t make sense to have the old fashioned
0:29:22 you know series a series b six gps 300 million dollar funds sitting on santo road waiting for
0:29:26 people to walk in the door yeah like those days are over and those funds are you know those funds
0:29:29 are shutting down like that model’s going away and then the other thing that happens that causes some
0:29:34 of the tension is this what does a successful seed investor do right he raises more money and wants
0:29:40 to become a venture investor right right but then he he goes but then you’re you’re going from one
0:29:43 side of the barbell back to the middle and you’re creating that same problem again and i think that’s
0:29:46 where the tension is coming from i also feel like the mechanic that happens a lot of times is when
0:29:52 you grow the fund the only you you know you you raise a huge fund and then you start deploying
0:29:57 it into things just because you’ve got to deploy at some pace and so the threshold for i’ve got to
0:30:03 deploy 400 million this year and i only see 700 million dollars worth of investable things i’m going
0:30:07 to do four sevenths of them versus you know presumably if you only had to do one seventh of it you
0:30:12 would you know you’d pick better hopefully yeah which i think is a huge so i think that’s part of it but i think the
0:30:15 related thing is your competitive set has changed yeah and what we what we find with seed investors
0:30:18 who migrate up and then regret it later what we find is that they didn’t realize was their competitive
0:30:23 so right because now they’re going for bigger more competitive rounds against you and sequoia yeah all
0:30:28 of a sudden okay now you’re competing for 15 million dollar be good luck right right exactly and so it’s
0:30:32 just like and look like market fundamentalist if you have a better value proposition than sequoia you
0:30:35 should go you should you should go offer that right but i just i would not i would not
0:30:38 accidentally end up competing with sequoia for series a’s like i would just say that’s a bad way to live
0:30:42 yeah and i think that’s what happened what that is what has happened to a bunch of the seed funds that
0:30:47 have gotten larger why is it so rare for somebody to break through and get i mean you did it and that’s
0:30:52 one that happened in the last 15 years maybe there’s a couple others maybe but why is it as rare as it is
0:30:58 it seems like almost more rare than a new big company yeah in a way yeah that’s true in fact our analysis
0:31:03 actually when we started was there actually hadn’t been i think there had been two firms and
0:31:08 i mean thrive also so thrive was yeah they were after us yeah i mean they’ve done great but in the
0:31:12 30 years before us we think that there were only two new vcs that actually punched through to become
0:31:18 top tier um in other words vcs that were not either firms that were built in the 60s and 70s or firms
0:31:23 that weren’t derivations of those firms founders fund no no no no no the founders started at actually
0:31:27 around the same time we did okay um they were a little bit earlier but around the same time but i mean
0:31:31 over the preceding like 50 years okay seven rosen you won’t even know this is sort of the thing you
0:31:34 don’t even recognize i need to read a book or something so seven rosen was the venture from the
0:31:38 famously funded compact computer which was the big the big the big winner and then they went on to
0:31:41 become a successful firm this guy ben rosen yeah early early leader in the space and then there was
0:31:46 a firm called hermer winblad which was a software specialist firm in the late 80s early 90s um those
0:31:50 are the only two that punched into the the top end while they were operating wow neither one of them
0:31:54 you know sustained it but they got there they got there for a bit but that was like the success case
0:31:57 right so this is a little bit like elon looking at the history of the car industry and yeah you know
0:32:02 tucker automotive yeah in the 1950s so it’s so rare it’s very very rare so why why is it that rare two
0:32:07 reasons i think it’s rare so number one um that there’s the intimate reason for it and then a
0:32:12 sort of macro reason for it intimate reason for it is just it like you’re going to have this
0:32:16 incredible as the founder you’re going to have this incredibly intimate experience you know very close
0:32:19 trust relationship uh with whoever you’re working with and it’s like you know can you reference them
0:32:24 you know do they have a history of and track record of the kinds of behavior um that you need and the
0:32:28 kinds of insight you know that you need and it’s just like it’s very hard to do that it’s very easy
0:32:32 for an existing firm that has a long track record of success to prove that it’s very hard if you don’t
0:32:36 so that’s that’s like the close-in reason but then the other reason goes back to the way the world is
0:32:42 changing is we always believe the thing that you want from your venture firm is power um so the thing
0:32:46 is a startup that you want is you want them to like fill in all the missing pieces that you don’t yet
0:32:50 have when you’re starting a company that you need you need to succeed and so you need power and so
0:32:54 you need power it means like you need the ability to be able to like actually go meet customers and
0:32:57 have them take you seriously uh you need the ability to go get publicity and like you know
0:33:02 major you know channels you know it used to be media now it’s podcast um and be able to like get taken
0:33:06 seriously you need to be able to be taken seriously by recruits right because there’s thousands of
0:33:11 startups recruiting for engineers what makes yours stand out i sometimes describe it as venture firm
0:33:15 as providing a bridge loan of a brand until you have your own brand that’s big or bigger you know
0:33:19 for your own space than the vc you’re borrowing your vc’s brand exactly and that has been very
0:33:22 effective for a long time and that was how we looked at it when we were founders that’s why you did
0:33:26 media from the beginning yeah oh that’s one of the yeah one of the it’s one of the reasons yes but a
0:33:30 very very very powerful one yeah a very very major one yeah and then by the way you also need ability
0:33:34 to raise downstream money right you’re you’re gonna have to need to raise money again and so they either
0:33:38 need a lot of money or they need to be connected to a lot of money yeah exactly right exactly and so
0:33:41 you just better if they just have it yeah it’s like being full stack well then by the way now you’re
0:33:46 getting also like again you think like tools companies just never got into like for example politics
0:33:51 right or just let’s just say global affairs global events like what’s happening with you know
0:33:57 like what’s happening how do you navigate the world right how do you navigate Washington you know when
0:34:00 the regulators show up and they want to kill you like how do you navigate that or you’re like it’s to get
0:34:04 in some you know giant fight with the eu or what like so so the especially these full stack companies
0:34:09 they’re they’re they’re getting involved in like very complicated macro political geopolitical
0:34:13 situations like much more early and they have to like in some cases they have to like escalate up to
0:34:18 like you know senior government officials heads of state um you know major heads of sovereign wealth
0:34:23 funds they need to get to you know the ceos of major companies you know how do you get to the ceos
0:34:26 you know you’re you’re a new ai you’re a new ai company and you’re trying to redefine you know
0:34:30 visual production for movies how do you get to the studio heads yeah right the studio heads just don’t
0:34:33 have time to meet with a thousand startups so where are they going to meet with you right so
0:34:37 so basically it’s it’s projection of power um and this has been one of our one of our theories
0:34:42 how we built our firm is optimized for maximum amount of power in order to be able to give the
0:34:46 startups access to it right both the startups that already in your portfolio and but also the
0:34:50 startups that don’t even exist yet right and and again and this goes to why the scale thing matters
0:34:54 so much it’s just like all right there’s just there’s a scale aspect of power there’s a big
0:34:58 difference between being able to get to everybody who matters and not why is it rare for people to be
0:35:02 able to accumulate power even if they were like let’s say everybody was trying to do it it’s not
0:35:06 like everybody could do it what’s the cause of the rarity to be able to build enough power
0:35:12 in that sense we start with you have to want to um and so we met with the we met with all the gps of
0:35:15 all the top firms basically when we were starting out because we wanted to you know see who we could be
0:35:20 friends with and yeah it worked very well in some cases and not not well in other cases but uh one of them
0:35:25 told us this is a gp at a top firm in 2009 and he said yeah the venture business is like going to the
0:35:29 sushi boat restaurant all right and so the sushi boat restaurant so sushi restaurant where they’ve got
0:35:34 the boats yeah it’s got like a they’ve got like a water like a conveyor belt conveyor belt right and the little
0:35:37 sushi boat comes like a lots of them and there’s a tuna roll and there’s a you know shrimp roll and
0:35:41 there’s this or that and you and he said basically you just sit on sandhill road and you’re like we’re
0:35:45 gonna crush these guys and the startups are gonna come in and he said you know if you miss one it
0:35:48 doesn’t matter because there’s another sushi boat coming up right behind it and he’s just like you
0:35:51 just sit and watch the sushi go by and every once in a while you reach into the end of the thing and
0:35:56 you pluck out a piece of sushi and we walked out and it’s like like what the hell that’s funny like in
0:36:02 what industry is 2009 or 2009 yeah like that was a very common this again is the mid this was the
0:36:07 mid-sized venture one of the reasons when when i when i came like look in 1994 i mean it might have
0:36:11 kind of been like that it was it was when i came to silicon valley 1994 i had never heard the term
0:36:15 venture capital right i didn’t even know the thing existed and then as my business partner jim clark
0:36:17 explained it to me and i was like there are guys like they’re just sitting there waiting to give
0:36:21 you money and but you see this and you’re like this is going to get eaten alive of course this is
0:36:25 absurd like the minute anybody takes this seriously it’s all going to change right and so it was this
0:36:28 very clubby cartel you know basically kind of thing and again it was fine as long as the
0:36:32 ambitions of the industry were constrained and then and but then again look the the the tools
0:36:35 companies they didn’t need all the power they didn’t they needed some of the power right but
0:36:38 they didn’t need all the power you know they weren’t dealing with like governments right or you know
0:36:42 these sort of big macro issues um you know at least you know in the early years well okay so here’s
0:36:48 another thing that’s happened is just the world is globalized like so startups 30 years ago you would
0:36:52 spend your first decade just in the u.s and then you would start to think about europe and global
0:36:56 expansion and and now you just you have to think about being a global company up front because
0:37:00 you’re gonna if you don’t like you’re other people are gonna do it yeah right um and so you just you
0:37:04 have to chin up like as an entrepreneur like the expectations are much higher than they used to be
0:37:11 maybe one final question on this topic of fund size and then i want to go to ai um what do you think
0:37:17 and i know you thought about this a lot what do you think is the limiting factor for the creation
0:37:22 of a lot more really big companies yeah do you think it’s founders do you think it’s capital do you
0:37:26 think it’s market maturity do you think it’s underlying tech stuff like if you had to pinpoint
0:37:31 the one or two things that you think would allow for there to be way more big companies like what is
0:37:37 it so there’s sort of the holy trinity of venture uh startups which is uh you know people market and
0:37:41 technology um and i think the answer is sort of all three and the way i would describe it is there’s
0:37:46 some limiting issue with just markets just how many markets are there how big are they how ready is the
0:37:50 market to take something new then there’s the technology question which is you know when is
0:37:55 the technology actually the like for the venture perspective technology moves in stair steps right
0:37:59 and so things become possible in the world of smartphones that just weren’t possible you know
0:38:03 you couldn’t do uber when everybody had a laptop you had to wait till they had phones yeah right um and
0:38:07 so technology moves in a stair step you get these you know paradigm shifts platform shifts and and those
0:38:11 just they come when they come yeah and until they come you can’t do it and then and then the people side
0:38:16 you know and this is the one that you know i say you know vexes me the most which is like okay like
0:38:22 how do you just get more of great great founders yeah right um and i think part of that is you know
0:38:26 you i think there is definitely a training thing that is real and getting people into the right scene in
0:38:29 the right way and like the thing that my accommodator does or the thing that deal fellows do like
0:38:35 those are real things um and those help a lot but also you know there is an inherent you know there
0:38:39 are just certain there’s there are not infinite number of people running around who have the
0:38:42 you probably figure there’s a lot of people who could have built big companies who haven’t though
0:38:47 and hopefully a lot yeah few yeah i don’t know some some i don’t know some number but there must be
0:38:52 people who are just like in academia or government or education who are just doing something completely
0:38:56 different who if they were attracted to startups would have built a big company so yes but then the
0:38:59 other question is like well okay then why didn’t they why didn’t they do the things required to get
0:39:04 themselves in that position well it could have been then like 2001 it was just like too many people were
0:39:07 too scared to do it or didn’t know about it or whatever what does that tell you about the people who
0:39:12 didn’t do it yeah they they were heard i can tell you who didn’t listen to that right it was mark
0:39:17 zuckerberg are there more good let’s just press this point harder for a moment which is like i always
0:39:21 describe this as like i always call this the test with capital t which is like okay like if you’re not
0:39:24 in position to do the thing it’s the fact that you’re not positioned to do the thing meant that you
0:39:28 flunked the you’ve already flunked it well i guess the question would be are do is there a subset of
0:39:35 people who could build facebook who other than being too scared to do it would have had all the other
0:39:39 ingredients and so when everybody’s not scared you get more facebook’s you know there’s a line in the
0:39:42 i actually never saw the movie but there’s a line in the movie if you could have built facebook you
0:39:46 would have built facebook yeah yeah there is a line yeah yeah yeah that’s right that was a good line
0:39:53 right and so this is the thing it’s like you know are there more great founders today than when you
0:39:56 were let’s say in that like do you think there are more now than there were 20 years ago i believe
0:40:01 there are but like i maybe there’s how many more are there right is it five times more is it like 50
0:40:06 percent more or is it well so like the number of wins is increasing like so the so we used to talk
0:40:10 about the 15 15 a year that matter it’s that’s up numbers probably if you do the analytics probably up
0:40:14 like 10x you know there’s like 150 companies 150 companies a year that like really matter and the
0:40:18 reason is because there’s so many more sectors now right so there’s the in the industry maturation and
0:40:21 so kind of by inference there kind of have to be like you’re saying the markets are better more than
0:40:24 you’re saying the founders are better well maybe a little bit of both also look also i think the
0:40:27 founders are getting better part of the founders getting better is they have better training
0:40:31 they’re all on the well to start with they’re just all online yeah so so when i showed up here in
0:40:35 1994 like literally there’s like three books in the bookstore none of which were that great yeah it’s
0:40:39 not that the dna is better it’s that they’re now the ecosystem has matured to teach people better yeah
0:40:42 and like people come in and they’ve watched every video you know they’ve watched every episode you know
0:40:46 your podcast i’m like right and they they just walk in knowing all this stuff um and then you know look
0:40:50 and then look the white commentator didn’t exist and you know that definitely helps and and you
0:40:54 know teal fellows didn’t exist and that definitely helps um there’s you know brian you know has this
0:40:58 great term seniors seen you know seen plus genius right and so it’s just like you know the individual
0:41:03 genius on his own is always it’s always you know it’s hard to get things done yeah some people do
0:41:07 but it’s difficult it’s more often more often in a profession where you’re seeing creativity happen
0:41:11 yeah there’s almost always a scene you know there’s you know silicon valley is definitely a scene in that
0:41:15 way people people come here and they just they kind of get i don’t know they just get better they
0:41:19 just you know they meet more people who are like them they’re able to aggregate together they learn from
0:41:23 each other so yeah so look the founders are getting better there’s more of them but is is there does
0:41:28 that mean there’s now 10 000 as opposed to a thousand yeah i don’t know there’s and there’s
0:41:31 eight billion people on planet earth why are we why are we debating whether it’s a thousand or ten
0:41:36 thousand yeah right and so i and i just i that i don’t know yeah i would hope over the next you know
0:41:40 years and decades we’ll all figure out a way to go make sure we get everybody who can do it and get
0:41:46 them to do it that’s a good segue into ai do you feel that we’re now at the beginning of what is like
0:41:53 the new next important you know paradigm like is this cloud but on steroids yeah much i think much
0:41:58 i think much larger and i’ll explain why so um yeah so so i described you know i described i described
0:42:02 before right you know the the triangle people technology market the the technology is ultimately
0:42:07 the driver is the the technological for venture the technological step function changes drive drive the
0:42:11 industry and they always have right and so if you talk to the lps you can see this is like when when
0:42:15 there is a giant new technology platform it’s an opportunity to reinvent a huge number of companies
0:42:20 and products that you know now have become obsolete and create a whole new generation of companies often
0:42:24 and you know generally end up being bigger than the ones that they replaced and so so so and the
0:42:28 venture returns map this and so they come in waves and the lps will tell you it’s just like yeah there
0:42:32 was the pc wave the internet wave the mobile wave the cloud wave like that was the thing and then by
0:42:37 the way when in venture when you get stuck between waves it’s actually very hard right because you’ve seen
0:42:39 this for the last like five years like for the last five years it’s like how many more sas
0:42:44 companies are there to found like just we’re just we’re just out of ideas we’re just out of categories
0:42:49 yeah yeah done yeah right and so it’s when you have a fundamental technology paradigm shift that gives
0:42:52 you an opportunity to kind of rethink the entire industry it would have been very sad by the way
0:42:56 if the ai breakthrough didn’t happen like the state of venture would be sad i think three years ago this
0:43:00 was i mean so when we were talking to rlps three years ago we’re just like basically like you know
0:43:05 we’re in you know we’re so uh chris dixon has this uh uh framing he uses he calls it your adventure
0:43:09 you’re either in uh search mode or hill climbing mode and in search mode you’re looking for the hill
0:43:12 and it was search mode right and three years ago we were all in search mode and that’s how we
0:43:15 described it to everybody which is like we’re in search mode and there’s all these candidates for
0:43:18 what the things could be and ai was one of the candidates right it was like a known thing but it
0:43:22 hadn’t broken out yet yeah in the way that it has now and so we were in search mode now we’re in hill
0:43:27 climbing mode thank goodness yeah big time yes yeah and then and then you know look like i i as i say on
0:43:31 the technology breakthrough itself i think a year ago you could have made the argument that like i don’t
0:43:36 know if this is really going to work because llm’s you know hallucinations can’t you know it’s great that
0:43:39 they can write shakespearean poetry and hip-hop lyrics can they actually do math you know can
0:43:44 they do can they write code and now obviously and now now they obviously can and this this i i think
0:43:48 for me the turning point moment the moment for certainty for me was the release of o1 uh so o1 from
0:43:52 open ai the reasoner and then and then deep seek r1 the minute i the the when those happen kind of back
0:43:56 to back and the minute those popped out you saw what’s happening with that um and the scaling law
0:43:59 that was around that you’re just like all right this is going to work because reasoning is going to work
0:44:03 and in fact that is what’s happening like it’s it’s it’s you know and and i would say just every day i’m
0:44:07 seeing product capabilities yeah you know i’m seeing new new technologies i never thought i
0:44:12 would live to see like really profound um i actually think the analogy isn’t to the cloud or to the
0:44:16 internet i think the analogy is to the mission of the microprocessor i think this is a new kind of
0:44:21 computer being a new kind of computer means that essentially everything that computers do can get
0:44:25 rebuilt i think so so we’re investing against the thesis that basically all incumbents are going to
0:44:29 get nuked yeah and everything is going to get just across the board just across the board now
0:44:33 yeah we’ll be wrong in a bunch of those cases because some incumbents will power law the things
0:44:37 that are right will be super right will be super right exactly and then look the the ai makes things
0:44:41 possible that were not possible before um and so there’s going to be entirely new categories by the
0:44:46 way is your mindset there that you should just bet on like obviously incumbents are going to win some
0:44:49 percentage and startups are going to win some but it’s basically the dominant strategy as a venture
0:44:55 capitalist to just plan to bet that startups are going to win it all and go for the power law yeah that’s
0:44:58 right that’s right well and again the reason is because remember two two customer sets the way the
0:45:03 lps think of us the way the lps think of us is as complementary to all their other investments yeah
0:45:07 and so our lps all have like major public market stock exposure like they don’t need us to bet on
0:45:13 yeah incumbent health care you know whatever company right they they they need us to fit a role in their
0:45:18 portfolio which is you know to try to maximize alpha uh based on uh you know based on disruption yeah
0:45:22 um and and then and then again and then just again the basic math adventure which is you can only
0:45:26 lose one x you can make a thousand x and you just like slam that forward as as hard as you can so when
0:45:33 you have a moment in time worldview like this do you you know as a firm leader do you give a directive
0:45:40 that’s basically like hey everybody we need to deploy in this kind of way right now or do you just build a
0:45:44 system that’s always picking birds out of the flock from like the bottoms up and you just like well
0:45:48 they’re smart they’re going to see that every opportunity is good like how much is it like a top-down
0:45:53 guidance versus you know the market’s just obviously good all around yeah so we don’t do like i said we
0:45:57 don’t do top-down investment decision making and so ben and i aren’t sitting saying you know we need to
0:46:02 invest in category x we need to invest in this company versus that company and we don’t run we run we
0:46:05 have a legal investment committee but we don’t run a process where they come to us to get approval
0:46:09 because you’re letting the leader of each group sort of make those yeah and and and and often in those
0:46:13 groups it’s actually delegated for the further it’s delegated to the individual individual gp or check
0:46:16 writer and and the reason for that is we just think that the knowledge of knowing what’s going on and
0:46:20 which one’s likely to win is going to be focused in the mind of the person who’s closest to the
0:46:23 specific thing but do you have like a risk slider are you like hey guys let’s get a nine right now
0:46:28 so this this this is the funny thing so venture is the only asset class in which the leaders of the
0:46:32 firm are in the position of trying to get the firm to take more risk not less risk on a regular basis
0:46:37 exactly because right because the the natural orientation towards any kind of anybody who’s in an
0:46:40 existing business there’s a natural organizational incentive to try to reduce risk because you want you
0:46:44 just want to like hold on to what you have and not yeah upset the apple cart yeah and so ben and i are
0:46:49 generally on the side of like take take more risk um one of the one of the one of the applications
0:46:55 of this is a old sequoia adage which is they say when in doubt lean in like so so for example so where
0:46:58 you see this i’m sure when you do it is it’s just like okay there’s this thing there’s this company
0:47:02 that is like potentially very interesting but like there are these issues right and it’s just like
0:47:06 it’s too early and this and that and this weird guy’s got a weird background and it’s just that bad
0:47:10 and he’s in a you know whatever i don’t know the issues and you know there’s a hair yeah you know
0:47:13 there’s hair on the deal there’s no hair on the gp that’s funny that’s good but there’s hair there’s
0:47:16 hair on the deal the founders tend to have have really good hair they’re saying the deal and it’s
0:47:20 just like all right like what do you what do you how do you calibrate that right and and and the
0:47:24 history and again the history of venture is when you see something that’s very promising and there’s
0:47:28 a lot of hair on it sometimes when you invest it’s going to go to zero yeah because the hair is going
0:47:31 to kill it and then sometimes when you invest it’s going to be the next but it’s like something
0:47:35 where you’re like i love that i hate that it’s much better than yeah everything’s fine
0:47:40 100 and this is the way we describe this is invest in strength not in lack of weakness or another way
0:47:47 to think about it is it’s not good versus great it’s very good versus great that’s the differentiating
0:47:51 good from great is very straightforward differentiating very good from great is actually
0:47:56 very hard and and again the risk reducing way to try to do that is as you kind of alluded to would
0:47:59 be kind of the checkbox thing which was like very good team very good market very good this very good
0:48:04 that and then you have this other one where it’s like they’ve got six great things and nine like
0:48:10 horrible things right yeah okay which is the better bet totally usually yeah usually it’s the it’s the
0:48:14 thing with with the greater strengths um statistically by the way this shows up in the return data from
0:48:20 the lps which is the top decile firms have a higher loss rate um than than than everybody else um which
0:48:23 is which is called in baseball called the babe ruth effect which is the home run hitter strike out more
0:48:27 often yeah so the top performing venture firms statistically tend to have a higher loss rate than the
0:48:32 mediocre firms right and it’s for this reason they’re willing to invest in the thing that is just looks
0:48:37 like completely nuts um but has that magic something yeah um and so so when ben and i think about trying
0:48:42 to get the the team to take more risk it’s almost always it’s basically either that kind of thing which is like
0:48:45 look and it’s what and what you’re doing is you’re telling the person closest to it go with your gut yeah if
0:48:50 your gut tells you there’s something magical here like go ahead it’s okay because we’re going to have some
0:48:54 losses so it’s okay to make the bad if it if it if it if it breaks because of the hair that’s fine
0:48:58 and but then then the other form of risk we try to do and i i do this a lot is just you know i am
0:49:02 trying to push the firm constantly it’s like go earlier yeah right because again that for as we
0:49:06 discussed earlier the natural inclination is to wait right um and it’s like no no no go earlier like
0:49:10 we do actually want to make these these these you know we we’ll make some seed bets but we definitely
0:49:14 want to make like a lot of a a bets yeah and again we’re going to lose a bunch of those like we’re
0:49:18 going to screw those up and miss the winner or whatever but like we we have to do that because we have
0:49:21 to get into some of these things early we have to you know get get the level of percentage you get
0:49:24 in the a yeah that kind of relationship yeah i guess there’s risk that’s of the flavor of like
0:49:30 do things that are more asymmetric where there’s hair but also brilliance correct there’s also the flavor
0:49:37 that’s just like well sometimes something i struggle with is the deals where i just barely said yes and just
0:49:40 barely passed i’m like i don’t actually have that much confidence that i can tell the difference between
0:49:44 those yeah there’s another flavor of sort of be more aggressive which would just say like
0:49:48 just do a higher percentage of those ones where you’re like right on the line
0:49:51 do you give that kind of guidance like do you think like that too where you’re like
0:49:55 it’s not just do the more out there things and we’re swinging for the fences but it’s also like
0:49:59 let’s just do a little bit more right now in general yeah so we used to run this process we
0:50:04 call the anti-portfolio um uh the shadow portfolio um and so the shadow portfolio was we used to track
0:50:08 this statistically for like the first five years exactly on this point which is every time we do an a
0:50:12 every time we do it pull the trigger on a round let’s put in the shadow portfolio the other company we
0:50:16 were looking at at around the same time that we didn’t end up pulling the trigger on yeah and then let’s
0:50:20 build up representative like build up the ultimate you know the earth two portfolio i’m so curious
0:50:25 well so and the good news is it turns out generally that the main portfolio did better than the shadow
0:50:29 portfolio but the shadow portfolio was close it was a good book did really well yeah right exactly the
0:50:32 point and so and then you’re okay so then you’re just like okay you’re not that smart but you’re just
0:50:36 like okay obviously what does that mean it means do them both right and again this goes to the
0:50:40 thesis of like how big should these firms get it’s just like well if you had the opportunity to do
0:50:43 both the portfolio the shadow portfolio you should do them both what’s the constraint on that as we
0:50:48 discussed is complex yeah um but generally speaking you should try to do both yeah and and by the way
0:50:52 this is the this is the um i don’t know if it was josh or the other the other podcast that they were
0:50:56 talking about this but you know at least i saw a reference to like a statistical analysis of like
0:51:00 win rate or whatever return you know percentage returns or whatever or percentage of wins it’s just
0:51:04 like it doesn’t in venture math it doesn’t matter it doesn’t matter the the thing that matters is
0:51:08 were you in the next big thing as early as you could get in and buy as much as you did like that’s the
0:51:12 only thing that matters because if you don’t do that you miss out on the thousand x gain
0:51:18 the one x losses don’t matter they wash right out yeah um and so this idea that somehow there’s some
0:51:23 like virtue to being like a you know small you know we only make a few bets we have a higher percentage
0:51:30 it does yeah how much i’m glad people think that that’s a i would like to encourage people to uh to
0:51:35 think that that’s a virtue that they should shoot for it seems like it’s very hard to assemble lots of
0:51:40 you know very good productive gps into the same firm it’s just objectively rare yeah that’s right
0:51:44 you’ve done it but it’s like doesn’t happen very often yeah do you i guess my first question on this
0:51:51 is do you think of just finding greatness and then you can’t really teach it much you know so you’re
0:51:56 basically just going to like hire people and see how it goes or do you think that it’s about creating
0:52:01 the system and conditions in which people do great work and you can actually create good investors
0:52:06 yeah so i think it only works if there’s a point like if there’s a reason why you would have the
0:52:11 aggregation of gps in the first place and our answer to that is power right the the our pitch to gps as
0:52:15 to why they should join us as opposed to go to a smaller firm or start their own thing is if you come
0:52:19 here you just like plug into this engine that’s just like massively powerful and so everything that
0:52:22 you do the effects of it are going to just be like blown completely out it would be much more
0:52:25 satisfying and you’re going to be able to actually help the companies a lot more and you’ll
0:52:29 probably see more companies anyway yeah so everything probably gets better yeah that’s right that’s right
0:52:31 and by the way you know some people want to have colleagues some people don’t want to have
0:52:34 colleagues but some people do want to have colleagues and you’ll be working with people you
0:52:38 like and you know who care about the same things you do so but there has to be a there has to be a point
0:52:42 to it and of course it’s you know it’s on us to keep proving that right because you know the the devil’s
0:52:46 in the details of whether they’ll actually you know buy that but so far so far a lot of a lot of really
0:52:49 good great people have and then yeah and then the second part of the question is like okay who do you
0:52:55 who do you put in those roles um historically we had a history our old model was basically we only hire gps uh we
0:52:59 don’t we we were not developing and we could go through why that was the case we changed that like eight years ago we
0:53:03 we now develop our own gps um that we’ve evolved to where i think that’s that’s working quite well
0:53:07 um i think the answer to your question is it’s a two-part question is there’s some level of just
0:53:12 objective you know are they are they are they are they good are they good at doing the job yeah
0:53:17 here’s a big thing we focus on when we evaluate them which is um you know it’s fine to invest in a
0:53:23 category like five years early or like whatever something goes wrong like that’s fine what’s not fine is
0:53:27 you invest in the wrong company and you could have invested in the right company yeah like at the
0:53:31 moment you made the investment you could you made the wrong decision in that moment of which one you
0:53:35 should invest in and you could have known and so it’s like did you do the work to fully address the
0:53:39 market how do you handle the fact that like you don’t know that until like six years later and now
0:53:42 you’re going back and you’re like hey you made this mistake six years ago this isn’t going to work
0:53:47 out now so it’s generally so good that is a giant problem um and i would say that when we started
0:53:51 actually when we talked to our friends in the business what they said basically was they said number one you
0:53:54 you don’t know if somebody’s a good gp for 10 years because you don’t have the return data and
0:53:57 then they said number two is nobody ever wants to admit that they made a mistake and so they never
0:54:00 actually fire anybody yeah um so what they do is they just keep them on the masthead and they just
0:54:05 kind of gently like you know retire them out but they they sit and pollute uh one of the guys running
0:54:09 one of the big firms 20 15 years ago told me his he said they hired a partner is that they hired a
0:54:13 partner it’s an older firm so they hired a partner in 1984 um who was like a big deal at the time in the
0:54:17 industry and you know the lps were very fired up about it and he said he then proceeded to just like
0:54:20 nearly ruin the firm over the next 20 years that’s crazy because he said he want he said all of his
0:54:24 investments were bad but then it was even worse that he talked him out of all the other good
0:54:27 investments they called it and he said we couldn’t get him out you know the reputational damage was
0:54:32 too great so so this is a long run and then by the way a lot of these firms are partnerships yeah the
0:54:37 problem with the partnership is partnership sounds good yeah the problem is you you end up with lots of
0:54:41 internal dissension and then you you can’t make decisions yeah so this is a big issue um i guess what
0:54:46 i would say is like for example the thing i talked about it’s just like it’s it’s it’s not a it’s it’s a pro it’s a
0:54:50 what i just described as a process issue not an outcome issue right which is like are you doing
0:54:55 the work yeah right like it’s an actual job like you’re are you doing the work if you’re not doing
0:54:58 the work it’s relatively clear you’re not doing the work and you’re probably not doing the work not just
0:55:02 on one thing you’re probably not so you do try to really look at the input oh yeah very much so yeah
0:55:06 we evaluate the inputs just as much as the outputs what what do you do with an investor i’m sure you’ve
0:55:11 had this at some point where the inputs are not particularly good they hit this one outlier thing
0:55:15 the outputs are objectively now good yeah and so you’re looking at that situation or the inverse
0:55:19 so this is the other so this is the other part of it the other part of it is i think there’s just a
0:55:26 subjective criteria for venture which is just are you good at it yeah and like do you have taste yeah
0:55:30 which is unquantifiable this is one of the nice things about your model too where like you somebody
0:55:34 gets to make a call versus in these partnerships i think it would be very hard when nobody gets to
0:55:38 make calls like this because at some point someone has to just like make a determination on this
0:55:41 stuff yeah that’s right and then even you know and even who even made the call you know gets gets
0:55:46 lost um yeah so so so i think there’s a taste thing and then look i think there’s also just like a
0:55:51 there’s like a network cohort branding thing which is these startups come in waves and it’s not just
0:55:56 new technology it’s also new people um and they you know they’re new these new scenes form and like
0:56:01 are you in the scene or not right and if you’re not in the scene like yeah i can’t fix that for you
0:56:05 there’s also a ton of path dependence it seems like where like you make an investment that gets you in the
0:56:08 scene now other founders want to work with you because you invested in this really cool company
0:56:13 and then it just snowballs and you’re like well i can’t go back and you know change history and get
0:56:17 you into the snowball yeah yeah like and again this is what i’m gonna call this this is the test of the
0:56:21 capital t so it’s just different versions of the complaint right so you you brought up the one of the
0:56:24 founder who’s like well i could have done this but i was in a position to do it all right that’s your
0:56:28 own fault yeah um there’s another version of it which is that this is sort of the anti-vc narrative is
0:56:33 these vcs are so arrogant they don’t see my unique genius uh-huh right right you know the vcs are only
0:56:36 it’s like a critique they always apply against paul graham is you know he wrote this post on
0:56:39 pattern matching and he always gets attacked it’s like you know he pattern matches he’s not looking
0:56:42 for quality he’s just looking for pattern matching and like you know it’s like and it does founders
0:56:48 don’t match the pattern it’s like raising is very important for founders to understand raising money
0:56:53 from venture capitalists is the easiest thing you will ever do as a startup founder we are sitting here
0:56:59 with checkbooks waiting to write checks yeah we are dying for the next person to walk in the door
0:57:03 and be so great that they convince us to write the check we don’t care where they come from
0:57:07 we don’t care what country they’re from we don’t care what like doesn’t none of it matters it’s just
0:57:11 like do they know what they’re doing are they going to be able to do it we’re just dying for that everybody
0:57:16 else they’re ever going to deal with candidates and customers and downstream investors and everybody
0:57:20 else is going to be much harder to deal with than we are and so if they can’t pass the test of raising
0:57:26 money yeah like they’re not going to be able to do it and and it’s just and it’s the same thing with
0:57:33 the gp like if you can’t network your way in and make good investments that’s the job totally okay on
0:57:36 that point right because there’s going to be i completely agree with what you just said about
0:57:40 how it’s you know the easiest part of building a company there’s going to be a lot of you know
0:57:43 frustrated founders hearing that who are like why can’t everybody you know what’s going on here
0:57:47 one of the things that i’m really you know you’ve done this for enough time now
0:57:54 when founders you know get a pass note um it’s usually about something that’s related to the
0:57:59 market or the product or whatever and a lot of times it’s what you just said which is that like
0:58:05 i just want the founder to be great right but nobody says that nobody says that and so they don’t get the
0:58:10 actual feedback and so i guess this whole dynamic of like people aren’t giving yet because it’s you know
0:58:14 what they’re saying is not you’re not great but it’s i didn’t perceive you as great or something like
0:58:19 that is there is there some way for there to be a more honest useful back and forth around this or
0:58:24 is it just one of the impossible structural things and founders just have to go around frustrated that
0:58:28 people are saying the market’s too small or it’s too big or whatever and really what it is is they’re
0:58:32 just not landing as great i mean it’s like yeah i mean i know you think your baby’s beautiful but i
0:58:37 think he’s really ugly right yeah yeah yeah you know this kid’s gonna have a really hard time in
0:58:41 life man he’s really he’s really unattractive and it’s really hard it’s really difficult and by the way
0:58:45 you you embedded two things in there one is like you know one is do they come across as good which
0:58:49 in theory is fixable but the other is like yeah some people are better than other people at doing
0:58:52 this definitely and some people should not be started some people should should actually just
0:58:56 like be on a team yeah sometimes it’s a correct assessment sometimes it’s an incorrect like there
0:58:59 are some people who in the early days can’t you know there’s a lot of great people who now we all
0:59:02 know are really great but they couldn’t raise a lot of money so they must have shown up in 60 vc
0:59:06 meetings is not great or whatever and look vcs make and again yeah exactly it’s like we don’t we
0:59:11 don’t know yeah and we we make lots of mistakes on a mission you know so we we and like i said most
0:59:16 even the great vcs most of the time are screwing up um and so that’s all true the the thing i always
0:59:20 tell founders is the it’s the steve martin was asked this question about becoming a great stand-up comic
0:59:23 and he wrote this whole book a great book called uh standing up which he talks about this and he says
0:59:27 the the secret of being a great he said uh the secret is um be so great they can’t ignore you
0:59:31 yeah right if your business gets good enough and you prove that you’re really good
0:59:35 you don’t have to show up in the one hour with the vc is very impressive you just proved it on the
0:59:39 field we’re dying for people to come in and just be like wow yeah right and just be like i cannot
0:59:42 believe how good this is i can’t believe how good this product is i can’t believe how much the
0:59:45 customers love it i can’t believe how much this person has gotten done in a very small amount of
0:59:48 money so it’s the exact same thing if i’m a talented i’m just dying for the for the young
0:59:51 community get up on stage and make me laugh i also think the founders who like really struggled to
0:59:56 like raise a round or two and then the business got working i think there’s like a there’s a real
0:59:59 strength that comes out of that so it’s not the worst thing that ever happened yeah no no look having said
1:00:03 that like there’s breakage along the way like there there are yeah also it sucks it’s like
1:00:08 really unpleasant yeah i had to have it it sucks yes yeah so but like it you know look i just say
1:00:13 like i you know having been a founder like it’s an it’s an incredible privilege to be in a in a in a
1:00:18 in an industry and in a world and in the country at a time when you can actually do this yeah like so
1:00:21 you know in most of history in most places you just this kind of thing can’t happen and then you
1:00:26 know we are genuinely trying to find the anomalies right like our business is defined by anomalies
1:00:31 it is true the thing you said about it’s like an audience that wants to laugh it’s totally true so
1:00:36 desperate i can’t wait for somebody to finally tell a good joke so on ai i want to talk about not just
1:00:41 the startup side but maybe like um just some of your takes on like the broader lens of ai i guess my
1:00:47 first question is around ai going wrong and i know this is like a very hard thing but i’m just sort of
1:00:51 for fun really curious what you think you know the downside case that people are very afraid of would be
1:00:57 something like ai embodies humanoid robots and now we have a terminator situation on our hand it gets
1:01:02 agency we have a big problem right you know that’s one end of the spectrum the happy path is that it’s
1:01:07 just like the sickest software that anybody’s ever seen and like it’s a tool that humans use and
1:01:11 everything’s great do you think about this if so do you have any opinion on it or are you just like
1:01:15 it’s going to be what it’s going to be start by saying it’s it’s an important new technology any
1:01:19 important new technology is what they call dual use um it can be used for good things it can be used for
1:01:25 bad things um the shovel it can dig a well and save your life you can bash somebody over the head with
1:01:29 it and kill them fire you know the computer the airplane you know the airplane can take you on a
1:01:35 most marvelous vacation with your new spouse it can also bomb you know dresden um right and so it’s just
1:01:39 i mean atomic power was the big one because atomic power could be unlimited clean energy for the entire
1:01:44 world or it could be nuclear bombs right um as it turns out there we just got the bombs we didn’t
1:01:49 get the unlimited clean energy and so um like that that’s just like generally true these things these
1:01:53 things are double-edged swords the question is like all right like what are you going to do about that
1:01:56 um and are you going to like somehow put it back in the box are you going to somehow like try to
1:02:02 constrain it and control it um the the nuclear example is really interesting um because the um you
1:02:05 know there was a you know very big concern around obviously nuclear weapons and then and then
1:02:08 nuclear there’s a kind of big moral panic that developed around nuclear power i mean we kind of messed up
1:02:12 with that meltdowns we very badly messed up with it and and what happened was the the green movement in
1:02:16 the 60s and 70s created something called the precautionary principle which is now there which
1:02:20 which the same kinds of people are now trying to apply to ai which basically says unless you can
1:02:23 prove that any technology is definitely going to be harmless you should not deploy it and of course
1:02:29 that literally rules out everything right that’s just like no fire no shovels no cars no planes no
1:02:33 nothing no electricity and so and that is what happened to civilian nuclear power which is they just they
1:02:39 they they killed it the story i tell on that is president nixon in 1971 the year i was born he
1:02:43 declared he saw the oil crisis coming in the middle east uh he declared something called project
1:02:47 independence he said the american american used to build a thousand nuclear power civilian nuclear
1:02:53 power plants by the year 2000 go completely clean carbon carbon zero completely electric cut the entire
1:02:56 you know cut you know they had electric cars 100 years ago so it’s just obvious you just cut over to
1:03:00 electric cars at some point and and and basically we need to do that and then and then we’re not
1:03:03 entangled in the middle east and we don’t need to go you know do all the stuff uh there
1:03:07 he then created the epa and the nuclear regulatory commission which then prevented that from happening
1:03:12 absolutely killed the nuclear industry in the u.s right um and then the germans are going through
1:03:17 the new version of that in with ukraine which is they keep shutting you know europe x france keeps
1:03:21 shutting down their nuclear plants which just makes them more dependent on russian oil and so they end
1:03:24 up funding the russian war machine which invades ukraine and then you know they they’re always they’re
1:03:30 worried now it’s going to invade russia and so the social engineering i would say the moral panic and
1:03:33 then the social engineering that comes out of this the history of it has been
1:03:38 quite bad like in terms of its thinking and then in terms of its practical results yeah um i think it
1:03:43 would be a very very very big mistake to do that yeah in ai um and then to like regulate early yeah
1:03:48 yeah absolutely 100 percent um to try to offset the risks in order to like and then and then cut up the
1:03:52 benefits so let’s start with that as number one number two i just say look we’re not alone in the
1:03:56 in the world and we knew that before but especially after deep seek we really know that um and so
1:04:02 there is a two-horse race um this is shaping up to be the equivalent of what the cold war was um in the in
1:04:07 the against the soviet union in the last century it is shaping up to be like that china does have
1:04:12 ambitions to basically imprint the world on their on their their ideas of how society should be
1:04:16 organized now the world should be run and they obviously intend to fully proliferate their
1:04:20 technology which they’re doing in many areas yeah um and the world you know 50 years from now is
1:04:24 going to be running on you know 20 years from now is going to be running on chinese ai or american ai
1:04:27 like those are your choices you think that’s how it’ll basically play yeah yeah yeah it’s going to
1:04:31 run on one or the other how will that play out like let’s say it’s one or the other so ai is going to
1:04:35 be the control layer for everything so so my view is ai is going to be how you interface with the
1:04:41 education system with the health care system with transportation with employment yeah with um the
1:04:47 government with law right it’s going to be ai lawyers ai doctors ai teachers okay do you want
1:04:53 your ai teacher you want your kids to be taught by chinese ai really yeah like you marks like they’re
1:04:56 really good at teaching you marxism and xi jinping thought like is it you know it’s like the cult is
1:05:00 another way to put it is the culture’s in the weights yeah right and so like how these things are
1:05:04 trained and like who they’re trained by like really really deeply matters um and so and by the way
1:05:08 this is already an issue in lots of countries because they’re like number one they may not want
1:05:12 chinese ai but number two do they want you know super woke northern california ai right it’s another
1:05:16 open question right so there are big questions on this and so i i just think like there’s no question
1:05:20 like if you had a choice between ai with american values versus the chinese communist party values
1:05:24 i mean for me it’s just crystal clear where you’d want to go yeah by the way there’s also going to be
1:05:29 direct military there’s a direct military version national security version of this which is okay do you
1:05:33 want to live in a world of all ccp controlled robots and drones and airplanes and cars
1:05:39 i mean is is is that really what you want warfare and defense i guess just is going to fully go ai over
1:05:43 the next 20 years or something i think that’s very much true and i think this robots plus ai basically
1:05:47 there’s a signal there’s a signal you probably saw the the ukrainian attack on the on the russian
1:05:51 airplanes you know so those are no autonomous those are autonomous drones and then they were doing ai
1:05:54 targeting of structural the right structural points to be able to attack the planes and destroy the
1:05:59 planes yeah right and so yeah 100 that’s happening um you know this is a major issue with our defense
1:06:04 doctrine with respect for example to you know potential invasion of taiwan you know if an
1:06:10 aircraft uh ukraine has been fielding uh ai piloted um jet skis uh so they take a jet ski take a jet ski
1:06:14 put an autonomous pilot on it um and they strap with explosives and you know you could send out 10 000 of
1:06:18 those yeah against an aircraft carrier right and by the way and you could just keep sending them
1:06:22 right because there’s no there’s no loss of what you just keep sending them until you get through
1:06:28 and so yeah so the the entire i think the entire the entire supply chain the entire defense industrial
1:06:33 base all the doctrine of warfare all changes you know the idea of human beings in planes or on
1:06:37 submarines just doesn’t make any sense it’s all going to change the and then they it’s a symmetry or
1:06:42 asymmetry between defense and attack is going to change you use the word dual use um and obviously with
1:06:49 like previous technologies you know they got used at some point i’m wondering does it blend from getting
1:06:57 used to being the user like if like a business a benign business example would be if you could tell
1:07:03 an ai hey i want you to you know hey prompt i want you to build me a software company you know make it
1:07:08 roughly do this serve these users and run that for the next five years and just wire me the money to
1:07:14 this bank account go and if you know if that worked at some point you know in the middle of those five
1:07:19 years like you know what’s how is it doing its own thing are you telling them what to do does that also
1:07:24 happen you know in like a warfare scale and i guess that’s maybe like the thrust of to me where
1:07:29 you know where it turns into something scarier particularly when you get into you know the
1:07:33 embodied version in warfare where it’s just like you know the prompt is like hey just you know fight this
1:07:38 fight this war for the next year or something that’s right that’s right so so the good news the the the
1:07:43 domestic version of it is straightforward i think which is we we have you know u.s law western law has a
1:07:48 concept of responsibility accountability if you use a machine to do something it legally is is your
1:07:52 fault it’s your that’s your problem but by the way if the machine goes wrong for reasons having to do
1:07:56 with not with you then it’s a manufacturing it’s a product liability issue the manufacturer is liable
1:08:01 but if you use it you know if i buy a shovel and i bash you over the head with it right it’s my you
1:08:05 know yeah the shovel killed you but like i’m to blame and so i think that your your example of the
1:08:09 autonomous corporation i think i think legal legally the legal system is perfectly prepared to deal with
1:08:13 that um which is yeah you that was it was your your bot you set the whole thing up it’s your fault
1:08:17 yep and so there’s there’s a natural there’s a natural constraint uh i think there’s a natural
1:08:21 constraint on that um the mil the most obvious version of the military version of the question
1:08:26 is autonomous targeting and uh trigger pulling um right and so and and this has been this has been
1:08:30 an issue in drone warfare for the last like 15 years which is uh is there a human in the loop on
1:08:35 pulling the trigger right so predators flying overhead da da da da sees the bad guy okay how is the
1:08:39 decision made for the predator to launch the missile on the bad guy yeah and and by the way the way that
1:08:44 worked for a very long time was uh it actually had to be an air force uh uh combat uh pilot who would
1:08:48 actually pull the trigger on the drone um very specifically even if he wasn’t otherwise responsible
1:08:52 for like operations of the drone you’d still get somebody whose job it was to make those decisions
1:08:56 in the loop there are a lot of people in the defense field who are like it’s absolutely mandatory that
1:09:01 in all cases it is required for the human being to make the kill decision yeah and and and that and
1:09:05 maybe that is the maybe that is the correct answer there’s a very powerful argument as to why that should be
1:09:10 the case because it’s the biggest decision that any human that anybody can make and even if you
1:09:13 don’t believe in like the skynet scenarios just the idea of a human being not being responsible for that
1:09:19 decision yeah sounds ethically morally very scary there is a counter argument which is human beings are
1:09:24 really really bad at making those decisions yep right and so any self-driving cars thing if it’s safer
1:09:28 than a human driver then like who’s you know yeah there will be accidents but there’s fewer
1:09:34 correct and so every post analysis of any combat situation that you read or any war later on you
1:09:38 discover all these shocking things so one is uh friendly fire like there’s just huge amounts of
1:09:41 death caused by friendly fire people shooting at their own troops just because they’re confused
1:09:45 number two is uh you know fog of war is just like it turns out the commanders have very little idea
1:09:49 what’s going on they they had some battle plan it immediately goes sideways they don’t know what’s
1:09:52 they literally don’t know what’s going on they’re not making they don’t have the information
1:09:56 people to make decisions everything’s confusing number three the physiological impact of stress
1:09:59 adrenaline it’s like what like it’s one thing to be on a shooting range making these decisions it’s
1:10:04 another thing to be like you know have like a severe leg wound coupled with you know adrenaline
1:10:10 you know overloads coupled with two hours of sleep the night before and like is the human is even the
1:10:14 highly trained person making the decision right yeah um and then there’s just like a more basic thing
1:10:16 which i think this is like a world war ii retrospective it’s something like in a lot of combat
1:10:22 situations it was estimated only like 25 of the soldiers even fired their rifles wow like just generally a lot
1:10:26 of people just like don’t act uh right and so anyway so you you the more you look at this you’re
1:10:30 just like wow the human being is actually really bad at this yeah uh and then you and then all these
1:10:33 other issues around collateral damage you know and they should you know accidentally shoot the civilian
1:10:37 and so so yeah you’re back in the self-driving car situation which was like all right if if you had
1:10:40 if you’re if you could if you knew you could get better outcomes by having the machine make the
1:10:45 decision better safer less loss of life less collateral damage and so i and i would say i don’t believe
1:10:49 i have an answer to this but i think that is a very fundamental question i guess this kind of actually
1:10:55 feeds into the the next topic which to me is um i think like tech has now gotten to a place where with
1:11:01 the government and politics like it’s sort of now undeniable it used to kind of be an underdog but now
1:11:06 for reasons like this and a bunch of others it’s just like too important to like not be in the mix at
1:11:11 like the national stage now which i think has really like changed the dynamic even insularly for
1:11:16 silicon valley because now you know people are you know looking at what people are doing not just like
1:11:22 in tech but pretty broadly now yeah that’s right yeah so i would say i deeply agree with that um i
1:11:27 believe it is mostly our fault um like the current situation is mostly our fault in tech which is there’s
1:11:31 an old russian little soviet joke which is you may not be interested in politics but politics is
1:11:36 interested in you yeah and so i think we we we and i would include myself in this i think we all got
1:11:41 complacent or a lot of us got complacent between like 1960 and 2010 that basically just said we could
1:11:45 just sit out here we can do our thing we can talk about how important it all is but like it’s never
1:11:49 gonna you know these are never going to be big social or uh you know cultural or political issues
1:11:53 yeah um and we can just kind of get away with not being engaged and then i for all the reasons we’ve
1:11:56 discussed you’re saying and then once it was undeniable we weren’t prepared and then we weren’t
1:12:00 prepared and we weren’t even i would say remotely prepared and then and then they’re using metaphor
1:12:04 the dog that caught the bus and the dog is being dragged behind the bus yeah tailpipe in his mouth
1:12:08 doesn’t know what to do with the bus yeah and look you know geography i think has a lot to do with
1:12:12 this we’re 3 000 miles away you know it’s just hard to get there they don’t come here very often
1:12:17 um and and yeah so i i guess i would say like like it worked like we we actually we always wanted to
1:12:21 build important things we actually are building important things there are obvious political
1:12:27 cultural social consequences to them um if we don’t engage nobody’s going to yeah and then by the way
1:12:30 the other thing i’ll say is you know it’s not like there’s unanimity even in the industry on a lot
1:12:34 of these issues right um and so there’s you know i would say two giant divisions right now
1:12:39 big companies versus small companies yeah you know there’s often do not have aligned incentives
1:12:43 right now uh and aligned agendas and then the other is um you know like just on ai obviously there’s a
1:12:49 big dispersion of use even in the industry i guess this probably goes to why it’s um important for
1:12:56 to some extent at least some vcs to have relationships with the government because big tech has the resources
1:13:01 to do with themselves small tech can’t and so if this is the state of the world we actually as an
1:13:05 industry need somebody to be doing it on behalf of little tech yeah that’s exactly right that’s why
1:13:10 we’re doing what we’re doing yeah on media in particular um i thought it was really interesting
1:13:15 i can’t remember how many years ago but biology many years ago started talking about like some
1:13:20 fracturing about you know the the sort of relationship between tech and the media was going
1:13:25 downhill i think this was mostly talking about media and inside tech but i think probably also at the
1:13:31 major publications and at sort of a larger scale from my read as often you know i think this was
1:13:37 right and my from where i sit it seems like it did kind of continue to degrade the relationship what’s
1:13:44 interesting to me recently is i’ve seen a little bit of life you know in the sort of tech publication
1:13:49 stuff but it’s actually been from the inside and so like eric who you just brought on as gp is awesome
1:13:53 and he’s been really good at doing this tbpn’s really cool and i don’t think i’ve seen something
1:14:00 like that pop up maybe ever inside tech what’s your read i guess within our bubble of like the sort of
1:14:04 tech media relationship and and where it’s been so my background in this is i you know i have a weird
1:14:08 kind of history um uh because of what happened in the 90s but you know i started dealing with the
1:14:15 national press and the tech press business press in 1993 1994 um and i did an annual press tour to the east
1:14:20 coast you know probably a week out of each year usually in the spring and you know what that means
1:14:24 is you kind of go around and you meet with all the publishers editors and reporters um you know cover
1:14:31 everything and i would say the basically the stretch from 94 to 2016 was generally like i thought it was
1:14:35 like a quite healthy normal productive relationship you know like they would run you know they would do
1:14:38 investigative reporting and they would run stories i don’t like but generally they you know the major
1:14:42 publications in each of those categories were trying to understand what was going on and we’re trying to
1:14:46 kind of be you know honest brokers and trying to you know kind of represent what was happening and so
1:14:49 the meetings were like super interesting they always wanted to learn they always had tons of
1:14:54 questions they were super curious about everything that was happening that was great until 2016 it was
1:14:58 the spring of 2017 that i went on the press tour and it was like somebody had flipped a light switch
1:15:05 um and they were like across the board like unbelievably hostile like unbelievably like completely
1:15:10 and across the board like 100 sweep do you know why absolute hostility i i think the obvious answer is
1:15:15 trump trump trump trump got nominated and they got elected and then they blamed tech for for for both
1:15:20 for both of those uh now by the way there’s there are a bunch of other factors including that that
1:15:24 was when the the that was when the it’s actually the the there’s a business side to it which is there
1:15:28 was the fear that the internet was going to eat the news business in the 90s actually didn’t happen
1:15:32 and actually 2015 i think was the best year in history for like revenues to like newspapers yeah
1:15:37 um and then it was really after 2015 social networking went big and then the their businesses started to
1:15:41 collapse and you know they started having lots of layoffs and so that didn’t help yeah and then you
1:15:44 know look they would say look that was also you know they would say hey smart guy that’s also when
1:15:48 you started doing all these things that actually matter more right um and so you know that what
1:15:52 everything we’ve been discussing like the tech industry changed and so you know you’re going to get a
1:15:55 different level of scrutiny because you deserve it you’re doing different things now the political
1:16:00 thing was just a giant swamping factor and they and you know this is a big yeah you know i don’t want
1:16:05 to get into the politics per se but if you just you know it’s it’s this whole thing ran in parallel with
1:16:09 everything that’s like in jake tapper’s book about you know like so it’s just like they just they got
1:16:14 locked in on a mode of of interaction um they just became very polarized yeah um and very polarized
1:16:19 and very lockstep and you know from the outside you just you read it and you’re just like wow these
1:16:22 people they’re all like really wrapping themselves around an axle i think one of the other hard
1:16:30 things is as um the truth has become more accessible by other people you more often see something in the
1:16:33 news that you know about and you’re like wait that’s super backwards and then somebody posts about
1:16:39 how backwards it is and now you know you see a clip of you know some major publication and you know
1:16:43 here’s the truth and everybody can tell and it’s like okay so should we just believe the rest of it or
1:16:48 not i think the truth fact checking went way up too with social media that’s right and i would say
1:16:51 there you know the cliche has been and there’s some truth to the cliche that social media is where lies
1:16:54 spread and there’s some truth to that yeah there’s lots of lies to spread on social media yeah but the
1:16:58 other side of is what you’re saying which i think is right which is the truth spreads yeah on social
1:17:03 media and so the way i describe it is the social media is an x-ray machine and exactly to your point
1:17:08 like anytime there’s and you see this in any domain of activity right now is anytime there’s a thing
1:17:11 and there’s just like evidence that it’s just not the way it’s being portrayed it is going to show
1:17:15 people are going to see it yeah and that is there’s this guy martin gurry who wrote this book
1:17:20 called revolt of the public in 2015 and he was a ca analyst who did what’s called open source analysis for 30
1:17:24 which was studying basically what was in newspapers and magazines for the purpose of political
1:17:28 forecasting and his prediction in 2015 in his book um was that basically social media was going to
1:17:32 completely destroy the authority of all incumbent institutions and the way that it was going to
1:17:36 do that was it was going to reveal through this x-ray effect that basically none of them deserve the
1:17:40 credibility do you think that’s kind of happened i think that’s exactly what’s happening yeah and i think
1:17:45 there’s statistical evidence that’s happening gallup polls um they do an annual poll now for 50 years
1:17:50 on um trust and institutions of every different kind of major institution including the press and
1:17:55 all the all the numbers are collapsing in light of widespread social media what would be the correct
1:18:02 sort of function or role of like journalism i mean look i’m a believer in like the original i like the
1:18:07 original idea right like i’m i don’t know i’m a romantic i i like i like what i like what journalism
1:18:10 says that it is i would like it to be like that i like what the universities say that they are i would
1:18:14 like it to be like that i like what the government says that it is i would like it to be like that
1:18:18 which should be just to like name it yeah well for journalism it’s just like all right number one
1:18:21 like tell us correctly and accurately what’s happening well actually there’s a there’s a
1:18:24 conflict at the heart of the journalism question which is that journalists say two different things
1:18:28 there’s one is they say you know basically be fair and objective right and then the other thing
1:18:32 they say is they say like hold power to account or they’ll sometimes say they have this phrase
1:18:37 they’ll say uh uh uh comfort the afflicted and afflict the comfortable and like there’s there’s
1:18:41 an inherent like are are you are you a are you an objective truth teller well yeah i was gonna say
1:18:44 that has nothing to do with the truth it’s just unrelated to the truth exactly and so there was
1:18:47 already a conflict at the heart of the industry and there’s and there’s a there’s a selection
1:18:51 processor that people who go into journalism tend to be critical by nature right they tend to want to
1:18:54 be on the outside looking in to be critical because they didn’t they wouldn’t be journalists they
1:18:58 would right and so so there is an issue there but look like do we need people to tell us the truth
1:19:04 yes we do do we need people to hold the powerful account yes we do like i would like them to do that
1:19:08 do you think they can be like for-profit corporations and it works because i mean i think
1:19:13 another problem is they’re getting all their distribution on social media eyeballs are what
1:19:19 drives the revenue people want to you know stay in you know so that also is unrelated to the truth in
1:19:23 fact it’s antithetical to the truth a lot of times yeah so there’s two two two mentalities come out of
1:19:26 that one is yeah the profit incentive warps it and you want it to not have a profit incentive so it
1:19:30 could be true to itself the other argument is if you don’t like for-profits you’re really not
1:19:35 going to like non-profits yeah because at least for-profits have like at least for-profits have
1:19:39 like a market test yeah like at least there’s like some discipline non-profit just becomes somebody’s
1:19:44 sort of like this is my agenda i’m going to do what i feel like now arbitrarily crazy yeah they can go
1:19:48 arbitrarily nuts and does sound worse yes and they’re completely unaccountable they’re completely
1:19:51 unaccountable right they’re in fact in fact it’s the opposite it’s the opposite of accountability
1:19:57 because of the tax because of the tax break yeah you were actually paid yeah as a donor to invest in
1:20:00 the things that are the most unaccountable interesting right and so and then they can spin
1:20:04 into like crazy land yeah and they and they and they don’t come back i don’t know like they don’t come
1:20:09 back yeah there’s a history here yeah they don’t come back and so it’s weird because like the citizen
1:20:14 journalism thing is like a helpful fact check it’s like good to have and sometimes it but it does feel
1:20:19 like it’s not quite sufficient to tell the full story on everything all the time so i do think that
1:20:24 there’s an important role i just feel like it’s it still feels like it’s very in limbo right now so here
1:20:28 is a theory that would be a reason for optimism um which is the last eight years were basically
1:20:34 it was basically the human animal adapting to the existence of social media it was like it’s basically
1:20:38 the assembly of the group brain and you slam eight billion people into a chat room together and like
1:20:42 it’s just like we’re not used to it we weren’t wired for it we’re not evolved for it and just like oh my
1:20:46 god everything goes bananas yeah marshall mccluhan actually the great media theorist he talked about
1:20:49 this he had this term called the global village is what happens when everybody gets networked together and
1:20:53 actually what people miss about it is he didn’t mean in a good way is because the nature of a
1:20:58 village is basically gossip and innuendo and yeah infighting and reputational destruction
1:21:02 right and civil war yeah like that’s what happens in a village yeah right um and so which actually
1:21:07 functions at a certain size yeah like up to 150 people you can kind of deal with that yeah you know
1:21:12 at the size of like new york city it actually gets quite complicated at the scale of the world it’s like
1:21:15 a disaster it’s a disaster right yeah but you could say look like we went through this eight-year
1:21:19 period where like everybody went just say everybody went nuts everybody went nuts in like a thousand
1:21:23 different ways and then but maybe that was just we had to get used to it right maybe we just had to
1:21:27 adapt to it and like if you talk to i don’t know if you talk to like young zoomers now you know a lot
1:21:29 of the time what they’ll tell you is yeah we don’t take any of that stuff seriously yeah like i just
1:21:33 of course you don’t believe what you see on you know whatever tiktok yeah which is wild it’s just
1:21:36 all ops like of course it’s all ops like whatever right and they just have like they’re they’re
1:21:40 i’m glad people know it’s just like that’s a crazy state of the world yeah yeah exactly so
1:21:44 probably how people feel about like the news too well so this is the thing on the news so then this is the
1:21:48 other thing on the news which is was the news ever as we were told that it was and so the my favorite
1:21:53 example of this is people always cite walter cronkite um as being the great truth teller and the thing that
1:21:58 they cite for for you young people he used to be on tv uh for a part of him i have not he was this guy
1:22:02 where he would show up on tv everybody would say oh my god he’s going to tell you the truth like he was
1:22:06 like he was like the voice of the truth and and the way that he built that reputation is because he went
1:22:11 negative on the vietnam war in 1968 in 1968 he came out and he said the vietnam war is unwinnable and we
1:22:14 need to pull out of this and he they aired all these reports that showed that that was happening
1:22:17 everybody said he’s the guy who told the truth hold power to account tell you know tell the truth
1:22:21 well it’s just like the problem with that is he went negative the fact that he went negative on
1:22:25 the war in 1968 right he was positive on it before that right exactly right what did he know the day
1:22:30 before he said that that he wasn’t sharing yeah and like and then by the way what else happened in 1968
1:22:34 which is the white house went from a democrat to a republican so the vietnam war was created by
1:22:39 kennedy and johnson and then it was inherited by nixon in 1968 and isn’t it convenient and interesting
1:22:43 that he went negative on it when it became nixon’s war as opposed to being kennedy’s kennedy’s and johnson’s war
1:22:47 and so then it’s like all right like what was actually going on there what was happening in
1:22:51 the preceding five years and is was he actually on his side the whole time and then there’s just the
1:22:54 reality of it which is i grew up in rural wisconsin we always thought the press was out to get us yeah
1:22:58 like we always thought the press was like the coasts basically passing sneering judgment on the center
1:23:02 of the country like we never believed like the stuff to start with um and we were always like there
1:23:06 people where i grew up people are like super resentful of the stuff in the media and how it portrays
1:23:09 them and so i think there’s also like a more fundamental underlying issue here which is
1:23:15 you know objective truth is a hot like objective truth is a high bar yes people have agendas yeah
1:23:18 like maybe we just need to get all this out on the table particularly in politics objective truth is
1:23:23 not really how a lot of like people like oh that’s a lie i’m like well it’s not a lie it’s just like an
1:23:28 interpretation of a situation that like i wouldn’t characterize but like sure it’s not like that
1:23:32 these are complicated topics you know the ordering of society is a complicated topic right and the
1:23:35 functioning economy is a complicated topic and it’s just not so easy to understand
1:23:41 and so so i i think part of it might the optimistic the optimistic view would be humanity adapting to
1:23:44 being in the global village is basically just taking on a little bit of a more humble attitude
1:23:47 basically saying all right look there’s not going to be we’re not going to have a lot of objective
1:23:51 truthos running around we’re not going to have but also at the same time we don’t want to be in a
1:23:54 complete panic about everything all the time and we need to kind of be able to you know take a deep
1:23:58 breath touch grass be a little bit more skeptical be a little bit more open be a little bit more
1:24:02 understanding right and so so maybe we’re starting and by the way i think that’s happening i um
1:24:06 uh i mentioned that jake without getting into partisan politics but the jake tapper book
1:24:11 i would happen to went to a uh an event that he did he did this weekend uh out here and like it’s a
1:24:16 like the the that book and the reaction of the book and and if you watch the interviews on youtube and
1:24:21 the the crowd response to that book like it it it feels like people are just like oh like if we just
1:24:25 take a step back for a moment from like all the intense partisanship of it all like there’s actually
1:24:29 some yeah like maybe we can get back a little bit more i i thought it was that book is a very
1:24:33 very positive step forward towards just a little bit of a calmer approach on these things and then
1:24:37 by the way the other book i’d promote on that is uh the ezra klein book on uh on abundance yeah which
1:24:41 i think is i think is a you know somebody who’s supported a lot of democrats for a long time i think
1:24:45 it’s like the most positive you know kind of manifesto that’s come out uh basically saying you
1:24:48 know no like we need you know whether you’re on the right or the left like we need to actually build
1:24:52 things and i think that’s also a healthy moment so sort of related to this topic a little bit
1:24:56 adjacent but i saw you talking about preference falsification recently and i think this is like a super
1:25:01 interesting topic in general but particularly in the last i don’t know call it five-ish years i think a
1:25:07 lot of preference falsification became made apparent um so i’d be curious first to hear a little bit about
1:25:14 what you think happened over the last some number of years where these changes happened um maybe we can
1:25:18 start there and then i’ve got to follow up on it yeah so the preference falsification just a sketch
1:25:21 an outline it’s it’s when people um it’s actually there’s two different definite there’s two different
1:25:26 elements of it um it’s when people are required to say something in public that they don’t actually
1:25:30 believe or they are prohibited from saying something in public that they do believe right so again so
1:25:36 commission omission uh issues and then the the theory of it there’s this great book by timur karan on it
1:25:40 the theory of it basically is it’s it’s easy to think about what this happens in the case of a single
1:25:44 person which is are you telling the truth or is there your public statements mirroring what you
1:25:47 actually think or not the thing that gets complicated is when that happens across a group or across a
1:25:52 society and the thing that happens is if there’s widespread preference falsification of society
1:25:56 you not only have people lying about what they actually think or hiding it but you also everybody
1:26:01 loses the ability to actually know what the distribution abuse are yeah right and any and he says
1:26:04 basically if you look at the history of political revolutions a political revolution happens when a
1:26:08 a majority of the country realizes that a majority of the country actually agrees with them
1:26:13 and and they didn’t realize it right so that whatever system they were in had convinced them that they
1:26:17 were in a very small minority and then you get a at some point there’s you know the boy who points
1:26:21 like a catalyst you there’s a catalyst catalytic moment and then and then basically there’s a
1:26:25 what’s called a preference cascade right um and then um and then all of a sudden it’s like the
1:26:29 correct prisoner’s dilemmas box to live in all the sudden flips everybody realizes that at once
1:26:33 yes exactly and and he said you can see this in um you can see this like in a crowd with like a speaker
1:26:37 controversial speaker where basically like you’ll have a controversial speaker and then there’ll be
1:26:41 silence in the crowd and then one brave person will start clapping uh-huh and that person is like
1:26:45 a severe peril because if they’re the only asshole standing up clapping like that’s it they might get
1:26:50 yeah but then if if if it cascades then a second person starts clapping and then a third and a
1:26:54 fourth and a fifth and then you get the snowballing effect and then the entire auditorium is clapping
1:26:58 and then and then that’s everybody realizing that they actually are on the side of the majority which
1:27:01 they didn’t realize before by the way this is what comedy this is actually why comedy is fun it’s
1:27:06 what comedy does well because people can’t control the involuntary response right yeah exactly and so
1:27:09 when you get an entire group of people in a room laughing out loud at something that
1:27:13 individually they will all swear they can’t help it funny they can’t help that’s a great point and then
1:27:17 the the the stress relief from that because they all know that they’re part of a they’ve rebonded the
1:27:20 community right you’re you’re actually back and being a part of a community and it’s just such an
1:27:27 incredibly powerful feeling yeah yeah okay so so it’s very easy to apply this theory to like the
1:27:32 soviet union right or like the you know the the the the you know the eastern europe you know um uh in the
1:27:38 cold war or whatever um you know mao’s china it’s a lot you know trickier to apply this theory to
1:27:42 you know your current society i believe that you know we’ve lived in an era of like intense
1:27:45 preference falsification i think the last five years yeah probably the last 10 years were like
1:27:50 way more intense preference falsification than the preceding yeah 40 at least um you know probably
1:27:55 going back to i don’t even know i have to go for sure back to the 60s if not like the 1920s or
1:27:59 something to find an analogous period i think this period was characterized both by people who were
1:28:03 saying things they didn’t believe but critically not saying things they didn’t believe yeah i think
1:28:08 there are many reasons this happened um and look this has happened many times in history and so a lot
1:28:11 of people want to say this is caused by social media right well when you phrase it the way that
1:28:16 you said it actually makes a lot of sense when it’s just if people are going to be in a part of this
1:28:22 prisoner’s dilemma matrix it actually just gets caused by nothing other than itself like it doesn’t
1:28:26 really need an outside catalyst for people to get into their own box that’s true although there needs
1:28:30 i know that’s a good question or does there need to be some kind of oppression does there need to be
1:28:33 some kind of motivation for for the for the cascade to have started where people end up in that box
1:28:39 it’s a social pressure so yeah specifically i think the thing that happened the last five years
1:28:43 was i guess it needs to be a high stakes enough issue for it to matter otherwise it’s just like
1:28:47 who cares whether you think like the clouds are pretty or not yeah that’s right so at least has to be that
1:28:52 yeah and the way i think team mccrano described it is it needs to have like political social cultural
1:28:56 salience yeah like it needs to get to something fundamental about how the community is organized
1:29:00 you know we call we call that politics but you know this this predates even the concept of politics
1:29:04 right and so um and by the way look like you you don’t even necessarily want to say that all preference
1:29:08 falsification is bad because like you know i don’t know that you want everybody out telling the truth
1:29:12 about everything i don’t think you do i think at least in like a like social like a lot of social
1:29:15 graces come from people saying it’s great to meet you when i didn’t feel like saying it was great
1:29:20 your baby i believe your baby is very effective exactly so some of it’s right yeah so um
1:29:24 yeah but but but but yeah you as your point you get wedged in this box and so i i think the specific
1:29:29 thing that happened and so the good news is preference falsification in a lot of totalitarian societies
1:29:33 was administered at the point of a gun you say the wrong thing they shoot you yes um that for the
1:29:37 most part is not what happens in our society what happens in our society is the sort of non-violent
1:29:43 version which is ostracized yeah canceled ostracized reputation is ruined fired become unhirable
1:29:47 lose all your friends lose all your family can’t ever work again still really bad still really bad
1:29:53 so you said it sounds pretty bad very bad yeah and so and it just turned out i think part of you know
1:29:56 the optimistic view would be part of adapting to the existence of social media was social media just
1:30:01 turned out to be among other things a very effective uh channel to destroy people reputationally
1:30:05 right with and this is the the social media mobbing effect right um that we’re not all familiar with
1:30:10 and you think that helped create basically more false preferences yeah big time big time do you think
1:30:13 it also unwound them well so this is this is the thing and this is maybe the thing that happened in
1:30:17 the 2024 election right which is just like oh okay like we don’t have to live this way anymore
1:30:22 um you know it’s certain certain views become safer to say out loud this also the censorship regime like
1:30:27 we lived under a very specific censorship regime even in tech for 2024 election versus 2020 you know
1:30:32 2016 regardless of what you think you know who you wanted at least everybody can agree that it was
1:30:38 taboo to support trump in 16 and it was not taboo to support trump in 2024 in tech and so something
1:30:42 changed there something changed peter had this great line in 2016 he said uh because he was one of the
1:30:46 only people you know maybe the only person in tech who was actually pro-trump in 2016 and he said
1:30:49 he said this is so strange he says this is the least controversial contrarian thing i’ve ever done
1:30:53 he’s like half the country agrees with me yeah he’s like i’ve never had a point of view on anything else
1:30:57 in my entire life where half the country agrees with me yeah and yet somehow this is such a heresy
1:31:01 that i’m like the only one yeah right and so yeah so so so there was that that that definitely
1:31:04 changed and then i just think in general like i said i think they’re optimistically you could
1:31:09 say there’s a process of adaptation right where it’s just like all right we’re just like if if we all
1:31:15 just decide that we’re just not gonna like live life by mobbing and scapegoating and personal
1:31:19 destruction and just because somebody’s offended by something doesn’t mean it’s going to destroy it
1:31:23 you know somebody says one thing it’s going to destroy their lives like we don’t you know you
1:31:27 don’t have to do that do you think it’s basically been unwound now or do you think there are still
1:31:33 a lot of falsified preferences i would say it’s radically different than it was two years ago um i would
1:31:37 say there’s still a lot of falsified preferences i would but but again i would say i think probably in any
1:31:41 healthy society there’s lots of falsified preferences so do you have any guesses for something that is
1:31:47 currently falsified that will become unfalsified or is too hard to call it sure yeah sure okay great
1:31:52 well of course but it’s far too dangerous to say we’ll move on yeah dang gosh but again when you ask
1:31:57 that that is a very key question here here’s what i encourage break the fourth wall yeah here’s what i
1:32:01 would encourage people to do here’s the thought experiment to do just write down two at least in
1:32:04 middle of the night with nobody around doors locked write it down a piece of paper and let’s pull it
1:32:08 out in 10 years well write down a piece of paper two lists what are the things that i believe that
1:32:14 i can’t say and then what are the things that i don’t believe that i must say and just write them
1:32:19 down yeah and i bet you know if you’re a reasonably introspective person that you know the quote unquote
1:32:24 npcs can’t do this yeah like if you’re a reasonably introspective person yeah um you know most of us
1:32:28 probably have 10 20 30 things on both sides of that ledger right and again most of those are things
1:32:31 where you gotta you know i don’t know like you don’t want anybody ever see that piece of paper
1:32:35 maybe five or ten years from now we’ll be back and everybody can reopen their papers and we’ll see
1:32:40 and it’ll be safe to say whatever people wrote down at that point exactly okay um a few final topics i
1:32:48 wanted to ask you about um one is you’re probably in a spot to be giving just sort of life or career
1:32:55 advice to young people a lot now both in general but also maybe specifically with like ai and like the
1:32:59 current set of tech you know changes right now what do you most often find yourself repeating
1:33:04 to a really smart you know recent grad about you know if they’re like what should i be doing with
1:33:08 my career if they get the chance to ask you that to start with i never took any advice so
1:33:13 advice yeah there’s something there but a lot of people do so maybe maybe fair enough that’s like
1:33:17 the exact you know if you could have built facebook thing maybe yeah maybe maybe maybe the best
1:33:22 people probably shouldn’t take any advice um but um i would just say in general especially for young
1:33:27 people i i you know and again i say this like people are very different like i i believe very
1:33:31 deeply yeah some people some people are very happy being in the middle of chaos some people are very
1:33:35 unhappy i’m sorry some people are very unhappy being middle of chaos and they will actually get
1:33:39 themselves out of a chaotic situation as fast as they can other people love chaos so much if they
1:33:42 don’t have any they will create it right and so like you have to you know that’s true there’s a level
1:33:46 of understanding here you you know like not everybody should be in like a high growth high
1:33:50 risk tech company because it might just be too nuts yeah so i don’t think there’s a one one size fits
1:33:55 all you know kind of thing um uh at all having said that let’s narrow it so the young young person who
1:34:00 wants to kind of be in tech i think a big part of it is i think it’s as i was saying it’s like run to
1:34:05 the heat like or the the the scene thing we were talking about like where where are the interesting
1:34:09 things happening and that’s a conceptual question and it’s also like a place question and the
1:34:13 community question network question yeah um and so you know run to that as fast as you can and it
1:34:17 doesn’t mean you know running to the fads but it means trying to identify trying to get into those
1:34:22 hot network or ideas or projects basically yeah yeah exactly um and look there’s a geographic
1:34:27 component to that and i think we all kind of wish it wasn’t the case but there really is um and and and
1:34:32 and ai ai i think has very successfully unwound the geographic dispersion of what was happening in tech
1:34:36 in a huge way a huge way it’s kind of slammed everything back into northern california
1:34:41 i i don’t think that’s good really um for a lot of reasons but i think it just is the case
1:34:45 and so i would say like if you know if you’re going to like do ai get here yeah and then look
1:34:49 and then the other thing is it’s the steve martin thing be so good they can’t ignore you like time
1:34:53 spent on the margin getting better at what you do is almost certainly better than most of the other
1:34:56 uses of time the the old adage of you are the average of the five people you spend the most time
1:35:00 with is also true you want to do that uh so you want to you know pick pick pick that carefully
1:35:04 and then i guess what i would say is uh when i when talk to you know people about like what kind
1:35:07 of company to go to um there are certain people who should only be in a raw startup and there’s
1:35:12 certain people who should only be in a big company i think the general advice is the it’s it’s the high
1:35:16 growth companies it’s the companies that we would describe as between like being between like series
1:35:20 c and series e probably or something yes where it’s like they’ve hit product market fit they’ve hit
1:35:23 the knee in the curve and they’re on the way up on average that’s going to be the best place to go
1:35:28 because you’re not going to have the downside risk of a complete wipeout usually yeah um and then
1:35:33 people who get into that position like at those high growth companies if you’re talented you can pick
1:35:38 up new responsibility very quickly yeah okay next is um your andrew huberman thing that i see on twitter
1:35:42 like what’s i actually can’t completely parse what it is what’s going on with that so we have a
1:35:46 completely fake beef we’re good friends we’re very good friends um and our actually neighbors neighbors
1:35:51 in malibu and um i’ve been on his podcast and like we’re very good friends um but um but you don’t
1:35:55 follow his protocol i don’t do anything that he says i don’t do a single thing that he says um i
1:35:59 with one one exception we’ll talk about but yeah i don’t i don’t do any of it you know he says maintain
1:36:02 a regular sleep schedule i there’s no you’re all over the place on sleep all over the place he says
1:36:07 always get up you know get up you know see sunlight as you can i’m like no i don’t want that’s the
1:36:10 last thing i want to do when i wake up to see sunlight you don’t drink caffeine for the first two
1:36:14 hours of the day it’s like nfw it sounds like torch it sounds like being in a north korean
1:36:18 concentration camp like i can’t even imagine you drink a lot of coffee a lot of coffee hot plunge cold
1:36:23 plunge thing i’m not the cold punch is miserable i’m not doing any of that shit yeah um you think
1:36:26 it’s good for you though oh i’m sure it’s i’m sure it’s good for you i’m just not i’m not going to do
1:36:31 any of it it all sounds just completely miserable that’s good um the one thing that um he says that i
1:36:37 i do is uh stop drinking alcohol um and i would say i am uh i am physically much better off as a result
1:36:41 and i am but i’m very bitter and resentful it is towards him specifically why’d you why’d you do
1:36:46 that one because it’s much better for you physically yeah it it really is like it fixes sleep and energy
1:36:49 problems so is the most tolerable of all of these and you’re like final do one well no it’s completely
1:36:53 intolerable it’s horrible okay i don’t recommend it like i think it’s a horrible way to live yeah like
1:36:57 i’d much rather be drinking alcohol does he think even like a glass of wine at night’s bad he does
1:37:01 yeah just all of it he did one of the great he’s actually had a i think big influence on the culture
1:37:06 and this is very in seriousness this is very positive yeah i think um at least for health um as he did
1:37:09 this big big thing on there’s all these alcohol so what happened is there’s all these alcohol
1:37:13 there’s all these fake alcohol studies basically um you know this is like red wine and then it’s
1:37:17 like all you know heart protective and all this stuff and it basically it basically turned out
1:37:20 that really sick people either drink a lot or nothing and then and then healthy people tend to
1:37:25 drink a little yeah right so so so one is healthy people tend to be very well right and then i guess
1:37:29 is that correlation or causation is that it’s all in the sample set so so so it turns out there’s no
1:37:35 health benefits to alcohol that was all completely fake in other words just because i see healthier
1:37:39 people drink a moderate amount of alcohol does not mean that drinking a moderate amount of alcohol
1:37:44 makes you healthy i see michael creighton called this wet streets cause rain okay wet streets rain
1:37:49 yes right so for some reason unhealthy people stop drinking unhealthy people stop drinking because
1:37:52 they’re like in the hospital like i can’t handle this yeah their doctor says if you keep drinking
1:37:56 you’re gonna die yep or by the way they drink a lot right because they’re right and then there’s
1:37:59 this there’s this fundamental thing which is healthy people tend to be very disciplined
1:38:04 but but discipline is not discipline is there’s like a big inherent component to it yeah right and so
1:38:07 people who are people who are disciplined to drink moderate amounts of alcohol also do moderate
1:38:12 moderate amounts of exercise also experience moderate amounts of stress also uh you know you go to the
1:38:16 doctor on a regular basis they they take the medication they’re prescribed they live all aspects of
1:38:19 their their health in it i guess it’ll take a while to see but it feels like it should be a good thing
1:38:25 that andrew and other people have gotten so many more people interested in health it’s good for it’s
1:38:30 good physically right yeah might not be good mentally no i’ll try i’ll be funny again it’s it’s it’s
1:38:34 it’s catastrophic emotionally yeah it’s it’s made me a much less happy person you think are you
1:38:41 actually you think that well so i really so it’s the it’s the alcohol is a time thousands of years
1:38:46 people have been using it number one to fundamentally relax yeah um and then and then there’s a very
1:38:51 important social lubricant component to it um you know it’s like um and the de-stressing could be
1:38:55 healthy so let’s just say maybe it’s not accidents the birth rate is crashing right at the same time
1:38:58 that we all stopped right i don’t think andrew would argue you should not live your life purely
1:39:02 maximizing for just physical health that’d be a miserable way to live i mean it’s like what are you
1:39:06 going to do just like never leave the house yeah never take the risk across the street um and so
1:39:10 you know he certainly doesn’t judge people for drinking modern ross alcohol he just says look
1:39:14 scientifically you have to understand it is a poison yeah now having said that as you know um speaking
1:39:20 of scenes um as you know that the displacement thing that’s happening is people are in like our world
1:39:24 they’re not drinking alcohol instead they’re like doing hallucinogens why are you saying it’s not
1:39:28 necessarily an improvement as you jack you know very well yes yes tell us about your latest
1:39:32 ayahuasca yeah um you’re first you’re so much different than you were last time i saw your
1:39:37 personality has clearly completely changed yeah i do feel different so so the other theory would be
1:39:41 there’s a law of like conservation of drug use which is every society is going to pick some drug
1:39:44 probably right and abuse it and apparently in our case it’s going to be like lsd and mushrooms
1:39:52 it’s a good one uh yeah okay um other okay my last question when i tweeted out a request for
1:39:57 questions i got almost ratioed by one question so i’m going to ask this one like nearly verbatim it
1:40:04 was by an anon uh named signal if you were frozen for 100 years and you woke back up and you looked
1:40:10 around what would be the piece of data that you’d want to know that would tell you whether or not your
1:40:15 dominant worldview turned out to be correct in the fullness of time yeah so i will pick a very
1:40:20 unfashionable answer to this and i would say united states uh gdp just like straight out
1:40:25 us gdp because i would say embedded in that is the question of technological progress which is if you
1:40:29 have rapid technological progress you’ll have rapid productivity growth which means you’ll have very
1:40:34 rapid gdp growth if you don’t you won’t have rapid gdp growth so you’ll see that in the gdp numbers
1:40:38 immediately you know number two is you know well number two would be just like our markets a great way
1:40:42 to organize yeah um and the u.s is the best market and so you know is that is that gonna keep
1:40:46 working and then third is is does is the u.s are gonna be a great country and you are along all of
1:40:50 this i am very long all three of those yeah i am very convicted on all three of those but you know
1:40:54 if i’m wrong about something big it’s it’s gonna be something in there and it will show up in that
1:40:57 number mark this is amazing thank you so much again good awesome thank you jack
1:41:05 thanks for listening to the a16z podcast if you enjoyed the episode let us know by leaving a review
1:41:11 at rate this podcast.com slash a16z we’ve got more great conversations coming your way see you next time
1:41:12 you
0:00:13 paper two lists what are the things that i believe that i can’t say and then what are the things that
0:00:19 i don’t believe that i must say and just write them down what happens when startups don’t just
0:00:25 sell the tools but decide to take over the entire industry on today’s episode mark andresen co-founder
0:00:31 of a16z six down with jack altman co-founder and ceo of lattice to unpack how the venture industry is
0:00:37 changing from small seed funds to multi-billion dollar barbell strategies and what that means
0:00:42 for founders funders and the future of innovation mark explains how the classic playbook of picks and
0:00:47 shovels investing gave way to full stack startups like uber and airbnb and why the biggest tech
0:00:53 companies today are not just building tools but replacing entire sectors he also talks about the
0:00:59 realities of fund size venture returns power laws early stage conflict dynamics and why missing a
0:01:05 great company matters far more than backing a bad one and then it gets even bigger mark dives into ai
0:01:11 as the next computing paradigm u.s china geopolitical risk and why mark thinks we’re in a capital t test
0:01:17 for the future of civilization this episode is about asymmetric bets ambition at scale and the deep forces
0:01:21 the next one is reshaping tech and power let’s get into it
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0:01:57 i am so excited to be here with mark andreessen mark thank you so much for doing this with me today
0:02:04 jack it’s a pleasure so what i wanted to start with was the topic of small funds big funds we had josh
0:02:10 compliment on the podcast and he made a point that resonated around fund size the outcomes in venture
0:02:14 and sort of just like looking at the math of all of it and i think as venture funds have grown it sort
0:02:19 of spoke to a lot of people about like kind of what the plan is and sort of how tech is going to go
0:02:25 and so i guess to start i’d be curious to hear your thoughts around that whole dynamic obviously you know
0:02:29 you’ve got a big venture firm and so i just want to hear kind of your perspective on this whole topic to
0:02:34 start so start by saying like josh is a longtime friend and i think is a hero of the industry
0:02:39 and i say that because you know he started first front ventures back in the very dark days i forget
0:02:44 the exact year but you know back during the dark days of after the 2000 crash um and in fact you know
0:02:48 there was a period of time back there when you know the total number of angel investors or seed investors
0:02:54 operating in tech was you know maybe eight total and and you know actually ben and i were two of them
0:02:58 but you know this was sort of the heyday of you know ron conway and and um you know kind of a
0:03:03 you know reed hoffman and a very small group of people who were kind of brave enough to invest in
0:03:06 new companies at a point in time when you know basically everybody believed the internet was over
0:03:10 like the whole thing was was done and so he like i just think like that was an incredibly heroic brave
0:03:13 act it obviously worked really well it you know turns out by low
0:03:18 sell high actually it’s a good strategy it’s very good um it’s it’s very nerve-wracking when you’re
0:03:22 trying to do it but it does work and he he had brilliant timing for when he started and you know
0:03:25 the companies that he supported have gone on to become incredibly successful and we’ve worked
0:03:30 with him a lot um so you know we’re a big fan uh of his and then second is i would say i didn’t
0:03:33 actually i heard i heard there was a discussion yeah i never as a rule i never i never read or watch
0:03:37 anything i’m involved in so i told you well it wasn’t about you know and i totally missed it and
0:03:41 to summarize basically what he was saying is he coined this like venture arrogance score idea but
0:03:46 basically the idea is you know if you’re going to own 10 percent of a company at exit and you want
0:03:50 to have a 3x fund and you’re probably going to have a power law of outcomes you basically need your big
0:03:54 outcome to be like really big and so like how’s the math shake out and basically you know the
0:03:59 question he was sort of posing broadly is are the outcomes going to be much bigger you can own a lot
0:04:03 more you can hit a lot more winners but it was sort of like that math question so i’ll say a couple
0:04:08 things so one is look venture is a is actually a customer service business in our in our view so start
0:04:12 with this so uh it’s actually a customer service business there are two customers there are the lps and
0:04:16 there are the founders um and we think of them both both customers and so you know at the end of
0:04:19 the day the market’s going to figure this out and the lp money’s going to flow to where
0:04:23 obviously they think the opportunities are and the the founders are certain you know as you know the
0:04:26 best founders definitely pick who their investors are it’s actually very unusual right asset class
0:04:31 it’s the only asset class in which the the recipient of the capital picks the yeah you know picks the the
0:04:34 you know actually actually cares where the money comes from and picks picks picks it so the market
0:04:39 will figure this out um i i think the big thing to respond in your general point i think the big thing
0:04:45 is the world has really changed um and so you know modern venture capital uh in the form that we
0:04:49 understand it is basically um you know there were examples of venture capital going back to like the
0:04:53 15th century or something with like you know queen queen isabella and christopher columbus and
0:04:57 whalers off the coast of maine in the 1600s and so forth but modern venture capital was basically a product
0:05:01 of the 50s and 60s originally this guy jock whitney from the whitney family sort of created the model
0:05:06 george dorio who’s a mit professor created a version of it and then you know and then the great you
0:05:10 know the great heyday of the 1960s vcs arthur rock and those guys um and everybody that followed
0:05:14 don valentine and pierre lamond and tom perkins and so forth gene kleiner you know all those guys
0:05:21 basically it basically from that period it’s called the 1960s through call it 2010 there was like there
0:05:25 was just there was a venture playbook and it became a very well-established playbook and it sort of
0:05:29 consisted in two parts one was a sense of what the companies were going to be like right and then the
0:05:33 other was what the venture firm should be like and so the the playbook was the companies are basically
0:05:38 tool companies right basically all successful technology companies that were venture funded in that
0:05:43 50-year stretch we’re basically tool companies right pixel shovel companies so uh mainframe
0:05:51 computers desktop computers smartphones laptops um internet access software sass databases routers
0:05:57 switches um you know disk drives all these things word processors tools right and so you know you buy
0:06:01 the tool you you the customer buys the tool they use the tool but it’s a general purpose technology
0:06:06 sold sold to lots of people basically it around 2010 i think the industry permanently changed and
0:06:11 and and and and the the change was the the big winners in tech more and more um are companies
0:06:16 that go directly into an incumbent industry right like insert directly and and i think the big turning
0:06:21 point on this was like uber and airbnb right where uber could have been like uber in 2000 would have
0:06:27 been special specialist software for taxi dispatch that you sell to taxi cab operators uber in 2010 was
0:06:32 screw it we’re doing the whole thing airbnb in 2000 would have been booking software for bed and breakfasts
0:06:39 right running on a windows pc um uh right and then airbnb is just like screw it we’re doing we’re doing the
0:06:43 whole thing and so and you know chris dixon came up with this sort of term the full stack startup
0:06:47 which he kind of meant but the other way to think about that is just you’re you’re actually the the company
0:06:51 is delivering the entire basically promise of the technology all the way through to the to the actual
0:06:55 customer which is basically quicker to get there also i suppose you get more margin capture when you do it
0:07:01 that way and you just get the technology seeped in rather than having to sell it through is that the idea prior to 2010 there were two kinds of tool companies
0:07:06 consumer tool companies and and business tool companies right so you know b2c b2b right as we
0:07:10 called them in those days and you know the consumer side was great but like you know consumer you know
0:07:14 it’s just like selling you know video games and consumer software is great you know flying toaster
0:07:19 screensavers it was great but there was only so far you know that was going to go and then and then the
0:07:25 b2b side for things like taxi dispatch or for you know bed and breakfast bookings the problem is like
0:07:29 you’re you’re selling advanced technology into incumbents that are not themselves technology companies
0:07:34 right and so are they actually going to take those tools and then actually build the thing
0:07:38 that the technologists know should actually get built more modern version of that is what you see now
0:07:43 happening with cars right so who’s going to build the self-driving electric car right is it going to be
0:07:48 a incumbent who’s able to adjust who’s buying you know good components to be able to do that or you know
0:07:53 is it going to be a tesla or a wemo yeah right that’s going to do that same with spacex and nasa i suppose
0:07:58 exactly yeah you could there are many companies that sell technological components that go into
0:08:02 rockets but was any of that going to lead to the existing rocket companies making the rocket that’s
0:08:07 going to land on its butt and then you know be relaunched within 24 hours right and so it’s and by
0:08:13 the way same thing airbnb or uber it had had you sold a the uber uberized version of taxi dispatch
0:08:17 software to the taxi would have been very good yeah would it have resulted in the uber customer experience
0:08:22 and so i think basically what happened was and there’s sort of you know these as peter says these
0:08:25 things are overdetermined so it’s a bunch of things that happened but it was sort of the it was sort
0:08:30 of the smartphone completed the diffusion kind of challenge for getting computers in everybody’s hands
0:08:34 and then mobile broadband completed internet access in everybody’s hands and then the minute you had
0:08:38 that there was just no longer you just had this ability to get directly to people in a way that you
0:08:42 just never had you didn’t have to like have a giant marketing campaign you didn’t have to you know have
0:08:46 a giant established you know consumer brand and so there was a way to kind of get to market that
0:08:49 didn’t previously exist and then you know and then look also consumers just evolved and you know
0:08:53 people especially you know kind of gen x and then millennials were just much more comfortable with
0:08:56 technology than than the boomers were yeah and they you know the sort of gen x was entering you know
0:09:00 and boomers and millennials were kind of entering their consumer prime at the time this happened and
0:09:04 then you started having these big successes and so you started lining up uber airbnb and lyft and
0:09:08 spacex and tesla and you know you kind of you start stacking these up and at some point you’re like
0:09:12 all right there’s a pattern here right there’s there’s a thing that’s happening and and that’s what’s
0:09:16 happening we’re 15 years into that and what’s happened now is basically that idea now has blown
0:09:21 out basically across every industry right and so so so the tech industry used to be a relatively narrow
0:09:28 tools picks and shovels business today it’s a much larger and broader and more complicated uh basically
0:09:33 process of applying technology into basically every area of business activity the result of that is that
0:09:36 the companies are much bigger like when you’re the whole company when you’re both the picks and the
0:09:41 shovels to yourself of the whole company you’re much bigger and that changes venture math yeah you eat the
0:09:45 market right and so and so tesla ends up being worth more like there have been points in time in the last
0:09:49 five years when tesla has alone been more valuable than the entirety of the entire auto industry put together
0:09:56 right and spacex is you know like you go through this and uber is worth far more than the totality of every
0:10:00 black cab operator yeah and taxi cab company that ever existed everybody and b is worth far more than the bed and
0:10:04 breakfast industry ever was and by the way it turns out some of these markets just turn out to be much larger than
0:10:08 people think right when we do a retrospective on our analysis over 15 years like one of the things that’s been
0:10:13 hardest for us to do is to do market sizing and and and sometimes we overestimate market size but it’s
0:10:18 more often it’s the other way more often well for the winners more often it’s the other way yeah i guess
0:10:24 the uh the net blend is that you underestimate it yeah for in this this goes to venture economics you’ll
0:10:28 talk about so the the core thing on venture the core thing on venture bets right is because because
0:10:33 venture doesn’t run on leverage yeah right because nobody will bank yeah we’ll bank a startup or a
0:10:37 venture firm for leverage because there’s no assets when these things start yeah it’s asymmetric you can
0:10:42 only lose one x yeah um but you can potentially make a thousand x yeah and so that means right then
0:10:47 there’s two errors in venture there’s the error of of of commission where you invest in the thing that
0:10:52 fails and then the area of omission where you don’t invest in the thing that succeeds and of course over
0:10:56 just in the math overwhelmingly the error the error that matters is the error of omission and and so if
0:11:00 you run an analysis and by the way lots of people did this you run an analysis that says ride
0:11:05 sharing is only ever going to be as big as taxi cabs yep that leads you to the error of omission and not
0:11:09 making the bat and and and therefore the difficulty with market sizing in your view is this only is does
0:11:16 that only apply up to a certain size or you know and you look at some of the rounds that now happen
0:11:21 at huge valuations and companies that would otherwise you know be a large ipo like let’s say somebody’s
0:11:25 raising 10 billion at 100 billion or something like that does the power loss still apply up there like
0:11:30 how do you think about that type of round or do you see venture capital sort of turning into private
0:11:35 equity at some level at the higher end of things yeah so i think there’s two questions
0:11:40 kind of embedded in there one is why aren’t these companies public right that’s one question yes and
0:11:43 then and then the second question is like even whether they’re public or not like right can they
0:11:48 actually is it still the lose one win 20 type of dynamic yeah so i think there’s a bunch of ways to
0:11:51 look at that so like the smartest public investors i’ve met with basically have the view that the
0:11:54 public market actually works just like the private market with respect to this dispersion of returns
0:11:59 the the extreme case case i’ll make sometimes is um it may be that there’s no such thing as a stock
0:12:04 it may be that there’s only an option or a bond right like so so so and the reason is because there’s
0:12:08 there’s fundamentally two ways to run a company one is to try to shoot the moon one is to try to build
0:12:11 for the future and then the other way is to try to harvest the legacy right and if you’re shooting
0:12:16 for the moon the big risk the big then you’re the big risk of that is you know you might fail right
0:12:20 you might it might not work but if it works you have this telescoping effect in the public market just as
0:12:24 much as you have in the private market yeah and and historically the returns in the public market
0:12:27 have been driven by a very small number of the big winners in exactly the same way they’ve been driven
0:12:32 by that in the private market in fact you see that playing out right now in the s&p 500 so one of the
0:12:36 things i’ve been saying for years now is the s&p 500 is not it’s no longer the s&p 500 it’s like the
0:12:44 s&p 492 and the s&p 8 so there’s like 492 companies in the s&p that have no desire at all right
0:12:48 just like watching their behavior to like really charge hard at the future like they don’t want to do it
0:12:52 they won’t do it they’re not doing it and then eight are betting everything eight are all in
0:12:55 right and and you and then i always say say you know who are they and everybody always knows who
0:12:59 the eight are because it’s completely obvious yeah who the eight are because they’re the ones that are
0:13:03 building all the new things and then and then and then again if you if you disaggregate like public
0:13:08 market returns over the last 10 years you see the it’s just you see this just dramatic you know
0:13:12 explosion of value among the eight and and you see a you know relatively modest you know growth of the
0:13:18 of the 492 so even the s&p 500 is like having a portfolio of like bonds and options yeah and it’s it’s like
0:13:22 it’s like incredibly barbelled and and so i i just i think and then and then people people get cynical
0:13:26 on this and they say well you know if not for the eight you know the the stop you’re like yeah but
0:13:30 that’s the whole point that’s the whole point right if you have a healthy functioning capitalist economy
0:13:34 the whole point is some number of these things are going to go non-linear this is like when someone
0:13:37 says ah they’re not a very good investor but they invested in name that hundred billion dollar
0:13:41 company so they got lucky well you’re like okay yeah that’s the point like that’s the job
0:13:46 that’s the desired outcome that’s the thing you know any of us who you know this like you know
0:13:50 kind of classic joke like joke adventure is like isn’t there just a way to invest in the good
0:13:54 companies and not the bad companies it’s like yeah like yeah okay for 60 years we’ve been trying to
0:13:59 figure that out yeah here’s a fun fact in finding the analysis over the last 60 years every one of
0:14:03 the really great venture firms through that period missed most of the great companies while they were
0:14:07 while they were investing right they the best firms in the world whether it’s you know kleiner
0:14:11 perkins in the 90s or benchmark in the 2000s or sequoia in the 2010s or whatever like they just
0:14:16 like flat out missed most of the winners in each cohort right on the one hand you’re just kind of
0:14:20 like wow i can’t can’t you do better than that but you’ve had these super geniuses for a very long time
0:14:23 trying to do better than that and i you know we could have a whole separate conversation about why
0:14:28 this is so difficult the thing you said about companies building you know their the whole stack
0:14:34 roll-ups are super popular should i is it fair to take from what you said that you’re bullish on that
0:14:38 strategy or not necessarily and basically just you know to walk out what i mean you know instead of
0:14:42 you know building accounting software and selling it to the accounting firms just buy an accounting
0:14:46 firm become an accounting firm ai for yourself which i think is becoming like a more popular
0:14:51 strategy do you like that or is there a nuance why it’s different to buy something rather than build it
0:14:54 yourself from the beginning what do you think of this whole roll-up thing yeah let’s let’s come back
0:14:59 to the venture question because i was still i was still winding up into that but however this is
0:15:03 actually also relevant to that so yeah so there are a bunch of great really good firms that are trying to
0:15:06 do this roll-up thing i you know that i mean the opportunity with it is kind of very obvious
0:15:11 um the the challenge with it is just cultural change of an incumbent is just a legacy company
0:15:15 is just really difficult yeah uh charlie munger was once asked you know a few years ago uh he said
0:15:20 you know ge i think was the company’s going through a big issue at the time and he was asked at a
0:15:23 shareholder meeting how would you fix the culture at ge and he’s like i have no idea i don’t even know
0:15:27 how you would change the culture at a restaurant yeah that’s funny right like how do you do that
0:15:31 it’s really hard right it’s really hard yeah um and so you know you have to have a theory on that i mean
0:15:35 people they do have the people doing it do have theories um i i think we’re much more oriented
0:15:39 towards just trying to back well i think it gets a little into this like private equity mind it’s a
0:15:43 it’s a little bit of the venture private equity blend i see happening is related not even just in
0:15:47 dollar size but in the mindset here well this is where i go back to my bonds versus options thing
0:15:52 like fundamental the way i always describe venture is like fundamentally we are we are buying long dated
0:15:56 out of the money call options which like seems completely insane except when they pay off they pay
0:16:00 off like spectacularly well but like a lot of them expire out of the money and like you know you know
0:16:04 statistically top in venture capital has a 50 plus percent yeah yeah okay yeah i just want to get your
0:16:07 hot take i really wanted to hear about this but yeah we can go back to the venture math thing because i
0:16:11 think there’s a lot more in there okay good so so look so so anyway so what’s happened is the world has
0:16:16 changed the the the the the number of companies that are that are being founded that are going to be
0:16:19 important it keeps expanding the number of categories that those companies are in
0:16:23 keeps expanding those companies are more complicated now yeah because they’re they’re they’re full stack
0:16:28 they’re they’re in these incumbent industries um and then the winners are getting bigger right and
0:16:32 you and again you just look at that in the market i mean look we have you know of the of the s&p 8
0:16:35 they’re like oh they’re all venture backed right every single one of them was venture backed yeah
0:16:40 they are on any given day any one of them is bigger than the entire national stock market of
0:16:45 countries like germany and japan and the uk yeah right and so the the telescoping effect i mean
0:16:51 numbers are just absurd the telescoping effect of a victory is is is just incredible um right and so so so
0:16:54 what ben and i did is we looked at it we kind of we started our firm kind of as this was happening and
0:16:58 we looked at it we said all right like this is different this this is you could you could you could
0:17:01 you could sit here and do things the old-fashioned way but the world is moving on and then this goes
0:17:05 back to the customer service aspect the founders who are starting these kinds of companies need
0:17:09 something different yeah it’s it’s not sufficient anymore to just you know to have let’s say to have
0:17:13 investors who were operating the way that they were investing you know for the previous 50 years
0:17:17 that that that that’s not the value proposition that they need that’s not the that it’s not the
0:17:20 the help that they need and so there’s a different way to do it and so i i think what’s happened is
0:17:26 like the the industry the venture industry it it had to restructure in order to basically accommodate
0:17:30 the change in the market now having said that i don’t think that’s an argument that it’s just
0:17:34 therefore big big firms win everything that’s definitely not my not my thesis and by the way that’s
0:17:38 also not how i’m deploying my own money which which i want to talk about because i’m i’m living what
0:17:43 i’m about to say yeah um which is i think what happens is what nasim taleb calls the barbell and the way
0:17:47 to think about the barbell is basically you you basically draw you basically have a continuum and
0:17:51 on the one side of the continuum you have high scale and on the other side you have high specialization
0:17:56 and what you see in industries that mature and develop in this way including many industries in
0:18:00 the last hundred years basically what happens is as they as they mature and enter their kind of full
0:18:06 state as they kind of flower what happens is they often start with generalists that are neither
0:18:11 subscaled nor particularly specialized um and then uh over the fullness of time what happens is
0:18:14 they get disintermediated and then there’s scale players on the one side and there’s specialist
0:18:17 players on the other side the most obvious example of this in everybody’s lives is retail
0:18:21 um when i was a kid there were these things called department stores pretty good selection
0:18:25 at pretty good price but not a great selection and not a great price right and then sitting here
0:18:29 today those are all out of business like they’re just gone it gets crushed by amazon on one end
0:18:33 and then like amazing retail on the other end exactly exactly right and so and why do you go to
0:18:38 amazon or walmart or you know what the big and by the way there were even these big box guys you
0:18:43 toys r us and so forth and then over time like amazon and and walmart even even ate that because
0:18:47 when you go to amazon or walmart what you get is just like an unbelievable selection of basically
0:18:52 anything that’s a commodity right um you just buy at like super low prices and it’s basically impossible
0:18:56 to compete with that if you’re subscale yeah on the one hand and then your point and then the
0:19:00 specialist retail experience is like the gucci store the apple store yeah you know the the 15
0:19:04 candle they gave you some perrier when you walk in oh they love you like they’re so happy to see you
0:19:08 exactly right you know they’ll they’ll do private showings for you and you know they pour the champagne
0:19:12 and it’s like it’s like it’s like an entire experience yeah and and so what’s happening is
0:19:15 and and you just again you see this in like the return you just look on this return standpoint like
0:19:19 this is what’s happened this is where this is this is how the value is and then what happens is that
0:19:23 just like gaps way out and it never comes back together again yeah and then what the consumer does
0:19:28 is they build a portfolio of of their experiences and so they they buy things at unbelievably cheap prices
0:19:31 at walmart and amazon and then that gives them more spending money to be able to spend on the boutique
0:19:37 so so this middle the uh the the bar that’s in the middle that’s kind of screwed yes what is the
0:19:43 mechanic by which they’re in trouble is it because the customers go away the the the founder customers
0:19:46 go away yeah yeah the founder customers go away and then the office who are neither getting sort of like
0:19:51 the size and scale value nor are they getting like a special focus correct exactly can you do focus
0:19:57 can you be a specialist with a two billion dollar fund let’s say so obviously we’re at scale but we do
0:20:00 have a specialist approach inside the scale and so we have we have investment verticals they’re
0:20:05 discrete teams they have in some cases discrete funds and by the way they have like trigger pull
0:20:10 trigger puller trigger puller authority they can make investment decisions like we don’t run the firm
0:20:13 where ben and i sit and decide is this a good investment or bad investment like our specialists who make
0:20:19 those and you basically determine that by this is the size we think you can function this is the biggest
0:20:23 you can function as a specialist in a highly successful way and then we’re just going to put a bunch of
0:20:28 those together is that like what defines the size yeah well so it’s sort of it’s it’s stupid yes yes
0:20:31 but it’s two parts one is what’s the what’s the external view is what what’s the size of the
0:20:37 market opportunity just how much money does this does this strategy does this vertical need how many
0:20:41 companies are going to be how many different you know kind of how come how complex is it and then
0:20:45 the other is the internal dynamic which is like you know you want to like if you’re gonna have a team
0:20:48 you need everybody around the table being able to have a single discussion and that puts natural
0:20:54 limits on how big that can what’s your limiting reagent to building an even bigger firm is it number
0:20:59 of productive partners that can do this then like conflicts conflict policy conflicts conflict that’s
0:21:05 the that’s the single biggest issue by really so if you had 50 kill if you had all the great gps all
0:21:11 wanted to work here and you had like that would still be the issue yeah there would be issues there
0:21:15 will there would be issues for sure yeah point that would come with so what’s the conflicts thing the
0:21:19 conflicts thing so the conflicts thing is the the main line venture firms forever meaning meaning the
0:21:24 firms that do series a series b series c’s especially series a’s and b’s yeah the relationship with the
0:21:28 founder is just so too deep so it is too deep and if you as a venture firm invest in a direct competitor
0:21:33 it’s it’s just it’s a giant issue that the founder you’re already invested in will be extremely upset with
0:21:36 you by the way do you think that’s practical do you think it’s all emotions like do you think it’s correct
0:21:41 that firms shouldn’t do conflicts i would say when we were startup founders we felt this
0:21:45 very deeply it’s just it’s it’s okay so when you’re a startup founder i’ll channel the other the other
0:21:49 side of when you’re a startup founder the whole thing is so tenuous right it’s just like is this
0:21:53 thing gonna work there’s like 18 000 things and go wrong yeah people are telling you no every day no
0:21:57 i’m not gonna come work for you no i’m not gonna invest in you no i’m not gonna and then your board
0:22:00 member invest in a competitor and you’re like dagger to the heart dagger to the heart and then you
0:22:04 literally what happens is the founder is you have to go to the all hands meeting and explain why
0:22:07 your investor has given up on you yes right and and you go in there and you do some song and
0:22:11 dance about and they’re just and your employees are just like your employee basically your employees
0:22:15 look at you and they’re just like you the founder are so weak and lame yeah right you can’t even get
0:22:19 your board member to not invest in a competitor exactly what about the marginal stuff though because
0:22:24 like you know all these companies are near each other they blend they evolve over time so like how
0:22:29 is this how does this play out on a practical level for firms it almost never plays out the way that
0:22:33 the founders think it’s going to play out and i say that in two dimensions number one the company
0:22:36 this historically what we’ve seen is that the founders who think that they’re directly
0:22:40 competing with each other generally end up not doing so because one or the other of them changes
0:22:44 strategies and then they diverge which which by the way is natural because it’s like specie it’s
0:22:48 specialization the company specializes they end up not competing but the other thing that happens is
0:22:52 two companies that were not competing that you’re already invested in pivot into each other yeah and
0:22:55 then they’re mad at you and then they’re yes and then they’re very upset and you have to remind
0:22:58 them that like that you know you didn’t know that that was going to happen and it’s not your fault
0:23:04 and then they’re still upset um and so so i would say the the the founders are not the founders
0:23:08 and and also we have very low predictability of terms of where the conflicts are going to be
0:23:14 but that doesn’t ameliorate any of the emotion at the time and so it does it doesn’t actually help it
0:23:17 doesn’t help for us to explain to the founder oh don’t worry about this guy who you think is directly
0:23:21 competitive because he won’t be in a year yeah because you can’t prove that and and and the issue
0:23:26 is the issue is in the moment what does that leave your how does that impact your strategy meaning
0:23:33 like um if you know conflicts are this huge issue and you’ve got you know a big aggregate fund and so
0:23:38 it’s very important to catch winners and then you invested in you know blue origin which is really
0:23:43 good but spacex is you know bigger or whatever happens yeah what does that imply for your strategy
0:23:48 when it comes to like should we you know doing seeds and a’s and things like that correct versus like
0:23:52 say you know what let’s just wait till like the d correct let’s have d be our early stage that’s right
0:23:55 so the most obvious thing you do is you’re just like oh we just need to wait because we need we
0:23:59 need to wait for clarity just don’t deal with this whole issue right just wait just wait keep just
0:24:02 keep keep delaying and keep delaying until it’s obvious what the what the answer is if it’s big it’s
0:24:05 gonna be really big so we can buy later but then the problem with that is all right now you’re out of
0:24:09 the venture business right because now you’re doing as you came as you said now you’re basically doing
0:24:12 serious d’s now you’re a pure growth investor and by the way there are very good pure growth
0:24:17 investors um but like our determination is to stay a venture investor yeah because we think that that’s
0:24:20 kind of the whole point why is it so important is it just because it’s what you like or is there a
0:24:25 strategic reason that it’s important to stay doing early so we’ve always wanted i mean that’s
0:24:28 the way we’ve always thought about it is we’ve always wanted to kind of be the founder’s best
0:24:32 partner um and like to be to be the one who’s like the closest in the one that can really be relied
0:24:35 upon the one that’s gonna be around for the longest amount of time the one who they can really trust and
0:24:39 it only happens early yeah like it’s yeah it’s your it’s your early guys and so it’s hard to insert
0:24:43 after that yeah and then look the other thing is like there are great growth firms that do invest
0:24:47 later and have done very well but i we just think there’s so much information at the early stage
0:24:51 like so for example when we when we make a growth investment because we have the active
0:24:54 venture business that we have by the time we make a growth investment uh you know we have either
0:24:58 invest in the company for several years or at the very least we’ve met with them repeatedly yeah over
0:25:03 time and so we just we end up with just like enormous amounts of of information and then the
0:25:06 other thing by the way is you know there’s there’s there’s kind of time arbitrage which is you know
0:25:11 sometimes the right and the right answer is just like okay just invest in spacex or whatever later on
0:25:14 but sometimes the answer is no there’s actually a new thing you know totally do you invest in the
0:25:18 my space growth round at the you know the facebook the facebook seed round like and if you if you’re
0:25:22 not in the early stage you you won’t know that because you won’t see the you won’t see the early
0:25:25 things yeah um and then by the way the other thing i just say is financially one of the one of the things
0:25:29 people say that is inaccurate as they say if you’re running a big fund you’re not going to have
0:25:33 the time to spend on the early stage opportunities because you can’t justify it before you’re putting
0:25:36 the money but that’s actually not true in venture because the aggregate dollar return
0:25:40 opportunity on early stage is just as high as any growth investment right because if you get the right
0:25:44 venture investment and you can make 10 billion dollars on the upside case it’s definitely worth
0:25:48 my time to spend with your so i spend as much time as i can with the early stage founders you know for
0:25:53 that reason so the barbell there’s you know there’s big on one end there’s something sort of like me on
0:25:58 the other end selfishly i’d love to know like you know i would assume you think it’s better to be the
0:26:03 big version but you know if you were conditioned on needing to be me um at the small end of the barbell
0:26:06 like how would you approach it and what’s they’re both good they’re both good this is the thing is
0:26:09 they’re both good they’re both good and if i were for some reason not doing this i would immediately
0:26:13 do what you’re doing right so okay that’s good to hear yes 100 and then and then i and then i would
0:26:18 say i i actually invest this way so my liquid assets are basically tied up in either a16z funds on the
0:26:24 one side or i run a very aggressive personal investment program in early early basically angel and early
0:26:28 stage seed funds it’s because i believe in the barbell i believe in the barbell so much and so
0:26:33 but the conflict thing i wanted i wanted to explain because that’s the issue so the the big for like
0:26:37 we do seed investing it’s just we have this problem every single time we’re looking at a
0:26:40 seed investment which is like are we really fully convicted that this is going to be the winner
0:26:44 even at seed it creates a conflict so for a board seat there’s debates there’s there’s always debates
0:26:48 on this is like you know do the seed ones care as much do the growth ones care as much do the
0:26:52 ones care as much what i tell you is it’s not a logical question it’s an emotional question and
0:26:56 we’re just very sympathetic to the founder that needs to be able to yes justify their you know
0:27:00 authority also definitely can’t ask while you’re like if somebody asked me while they were making
0:27:03 investment hey is it okay if we invest in a conflict in a couple years i’d be like what are you talking
0:27:06 about you know we’ve done these things we’ve tried that we used to have this thing we used to have
0:27:10 this separate branded thing called a16c seed and we were like well we have a different conflict policy
0:27:14 on this and it’s it’s a great in theory but it’s like no it’s a16c and so the way i think about it
0:27:19 basically is like the more successful you are as a as a as a venture firm the bigger the issue this is
0:27:23 going to be because the more the people that you were investing in are going to care yeah and so it’s
0:27:27 it’s just it’s like the downside of success but like success you know right sure right the only
0:27:31 people who like the only investors you don’t care whether they invest is if they if they literally
0:27:33 if you don’t care what they think about anything right if they if they just don’t matter at all
0:27:38 and everybody knows that they don’t matter at all so so so so there’s that so so so therefore it can
0:27:42 be simultaneously both of these things are true number one is we still we we definitely do lots of
0:27:46 early stage investing and we will do we will do we do make seed beds but it’s just also true that
0:27:51 we can’t structurally for for this we cannot do all of the seed investments that we would like to do in
0:27:54 fact we can’t even do a tiny fraction of them it’s just like strategically we just
0:27:59 structurally we just we just can’t do it um and so and again this goes back to the barbell so so
0:28:03 that means structurally it’s the same reason why amazon can’t give you the champagne you know
0:28:06 experience right it’s the same thing they can’t they’re not set up for it they can’t do it it’s not
0:28:11 a scaled strategy and so what has to happen is there has to be the other side of the barbell there has
0:28:17 to be the specialization and intense focus and deep relationship yeah um right um uh thing and and
0:28:21 that’s and that’s the role of the angel investor and the and the seed investor and that’s and of course
0:28:27 in startups that’s incredibly important because that’s the most formative right fraught time in
0:28:31 the life of these companies is when they’re first getting started right and as you know right half the
0:28:34 time these are people who haven’t you know they haven’t started a company before they haven’t run
0:28:38 a company before some of them haven’t had a job before yeah and so like they they need to learn a
0:28:42 lot and they need people to work with them on being able to do this and they need to figure out how to
0:28:47 actually you know do these things and so there there have to be and there are like incredibly high
0:28:52 quality seed investors angel investors um on that side of the barbell um the the the big firms
0:28:56 presumably you know if we succeed we succeed by generating large numbers of aggregate dollars and
0:29:00 a very good you know percentage return the seed investors have you have this perpetual opportunity
0:29:04 to just absolutely shoot the lights out yeah right on upside and you can you know you know there are
0:29:09 seed funds that generate like 200x 300x returns yeah right yeah and so these are both good strategies
0:29:14 they’re both adapted to the current reality market there’s just two things that fall out of that
0:29:17 one is the death of the middle which is it just doesn’t make sense to have the old fashioned
0:29:22 you know series a series b six gps 300 million dollar funds sitting on santo road waiting for
0:29:26 people to walk in the door yeah like those days are over and those funds are you know those funds
0:29:29 are shutting down like that model’s going away and then the other thing that happens that causes some
0:29:34 of the tension is this what does a successful seed investor do right he raises more money and wants
0:29:40 to become a venture investor right right but then he he goes but then you’re you’re going from one
0:29:43 side of the barbell back to the middle and you’re creating that same problem again and i think that’s
0:29:46 where the tension is coming from i also feel like the mechanic that happens a lot of times is when
0:29:52 you grow the fund the only you you know you you raise a huge fund and then you start deploying
0:29:57 it into things just because you’ve got to deploy at some pace and so the threshold for i’ve got to
0:30:03 deploy 400 million this year and i only see 700 million dollars worth of investable things i’m going
0:30:07 to do four sevenths of them versus you know presumably if you only had to do one seventh of it you
0:30:12 would you know you’d pick better hopefully yeah which i think is a huge so i think that’s part of it but i think the
0:30:15 related thing is your competitive set has changed yeah and what we what we find with seed investors
0:30:18 who migrate up and then regret it later what we find is that they didn’t realize was their competitive
0:30:23 so right because now they’re going for bigger more competitive rounds against you and sequoia yeah all
0:30:28 of a sudden okay now you’re competing for 15 million dollar be good luck right right exactly and so it’s
0:30:32 just like and look like market fundamentalist if you have a better value proposition than sequoia you
0:30:35 should go you should you should go offer that right but i just i would not i would not
0:30:38 accidentally end up competing with sequoia for series a’s like i would just say that’s a bad way to live
0:30:42 yeah and i think that’s what happened what that is what has happened to a bunch of the seed funds that
0:30:47 have gotten larger why is it so rare for somebody to break through and get i mean you did it and that’s
0:30:52 one that happened in the last 15 years maybe there’s a couple others maybe but why is it as rare as it is
0:30:58 it seems like almost more rare than a new big company yeah in a way yeah that’s true in fact our analysis
0:31:03 actually when we started was there actually hadn’t been i think there had been two firms and
0:31:08 i mean thrive also so thrive was yeah they were after us yeah i mean they’ve done great but in the
0:31:12 30 years before us we think that there were only two new vcs that actually punched through to become
0:31:18 top tier um in other words vcs that were not either firms that were built in the 60s and 70s or firms
0:31:23 that weren’t derivations of those firms founders fund no no no no no the founders started at actually
0:31:27 around the same time we did okay um they were a little bit earlier but around the same time but i mean
0:31:31 over the preceding like 50 years okay seven rosen you won’t even know this is sort of the thing you
0:31:34 don’t even recognize i need to read a book or something so seven rosen was the venture from the
0:31:38 famously funded compact computer which was the big the big the big winner and then they went on to
0:31:41 become a successful firm this guy ben rosen yeah early early leader in the space and then there was
0:31:46 a firm called hermer winblad which was a software specialist firm in the late 80s early 90s um those
0:31:50 are the only two that punched into the the top end while they were operating wow neither one of them
0:31:54 you know sustained it but they got there they got there for a bit but that was like the success case
0:31:57 right so this is a little bit like elon looking at the history of the car industry and yeah you know
0:32:02 tucker automotive yeah in the 1950s so it’s so rare it’s very very rare so why why is it that rare two
0:32:07 reasons i think it’s rare so number one um that there’s the intimate reason for it and then a
0:32:12 sort of macro reason for it intimate reason for it is just it like you’re going to have this
0:32:16 incredible as the founder you’re going to have this incredibly intimate experience you know very close
0:32:19 trust relationship uh with whoever you’re working with and it’s like you know can you reference them
0:32:24 you know do they have a history of and track record of the kinds of behavior um that you need and the
0:32:28 kinds of insight you know that you need and it’s just like it’s very hard to do that it’s very easy
0:32:32 for an existing firm that has a long track record of success to prove that it’s very hard if you don’t
0:32:36 so that’s that’s like the close-in reason but then the other reason goes back to the way the world is
0:32:42 changing is we always believe the thing that you want from your venture firm is power um so the thing
0:32:46 is a startup that you want is you want them to like fill in all the missing pieces that you don’t yet
0:32:50 have when you’re starting a company that you need you need to succeed and so you need power and so
0:32:54 you need power it means like you need the ability to be able to like actually go meet customers and
0:32:57 have them take you seriously uh you need the ability to go get publicity and like you know
0:33:02 major you know channels you know it used to be media now it’s podcast um and be able to like get taken
0:33:06 seriously you need to be able to be taken seriously by recruits right because there’s thousands of
0:33:11 startups recruiting for engineers what makes yours stand out i sometimes describe it as venture firm
0:33:15 as providing a bridge loan of a brand until you have your own brand that’s big or bigger you know
0:33:19 for your own space than the vc you’re borrowing your vc’s brand exactly and that has been very
0:33:22 effective for a long time and that was how we looked at it when we were founders that’s why you did
0:33:26 media from the beginning yeah oh that’s one of the yeah one of the it’s one of the reasons yes but a
0:33:30 very very very powerful one yeah a very very major one yeah and then by the way you also need ability
0:33:34 to raise downstream money right you’re you’re gonna have to need to raise money again and so they either
0:33:38 need a lot of money or they need to be connected to a lot of money yeah exactly right exactly and so
0:33:41 you just better if they just have it yeah it’s like being full stack well then by the way now you’re
0:33:46 getting also like again you think like tools companies just never got into like for example politics
0:33:51 right or just let’s just say global affairs global events like what’s happening with you know
0:33:57 like what’s happening how do you navigate the world right how do you navigate Washington you know when
0:34:00 the regulators show up and they want to kill you like how do you navigate that or you’re like it’s to get
0:34:04 in some you know giant fight with the eu or what like so so the especially these full stack companies
0:34:09 they’re they’re they’re getting involved in like very complicated macro political geopolitical
0:34:13 situations like much more early and they have to like in some cases they have to like escalate up to
0:34:18 like you know senior government officials heads of state um you know major heads of sovereign wealth
0:34:23 funds they need to get to you know the ceos of major companies you know how do you get to the ceos
0:34:26 you know you’re you’re a new ai you’re a new ai company and you’re trying to redefine you know
0:34:30 visual production for movies how do you get to the studio heads yeah right the studio heads just don’t
0:34:33 have time to meet with a thousand startups so where are they going to meet with you right so
0:34:37 so basically it’s it’s projection of power um and this has been one of our one of our theories
0:34:42 how we built our firm is optimized for maximum amount of power in order to be able to give the
0:34:46 startups access to it right both the startups that already in your portfolio and but also the
0:34:50 startups that don’t even exist yet right and and again and this goes to why the scale thing matters
0:34:54 so much it’s just like all right there’s just there’s a scale aspect of power there’s a big
0:34:58 difference between being able to get to everybody who matters and not why is it rare for people to be
0:35:02 able to accumulate power even if they were like let’s say everybody was trying to do it it’s not
0:35:06 like everybody could do it what’s the cause of the rarity to be able to build enough power
0:35:12 in that sense we start with you have to want to um and so we met with the we met with all the gps of
0:35:15 all the top firms basically when we were starting out because we wanted to you know see who we could be
0:35:20 friends with and yeah it worked very well in some cases and not not well in other cases but uh one of them
0:35:25 told us this is a gp at a top firm in 2009 and he said yeah the venture business is like going to the
0:35:29 sushi boat restaurant all right and so the sushi boat restaurant so sushi restaurant where they’ve got
0:35:34 the boats yeah it’s got like a they’ve got like a water like a conveyor belt conveyor belt right and the little
0:35:37 sushi boat comes like a lots of them and there’s a tuna roll and there’s a you know shrimp roll and
0:35:41 there’s this or that and you and he said basically you just sit on sandhill road and you’re like we’re
0:35:45 gonna crush these guys and the startups are gonna come in and he said you know if you miss one it
0:35:48 doesn’t matter because there’s another sushi boat coming up right behind it and he’s just like you
0:35:51 just sit and watch the sushi go by and every once in a while you reach into the end of the thing and
0:35:56 you pluck out a piece of sushi and we walked out and it’s like like what the hell that’s funny like in
0:36:02 what industry is 2009 or 2009 yeah like that was a very common this again is the mid this was the
0:36:07 mid-sized venture one of the reasons when when i when i came like look in 1994 i mean it might have
0:36:11 kind of been like that it was it was when i came to silicon valley 1994 i had never heard the term
0:36:15 venture capital right i didn’t even know the thing existed and then as my business partner jim clark
0:36:17 explained it to me and i was like there are guys like they’re just sitting there waiting to give
0:36:21 you money and but you see this and you’re like this is going to get eaten alive of course this is
0:36:25 absurd like the minute anybody takes this seriously it’s all going to change right and so it was this
0:36:28 very clubby cartel you know basically kind of thing and again it was fine as long as the
0:36:32 ambitions of the industry were constrained and then and but then again look the the the tools
0:36:35 companies they didn’t need all the power they didn’t they needed some of the power right but
0:36:38 they didn’t need all the power you know they weren’t dealing with like governments right or you know
0:36:42 these sort of big macro issues um you know at least you know in the early years well okay so here’s
0:36:48 another thing that’s happened is just the world is globalized like so startups 30 years ago you would
0:36:52 spend your first decade just in the u.s and then you would start to think about europe and global
0:36:56 expansion and and now you just you have to think about being a global company up front because
0:37:00 you’re gonna if you don’t like you’re other people are gonna do it yeah right um and so you just you
0:37:04 have to chin up like as an entrepreneur like the expectations are much higher than they used to be
0:37:11 maybe one final question on this topic of fund size and then i want to go to ai um what do you think
0:37:17 and i know you thought about this a lot what do you think is the limiting factor for the creation
0:37:22 of a lot more really big companies yeah do you think it’s founders do you think it’s capital do you
0:37:26 think it’s market maturity do you think it’s underlying tech stuff like if you had to pinpoint
0:37:31 the one or two things that you think would allow for there to be way more big companies like what is
0:37:37 it so there’s sort of the holy trinity of venture uh startups which is uh you know people market and
0:37:41 technology um and i think the answer is sort of all three and the way i would describe it is there’s
0:37:46 some limiting issue with just markets just how many markets are there how big are they how ready is the
0:37:50 market to take something new then there’s the technology question which is you know when is
0:37:55 the technology actually the like for the venture perspective technology moves in stair steps right
0:37:59 and so things become possible in the world of smartphones that just weren’t possible you know
0:38:03 you couldn’t do uber when everybody had a laptop you had to wait till they had phones yeah right um and
0:38:07 so technology moves in a stair step you get these you know paradigm shifts platform shifts and and those
0:38:11 just they come when they come yeah and until they come you can’t do it and then and then the people side
0:38:16 you know and this is the one that you know i say you know vexes me the most which is like okay like
0:38:22 how do you just get more of great great founders yeah right um and i think part of that is you know
0:38:26 you i think there is definitely a training thing that is real and getting people into the right scene in
0:38:29 the right way and like the thing that my accommodator does or the thing that deal fellows do like
0:38:35 those are real things um and those help a lot but also you know there is an inherent you know there
0:38:39 are just certain there’s there are not infinite number of people running around who have the
0:38:42 you probably figure there’s a lot of people who could have built big companies who haven’t though
0:38:47 and hopefully a lot yeah few yeah i don’t know some some i don’t know some number but there must be
0:38:52 people who are just like in academia or government or education who are just doing something completely
0:38:56 different who if they were attracted to startups would have built a big company so yes but then the
0:38:59 other question is like well okay then why didn’t they why didn’t they do the things required to get
0:39:04 themselves in that position well it could have been then like 2001 it was just like too many people were
0:39:07 too scared to do it or didn’t know about it or whatever what does that tell you about the people who
0:39:12 didn’t do it yeah they they were heard i can tell you who didn’t listen to that right it was mark
0:39:17 zuckerberg are there more good let’s just press this point harder for a moment which is like i always
0:39:21 describe this as like i always call this the test with capital t which is like okay like if you’re not
0:39:24 in position to do the thing it’s the fact that you’re not positioned to do the thing meant that you
0:39:28 flunked the you’ve already flunked it well i guess the question would be are do is there a subset of
0:39:35 people who could build facebook who other than being too scared to do it would have had all the other
0:39:39 ingredients and so when everybody’s not scared you get more facebook’s you know there’s a line in the
0:39:42 i actually never saw the movie but there’s a line in the movie if you could have built facebook you
0:39:46 would have built facebook yeah yeah there is a line yeah yeah yeah that’s right that was a good line
0:39:53 right and so this is the thing it’s like you know are there more great founders today than when you
0:39:56 were let’s say in that like do you think there are more now than there were 20 years ago i believe
0:40:01 there are but like i maybe there’s how many more are there right is it five times more is it like 50
0:40:06 percent more or is it well so like the number of wins is increasing like so the so we used to talk
0:40:10 about the 15 15 a year that matter it’s that’s up numbers probably if you do the analytics probably up
0:40:14 like 10x you know there’s like 150 companies 150 companies a year that like really matter and the
0:40:18 reason is because there’s so many more sectors now right so there’s the in the industry maturation and
0:40:21 so kind of by inference there kind of have to be like you’re saying the markets are better more than
0:40:24 you’re saying the founders are better well maybe a little bit of both also look also i think the
0:40:27 founders are getting better part of the founders getting better is they have better training
0:40:31 they’re all on the well to start with they’re just all online yeah so so when i showed up here in
0:40:35 1994 like literally there’s like three books in the bookstore none of which were that great yeah it’s
0:40:39 not that the dna is better it’s that they’re now the ecosystem has matured to teach people better yeah
0:40:42 and like people come in and they’ve watched every video you know they’ve watched every episode you know
0:40:46 your podcast i’m like right and they they just walk in knowing all this stuff um and then you know look
0:40:50 and then look the white commentator didn’t exist and you know that definitely helps and and you
0:40:54 know teal fellows didn’t exist and that definitely helps um there’s you know brian you know has this
0:40:58 great term seniors seen you know seen plus genius right and so it’s just like you know the individual
0:41:03 genius on his own is always it’s always you know it’s hard to get things done yeah some people do
0:41:07 but it’s difficult it’s more often more often in a profession where you’re seeing creativity happen
0:41:11 yeah there’s almost always a scene you know there’s you know silicon valley is definitely a scene in that
0:41:15 way people people come here and they just they kind of get i don’t know they just get better they
0:41:19 just you know they meet more people who are like them they’re able to aggregate together they learn from
0:41:23 each other so yeah so look the founders are getting better there’s more of them but is is there does
0:41:28 that mean there’s now 10 000 as opposed to a thousand yeah i don’t know there’s and there’s
0:41:31 eight billion people on planet earth why are we why are we debating whether it’s a thousand or ten
0:41:36 thousand yeah right and so i and i just i that i don’t know yeah i would hope over the next you know
0:41:40 years and decades we’ll all figure out a way to go make sure we get everybody who can do it and get
0:41:46 them to do it that’s a good segue into ai do you feel that we’re now at the beginning of what is like
0:41:53 the new next important you know paradigm like is this cloud but on steroids yeah much i think much
0:41:58 i think much larger and i’ll explain why so um yeah so so i described you know i described i described
0:42:02 before right you know the the triangle people technology market the the technology is ultimately
0:42:07 the driver is the the technological for venture the technological step function changes drive drive the
0:42:11 industry and they always have right and so if you talk to the lps you can see this is like when when
0:42:15 there is a giant new technology platform it’s an opportunity to reinvent a huge number of companies
0:42:20 and products that you know now have become obsolete and create a whole new generation of companies often
0:42:24 and you know generally end up being bigger than the ones that they replaced and so so so and the
0:42:28 venture returns map this and so they come in waves and the lps will tell you it’s just like yeah there
0:42:32 was the pc wave the internet wave the mobile wave the cloud wave like that was the thing and then by
0:42:37 the way when in venture when you get stuck between waves it’s actually very hard right because you’ve seen
0:42:39 this for the last like five years like for the last five years it’s like how many more sas
0:42:44 companies are there to found like just we’re just we’re just out of ideas we’re just out of categories
0:42:49 yeah yeah done yeah right and so it’s when you have a fundamental technology paradigm shift that gives
0:42:52 you an opportunity to kind of rethink the entire industry it would have been very sad by the way
0:42:56 if the ai breakthrough didn’t happen like the state of venture would be sad i think three years ago this
0:43:00 was i mean so when we were talking to rlps three years ago we’re just like basically like you know
0:43:05 we’re in you know we’re so uh chris dixon has this uh uh framing he uses he calls it your adventure
0:43:09 you’re either in uh search mode or hill climbing mode and in search mode you’re looking for the hill
0:43:12 and it was search mode right and three years ago we were all in search mode and that’s how we
0:43:15 described it to everybody which is like we’re in search mode and there’s all these candidates for
0:43:18 what the things could be and ai was one of the candidates right it was like a known thing but it
0:43:22 hadn’t broken out yet yeah in the way that it has now and so we were in search mode now we’re in hill
0:43:27 climbing mode thank goodness yeah big time yes yeah and then and then you know look like i i as i say on
0:43:31 the technology breakthrough itself i think a year ago you could have made the argument that like i don’t
0:43:36 know if this is really going to work because llm’s you know hallucinations can’t you know it’s great that
0:43:39 they can write shakespearean poetry and hip-hop lyrics can they actually do math you know can
0:43:44 they do can they write code and now obviously and now now they obviously can and this this i i think
0:43:48 for me the turning point moment the moment for certainty for me was the release of o1 uh so o1 from
0:43:52 open ai the reasoner and then and then deep seek r1 the minute i the the when those happen kind of back
0:43:56 to back and the minute those popped out you saw what’s happening with that um and the scaling law
0:43:59 that was around that you’re just like all right this is going to work because reasoning is going to work
0:44:03 and in fact that is what’s happening like it’s it’s it’s you know and and i would say just every day i’m
0:44:07 seeing product capabilities yeah you know i’m seeing new new technologies i never thought i
0:44:12 would live to see like really profound um i actually think the analogy isn’t to the cloud or to the
0:44:16 internet i think the analogy is to the mission of the microprocessor i think this is a new kind of
0:44:21 computer being a new kind of computer means that essentially everything that computers do can get
0:44:25 rebuilt i think so so we’re investing against the thesis that basically all incumbents are going to
0:44:29 get nuked yeah and everything is going to get just across the board just across the board now
0:44:33 yeah we’ll be wrong in a bunch of those cases because some incumbents will power law the things
0:44:37 that are right will be super right will be super right exactly and then look the the ai makes things
0:44:41 possible that were not possible before um and so there’s going to be entirely new categories by the
0:44:46 way is your mindset there that you should just bet on like obviously incumbents are going to win some
0:44:49 percentage and startups are going to win some but it’s basically the dominant strategy as a venture
0:44:55 capitalist to just plan to bet that startups are going to win it all and go for the power law yeah that’s
0:44:58 right that’s right well and again the reason is because remember two two customer sets the way the
0:45:03 lps think of us the way the lps think of us is as complementary to all their other investments yeah
0:45:07 and so our lps all have like major public market stock exposure like they don’t need us to bet on
0:45:13 yeah incumbent health care you know whatever company right they they they need us to fit a role in their
0:45:18 portfolio which is you know to try to maximize alpha uh based on uh you know based on disruption yeah
0:45:22 um and and then and then again and then just again the basic math adventure which is you can only
0:45:26 lose one x you can make a thousand x and you just like slam that forward as as hard as you can so when
0:45:33 you have a moment in time worldview like this do you you know as a firm leader do you give a directive
0:45:40 that’s basically like hey everybody we need to deploy in this kind of way right now or do you just build a
0:45:44 system that’s always picking birds out of the flock from like the bottoms up and you just like well
0:45:48 they’re smart they’re going to see that every opportunity is good like how much is it like a top-down
0:45:53 guidance versus you know the market’s just obviously good all around yeah so we don’t do like i said we
0:45:57 don’t do top-down investment decision making and so ben and i aren’t sitting saying you know we need to
0:46:02 invest in category x we need to invest in this company versus that company and we don’t run we run we
0:46:05 have a legal investment committee but we don’t run a process where they come to us to get approval
0:46:09 because you’re letting the leader of each group sort of make those yeah and and and and often in those
0:46:13 groups it’s actually delegated for the further it’s delegated to the individual individual gp or check
0:46:16 writer and and the reason for that is we just think that the knowledge of knowing what’s going on and
0:46:20 which one’s likely to win is going to be focused in the mind of the person who’s closest to the
0:46:23 specific thing but do you have like a risk slider are you like hey guys let’s get a nine right now
0:46:28 so this this this is the funny thing so venture is the only asset class in which the leaders of the
0:46:32 firm are in the position of trying to get the firm to take more risk not less risk on a regular basis
0:46:37 exactly because right because the the natural orientation towards any kind of anybody who’s in an
0:46:40 existing business there’s a natural organizational incentive to try to reduce risk because you want you
0:46:44 just want to like hold on to what you have and not yeah upset the apple cart yeah and so ben and i are
0:46:49 generally on the side of like take take more risk um one of the one of the one of the applications
0:46:55 of this is a old sequoia adage which is they say when in doubt lean in like so so for example so where
0:46:58 you see this i’m sure when you do it is it’s just like okay there’s this thing there’s this company
0:47:02 that is like potentially very interesting but like there are these issues right and it’s just like
0:47:06 it’s too early and this and that and this weird guy’s got a weird background and it’s just that bad
0:47:10 and he’s in a you know whatever i don’t know the issues and you know there’s a hair yeah you know
0:47:13 there’s hair on the deal there’s no hair on the gp that’s funny that’s good but there’s hair there’s
0:47:16 hair on the deal the founders tend to have have really good hair they’re saying the deal and it’s
0:47:20 just like all right like what do you what do you how do you calibrate that right and and and the
0:47:24 history and again the history of venture is when you see something that’s very promising and there’s
0:47:28 a lot of hair on it sometimes when you invest it’s going to go to zero yeah because the hair is going
0:47:31 to kill it and then sometimes when you invest it’s going to be the next but it’s like something
0:47:35 where you’re like i love that i hate that it’s much better than yeah everything’s fine
0:47:40 100 and this is the way we describe this is invest in strength not in lack of weakness or another way
0:47:47 to think about it is it’s not good versus great it’s very good versus great that’s the differentiating
0:47:51 good from great is very straightforward differentiating very good from great is actually
0:47:56 very hard and and again the risk reducing way to try to do that is as you kind of alluded to would
0:47:59 be kind of the checkbox thing which was like very good team very good market very good this very good
0:48:04 that and then you have this other one where it’s like they’ve got six great things and nine like
0:48:10 horrible things right yeah okay which is the better bet totally usually yeah usually it’s the it’s the
0:48:14 thing with with the greater strengths um statistically by the way this shows up in the return data from
0:48:20 the lps which is the top decile firms have a higher loss rate um than than than everybody else um which
0:48:23 is which is called in baseball called the babe ruth effect which is the home run hitter strike out more
0:48:27 often yeah so the top performing venture firms statistically tend to have a higher loss rate than the
0:48:32 mediocre firms right and it’s for this reason they’re willing to invest in the thing that is just looks
0:48:37 like completely nuts um but has that magic something yeah um and so so when ben and i think about trying
0:48:42 to get the the team to take more risk it’s almost always it’s basically either that kind of thing which is like
0:48:45 look and it’s what and what you’re doing is you’re telling the person closest to it go with your gut yeah if
0:48:50 your gut tells you there’s something magical here like go ahead it’s okay because we’re going to have some
0:48:54 losses so it’s okay to make the bad if it if it if it if it breaks because of the hair that’s fine
0:48:58 and but then then the other form of risk we try to do and i i do this a lot is just you know i am
0:49:02 trying to push the firm constantly it’s like go earlier yeah right because again that for as we
0:49:06 discussed earlier the natural inclination is to wait right um and it’s like no no no go earlier like
0:49:10 we do actually want to make these these these you know we we’ll make some seed bets but we definitely
0:49:14 want to make like a lot of a a bets yeah and again we’re going to lose a bunch of those like we’re
0:49:18 going to screw those up and miss the winner or whatever but like we we have to do that because we have
0:49:21 to get into some of these things early we have to you know get get the level of percentage you get
0:49:24 in the a yeah that kind of relationship yeah i guess there’s risk that’s of the flavor of like
0:49:30 do things that are more asymmetric where there’s hair but also brilliance correct there’s also the flavor
0:49:37 that’s just like well sometimes something i struggle with is the deals where i just barely said yes and just
0:49:40 barely passed i’m like i don’t actually have that much confidence that i can tell the difference between
0:49:44 those yeah there’s another flavor of sort of be more aggressive which would just say like
0:49:48 just do a higher percentage of those ones where you’re like right on the line
0:49:51 do you give that kind of guidance like do you think like that too where you’re like
0:49:55 it’s not just do the more out there things and we’re swinging for the fences but it’s also like
0:49:59 let’s just do a little bit more right now in general yeah so we used to run this process we
0:50:04 call the anti-portfolio um uh the shadow portfolio um and so the shadow portfolio was we used to track
0:50:08 this statistically for like the first five years exactly on this point which is every time we do an a
0:50:12 every time we do it pull the trigger on a round let’s put in the shadow portfolio the other company we
0:50:16 were looking at at around the same time that we didn’t end up pulling the trigger on yeah and then let’s
0:50:20 build up representative like build up the ultimate you know the earth two portfolio i’m so curious
0:50:25 well so and the good news is it turns out generally that the main portfolio did better than the shadow
0:50:29 portfolio but the shadow portfolio was close it was a good book did really well yeah right exactly the
0:50:32 point and so and then you’re okay so then you’re just like okay you’re not that smart but you’re just
0:50:36 like okay obviously what does that mean it means do them both right and again this goes to the
0:50:40 thesis of like how big should these firms get it’s just like well if you had the opportunity to do
0:50:43 both the portfolio the shadow portfolio you should do them both what’s the constraint on that as we
0:50:48 discussed is complex yeah um but generally speaking you should try to do both yeah and and by the way
0:50:52 this is the this is the um i don’t know if it was josh or the other the other podcast that they were
0:50:56 talking about this but you know at least i saw a reference to like a statistical analysis of like
0:51:00 win rate or whatever return you know percentage returns or whatever or percentage of wins it’s just
0:51:04 like it doesn’t in venture math it doesn’t matter it doesn’t matter the the thing that matters is
0:51:08 were you in the next big thing as early as you could get in and buy as much as you did like that’s the
0:51:12 only thing that matters because if you don’t do that you miss out on the thousand x gain
0:51:18 the one x losses don’t matter they wash right out yeah um and so this idea that somehow there’s some
0:51:23 like virtue to being like a you know small you know we only make a few bets we have a higher percentage
0:51:30 it does yeah how much i’m glad people think that that’s a i would like to encourage people to uh to
0:51:35 think that that’s a virtue that they should shoot for it seems like it’s very hard to assemble lots of
0:51:40 you know very good productive gps into the same firm it’s just objectively rare yeah that’s right
0:51:44 you’ve done it but it’s like doesn’t happen very often yeah do you i guess my first question on this
0:51:51 is do you think of just finding greatness and then you can’t really teach it much you know so you’re
0:51:56 basically just going to like hire people and see how it goes or do you think that it’s about creating
0:52:01 the system and conditions in which people do great work and you can actually create good investors
0:52:06 yeah so i think it only works if there’s a point like if there’s a reason why you would have the
0:52:11 aggregation of gps in the first place and our answer to that is power right the the our pitch to gps as
0:52:15 to why they should join us as opposed to go to a smaller firm or start their own thing is if you come
0:52:19 here you just like plug into this engine that’s just like massively powerful and so everything that
0:52:22 you do the effects of it are going to just be like blown completely out it would be much more
0:52:25 satisfying and you’re going to be able to actually help the companies a lot more and you’ll
0:52:29 probably see more companies anyway yeah so everything probably gets better yeah that’s right that’s right
0:52:31 and by the way you know some people want to have colleagues some people don’t want to have
0:52:34 colleagues but some people do want to have colleagues and you’ll be working with people you
0:52:38 like and you know who care about the same things you do so but there has to be a there has to be a point
0:52:42 to it and of course it’s you know it’s on us to keep proving that right because you know the the devil’s
0:52:46 in the details of whether they’ll actually you know buy that but so far so far a lot of a lot of really
0:52:49 good great people have and then yeah and then the second part of the question is like okay who do you
0:52:55 who do you put in those roles um historically we had a history our old model was basically we only hire gps uh we
0:52:59 don’t we we were not developing and we could go through why that was the case we changed that like eight years ago we
0:53:03 we now develop our own gps um that we’ve evolved to where i think that’s that’s working quite well
0:53:07 um i think the answer to your question is it’s a two-part question is there’s some level of just
0:53:12 objective you know are they are they are they are they good are they good at doing the job yeah
0:53:17 here’s a big thing we focus on when we evaluate them which is um you know it’s fine to invest in a
0:53:23 category like five years early or like whatever something goes wrong like that’s fine what’s not fine is
0:53:27 you invest in the wrong company and you could have invested in the right company yeah like at the
0:53:31 moment you made the investment you could you made the wrong decision in that moment of which one you
0:53:35 should invest in and you could have known and so it’s like did you do the work to fully address the
0:53:39 market how do you handle the fact that like you don’t know that until like six years later and now
0:53:42 you’re going back and you’re like hey you made this mistake six years ago this isn’t going to work
0:53:47 out now so it’s generally so good that is a giant problem um and i would say that when we started
0:53:51 actually when we talked to our friends in the business what they said basically was they said number one you
0:53:54 you don’t know if somebody’s a good gp for 10 years because you don’t have the return data and
0:53:57 then they said number two is nobody ever wants to admit that they made a mistake and so they never
0:54:00 actually fire anybody yeah um so what they do is they just keep them on the masthead and they just
0:54:05 kind of gently like you know retire them out but they they sit and pollute uh one of the guys running
0:54:09 one of the big firms 20 15 years ago told me his he said they hired a partner is that they hired a
0:54:13 partner it’s an older firm so they hired a partner in 1984 um who was like a big deal at the time in the
0:54:17 industry and you know the lps were very fired up about it and he said he then proceeded to just like
0:54:20 nearly ruin the firm over the next 20 years that’s crazy because he said he want he said all of his
0:54:24 investments were bad but then it was even worse that he talked him out of all the other good
0:54:27 investments they called it and he said we couldn’t get him out you know the reputational damage was
0:54:32 too great so so this is a long run and then by the way a lot of these firms are partnerships yeah the
0:54:37 problem with the partnership is partnership sounds good yeah the problem is you you end up with lots of
0:54:41 internal dissension and then you you can’t make decisions yeah so this is a big issue um i guess what
0:54:46 i would say is like for example the thing i talked about it’s just like it’s it’s it’s not a it’s it’s a pro it’s a
0:54:50 what i just described as a process issue not an outcome issue right which is like are you doing
0:54:55 the work yeah right like it’s an actual job like you’re are you doing the work if you’re not doing
0:54:58 the work it’s relatively clear you’re not doing the work and you’re probably not doing the work not just
0:55:02 on one thing you’re probably not so you do try to really look at the input oh yeah very much so yeah
0:55:06 we evaluate the inputs just as much as the outputs what what do you do with an investor i’m sure you’ve
0:55:11 had this at some point where the inputs are not particularly good they hit this one outlier thing
0:55:15 the outputs are objectively now good yeah and so you’re looking at that situation or the inverse
0:55:19 so this is the other so this is the other part of it the other part of it is i think there’s just a
0:55:26 subjective criteria for venture which is just are you good at it yeah and like do you have taste yeah
0:55:30 which is unquantifiable this is one of the nice things about your model too where like you somebody
0:55:34 gets to make a call versus in these partnerships i think it would be very hard when nobody gets to
0:55:38 make calls like this because at some point someone has to just like make a determination on this
0:55:41 stuff yeah that’s right and then even you know and even who even made the call you know gets gets
0:55:46 lost um yeah so so so i think there’s a taste thing and then look i think there’s also just like a
0:55:51 there’s like a network cohort branding thing which is these startups come in waves and it’s not just
0:55:56 new technology it’s also new people um and they you know they’re new these new scenes form and like
0:56:01 are you in the scene or not right and if you’re not in the scene like yeah i can’t fix that for you
0:56:05 there’s also a ton of path dependence it seems like where like you make an investment that gets you in the
0:56:08 scene now other founders want to work with you because you invested in this really cool company
0:56:13 and then it just snowballs and you’re like well i can’t go back and you know change history and get
0:56:17 you into the snowball yeah yeah like and again this is what i’m gonna call this this is the test of the
0:56:21 capital t so it’s just different versions of the complaint right so you you brought up the one of the
0:56:24 founder who’s like well i could have done this but i was in a position to do it all right that’s your
0:56:28 own fault yeah um there’s another version of it which is that this is sort of the anti-vc narrative is
0:56:33 these vcs are so arrogant they don’t see my unique genius uh-huh right right you know the vcs are only
0:56:36 it’s like a critique they always apply against paul graham is you know he wrote this post on
0:56:39 pattern matching and he always gets attacked it’s like you know he pattern matches he’s not looking
0:56:42 for quality he’s just looking for pattern matching and like you know it’s like and it does founders
0:56:48 don’t match the pattern it’s like raising is very important for founders to understand raising money
0:56:53 from venture capitalists is the easiest thing you will ever do as a startup founder we are sitting here
0:56:59 with checkbooks waiting to write checks yeah we are dying for the next person to walk in the door
0:57:03 and be so great that they convince us to write the check we don’t care where they come from
0:57:07 we don’t care what country they’re from we don’t care what like doesn’t none of it matters it’s just
0:57:11 like do they know what they’re doing are they going to be able to do it we’re just dying for that everybody
0:57:16 else they’re ever going to deal with candidates and customers and downstream investors and everybody
0:57:20 else is going to be much harder to deal with than we are and so if they can’t pass the test of raising
0:57:26 money yeah like they’re not going to be able to do it and and it’s just and it’s the same thing with
0:57:33 the gp like if you can’t network your way in and make good investments that’s the job totally okay on
0:57:36 that point right because there’s going to be i completely agree with what you just said about
0:57:40 how it’s you know the easiest part of building a company there’s going to be a lot of you know
0:57:43 frustrated founders hearing that who are like why can’t everybody you know what’s going on here
0:57:47 one of the things that i’m really you know you’ve done this for enough time now
0:57:54 when founders you know get a pass note um it’s usually about something that’s related to the
0:57:59 market or the product or whatever and a lot of times it’s what you just said which is that like
0:58:05 i just want the founder to be great right but nobody says that nobody says that and so they don’t get the
0:58:10 actual feedback and so i guess this whole dynamic of like people aren’t giving yet because it’s you know
0:58:14 what they’re saying is not you’re not great but it’s i didn’t perceive you as great or something like
0:58:19 that is there is there some way for there to be a more honest useful back and forth around this or
0:58:24 is it just one of the impossible structural things and founders just have to go around frustrated that
0:58:28 people are saying the market’s too small or it’s too big or whatever and really what it is is they’re
0:58:32 just not landing as great i mean it’s like yeah i mean i know you think your baby’s beautiful but i
0:58:37 think he’s really ugly right yeah yeah yeah you know this kid’s gonna have a really hard time in
0:58:41 life man he’s really he’s really unattractive and it’s really hard it’s really difficult and by the way
0:58:45 you you embedded two things in there one is like you know one is do they come across as good which
0:58:49 in theory is fixable but the other is like yeah some people are better than other people at doing
0:58:52 this definitely and some people should not be started some people should should actually just
0:58:56 like be on a team yeah sometimes it’s a correct assessment sometimes it’s an incorrect like there
0:58:59 are some people who in the early days can’t you know there’s a lot of great people who now we all
0:59:02 know are really great but they couldn’t raise a lot of money so they must have shown up in 60 vc
0:59:06 meetings is not great or whatever and look vcs make and again yeah exactly it’s like we don’t we
0:59:11 don’t know yeah and we we make lots of mistakes on a mission you know so we we and like i said most
0:59:16 even the great vcs most of the time are screwing up um and so that’s all true the the thing i always
0:59:20 tell founders is the it’s the steve martin was asked this question about becoming a great stand-up comic
0:59:23 and he wrote this whole book a great book called uh standing up which he talks about this and he says
0:59:27 the the secret of being a great he said uh the secret is um be so great they can’t ignore you
0:59:31 yeah right if your business gets good enough and you prove that you’re really good
0:59:35 you don’t have to show up in the one hour with the vc is very impressive you just proved it on the
0:59:39 field we’re dying for people to come in and just be like wow yeah right and just be like i cannot
0:59:42 believe how good this is i can’t believe how good this product is i can’t believe how much the
0:59:45 customers love it i can’t believe how much this person has gotten done in a very small amount of
0:59:48 money so it’s the exact same thing if i’m a talented i’m just dying for the for the young
0:59:51 community get up on stage and make me laugh i also think the founders who like really struggled to
0:59:56 like raise a round or two and then the business got working i think there’s like a there’s a real
0:59:59 strength that comes out of that so it’s not the worst thing that ever happened yeah no no look having said
1:00:03 that like there’s breakage along the way like there there are yeah also it sucks it’s like
1:00:08 really unpleasant yeah i had to have it it sucks yes yeah so but like it you know look i just say
1:00:13 like i you know having been a founder like it’s an it’s an incredible privilege to be in a in a in a
1:00:18 in an industry and in a world and in the country at a time when you can actually do this yeah like so
1:00:21 you know in most of history in most places you just this kind of thing can’t happen and then you
1:00:26 know we are genuinely trying to find the anomalies right like our business is defined by anomalies
1:00:31 it is true the thing you said about it’s like an audience that wants to laugh it’s totally true so
1:00:36 desperate i can’t wait for somebody to finally tell a good joke so on ai i want to talk about not just
1:00:41 the startup side but maybe like um just some of your takes on like the broader lens of ai i guess my
1:00:47 first question is around ai going wrong and i know this is like a very hard thing but i’m just sort of
1:00:51 for fun really curious what you think you know the downside case that people are very afraid of would be
1:00:57 something like ai embodies humanoid robots and now we have a terminator situation on our hand it gets
1:01:02 agency we have a big problem right you know that’s one end of the spectrum the happy path is that it’s
1:01:07 just like the sickest software that anybody’s ever seen and like it’s a tool that humans use and
1:01:11 everything’s great do you think about this if so do you have any opinion on it or are you just like
1:01:15 it’s going to be what it’s going to be start by saying it’s it’s an important new technology any
1:01:19 important new technology is what they call dual use um it can be used for good things it can be used for
1:01:25 bad things um the shovel it can dig a well and save your life you can bash somebody over the head with
1:01:29 it and kill them fire you know the computer the airplane you know the airplane can take you on a
1:01:35 most marvelous vacation with your new spouse it can also bomb you know dresden um right and so it’s just
1:01:39 i mean atomic power was the big one because atomic power could be unlimited clean energy for the entire
1:01:44 world or it could be nuclear bombs right um as it turns out there we just got the bombs we didn’t
1:01:49 get the unlimited clean energy and so um like that that’s just like generally true these things these
1:01:53 things are double-edged swords the question is like all right like what are you going to do about that
1:01:56 um and are you going to like somehow put it back in the box are you going to somehow like try to
1:02:02 constrain it and control it um the the nuclear example is really interesting um because the um you
1:02:05 know there was a you know very big concern around obviously nuclear weapons and then and then
1:02:08 nuclear there’s a kind of big moral panic that developed around nuclear power i mean we kind of messed up
1:02:12 with that meltdowns we very badly messed up with it and and what happened was the the green movement in
1:02:16 the 60s and 70s created something called the precautionary principle which is now there which
1:02:20 which the same kinds of people are now trying to apply to ai which basically says unless you can
1:02:23 prove that any technology is definitely going to be harmless you should not deploy it and of course
1:02:29 that literally rules out everything right that’s just like no fire no shovels no cars no planes no
1:02:33 nothing no electricity and so and that is what happened to civilian nuclear power which is they just they
1:02:39 they they killed it the story i tell on that is president nixon in 1971 the year i was born he
1:02:43 declared he saw the oil crisis coming in the middle east uh he declared something called project
1:02:47 independence he said the american american used to build a thousand nuclear power civilian nuclear
1:02:53 power plants by the year 2000 go completely clean carbon carbon zero completely electric cut the entire
1:02:56 you know cut you know they had electric cars 100 years ago so it’s just obvious you just cut over to
1:03:00 electric cars at some point and and and basically we need to do that and then and then we’re not
1:03:03 entangled in the middle east and we don’t need to go you know do all the stuff uh there
1:03:07 he then created the epa and the nuclear regulatory commission which then prevented that from happening
1:03:12 absolutely killed the nuclear industry in the u.s right um and then the germans are going through
1:03:17 the new version of that in with ukraine which is they keep shutting you know europe x france keeps
1:03:21 shutting down their nuclear plants which just makes them more dependent on russian oil and so they end
1:03:24 up funding the russian war machine which invades ukraine and then you know they they’re always they’re
1:03:30 worried now it’s going to invade russia and so the social engineering i would say the moral panic and
1:03:33 then the social engineering that comes out of this the history of it has been
1:03:38 quite bad like in terms of its thinking and then in terms of its practical results yeah um i think it
1:03:43 would be a very very very big mistake to do that yeah in ai um and then to like regulate early yeah
1:03:48 yeah absolutely 100 percent um to try to offset the risks in order to like and then and then cut up the
1:03:52 benefits so let’s start with that as number one number two i just say look we’re not alone in the
1:03:56 in the world and we knew that before but especially after deep seek we really know that um and so
1:04:02 there is a two-horse race um this is shaping up to be the equivalent of what the cold war was um in the in
1:04:07 the against the soviet union in the last century it is shaping up to be like that china does have
1:04:12 ambitions to basically imprint the world on their on their their ideas of how society should be
1:04:16 organized now the world should be run and they obviously intend to fully proliferate their
1:04:20 technology which they’re doing in many areas yeah um and the world you know 50 years from now is
1:04:24 going to be running on you know 20 years from now is going to be running on chinese ai or american ai
1:04:27 like those are your choices you think that’s how it’ll basically play yeah yeah yeah it’s going to
1:04:31 run on one or the other how will that play out like let’s say it’s one or the other so ai is going to
1:04:35 be the control layer for everything so so my view is ai is going to be how you interface with the
1:04:41 education system with the health care system with transportation with employment yeah with um the
1:04:47 government with law right it’s going to be ai lawyers ai doctors ai teachers okay do you want
1:04:53 your ai teacher you want your kids to be taught by chinese ai really yeah like you marks like they’re
1:04:56 really good at teaching you marxism and xi jinping thought like is it you know it’s like the cult is
1:05:00 another way to put it is the culture’s in the weights yeah right and so like how these things are
1:05:04 trained and like who they’re trained by like really really deeply matters um and so and by the way
1:05:08 this is already an issue in lots of countries because they’re like number one they may not want
1:05:12 chinese ai but number two do they want you know super woke northern california ai right it’s another
1:05:16 open question right so there are big questions on this and so i i just think like there’s no question
1:05:20 like if you had a choice between ai with american values versus the chinese communist party values
1:05:24 i mean for me it’s just crystal clear where you’d want to go yeah by the way there’s also going to be
1:05:29 direct military there’s a direct military version national security version of this which is okay do you
1:05:33 want to live in a world of all ccp controlled robots and drones and airplanes and cars
1:05:39 i mean is is is that really what you want warfare and defense i guess just is going to fully go ai over
1:05:43 the next 20 years or something i think that’s very much true and i think this robots plus ai basically
1:05:47 there’s a signal there’s a signal you probably saw the the ukrainian attack on the on the russian
1:05:51 airplanes you know so those are no autonomous those are autonomous drones and then they were doing ai
1:05:54 targeting of structural the right structural points to be able to attack the planes and destroy the
1:05:59 planes yeah right and so yeah 100 that’s happening um you know this is a major issue with our defense
1:06:04 doctrine with respect for example to you know potential invasion of taiwan you know if an
1:06:10 aircraft uh ukraine has been fielding uh ai piloted um jet skis uh so they take a jet ski take a jet ski
1:06:14 put an autonomous pilot on it um and they strap with explosives and you know you could send out 10 000 of
1:06:18 those yeah against an aircraft carrier right and by the way and you could just keep sending them
1:06:22 right because there’s no there’s no loss of what you just keep sending them until you get through
1:06:28 and so yeah so the the entire i think the entire the entire supply chain the entire defense industrial
1:06:33 base all the doctrine of warfare all changes you know the idea of human beings in planes or on
1:06:37 submarines just doesn’t make any sense it’s all going to change the and then they it’s a symmetry or
1:06:42 asymmetry between defense and attack is going to change you use the word dual use um and obviously with
1:06:49 like previous technologies you know they got used at some point i’m wondering does it blend from getting
1:06:57 used to being the user like if like a business a benign business example would be if you could tell
1:07:03 an ai hey i want you to you know hey prompt i want you to build me a software company you know make it
1:07:08 roughly do this serve these users and run that for the next five years and just wire me the money to
1:07:14 this bank account go and if you know if that worked at some point you know in the middle of those five
1:07:19 years like you know what’s how is it doing its own thing are you telling them what to do does that also
1:07:24 happen you know in like a warfare scale and i guess that’s maybe like the thrust of to me where
1:07:29 you know where it turns into something scarier particularly when you get into you know the
1:07:33 embodied version in warfare where it’s just like you know the prompt is like hey just you know fight this
1:07:38 fight this war for the next year or something that’s right that’s right so so the good news the the the
1:07:43 domestic version of it is straightforward i think which is we we have you know u.s law western law has a
1:07:48 concept of responsibility accountability if you use a machine to do something it legally is is your
1:07:52 fault it’s your that’s your problem but by the way if the machine goes wrong for reasons having to do
1:07:56 with not with you then it’s a manufacturing it’s a product liability issue the manufacturer is liable
1:08:01 but if you use it you know if i buy a shovel and i bash you over the head with it right it’s my you
1:08:05 know yeah the shovel killed you but like i’m to blame and so i think that your your example of the
1:08:09 autonomous corporation i think i think legal legally the legal system is perfectly prepared to deal with
1:08:13 that um which is yeah you that was it was your your bot you set the whole thing up it’s your fault
1:08:17 yep and so there’s there’s a natural there’s a natural constraint uh i think there’s a natural
1:08:21 constraint on that um the mil the most obvious version of the military version of the question
1:08:26 is autonomous targeting and uh trigger pulling um right and so and and this has been this has been
1:08:30 an issue in drone warfare for the last like 15 years which is uh is there a human in the loop on
1:08:35 pulling the trigger right so predators flying overhead da da da da sees the bad guy okay how is the
1:08:39 decision made for the predator to launch the missile on the bad guy yeah and and by the way the way that
1:08:44 worked for a very long time was uh it actually had to be an air force uh uh combat uh pilot who would
1:08:48 actually pull the trigger on the drone um very specifically even if he wasn’t otherwise responsible
1:08:52 for like operations of the drone you’d still get somebody whose job it was to make those decisions
1:08:56 in the loop there are a lot of people in the defense field who are like it’s absolutely mandatory that
1:09:01 in all cases it is required for the human being to make the kill decision yeah and and and that and
1:09:05 maybe that is the maybe that is the correct answer there’s a very powerful argument as to why that should be
1:09:10 the case because it’s the biggest decision that any human that anybody can make and even if you
1:09:13 don’t believe in like the skynet scenarios just the idea of a human being not being responsible for that
1:09:19 decision yeah sounds ethically morally very scary there is a counter argument which is human beings are
1:09:24 really really bad at making those decisions yep right and so any self-driving cars thing if it’s safer
1:09:28 than a human driver then like who’s you know yeah there will be accidents but there’s fewer
1:09:34 correct and so every post analysis of any combat situation that you read or any war later on you
1:09:38 discover all these shocking things so one is uh friendly fire like there’s just huge amounts of
1:09:41 death caused by friendly fire people shooting at their own troops just because they’re confused
1:09:45 number two is uh you know fog of war is just like it turns out the commanders have very little idea
1:09:49 what’s going on they they had some battle plan it immediately goes sideways they don’t know what’s
1:09:52 they literally don’t know what’s going on they’re not making they don’t have the information
1:09:56 people to make decisions everything’s confusing number three the physiological impact of stress
1:09:59 adrenaline it’s like what like it’s one thing to be on a shooting range making these decisions it’s
1:10:04 another thing to be like you know have like a severe leg wound coupled with you know adrenaline
1:10:10 you know overloads coupled with two hours of sleep the night before and like is the human is even the
1:10:14 highly trained person making the decision right yeah um and then there’s just like a more basic thing
1:10:16 which i think this is like a world war ii retrospective it’s something like in a lot of combat
1:10:22 situations it was estimated only like 25 of the soldiers even fired their rifles wow like just generally a lot
1:10:26 of people just like don’t act uh right and so anyway so you you the more you look at this you’re
1:10:30 just like wow the human being is actually really bad at this yeah uh and then you and then all these
1:10:33 other issues around collateral damage you know and they should you know accidentally shoot the civilian
1:10:37 and so so yeah you’re back in the self-driving car situation which was like all right if if you had
1:10:40 if you’re if you could if you knew you could get better outcomes by having the machine make the
1:10:45 decision better safer less loss of life less collateral damage and so i and i would say i don’t believe
1:10:49 i have an answer to this but i think that is a very fundamental question i guess this kind of actually
1:10:55 feeds into the the next topic which to me is um i think like tech has now gotten to a place where with
1:11:01 the government and politics like it’s sort of now undeniable it used to kind of be an underdog but now
1:11:06 for reasons like this and a bunch of others it’s just like too important to like not be in the mix at
1:11:11 like the national stage now which i think has really like changed the dynamic even insularly for
1:11:16 silicon valley because now you know people are you know looking at what people are doing not just like
1:11:22 in tech but pretty broadly now yeah that’s right yeah so i would say i deeply agree with that um i
1:11:27 believe it is mostly our fault um like the current situation is mostly our fault in tech which is there’s
1:11:31 an old russian little soviet joke which is you may not be interested in politics but politics is
1:11:36 interested in you yeah and so i think we we we and i would include myself in this i think we all got
1:11:41 complacent or a lot of us got complacent between like 1960 and 2010 that basically just said we could
1:11:45 just sit out here we can do our thing we can talk about how important it all is but like it’s never
1:11:49 gonna you know these are never going to be big social or uh you know cultural or political issues
1:11:53 yeah um and we can just kind of get away with not being engaged and then i for all the reasons we’ve
1:11:56 discussed you’re saying and then once it was undeniable we weren’t prepared and then we weren’t
1:12:00 prepared and we weren’t even i would say remotely prepared and then and then they’re using metaphor
1:12:04 the dog that caught the bus and the dog is being dragged behind the bus yeah tailpipe in his mouth
1:12:08 doesn’t know what to do with the bus yeah and look you know geography i think has a lot to do with
1:12:12 this we’re 3 000 miles away you know it’s just hard to get there they don’t come here very often
1:12:17 um and and yeah so i i guess i would say like like it worked like we we actually we always wanted to
1:12:21 build important things we actually are building important things there are obvious political
1:12:27 cultural social consequences to them um if we don’t engage nobody’s going to yeah and then by the way
1:12:30 the other thing i’ll say is you know it’s not like there’s unanimity even in the industry on a lot
1:12:34 of these issues right um and so there’s you know i would say two giant divisions right now
1:12:39 big companies versus small companies yeah you know there’s often do not have aligned incentives
1:12:43 right now uh and aligned agendas and then the other is um you know like just on ai obviously there’s a
1:12:49 big dispersion of use even in the industry i guess this probably goes to why it’s um important for
1:12:56 to some extent at least some vcs to have relationships with the government because big tech has the resources
1:13:01 to do with themselves small tech can’t and so if this is the state of the world we actually as an
1:13:05 industry need somebody to be doing it on behalf of little tech yeah that’s exactly right that’s why
1:13:10 we’re doing what we’re doing yeah on media in particular um i thought it was really interesting
1:13:15 i can’t remember how many years ago but biology many years ago started talking about like some
1:13:20 fracturing about you know the the sort of relationship between tech and the media was going
1:13:25 downhill i think this was mostly talking about media and inside tech but i think probably also at the
1:13:31 major publications and at sort of a larger scale from my read as often you know i think this was
1:13:37 right and my from where i sit it seems like it did kind of continue to degrade the relationship what’s
1:13:44 interesting to me recently is i’ve seen a little bit of life you know in the sort of tech publication
1:13:49 stuff but it’s actually been from the inside and so like eric who you just brought on as gp is awesome
1:13:53 and he’s been really good at doing this tbpn’s really cool and i don’t think i’ve seen something
1:14:00 like that pop up maybe ever inside tech what’s your read i guess within our bubble of like the sort of
1:14:04 tech media relationship and and where it’s been so my background in this is i you know i have a weird
1:14:08 kind of history um uh because of what happened in the 90s but you know i started dealing with the
1:14:15 national press and the tech press business press in 1993 1994 um and i did an annual press tour to the east
1:14:20 coast you know probably a week out of each year usually in the spring and you know what that means
1:14:24 is you kind of go around and you meet with all the publishers editors and reporters um you know cover
1:14:31 everything and i would say the basically the stretch from 94 to 2016 was generally like i thought it was
1:14:35 like a quite healthy normal productive relationship you know like they would run you know they would do
1:14:38 investigative reporting and they would run stories i don’t like but generally they you know the major
1:14:42 publications in each of those categories were trying to understand what was going on and we’re trying to
1:14:46 kind of be you know honest brokers and trying to you know kind of represent what was happening and so
1:14:49 the meetings were like super interesting they always wanted to learn they always had tons of
1:14:54 questions they were super curious about everything that was happening that was great until 2016 it was
1:14:58 the spring of 2017 that i went on the press tour and it was like somebody had flipped a light switch
1:15:05 um and they were like across the board like unbelievably hostile like unbelievably like completely
1:15:10 and across the board like 100 sweep do you know why absolute hostility i i think the obvious answer is
1:15:15 trump trump trump trump got nominated and they got elected and then they blamed tech for for for both
1:15:20 for both of those uh now by the way there’s there are a bunch of other factors including that that
1:15:24 was when the the that was when the it’s actually the the there’s a business side to it which is there
1:15:28 was the fear that the internet was going to eat the news business in the 90s actually didn’t happen
1:15:32 and actually 2015 i think was the best year in history for like revenues to like newspapers yeah
1:15:37 um and then it was really after 2015 social networking went big and then the their businesses started to
1:15:41 collapse and you know they started having lots of layoffs and so that didn’t help yeah and then you
1:15:44 know look they would say look that was also you know they would say hey smart guy that’s also when
1:15:48 you started doing all these things that actually matter more right um and so you know that what
1:15:52 everything we’ve been discussing like the tech industry changed and so you know you’re going to get a
1:15:55 different level of scrutiny because you deserve it you’re doing different things now the political
1:16:00 thing was just a giant swamping factor and they and you know this is a big yeah you know i don’t want
1:16:05 to get into the politics per se but if you just you know it’s it’s this whole thing ran in parallel with
1:16:09 everything that’s like in jake tapper’s book about you know like so it’s just like they just they got
1:16:14 locked in on a mode of of interaction um they just became very polarized yeah um and very polarized
1:16:19 and very lockstep and you know from the outside you just you read it and you’re just like wow these
1:16:22 people they’re all like really wrapping themselves around an axle i think one of the other hard
1:16:30 things is as um the truth has become more accessible by other people you more often see something in the
1:16:33 news that you know about and you’re like wait that’s super backwards and then somebody posts about
1:16:39 how backwards it is and now you know you see a clip of you know some major publication and you know
1:16:43 here’s the truth and everybody can tell and it’s like okay so should we just believe the rest of it or
1:16:48 not i think the truth fact checking went way up too with social media that’s right and i would say
1:16:51 there you know the cliche has been and there’s some truth to the cliche that social media is where lies
1:16:54 spread and there’s some truth to that yeah there’s lots of lies to spread on social media yeah but the
1:16:58 other side of is what you’re saying which i think is right which is the truth spreads yeah on social
1:17:03 media and so the way i describe it is the social media is an x-ray machine and exactly to your point
1:17:08 like anytime there’s and you see this in any domain of activity right now is anytime there’s a thing
1:17:11 and there’s just like evidence that it’s just not the way it’s being portrayed it is going to show
1:17:15 people are going to see it yeah and that is there’s this guy martin gurry who wrote this book
1:17:20 called revolt of the public in 2015 and he was a ca analyst who did what’s called open source analysis for 30
1:17:24 which was studying basically what was in newspapers and magazines for the purpose of political
1:17:28 forecasting and his prediction in 2015 in his book um was that basically social media was going to
1:17:32 completely destroy the authority of all incumbent institutions and the way that it was going to
1:17:36 do that was it was going to reveal through this x-ray effect that basically none of them deserve the
1:17:40 credibility do you think that’s kind of happened i think that’s exactly what’s happening yeah and i think
1:17:45 there’s statistical evidence that’s happening gallup polls um they do an annual poll now for 50 years
1:17:50 on um trust and institutions of every different kind of major institution including the press and
1:17:55 all the all the numbers are collapsing in light of widespread social media what would be the correct
1:18:02 sort of function or role of like journalism i mean look i’m a believer in like the original i like the
1:18:07 original idea right like i’m i don’t know i’m a romantic i i like i like what i like what journalism
1:18:10 says that it is i would like it to be like that i like what the universities say that they are i would
1:18:14 like it to be like that i like what the government says that it is i would like it to be like that
1:18:18 which should be just to like name it yeah well for journalism it’s just like all right number one
1:18:21 like tell us correctly and accurately what’s happening well actually there’s a there’s a
1:18:24 conflict at the heart of the journalism question which is that journalists say two different things
1:18:28 there’s one is they say you know basically be fair and objective right and then the other thing
1:18:32 they say is they say like hold power to account or they’ll sometimes say they have this phrase
1:18:37 they’ll say uh uh uh comfort the afflicted and afflict the comfortable and like there’s there’s
1:18:41 an inherent like are are you are you a are you an objective truth teller well yeah i was gonna say
1:18:44 that has nothing to do with the truth it’s just unrelated to the truth exactly and so there was
1:18:47 already a conflict at the heart of the industry and there’s and there’s a there’s a selection
1:18:51 processor that people who go into journalism tend to be critical by nature right they tend to want to
1:18:54 be on the outside looking in to be critical because they didn’t they wouldn’t be journalists they
1:18:58 would right and so so there is an issue there but look like do we need people to tell us the truth
1:19:04 yes we do do we need people to hold the powerful account yes we do like i would like them to do that
1:19:08 do you think they can be like for-profit corporations and it works because i mean i think
1:19:13 another problem is they’re getting all their distribution on social media eyeballs are what
1:19:19 drives the revenue people want to you know stay in you know so that also is unrelated to the truth in
1:19:23 fact it’s antithetical to the truth a lot of times yeah so there’s two two two mentalities come out of
1:19:26 that one is yeah the profit incentive warps it and you want it to not have a profit incentive so it
1:19:30 could be true to itself the other argument is if you don’t like for-profits you’re really not
1:19:35 going to like non-profits yeah because at least for-profits have like at least for-profits have
1:19:39 like a market test yeah like at least there’s like some discipline non-profit just becomes somebody’s
1:19:44 sort of like this is my agenda i’m going to do what i feel like now arbitrarily crazy yeah they can go
1:19:48 arbitrarily nuts and does sound worse yes and they’re completely unaccountable they’re completely
1:19:51 unaccountable right they’re in fact in fact it’s the opposite it’s the opposite of accountability
1:19:57 because of the tax because of the tax break yeah you were actually paid yeah as a donor to invest in
1:20:00 the things that are the most unaccountable interesting right and so and then they can spin
1:20:04 into like crazy land yeah and they and they and they don’t come back i don’t know like they don’t come
1:20:09 back yeah there’s a history here yeah they don’t come back and so it’s weird because like the citizen
1:20:14 journalism thing is like a helpful fact check it’s like good to have and sometimes it but it does feel
1:20:19 like it’s not quite sufficient to tell the full story on everything all the time so i do think that
1:20:24 there’s an important role i just feel like it’s it still feels like it’s very in limbo right now so here
1:20:28 is a theory that would be a reason for optimism um which is the last eight years were basically
1:20:34 it was basically the human animal adapting to the existence of social media it was like it’s basically
1:20:38 the assembly of the group brain and you slam eight billion people into a chat room together and like
1:20:42 it’s just like we’re not used to it we weren’t wired for it we’re not evolved for it and just like oh my
1:20:46 god everything goes bananas yeah marshall mccluhan actually the great media theorist he talked about
1:20:49 this he had this term called the global village is what happens when everybody gets networked together and
1:20:53 actually what people miss about it is he didn’t mean in a good way is because the nature of a
1:20:58 village is basically gossip and innuendo and yeah infighting and reputational destruction
1:21:02 right and civil war yeah like that’s what happens in a village yeah right um and so which actually
1:21:07 functions at a certain size yeah like up to 150 people you can kind of deal with that yeah you know
1:21:12 at the size of like new york city it actually gets quite complicated at the scale of the world it’s like
1:21:15 a disaster it’s a disaster right yeah but you could say look like we went through this eight-year
1:21:19 period where like everybody went just say everybody went nuts everybody went nuts in like a thousand
1:21:23 different ways and then but maybe that was just we had to get used to it right maybe we just had to
1:21:27 adapt to it and like if you talk to i don’t know if you talk to like young zoomers now you know a lot
1:21:29 of the time what they’ll tell you is yeah we don’t take any of that stuff seriously yeah like i just
1:21:33 of course you don’t believe what you see on you know whatever tiktok yeah which is wild it’s just
1:21:36 all ops like of course it’s all ops like whatever right and they just have like they’re they’re
1:21:40 i’m glad people know it’s just like that’s a crazy state of the world yeah yeah exactly so
1:21:44 probably how people feel about like the news too well so this is the thing on the news so then this is the
1:21:48 other thing on the news which is was the news ever as we were told that it was and so the my favorite
1:21:53 example of this is people always cite walter cronkite um as being the great truth teller and the thing that
1:21:58 they cite for for you young people he used to be on tv uh for a part of him i have not he was this guy
1:22:02 where he would show up on tv everybody would say oh my god he’s going to tell you the truth like he was
1:22:06 like he was like the voice of the truth and and the way that he built that reputation is because he went
1:22:11 negative on the vietnam war in 1968 in 1968 he came out and he said the vietnam war is unwinnable and we
1:22:14 need to pull out of this and he they aired all these reports that showed that that was happening
1:22:17 everybody said he’s the guy who told the truth hold power to account tell you know tell the truth
1:22:21 well it’s just like the problem with that is he went negative the fact that he went negative on
1:22:25 the war in 1968 right he was positive on it before that right exactly right what did he know the day
1:22:30 before he said that that he wasn’t sharing yeah and like and then by the way what else happened in 1968
1:22:34 which is the white house went from a democrat to a republican so the vietnam war was created by
1:22:39 kennedy and johnson and then it was inherited by nixon in 1968 and isn’t it convenient and interesting
1:22:43 that he went negative on it when it became nixon’s war as opposed to being kennedy’s kennedy’s and johnson’s war
1:22:47 and so then it’s like all right like what was actually going on there what was happening in
1:22:51 the preceding five years and is was he actually on his side the whole time and then there’s just the
1:22:54 reality of it which is i grew up in rural wisconsin we always thought the press was out to get us yeah
1:22:58 like we always thought the press was like the coasts basically passing sneering judgment on the center
1:23:02 of the country like we never believed like the stuff to start with um and we were always like there
1:23:06 people where i grew up people are like super resentful of the stuff in the media and how it portrays
1:23:09 them and so i think there’s also like a more fundamental underlying issue here which is
1:23:15 you know objective truth is a hot like objective truth is a high bar yes people have agendas yeah
1:23:18 like maybe we just need to get all this out on the table particularly in politics objective truth is
1:23:23 not really how a lot of like people like oh that’s a lie i’m like well it’s not a lie it’s just like an
1:23:28 interpretation of a situation that like i wouldn’t characterize but like sure it’s not like that
1:23:32 these are complicated topics you know the ordering of society is a complicated topic right and the
1:23:35 functioning economy is a complicated topic and it’s just not so easy to understand
1:23:41 and so so i i think part of it might the optimistic the optimistic view would be humanity adapting to
1:23:44 being in the global village is basically just taking on a little bit of a more humble attitude
1:23:47 basically saying all right look there’s not going to be we’re not going to have a lot of objective
1:23:51 truthos running around we’re not going to have but also at the same time we don’t want to be in a
1:23:54 complete panic about everything all the time and we need to kind of be able to you know take a deep
1:23:58 breath touch grass be a little bit more skeptical be a little bit more open be a little bit more
1:24:02 understanding right and so so maybe we’re starting and by the way i think that’s happening i um
1:24:06 uh i mentioned that jake without getting into partisan politics but the jake tapper book
1:24:11 i would happen to went to a uh an event that he did he did this weekend uh out here and like it’s a
1:24:16 like the the that book and the reaction of the book and and if you watch the interviews on youtube and
1:24:21 the the crowd response to that book like it it it feels like people are just like oh like if we just
1:24:25 take a step back for a moment from like all the intense partisanship of it all like there’s actually
1:24:29 some yeah like maybe we can get back a little bit more i i thought it was that book is a very
1:24:33 very positive step forward towards just a little bit of a calmer approach on these things and then
1:24:37 by the way the other book i’d promote on that is uh the ezra klein book on uh on abundance yeah which
1:24:41 i think is i think is a you know somebody who’s supported a lot of democrats for a long time i think
1:24:45 it’s like the most positive you know kind of manifesto that’s come out uh basically saying you
1:24:48 know no like we need you know whether you’re on the right or the left like we need to actually build
1:24:52 things and i think that’s also a healthy moment so sort of related to this topic a little bit
1:24:56 adjacent but i saw you talking about preference falsification recently and i think this is like a super
1:25:01 interesting topic in general but particularly in the last i don’t know call it five-ish years i think a
1:25:07 lot of preference falsification became made apparent um so i’d be curious first to hear a little bit about
1:25:14 what you think happened over the last some number of years where these changes happened um maybe we can
1:25:18 start there and then i’ve got to follow up on it yeah so the preference falsification just a sketch
1:25:21 an outline it’s it’s when people um it’s actually there’s two different definite there’s two different
1:25:26 elements of it um it’s when people are required to say something in public that they don’t actually
1:25:30 believe or they are prohibited from saying something in public that they do believe right so again so
1:25:36 commission omission uh issues and then the the theory of it there’s this great book by timur karan on it
1:25:40 the theory of it basically is it’s it’s easy to think about what this happens in the case of a single
1:25:44 person which is are you telling the truth or is there your public statements mirroring what you
1:25:47 actually think or not the thing that gets complicated is when that happens across a group or across a
1:25:52 society and the thing that happens is if there’s widespread preference falsification of society
1:25:56 you not only have people lying about what they actually think or hiding it but you also everybody
1:26:01 loses the ability to actually know what the distribution abuse are yeah right and any and he says
1:26:04 basically if you look at the history of political revolutions a political revolution happens when a
1:26:08 a majority of the country realizes that a majority of the country actually agrees with them
1:26:13 and and they didn’t realize it right so that whatever system they were in had convinced them that they
1:26:17 were in a very small minority and then you get a at some point there’s you know the boy who points
1:26:21 like a catalyst you there’s a catalyst catalytic moment and then and then basically there’s a
1:26:25 what’s called a preference cascade right um and then um and then all of a sudden it’s like the
1:26:29 correct prisoner’s dilemmas box to live in all the sudden flips everybody realizes that at once
1:26:33 yes exactly and and he said you can see this in um you can see this like in a crowd with like a speaker
1:26:37 controversial speaker where basically like you’ll have a controversial speaker and then there’ll be
1:26:41 silence in the crowd and then one brave person will start clapping uh-huh and that person is like
1:26:45 a severe peril because if they’re the only asshole standing up clapping like that’s it they might get
1:26:50 yeah but then if if if it cascades then a second person starts clapping and then a third and a
1:26:54 fourth and a fifth and then you get the snowballing effect and then the entire auditorium is clapping
1:26:58 and then and then that’s everybody realizing that they actually are on the side of the majority which
1:27:01 they didn’t realize before by the way this is what comedy this is actually why comedy is fun it’s
1:27:06 what comedy does well because people can’t control the involuntary response right yeah exactly and so
1:27:09 when you get an entire group of people in a room laughing out loud at something that
1:27:13 individually they will all swear they can’t help it funny they can’t help that’s a great point and then
1:27:17 the the the stress relief from that because they all know that they’re part of a they’ve rebonded the
1:27:20 community right you’re you’re actually back and being a part of a community and it’s just such an
1:27:27 incredibly powerful feeling yeah yeah okay so so it’s very easy to apply this theory to like the
1:27:32 soviet union right or like the you know the the the the you know the eastern europe you know um uh in the
1:27:38 cold war or whatever um you know mao’s china it’s a lot you know trickier to apply this theory to
1:27:42 you know your current society i believe that you know we’ve lived in an era of like intense
1:27:45 preference falsification i think the last five years yeah probably the last 10 years were like
1:27:50 way more intense preference falsification than the preceding yeah 40 at least um you know probably
1:27:55 going back to i don’t even know i have to go for sure back to the 60s if not like the 1920s or
1:27:59 something to find an analogous period i think this period was characterized both by people who were
1:28:03 saying things they didn’t believe but critically not saying things they didn’t believe yeah i think
1:28:08 there are many reasons this happened um and look this has happened many times in history and so a lot
1:28:11 of people want to say this is caused by social media right well when you phrase it the way that
1:28:16 you said it actually makes a lot of sense when it’s just if people are going to be in a part of this
1:28:22 prisoner’s dilemma matrix it actually just gets caused by nothing other than itself like it doesn’t
1:28:26 really need an outside catalyst for people to get into their own box that’s true although there needs
1:28:30 i know that’s a good question or does there need to be some kind of oppression does there need to be
1:28:33 some kind of motivation for for the for the cascade to have started where people end up in that box
1:28:39 it’s a social pressure so yeah specifically i think the thing that happened the last five years
1:28:43 was i guess it needs to be a high stakes enough issue for it to matter otherwise it’s just like
1:28:47 who cares whether you think like the clouds are pretty or not yeah that’s right so at least has to be that
1:28:52 yeah and the way i think team mccrano described it is it needs to have like political social cultural
1:28:56 salience yeah like it needs to get to something fundamental about how the community is organized
1:29:00 you know we call we call that politics but you know this this predates even the concept of politics
1:29:04 right and so um and by the way look like you you don’t even necessarily want to say that all preference
1:29:08 falsification is bad because like you know i don’t know that you want everybody out telling the truth
1:29:12 about everything i don’t think you do i think at least in like a like social like a lot of social
1:29:15 graces come from people saying it’s great to meet you when i didn’t feel like saying it was great
1:29:20 your baby i believe your baby is very effective exactly so some of it’s right yeah so um
1:29:24 yeah but but but but yeah you as your point you get wedged in this box and so i i think the specific
1:29:29 thing that happened and so the good news is preference falsification in a lot of totalitarian societies
1:29:33 was administered at the point of a gun you say the wrong thing they shoot you yes um that for the
1:29:37 most part is not what happens in our society what happens in our society is the sort of non-violent
1:29:43 version which is ostracized yeah canceled ostracized reputation is ruined fired become unhirable
1:29:47 lose all your friends lose all your family can’t ever work again still really bad still really bad
1:29:53 so you said it sounds pretty bad very bad yeah and so and it just turned out i think part of you know
1:29:56 the optimistic view would be part of adapting to the existence of social media was social media just
1:30:01 turned out to be among other things a very effective uh channel to destroy people reputationally
1:30:05 right with and this is the the social media mobbing effect right um that we’re not all familiar with
1:30:10 and you think that helped create basically more false preferences yeah big time big time do you think
1:30:13 it also unwound them well so this is this is the thing and this is maybe the thing that happened in
1:30:17 the 2024 election right which is just like oh okay like we don’t have to live this way anymore
1:30:22 um you know it’s certain certain views become safer to say out loud this also the censorship regime like
1:30:27 we lived under a very specific censorship regime even in tech for 2024 election versus 2020 you know
1:30:32 2016 regardless of what you think you know who you wanted at least everybody can agree that it was
1:30:38 taboo to support trump in 16 and it was not taboo to support trump in 2024 in tech and so something
1:30:42 changed there something changed peter had this great line in 2016 he said uh because he was one of the
1:30:46 only people you know maybe the only person in tech who was actually pro-trump in 2016 and he said
1:30:49 he said this is so strange he says this is the least controversial contrarian thing i’ve ever done
1:30:53 he’s like half the country agrees with me yeah he’s like i’ve never had a point of view on anything else
1:30:57 in my entire life where half the country agrees with me yeah and yet somehow this is such a heresy
1:31:01 that i’m like the only one yeah right and so yeah so so so there was that that that definitely
1:31:04 changed and then i just think in general like i said i think they’re optimistically you could
1:31:09 say there’s a process of adaptation right where it’s just like all right we’re just like if if we all
1:31:15 just decide that we’re just not gonna like live life by mobbing and scapegoating and personal
1:31:19 destruction and just because somebody’s offended by something doesn’t mean it’s going to destroy it
1:31:23 you know somebody says one thing it’s going to destroy their lives like we don’t you know you
1:31:27 don’t have to do that do you think it’s basically been unwound now or do you think there are still
1:31:33 a lot of falsified preferences i would say it’s radically different than it was two years ago um i would
1:31:37 say there’s still a lot of falsified preferences i would but but again i would say i think probably in any
1:31:41 healthy society there’s lots of falsified preferences so do you have any guesses for something that is
1:31:47 currently falsified that will become unfalsified or is too hard to call it sure yeah sure okay great
1:31:52 well of course but it’s far too dangerous to say we’ll move on yeah dang gosh but again when you ask
1:31:57 that that is a very key question here here’s what i encourage break the fourth wall yeah here’s what i
1:32:01 would encourage people to do here’s the thought experiment to do just write down two at least in
1:32:04 middle of the night with nobody around doors locked write it down a piece of paper and let’s pull it
1:32:08 out in 10 years well write down a piece of paper two lists what are the things that i believe that
1:32:14 i can’t say and then what are the things that i don’t believe that i must say and just write them
1:32:19 down yeah and i bet you know if you’re a reasonably introspective person that you know the quote unquote
1:32:24 npcs can’t do this yeah like if you’re a reasonably introspective person yeah um you know most of us
1:32:28 probably have 10 20 30 things on both sides of that ledger right and again most of those are things
1:32:31 where you gotta you know i don’t know like you don’t want anybody ever see that piece of paper
1:32:35 maybe five or ten years from now we’ll be back and everybody can reopen their papers and we’ll see
1:32:40 and it’ll be safe to say whatever people wrote down at that point exactly okay um a few final topics i
1:32:48 wanted to ask you about um one is you’re probably in a spot to be giving just sort of life or career
1:32:55 advice to young people a lot now both in general but also maybe specifically with like ai and like the
1:32:59 current set of tech you know changes right now what do you most often find yourself repeating
1:33:04 to a really smart you know recent grad about you know if they’re like what should i be doing with
1:33:08 my career if they get the chance to ask you that to start with i never took any advice so
1:33:13 advice yeah there’s something there but a lot of people do so maybe maybe fair enough that’s like
1:33:17 the exact you know if you could have built facebook thing maybe yeah maybe maybe maybe the best
1:33:22 people probably shouldn’t take any advice um but um i would just say in general especially for young
1:33:27 people i i you know and again i say this like people are very different like i i believe very
1:33:31 deeply yeah some people some people are very happy being in the middle of chaos some people are very
1:33:35 unhappy i’m sorry some people are very unhappy being middle of chaos and they will actually get
1:33:39 themselves out of a chaotic situation as fast as they can other people love chaos so much if they
1:33:42 don’t have any they will create it right and so like you have to you know that’s true there’s a level
1:33:46 of understanding here you you know like not everybody should be in like a high growth high
1:33:50 risk tech company because it might just be too nuts yeah so i don’t think there’s a one one size fits
1:33:55 all you know kind of thing um uh at all having said that let’s narrow it so the young young person who
1:34:00 wants to kind of be in tech i think a big part of it is i think it’s as i was saying it’s like run to
1:34:05 the heat like or the the the scene thing we were talking about like where where are the interesting
1:34:09 things happening and that’s a conceptual question and it’s also like a place question and the
1:34:13 community question network question yeah um and so you know run to that as fast as you can and it
1:34:17 doesn’t mean you know running to the fads but it means trying to identify trying to get into those
1:34:22 hot network or ideas or projects basically yeah yeah exactly um and look there’s a geographic
1:34:27 component to that and i think we all kind of wish it wasn’t the case but there really is um and and and
1:34:32 and ai ai i think has very successfully unwound the geographic dispersion of what was happening in tech
1:34:36 in a huge way a huge way it’s kind of slammed everything back into northern california
1:34:41 i i don’t think that’s good really um for a lot of reasons but i think it just is the case
1:34:45 and so i would say like if you know if you’re going to like do ai get here yeah and then look
1:34:49 and then the other thing is it’s the steve martin thing be so good they can’t ignore you like time
1:34:53 spent on the margin getting better at what you do is almost certainly better than most of the other
1:34:56 uses of time the the old adage of you are the average of the five people you spend the most time
1:35:00 with is also true you want to do that uh so you want to you know pick pick pick that carefully
1:35:04 and then i guess what i would say is uh when i when talk to you know people about like what kind
1:35:07 of company to go to um there are certain people who should only be in a raw startup and there’s
1:35:12 certain people who should only be in a big company i think the general advice is the it’s it’s the high
1:35:16 growth companies it’s the companies that we would describe as between like being between like series
1:35:20 c and series e probably or something yes where it’s like they’ve hit product market fit they’ve hit
1:35:23 the knee in the curve and they’re on the way up on average that’s going to be the best place to go
1:35:28 because you’re not going to have the downside risk of a complete wipeout usually yeah um and then
1:35:33 people who get into that position like at those high growth companies if you’re talented you can pick
1:35:38 up new responsibility very quickly yeah okay next is um your andrew huberman thing that i see on twitter
1:35:42 like what’s i actually can’t completely parse what it is what’s going on with that so we have a
1:35:46 completely fake beef we’re good friends we’re very good friends um and our actually neighbors neighbors
1:35:51 in malibu and um i’ve been on his podcast and like we’re very good friends um but um but you don’t
1:35:55 follow his protocol i don’t do anything that he says i don’t do a single thing that he says um i
1:35:59 with one one exception we’ll talk about but yeah i don’t i don’t do any of it you know he says maintain
1:36:02 a regular sleep schedule i there’s no you’re all over the place on sleep all over the place he says
1:36:07 always get up you know get up you know see sunlight as you can i’m like no i don’t want that’s the
1:36:10 last thing i want to do when i wake up to see sunlight you don’t drink caffeine for the first two
1:36:14 hours of the day it’s like nfw it sounds like torch it sounds like being in a north korean
1:36:18 concentration camp like i can’t even imagine you drink a lot of coffee a lot of coffee hot plunge cold
1:36:23 plunge thing i’m not the cold punch is miserable i’m not doing any of that shit yeah um you think
1:36:26 it’s good for you though oh i’m sure it’s i’m sure it’s good for you i’m just not i’m not going to do
1:36:31 any of it it all sounds just completely miserable that’s good um the one thing that um he says that i
1:36:37 i do is uh stop drinking alcohol um and i would say i am uh i am physically much better off as a result
1:36:41 and i am but i’m very bitter and resentful it is towards him specifically why’d you why’d you do
1:36:46 that one because it’s much better for you physically yeah it it really is like it fixes sleep and energy
1:36:49 problems so is the most tolerable of all of these and you’re like final do one well no it’s completely
1:36:53 intolerable it’s horrible okay i don’t recommend it like i think it’s a horrible way to live yeah like
1:36:57 i’d much rather be drinking alcohol does he think even like a glass of wine at night’s bad he does
1:37:01 yeah just all of it he did one of the great he’s actually had a i think big influence on the culture
1:37:06 and this is very in seriousness this is very positive yeah i think um at least for health um as he did
1:37:09 this big big thing on there’s all these alcohol so what happened is there’s all these alcohol
1:37:13 there’s all these fake alcohol studies basically um you know this is like red wine and then it’s
1:37:17 like all you know heart protective and all this stuff and it basically it basically turned out
1:37:20 that really sick people either drink a lot or nothing and then and then healthy people tend to
1:37:25 drink a little yeah right so so so one is healthy people tend to be very well right and then i guess
1:37:29 is that correlation or causation is that it’s all in the sample set so so so it turns out there’s no
1:37:35 health benefits to alcohol that was all completely fake in other words just because i see healthier
1:37:39 people drink a moderate amount of alcohol does not mean that drinking a moderate amount of alcohol
1:37:44 makes you healthy i see michael creighton called this wet streets cause rain okay wet streets rain
1:37:49 yes right so for some reason unhealthy people stop drinking unhealthy people stop drinking because
1:37:52 they’re like in the hospital like i can’t handle this yeah their doctor says if you keep drinking
1:37:56 you’re gonna die yep or by the way they drink a lot right because they’re right and then there’s
1:37:59 this there’s this fundamental thing which is healthy people tend to be very disciplined
1:38:04 but but discipline is not discipline is there’s like a big inherent component to it yeah right and so
1:38:07 people who are people who are disciplined to drink moderate amounts of alcohol also do moderate
1:38:12 moderate amounts of exercise also experience moderate amounts of stress also uh you know you go to the
1:38:16 doctor on a regular basis they they take the medication they’re prescribed they live all aspects of
1:38:19 their their health in it i guess it’ll take a while to see but it feels like it should be a good thing
1:38:25 that andrew and other people have gotten so many more people interested in health it’s good for it’s
1:38:30 good physically right yeah might not be good mentally no i’ll try i’ll be funny again it’s it’s it’s
1:38:34 it’s catastrophic emotionally yeah it’s it’s made me a much less happy person you think are you
1:38:41 actually you think that well so i really so it’s the it’s the alcohol is a time thousands of years
1:38:46 people have been using it number one to fundamentally relax yeah um and then and then there’s a very
1:38:51 important social lubricant component to it um you know it’s like um and the de-stressing could be
1:38:55 healthy so let’s just say maybe it’s not accidents the birth rate is crashing right at the same time
1:38:58 that we all stopped right i don’t think andrew would argue you should not live your life purely
1:39:02 maximizing for just physical health that’d be a miserable way to live i mean it’s like what are you
1:39:06 going to do just like never leave the house yeah never take the risk across the street um and so
1:39:10 you know he certainly doesn’t judge people for drinking modern ross alcohol he just says look
1:39:14 scientifically you have to understand it is a poison yeah now having said that as you know um speaking
1:39:20 of scenes um as you know that the displacement thing that’s happening is people are in like our world
1:39:24 they’re not drinking alcohol instead they’re like doing hallucinogens why are you saying it’s not
1:39:28 necessarily an improvement as you jack you know very well yes yes tell us about your latest
1:39:32 ayahuasca yeah um you’re first you’re so much different than you were last time i saw your
1:39:37 personality has clearly completely changed yeah i do feel different so so the other theory would be
1:39:41 there’s a law of like conservation of drug use which is every society is going to pick some drug
1:39:44 probably right and abuse it and apparently in our case it’s going to be like lsd and mushrooms
1:39:52 it’s a good one uh yeah okay um other okay my last question when i tweeted out a request for
1:39:57 questions i got almost ratioed by one question so i’m going to ask this one like nearly verbatim it
1:40:04 was by an anon uh named signal if you were frozen for 100 years and you woke back up and you looked
1:40:10 around what would be the piece of data that you’d want to know that would tell you whether or not your
1:40:15 dominant worldview turned out to be correct in the fullness of time yeah so i will pick a very
1:40:20 unfashionable answer to this and i would say united states uh gdp just like straight out
1:40:25 us gdp because i would say embedded in that is the question of technological progress which is if you
1:40:29 have rapid technological progress you’ll have rapid productivity growth which means you’ll have very
1:40:34 rapid gdp growth if you don’t you won’t have rapid gdp growth so you’ll see that in the gdp numbers
1:40:38 immediately you know number two is you know well number two would be just like our markets a great way
1:40:42 to organize yeah um and the u.s is the best market and so you know is that is that gonna keep
1:40:46 working and then third is is does is the u.s are gonna be a great country and you are along all of
1:40:50 this i am very long all three of those yeah i am very convicted on all three of those but you know
1:40:54 if i’m wrong about something big it’s it’s gonna be something in there and it will show up in that
1:40:57 number mark this is amazing thank you so much again good awesome thank you jack
1:41:05 thanks for listening to the a16z podcast if you enjoyed the episode let us know by leaving a review
1:41:11 at rate this podcast.com slash a16z we’ve got more great conversations coming your way see you next time
1:41:12 you
In this episode Jack Altman, CEO of Lattice and host of Uncapped, interviews Marc Andreessen on how venture capital is evolving — from small seed funds to billion-dollar barbell strategies — and why today’s most important tech companies don’t just build tools, they replace entire industries. They cover:
- The end of “picks and shovels” investing
- Why missing a great company matters more than backing a bad one
- The power law math behind fund size and asymmetric returns
- AI as the next computing platform — and a test for Western civilization
- Preference falsification, media power, and what founders can’t say out loud
This is a conversation about ambition at scale, the structure of modern venture, and the deep forces reshaping startups, innovation, and power.
Resources:
Listen to more from Uncapped: https://linktr.ee/uncappedpod
Find Jack on Xhttps://x.com/jaltma
Find Marc on X: https://x.com/pmarca
Find Uncapped on X: https://x.com/uncapped_pod
Timecodes:
00:00 What You Can’t Say
01:20 Founders, Funders, and the Future
02:00 Fund Size and Power Law Math
06:45 From Tools to Full Stack Startups
10:00 Market Sizing and Asymmetric Bets
13:00 Public Markets Mirror Venture Dynamics
17:00 The Barbell Strategy in Venture
20:00 The Conflict Dilemma in Venture
25:00 Staying in Early-Stage Venture
29:30 The Death of the Middle
32:00 Why It’s So Rare to Build a New Top VC Firm
35:00 The Case for Power in Venture
37:45 Limiting Factors for Big Companies
41:00 AI as the Next Computing Platform
45:30 Betting on Startups, Not Incumbents
48:00 How a16z Thinks About Risk
51:00 Building a Top-Tier GP Team
55:00 Taste, Timing, and Getting Into the Scene
57:00 Raising Capital Is the Easy Part
1:00:30 AI’s Existential Stakes
1:05:00 Autonomous Weapons, Ethics, and War
1:11:00 Tech, Government, and Power
1:13:00 Media, Mistrust, and Narrative Collapse
1:24:00 Preference Falsification and Cultural Cascades
1:32:00 The Thought Experiment
1:33:00 Career Advice for Young Builders
1:35:00 Marc vs. the Huberman Protocol
1:39:30 What Would Prove You Right?
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