a16z Podcast - a16z Podcast: Entrepreneurs, Then and Now

Episode Date: June 28, 2019

with Marc Andreessen (@pmarca), Ben Horowitz (@bhorowitz), and Stewart Butterfield (@stewart) A lot in technology -- and venture -- happens in decades. New cycles of technology come and go, including some secular shifts; a new generation of founders matures; and so much more changes. So when Andreessen Horowitz (dubbed with the numeronym "a16z") was founded a decade ago as of this month, the tech landscape looked very different between then and now: Not only had the global economy just seen a recession, but trends like mobile and cloud and even social were just taking off. Now, 10 years later, what's changed -- not just in tech, but in profiles of entrepreneurs? And what's changed in the firm itself, given that Marc and Ben -- the Andreessen and the Horowitz -- were yet again entrepreneurs in founding the firm too? As another repeat entrepreneur from then to now, guest host Stewart Butterfield, CEO of Slack, interviews the a16z co-founders in this special episode of the a16z Podcast to commemorate our 10th anniversary. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Hi, and welcome to the A16Z podcast. I'm Amelia Saliers. Today's episode is a special one, since it's the 10th anniversary of Andresen Horowitz, which was founded in late June 2009. So, we decided to turn the tables by asking Stuart Butterfield, founder and CEO of Slack, to interview our founders, Ben Horowitz and Mark Andreessen. The three of them discussed the differences between founders in 2009 and today, the business model of VC and A16C's history, and technology trends then, now, and to the future, and they also throw in a few good summer book and TV recommendations at the end. Please note that the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16C fund. Any investments or portfolio companies mentioned, referred to, or described in this podcast, are not representative of all A16Z investments, and there can be no assurance that the investments will be profitable or that other investments made in the future

will have similar characteristics or results. A list of investments made by A16Z is available at A16Z.com slash investments. For more details, please see A16Z.com slash disclosures. One question I want to ask is, like, has the nature of the entrepreneurs or the founders change? So 2009, you have raised some money, you have some LPs, and now you're out there looking for ways to invest.

Who are you meeting? Where are they coming from? And what are they like? Yeah, well, you know, I really feel like in retrospect that class of 2009 entrepreneurs were some of the most special ones that we've met in the entire history of the company. And when we see that again, we always say like yourself, Todd McKinnon, Martin, Brian Chesky, you know, the thing all of you had in common is you had gone through something like just unbelievable to get to the position you were to start the company, you know, earned your stripes. Like everybody in 2009 seemed like they pay their dues, like in a pretty serious way to get into position. And I think, you know, one of the great things that's happened over the last 10 years is it's just become easier to start a company. But as a result, you don't have, you know, people who know exactly what it is and what that means and what they're about to face and still want to do it, which is, you know, that's a very special thing.

that's an unusual person. And then I had two categories of entrepreneurs who have really risen in the last decade. So one is, you know, Alex, our partner, Alex, kind of coined this term O to O, you know, kind of in B2B, B2C, now O to O and O to O is online to offline. So it's this whole broad category. It's, you know, Airbnb and Lyft and Uber

and, you know, many of these postmates and DoorDash and all these, sort of these companies that you have an online experience that culminates of something happening in the real world. And so those founders are much more, I would say, operationally focused maybe than the previous generation, right, which is it's not just software, but even beyond not just being software, you know, those companies have a big, real world, you know, logistical

infrastructure operations component. And so that has turned out to be a different kind of founder, which is really interesting. Almost actually even a little bit of a throwback model, those people arguably are a little bit more like the semiconductor founders from like 30 years ago. They're like, they're harder core. They're grouchier. They're dirt under the fingernails. Yeah, and they have to worry about more real world stuff. Yeah. Stuff can go wrong. You know, people can die. Like, you know, all kinds of, you know, you know, it's all. all kinds of stuff can happen. So that's been a particularly interesting kind of rise of a new kind of founder, which has been super interesting to work with those people. And then the other

on the bio side is we've gotten more involved in bio and in healthcare. The other is the rise of the deep domain expert in a science like biology. So somebody might come, you know, biology PhD or chemistry PhD or something, where, you know, 10 years ago, if you met a newly minted biology PhD out of Stanford or MIT, they really wouldn't know that much about computers. It was kind of an afterthought. And they wouldn't really know, you know, they know a little bit how to code, but not much. And now you meet a newly minted biology PhD out of Stanford. They basically have a dual PhD in computer science. Like they basically, they've been, you know, it's kind of the story, they've been programming since they were, they were little kids in most cases. And then they

kept current. And in fact, a lot of the research that they did to get their bio PhD often had to do with computer science and math and algorithms and machine learning, right? A lot of that, a lot of that stuff's happening now. And so you've got these kind of dual discipline founders for the deep science stuff. So dual discipline, biology, CS, mechanical engineering, CS, physics, chemistry CS, and that's a real, like that, those people are like super enticing. Because those, you know, it's like two superpowers, like, you know, he can, you know, he or she can fly and they're invulnerable, like is a really good combination. And so a lot of the companies we're seeing on the biocide and in the harder science is, is that kind of founder.

And I think that's new. Yeah. Or like Satoshi. Economics and. Satoshi is a really good. Computer science. Actually, it's funny. There's actually a revolution happening, even apart from crypto in the field of economics, there's a row in the, in the actual academic field of economics, there's a revolution happening towards what's called empirical economics, quantitative economics, in which a lot of the new economists who are kind of 40 and below are very focused on data and machine learning. And, you know, the economists that are in their 50s and 60s were more inspired by physics and they're much more into formulas and they're much more abstract about what happens

in the real world. And so there are actually, there are actually, there are companies increasingly driven by, started by, or, you know, new inventions being created by economists with a very strong CS background. That's true. That's true. So from the beginning, I'm not sure if this was intentional or not, but certainly the positioning in the press was this was different. Like, you were going to blaze a new trail, kind of a different model. And right out of the gate, there was the investment in Skype, which is not a thing that VCs normally did. How intentional is that?

Yeah, a lot of it was intentional. So there was a big kind of throwback element to what we were doing, which was basically we wanted to work with the best founders to build the most important companies. And we could talk a lot about kind of the history of venture and the art and science of the whole thing. But there is a rich tradition there that we definitely drew from. And we actually, we spent a lot of. But we, to get Ben and I, leading up to this, spent a lot of time really digging into the history of where all this stuff comes from and kind of what made it work across various eras.

And so we were very inspired by a lot of the people who came before us. And then there were a bunch of new ideas. And so, you know, maybe listed several of the new ideas. And so one of the new ideas was just that we thought that a lot of the venture firms had lost their way in the sense that they had been started by founders. They'd been started by founders and operators who had built businesses. And so you would, you know, raise money from, you know, a firm. And you would get, you know, somebody who'd been a CEO or general manager of an important business on your. your board and they could really help you figure things out. And then over the years, a lot of

the venture firms just quote unquote professionalized and they ended up with a lot of GPs who didn't have that experience. And so it started to get, the advice started to get more abstract and maybe less helpful. So that was one difference. Another difference was, you know, we took seriously the idea of building the institution and then in particular around that building a network and making a real long-term systematic and actually very costly investment in building a, you know, building a network. And that had to do with the fundamental staffing model of the firm. And then that, you know, that's why we have all these operating functions. We have all these, all these professionals here. And then that rippled over even into things like compensation.

Like we get paid very differently than most, the most VCs. And so that was a big difference. The Skype deal you alluded to, we did start at the very beginning with the idea being stage agnostic. And that was probably a pretty new idea at the time. And the idea there, basically, was if the priority is to work with the best founders to help build the most important companies, it shouldn't matter that much what stage the company's at. I mean, ideally you'd like to start working with people early, but like, you know, you make mistakes. And so you miss things. And we were starting from scratch. And so there were a bunch of companies we thought were very impressive that we wanted to get involved in, you know, even though they already existed. And so we kind of had

this idea that there should be multiple entry points from an investment standpoint. And then there would be things that we could actually do to be able to help and work with the entrepreneur. And so we kind of put ourselves in business from the beginning to operate across all the stages. You know, now that took time to get, I would say it took time for us to get good at all the stages and maybe we're still working on it. But that core fundamental idea was in there. You referenced looking back at history for some context and thinking about the investment thesis. For us, 10 years doesn't seem like that long ago. But then we hire people who have like three or four years of work experience, which means that they weren't even in college

sometimes 10 years ago. Yeah, we experienced that a lot. It's increasingly frequently. Yeah. But that's interesting because that was a very particular moment in history that I have vivid memories of the 2008 crisis. Then then like almost immediately after that, the idea that we were in a tech bubble. Yeah. And kind of the whiplashing back and forth. What was that like? Well, you know, it was interesting when we started.

And we had, we of course had been through the actual tech bubble. The 2001 tech bubble. Yeah. The 2008 crisis was a banking crisis, not a tech crisis. It was a debt crisis, not an equity crisis. So it was very different in nature for startups. So a big advantage we had was it really did not bother us at all. And so walking in, one, like everybody said, you can't possibly raise a fund in 2009.

You can't raise a venture capital fund. So only two new funds were raised that year, us and COSLA. And because we, you know, we didn't know any better. We're like, come on, like, this isn't bad. This is, like, not bad at all. And then, like, the other thing that really helped us was the just grouchiness of a lot of the other VCs. I remember I'll go unnamed venture capitalists because I remember it so well because I ran back to tell Mark, you know, he asked me, he's like, well, like, what are you interested in?

And I was telling him about Octa and how, like, important it was going to be in a SaaS world and so forth. And he gave me, like, a 30-minute lecture that SaaS was a bunch of BS. It was never going to happen that the only successful SaaS company was Salesforce. And that was ever going to be the only SaaS company was going to be Salesforce and all this stuff. And so it was just like that kind of, like, everybody was just like pretty grouchy and like crusty. And we were, you know, news. So we we're excited to invest in all that stuff. So thinking back to that point, I don't remember the exact year that everyone started. Obviously, my company started in 2009.

I think Airbnb was like maybe that same year or a year later. Something's happened a couple of years earlier. Like AWS came out in 2006, iPhone nominally in 2007, but really 2008. But a lot of those things hadn't actually picked up. So certainly my recollection is none of that was really visible at that time. But we were at this, in retrospect, what was an incredible inflection point. To what degree do you think that worked to your advantage? Because here you are starting to fund, people are skeptical.

But meanwhile, there's these massive secular trends, which were pretty much invisible to everyone at that time. I think the two things that are true. So one is the big secular trends do drive a lot of what happens in this industry. And so, like, it is absolutely the case in the last decade that mobile and cloud in particular, like, drove just giant growth. And social as well. So, right, those three. And so, you know, they made a lot of people look like geniuses, including a few actual geniuses. So that's also true.

But I think it's also true. What Ben mentioned is, like, super important to underline, which is like, people don't think these things are obvious in the beginning. Like, they're only obvious after the fact. They really don't look that obvious in the beginning. And so you mentioned the iPhone came out. Like, I remember the iPhone in 2009, it was like a cool gadget, but like it couldn't hold a phone call.

Like that was the era in which like it wasn't even, it was it on 3G at that point. It was like a big way. No, it wasn't. It was pre 3G. The original iPhone was actually pre 3G, right? It had like edge data connection. And then the 3G iPhone was a big upgrade. But then you couldn't hold a phone call in the thing.

And that was in the era when Steve was telling people that you were holding the phone wrong. Yeah. If it was dropping phone calls, you need that. built that crazy room to prove it to the journalists. Exactly. And then they shipped everybody the bumper, right? And so it's like, okay, to squint from that to like, okay, now it's the mobile boom of all time and we're going to be sitting here 10 years later and they're going to have, you know, whatever it is. Now a billion and half of these things, you know, in the field.

And it's going to be kind of the defining, you know, device and interface for a generation. Like that wasn't super obvious. And then cloud, you know, cloud, I just, you know, there, you know, there were lots and lots and lots of companies of that era that were incredibly powerful that we're in the server business or networking business or storage business or software business where this whole cloud thing like AWS, like it's a toy, it's a gimmick, like it's never going to make any money. It is really interesting. There is a big leap that has to happen even when they are the really big megatrends. Like it's not, well, I had this in the early internet, the internet, the internet, like a lot of people in the early 90s, a lot of people in the press, a lot of people

in the investment community. Well, the entire, well, actually you should tell the story about like when you went to raise money, you and Jim went to raise money from all the, the, the magazines and the newspapers. Yeah, so we started an escape in early 94 and we went out and pitched all the media companies to become customers, partners, investors. And every single big media company. And in fact, at that point, they said, no, no, the future is AOL because AOL pays us for our content. And on the internet, we have to spend money to put our content. So that's never going to work. And of course, they all knew that normal people wouldn't use the internet if it didn't have Time magazine on it. Right. Because Time magazine would obviously be the killer out for the internet.

And by the way, it's like, a friend of mine says that, this thing is happening. It's going to fundamentally change the world and people poo poo. Like, that might actually be the logical response. there are many new things to come along where people claim it's going to change the world. And then most of those things don't change the world. And so maybe, you know, on average, the correct response is, no, this thing is stupid. And then maybe our lot in life as founders and VCs is to, you know, be the fringe element that, like, that bucks that. Who's wrong 97% of the time? Right, right, exactly.

And by the way, you know, we look dumb a lot of the time except, you know, during the times we look, you know, really, really smart. And, you know, and the reality is we're probably neither, right? We're probably neither super dumb or super smart. We're probably just willing to take the risk at a time when other people aren't. So let's fast forward a couple of years, kind of like the middle era, 2012, Facebook went public. But I think that I don't remember what year this happened, but we started talking about unicorns. And there was another round of, this is a bubble. What was that like?

And what do you remember about the investment, like basically the partner meetings after I would leave the room and the debate was happening? How much is this too expensive factor into the conversations? Yeah, you know, we have in the entire time, and I can say we're totally consistent. consistent on this. And I think it's because of our history, never thought it was a bubble in our entire time doing the job. And I think a lot of it has to, look, prices of companies are always incorrect, like always, always, always incorrect, because they're valued on like future performance, which nobody knows what that is. So most people are optimistic. The prices go a little higher. Most people are pessimistic. At that time, the prices go a little lower. But to get to a bubble,

everybody's got to be optimistic. And that's what happened kind of in the, the 99-2000 era. And like in our whole time, we never saw anything close to that. Like, they never went anywhere, anywhere like within an order of magnitude to what it did in 99, 2000, for similar kinds of companies.

And so we were always, no, there's no bubble. Like, what are you talking about? There's no bubble. But people want to believe there's a bubble so badly. I think 2011, I would consider in a debate

with Steve Blank and the economist. And I argued it wasn't a bubble. and he argued it was in 2011, tech bubble, right? And at the end of the debate, he called me and he said, Ben, like, I voted for you, you won. The economist readers voted 78%, 22% for him. Because, like, that's how much people wanted to believe we were in a bubble. That still do. Yeah, there's a, there's a, there's a, I'm not sure if it's quite a cognitive bias,

but I feel like there is a predisposition that a lot of people have to take the cynical bed. Somehow that seems smarter because either way, there's a payoff. And the payoff, if you said that's bullshit, and then it turns out you were right, seems greater to people than the opposite. And also there's a little bit of you can't prove a negative, proper, you know, valid hypotheses and stuff like that. Plus, you get the victory as the most smug person in the room, too. Yeah.

So you're generally betting against the cynicism in your business. Is that like something you can actually take advantage of or is that something that works in your favor, that cynicism? Oh, 100%. In fact, like we have this thing that our friend came up with, which is the East Coast. West Coast arbitrage, which is anything that the people in the East Coast think is ridiculous in a toy and people on the West Coast think is the next big thing. That's the thing to bet. And we just keep flying back and forth until you find out what those things are

and then you just invest all your money in that. That really suggests a question for today. There are some big things happening today that aren't obvious. What kind of energy you put in to find that? Are there like specialist researchers? Is it just every part? kind of contribution? How much time do you spend looking for what isn't obvious today but will be obvious in retrospect? Yeah, I think that's, you know, ends up being like half the job is trying to understand like what is the next big platform. Where are things going? You know, what's going to be the user interaction model after the iPhone? You know, that's a big open question right now. Like, what's the next platform? What is AI really going to mean?

is this whole crypto thing real? These are all like, you know, VR and AR, like at what point? It's hard to imagine 20 years from now it's not working. So like how many years from now will that take? And these are the kind of fundamental questions always in the venture capital business, I think. And you might add genomics. You might add CRISPR. You might add synthetic biology.

It's three of the big new frontiers on the biological front that all have that characteristic. Chris Burr seems like one, to me, that is going to have a really dramatic impact. Obviously, there's a big moral debate to be had and policy debate to be had. How do you take something like that and try to look for the opportunities? Yeah, so the big thing is we default into thinking, okay, this is going to happen? Like, we don't spend a lot of time on like, okay, will this happen? Like, is this going to be a thing? In fact, I try, one of the things I try to do the firm, it's try very hard to actually kind of prevent us from having the discussion of like, okay, is this going to happen?

It's more a question of like, okay, let's assume it does happen, right? Right. And so then there's kind of two really critical questions that follow from that, which is like, okay, if it does happen, then where does it go? And so the financial version of that question is kind of how we call how high is up, which is like, okay, how big could it get? Right? Which is sort of, you know, it's a very interesting question for venture capitalists because it's like if you make an investment in something, even if it happens, it turns out to be small, then it's still not worthwhile. And so you're looking for the things that could get really, really big. And then you're obviously looking for, you know, you're then looking for the founders and looking for the specific ideas and application. So you spend a lot of time on that. The other thing you think a lot about in this business is timing. And so like my observation is basically, basically everything happens. Like my entire history in this industry, and at least for 25 years, is basically everything that people said was going to happen, happen to some point, up to it, including online pet food delivery.

Like, it all actually happens. Yeah, all the things they made jokes about in all the early 2000s movies are all actually. They're all actually happening, but it's like, okay, when is it going to happen? And like, is it ready now? You know, is it going to be on this cycle? And then how do you bet this?

Like sometimes these things take three, four, five cycles, right, for the founders to really figure things out, for the technology to kind of fall into place. So it's kind of like, what are the exploratory bets? How are you kind of vetting whether the stuff is real? And then there's this multi-dimensional question of like, you know, to kind of your point, there's this multi-dimensional question of like, okay, is the technology ready? And then you got to kind of cross that with like, do you think the market's ready?

Like, do you think people are going to want this? And then you might have to cross, like, in CRISPR, you might have to cross other issues, like regulatory issues. Like, are the regulators going to buy into this? And so, and that's where I think you have to kind of explore as you go, right? Which is you have to kind of feel your way through it. Like, it's often not the first company in a category that ends up being the winner, right? Well, this is a Peter Thielism that we quote a lot.

It's not the first company that gets all the money. It's the last company in the market that gets all the money. In other words, it's the company that actually takes the market, right? It ends up actually being the dominant company and forecloses the opportunity for there to be new startups behind it. And so sometimes that's a pioneer. Sometimes it's not. And so you're kind of having this constant discussion about timing.

And then, you know, at the end of all that, we kind of try to park that to a certain extent and just start talking entrepreneurs and, you know, figure out, you know, who is the person who's got this the most decoded, you know, how much time in effort. has that person put into it? How qualified are they to pursue this? You know, what's what's their personality and can they build a company around it? Yeah, that's what I was going to actually go right there because knowing you, as I do, I can't imagine it's ever, we have a thesis that this thing is going to work out. Now we're going to look for the entrepreneurs who are doing this thing. It's much more going to be, you have the confluence of who you're meeting,

who you get to talk to, what people are up to, and these background thesis that give you the opportunities. Yeah, that's right. Yeah, no, I think that's right. And actually, I mean, I think for a while it was, always, like, started with the entrepreneur in the early days of it, just because they were the two of us, and we couldn't cover all the spaces and enough depth to do it any other way. But, you know, the other thing kind of related to that is the platforms that kind of, we think, are getting proximate from a timing standpoint are the ones where, like, the smartest entrepreneurs are all working.

So if we see 20 genius entrepreneurs all working on crypto, that makes us pay attention, for example. Right. So, Mark, you've talked about five-year cycles in tech. Is that something that you think is a good way to imagine what's going on or to picture it in context? So I would say there's two big – there's two big – it's hard to – you know, the stuff is just – these are just general frameworks. And so, you know, they vary a lot in practice. But the big, the two big general concepts. And so, like, I would say, one is the big technology changes, like the ones we've been talking about.

Like, they're generational changes. Like, they're quite literally – they're human generational changes. So it's like the typical cycle in those is like 25 years. And the reason literally is because a lot of the time you just, the people who are in positions of power and decision and influence when the new thing comes out, they just will not accept it. They won't accept it. They won't adapt to it. They won't recalibrate to it. And fundamentally, they need to age out of the cohort that has the power. Right. Purchasing authority and all the decision making authority and all these other things. And so they need a new generation that takes this stuff seriously because they grew up with it. Right. And you need them to age into the cohort. Right. And so it's like it's literally a generational turnover. And so you see these. And that's why you get to. these things, you'll see some of these new things, they'll grow for 25 years. And I'm convinced like a big part of it is just simply that generational effect. So that's the good news. It's like when they work, you can have literally decades of growth off of, you know, enormous skepticism from day one. You know, the bad news is, as you're well aware, as a founder, no individual company gets

25 years, right, to prove something, right? Nope. In fact, something well short of that, let's say. And so, like, our basic mental model is a company on average gets maybe five years to prove something to prove the hypothesis. Like, and you can kind of, like, if you're a top end founder and you're super credible, you could probably raise the seed around, you know, series A, series B. You can get yourself five years a runway. You can get, you know, engineers to some product people to sign up for that. You can prove it or not. But after five years, if it's not working, like you start to have a problem and, or I should say you have two problems. One is you start to have a morale issue where people start to lose faith and they spin off and go to other things.

You can also end up with an architecture issue. Right, which is like, even if you're right, even if it starts to happen, you're built on the prior architecture, right? And so, you know, imagine being a mobile developer that started in, you know, 2002, right? And even if they were still around on the iPhone came out, you know, they'd built their entire, you know, system on brew and, you know, Java and all these technologies that were now archaic. And so you kind of have this, this kind of aging in place thing that happens. And so each company kind of has a five-year shot. So then what happens is- There are exceptions. Yes, there are particular founders who can get through this, but it does tend to be the exception.

And so, but then you think about it, then there's sort of the psychological thing that happens as a consequence, which is if the founder starts the company in the first cycle runs for five years and it doesn't prove the hypothesis, that founder usually ends up so bitter about the whole experience that they become cynical about that category for the rest of their lives. Right. Right. And then somebody else in sort of, you know, cycle two, the generation two, three, four does figure it out and like, you know, that fine. And by the way, I'm speaking out also myself out of experience. Like, talk about upset. The fact that you couldn't get it to work in this other person did. It's just like absolutely maddening. And that's just human nature. The part of it that really bites the VCs is the VCs do that too. If you as a VC make a bet and go on a board and you're in the board meetings for five years and it doesn't work and the company shuts down. And then a new kid shows up, you know, three weeks later and says, hey, I've got an idea.

Why don't we do that, right? And, of course, what really makes you frustrated as a VC is that kid half the time isn't even aware of the previous failed experiments because, like, they literally weren't paying attention. Right. And so what happens is actually the VCs will free, it's actually, the VCs will actually freeze themselves. out. And so, and it'll be VCs who are much more naive and much less aware of the previous failures that will actually make the vet. And so that puts you in this very weird spot, if you think about being a VC or running a venture capital firm, which is you would like to say that the person who knows the most about the domain is the person who should make the investment decision.

But it may also be the case, the person who knows the most about the domain has the most scar tissue and has the most followed up psychology. And so a big part, exactly to your comment, like a big, a big part of this job, just like being a founder is like you have to suppress your national instincts to get bitter and resentful and envious and upset. And it goes to even a more, even a more, even more fundamental question is, like, can you learn lessons, right? Like, what do you learn, like, in this business, what do you learn from a failure? And maybe the answer is you should learn a lot from a failure, because, like, those are all hard-wined lessons. And maybe the answer is you should learn absolutely nothing. Maybe all the lessons are wrong. So, yeah, sometimes the lesson is

that that didn't work. Yeah. That's something that we, I spent a lot of time trying to, to convince people on the team of that, uh, it's the right brothers or Thomas Edison, it's just every day, what's the best idea we got? That didn't work. All right, what's the next best idea we got. And the characterization of celebrating failure sometimes misleads people to characterize that as a failure. Because if this plane didn't fly or this light bulb didn't light up or it blew up or whatever, is that a failure? Is that just the process of getting to the light bulb that works, that airplane that flies? Yeah. Edison tried 3,000 compounds, I think, for the light bulb. Yeah. Before he figured out

the filament. That is a level of persistence I would like to hire. So, Mark, you just mentioned a little bit of like control over your own emotions or your reactions and cynicism, Ben, that's something that you talked a lot about and the hard thing about hard things, just like the power to overcome. To what, I mean, obviously you've seen a lot of this. You've experienced it yourself. To what degree do you think you've been helpful? And let me just say you have been helpful to me personally in helping entrepreneurs through

some of that, whether it's the overwhelming emotional reaction to a bunch of good stuff happening or a bunch of bad stuff happened. Yeah, no, so I think, I mean, that's probably the number one kind of consistent thing that I get back on that book is, like, you know, what I'm feeling is so intense and there's nobody to talk to about it. And then the book kind of goes like, this is what it feels like, this is what it looks like. And I think that just that, just knowing that you're not the stupidest entrepreneur of all times is like really valuable. And it's something I always wish that I had. It's a lot of the reason I wrote the book because I used to go around, you know, and I

you know, and I was like in the kind of horrible period 2001 and I would talk to other founders and I'd be like, you know, how's it going? And they'd be like, it's amazing. Like I can't, this is the greatest experience of my life. And I'd just be like, wow, I'm like the stupidest motherfucker of all times. Like my business is in horrible trouble. And it just seems so bad. But then like, you know, because I've lived long enough to see, like most of those guys went bankrupt. So they were all going through it. I was going through. They just, like, nobody would tell each other because it's so embarrassing. Yeah. So it was, you know, one of those, those kinds of things. But it's been, you know, it's been a great help to me in the work because when I sit down with

an entrepreneur, they go, okay, yeah, I know, you know what I'm talking about. So we can talk about the real, like, horrible shit and not just, you know, the happy stuff. I feel like there's an obligatory question here is to talk about the things that you guys tried that didn't work and the failures. But before we get there, just on the way, there's a bunch of things that obviously did work. So building up a bunch of capabilities in the firm and in the partnership with something that is now pretty widely emulated, like having those services that the companies can call on, being a little bit more stage agnostic and even like industry technology vertical agnostic has been something that's worked out really well. When you look back before

we get to the failure question, what do you think the best decisions you made are in the way that you set up the firm. Yeah, so it's a great question. I think, you know, at the core, I think just this belief that a venture capital firm has got to be able to help the technical founder grow into a CEO. It's just so, you know, in retrospect, that turned out to be profound and just differentiating and important. And it really is the work.

So when we think about what do we do and why are we here, that's it. and then kind of backing that up, the thing that helped us the most is just taking what Michael Ovitz had done at CAA. And that jumpstarted us, I mean, we probably say five years by copying his model. So that, and I can't even believe how well it worked,

like every aspect of it worked. So, you know, those are probably the two things. What was it from Michael Ovitz that you copied? He has since written the book. And so there's a great book. He finally revealed some of it. Some of it's in the book, not all of it's in the book.

but the book is called Who is Michael Lovitz. And it's a highly entertaining book, and we recommend it. I mean, it's actually really funny. He kind of sat down and described the whole thing. And it basically was this idea of, you know, we're not just going to be a collection of individuals. We're going to be an actual true team. And then it's not just going to be the principles. It's going to be an entire operating platform, an entire entire infrastructure.

It's going to be professionals across all these different domains. And, you know, we're going to build this enduring long-run network that's going to, you know, it's just going to constantly compound year after year and build more and more value. and then the next client comes along or the next, you know, founder comes along and they can plug into this entire system, you know, that's been built, you know, and we've been building the system now for a decade. And so, you know, a new founder who works with us today, like they're walking into a basically a system that's been built for a decade. So then he said basically what happens is then it's compounding advantage, which is every year that goes by, you just get more and more differentiation

off of the status quo. He was competing at the time with William Morris, which was this huge talent agency, and it's like, well, why wouldn't they just copy you? And he's like, well, they'd have to vote themselves big salary cuts, right? Like, they're paying themselves all the money right now, right? And so to go hire, you know, 100 people to go do the stuff that we're doing, they'd have to, like, they'd have to free up that money from something. So they'd have to vote themselves giant salary customers. Like, they don't like each other. Like, they don't get along to start with. And so imagine getting into the room. And they've all got, like, you know, they're like very successful people. They've all got very high personal burn rates.

Right. They've got all kinds of hobbies. You know, they've got vineyards and yachts and all this stuff. And so, you know, they're going to now decide to give themselves an 80% pay cut, right, to compete with the startup. Like, no chance. And so anyway, that was his explanation. Yeah, that's been a long lasting advantage, I think. thing for us. Yeah, but yeah, that continues. As it actually turns out, that didn't just happen in the talent agency business. What I discovered doing more research after that was that was also exactly what happened in, for law firms. It's exactly what happened in management consulting firms. That's what happened to ad agencies, accounting firms. And then also

investment banks, private equity firms, hedge funds, all these other industries have gone through this transformation. They basically, they professionalized and upleveled. And it just happens that the venture industry is doing that now. And in fact, I think at this stage, like, it's beyond just awesome. There's something else there that I actually hadn't really realized, but maybe it was implicit the whole time, is CA's investment was to make the people they are representing more successful smart idea, given that you got points on their success. There's a little bit of the same thing because you can make an investment decision that it's just like, I'm going to buy some copper futures or oil or something like that. And I can't do anything about to make oil more

valuable for people or copper more valuable. I invest in the startup and there's a ton of stuff I can do. have my connections. And I know that, you know, personally, I benefited from being able to call on both of you, from John O'Farrell, who joined our board, from Marget, from Jeff Stump, on recruiting, from the whole team running the EBCs. I mean, there's more than I can mention here. And I think that it has, I don't know what the ROI for you is on that, on top of the dollars that you put in, but I would say it's probably 70% of the value to us. And 70% of the value created came from that additional support beyond just the money. Yeah, and there's also this little knock-on effect, which you appreciate, I'm sure, which is part of the trouble with, you know, an inventor becoming a CEO is you just don't feel like a CEO. You don't know the people who CEOs know. You don't know how to do the things CEOs know how to do. And so a lot of what you get out of the firm is, now I'm a CEO. Like if I need to know, I'd call Margaret. Like, you know, I can do that. I can step up. And so like that's a lot of what it

conveys at the end of the day is just like that confidence, which is often that, that little difference between being able to stay in the job and having to raise your hand and tap out. All right. So I promise that I was going to ask about any dumb decisions, mistakes, failures along the way. What are you got? We haven't made any. I don't really know why you would even ask that question. There's obviously nothing to talk. So we have a very specific philosophy on that. And the book I'd really recommend we're lucky enough to ever in the podcast a while ago. So Annie Duke wrote a book, called thinking in bets, where she talks about basically what is the nature of a mistake

in a probabilistic domain, you know, with uncertainty of outcome. And she uses the term in the book resulting is basically the process of looking at a bet that was made in a probabilistic domain that did not pan out and then concluding that that was a mistake as compared to a bet that didn't pan out. And so basically what she says in the book, she says in the book is basically resulting is the root of all evil if you're in a probabilistic business because you will learn the wrong lessons and you'll torture yourself mentally to death by doing that. And so she says the thing to do is basically to very clearly separate in your own mind process and outcome, right?

So you're in a probabilistic domain. You don't know the outcome of any particular bet ahead of time. And so you need to design the best possible process to generate the best possible set of outcomes over time. And then basically when things go quote unquote wrong, you don't second guess the outcome. You go back and you just make sure the process was as good as it could have been. And so, you know, from the outside, the mistakes of venture firm makes are always like, what's the investment that you didn't make that worked or the investment that you made that didn't work

inside the firm what we try to do is say, okay, what have we done well in our process and how can we improve our process? You know, that's a much more boring topic to talk about because it has to do with things like meeting structure and memo, you know, documents and, you know, research and due diligence and all these topics. But that is the actual answer to the question, which is, you know, when we started with a relatively lightweight process on investments because it was just Ben and me and then over the time we've evolved to a much more rigorous process today. we do a lot more work on the investments than we used to. And then the other side of that is to try to keep all that work from preventing us

from making the controversial investments. Getting people to that position. I wish I could remember who gave me this analogy. But if you got super drunk and then you drove home and you didn't have a crash, it's not that that was a good decision. The result was good. And we really, it's a tough thing to build structures inside the company to celebrate. That was a great idea to change the homepage so that whatever.

And it turned out that it was wrong. But you still got a. on it. You get a bonus, you get a promotion, you get recognition, even though it didn't have the result, because people do get super result fixated. Yeah, that's a, you know, Bezos has a real good thing where he says, we rate people on the inputs, not the outputs. Right. One of the last questions I wanted to get to is the nature of the entrepreneurs, now it's been long enough. You've seen some two-time, three-time entrepreneurs and you've backed some of them. What kind of difference do you see between that the first time and the second time?

So for Top End venture, basically the rule is if you're a first-time, to get a lot to, get funded by a top-end venture firm as a first-time founder, you have to have something working. You have to have some level of product market fit. You know, Google.com already existed. Facebook already existed. You know, it's been an Airbnb already existed when they raise money. So, so that's the general pattern. And then the question of the first-time founders is, do they know what they're doing, right? Can they then do the job of being a founder, CEO of a scaling company? And some can and some can't. The second-time founders are like a huge relief to deal with on the one hand because it's like, okay, they've been through it before.

Now they know what they're doing, right? They've got some experience and some gray hair. and some, you know, some operational experience. The problem with the second-time founders, they can raise money before they have something working, right? And then there's this question of like, okay, what's the idea? And then we talk a lot about like, is it an organic idea or is it like a synthetic idea? Was the process, I have a great idea, therefore I'm going to start a second company, or was the process, I want to start a second company, and therefore I have to come up with an idea.

And what you often find is they want to start a second company so badly that they come up with basically a synthetic, a fragmentary idea, partial idea. It's conceptually interesting idea. but with nothing underneath it. And we have this other concept we use called the idea maze, which basically is the process that a founder uses to figure out what the actual idea is, which is like a hundred-step process

to work your way through all the different permutations of the idea before you actually finally figure out the real thing. And the second time founders often just haven't gone through the idea maze. But it's really bizarre as a VC because it's like, here's this founder who you love and like they showed incredible persistence in the last company and like you so badly want to work at them again and you can just tell like the idea has almost become interchangeable. Right.

It's just like that's a super bad sign. And so that's what tortures you on those. From the entrepreneur side, I can tell you, having a whole bunch of money does take away a very critical forcing function, which is like, I'm about to run out of money. I better figure this out. So we had to overcorrect for that. What's the job of the founder? Is the job of the founder to figure out the product, figure out the market, and get the idea nailed? Or is the job of the founder to staff and executive team and an employee base, right?

And those are two, like, they're overlapping responsibilities, but there's a lot of... The first one turns out to be a lot more important. Yeah. It's like the startups where it's like they're doing all the outward. facing things involved of being a startup. But like there's nothing there. Well, you know,

and you always kind of know it because the founding team is all vice presidents and no engineers or something like that. It's just like, okay, what are you doing? You can't execute your way

through like no ideas. 10 people in the company will have a chairman, they'll have a CEO, they'll have a CEO, they'll have a president, they'll have a VP of sales, a VP of marketing

and a VP of engineering. Yeah. That's not a good. Yeah. A little bit of a pet pee for me too. So the first time that I met Ben, it was with Mark,

it was at the creamery in in polo alto and i think you were about probably about six months away from starting the fund i never would have predicted how things would have turned out did you predict how things would have turned out you know no i think we dreamed that uh we would kind of get to where we got to but it was a much longer time frame on the dream i mean things worked out way way better than than i think either of us sit out and expected and you know we had a lot of good luck along the way and then a lot of great help from a lot of people you know people like actually starting with like people like jim brier who kind of taught us what it meant to like create an lp base and how to think about investors and those kinds of things and then you know we

ended up getting like very lucky in the hiring there i think our first hire was scott cooper who we probably kind of built the firm with that and then you know our first consultant was market and you know there's no way we would have like pulled off the marketing thing without her so a lot of a lot of really great luck and a lot of really great help oh and Andy Ratcliffe yeah he helped us understand what venture capital was yeah it turns out of us had any experience then obviously all the partners who have joined us then so but 150 150 people now who but by definition numerically they get almost all the credit so one thing i definitely want to get to is the transition from a VC firm to a financial advisor from whatever that means and you're

a little bit iconoclastic and different from the beginning. This also seems, we'll see, looking back, it's iconoclastic, but definitely different. What was the idea there? Yeah, so, you know, kind of the thing that catalyzed it was actually crypto. There's a rule that exempts VCs from having to do a bunch of kind of regulatory compliance stuff. And part of the thing that keeps you as a VC is you can't invest more than 20% of your funds in things that aren't like primary equity investment. So crypto would fall into that category, secondary, so forth.

And look, we believe crypto is going to be important. Now, there's a lot of VCs who do, who won't take the step that we did to become regulated in the way that we have. But, you know, like, this is kind of another advantage from our background is we're not afraid of governance or regulation or these kinds of things and that, you know, it's something that we understand

pretty well from being a public company. We've done it before. and it opens up a lot of opportunities that we can now think about because, you know, we're in another category. Yeah, so this changed the categorization and then the regulatory environment, but you're still a V-Surf. Yes, yeah. No, we still are in the exact same business. We always were. Mark, I got to also do TV shows that you recommend because you are a source of excellent viewing. There we go. Good. All right. Well, I'll struggle. So I can't help myself. Deadwood is the best TV show of all time. It's actually very relevant for founders. It's basically

it's the story of the American frontier in with through kind of a modern lens. And it's just astonishingly high quality. And it's, it's basically the creation of a city. It's basically the creation of a city and ultimately creation of a state, the state of North Dakota. And it is, you know, in the face of just like, you know, horrifying obstacles. You know, and by the way, you know, many ethical issues along the way and everything else. If you think starting tech company is hard, you want to watch a couple seasons of Deadwood,

it'll put you in the right frame of mind. And then the movie that it got canceled. It gave us a decade ago and it got canceled after three seasons. And it really should not have been. and so they did a very rare thing. They went back 10 years. And all the people in the movie became huge stars afterwards in the show.

So they got them all back and made the fourth season into a movie. Wow. All right, can't wait to see it. Yeah. Give you two books if you want. Yeah, give you two books.

Give me two books. Favorite two books of the year. Book number one, Why History is always wrong. Rent by a historian. And it is basically, if you've read Nassim Taleb, he talks about something called

the narrative fallacy, which basically is, okay, why did something happen? And then there's some story as to why it happened. And then it usually turns out, like if you talk to the principals involved, it wasn't that story at all.

It was something much more complex. And so this is like the next level of that theory that basically says all of recorded history is the narrative fallacy. And so everything that we think we understand about why the American Revolution happened or why Rome fell, right, or why Christianity emerged or like any of these stories

that we, any of these things that we, and we teach, you'll take, you know, 12 years of history class in school and all this stuff. Like, it's all wrong. Like, it's worse than wrong. because it's not like it could be corrected. You couldn't actually make a bunch of edits to the book and make it correct. You can't do that at all.

And the reason why it's worse than wrong and you can't ever get it right is because reality is so complicated. Reality is a complex adaptive system and you've got human agents involved in everything. And so you've got, you know, in anything big that happens, you've got thousands or millions of people who are making all kinds of random decisions every day for all kinds of random reasons. And it just happens that things result in a certain way. Is it wrong in the same way to think that it didn't rain because God was not. mad or it did rain because we performed the ritual in the right way, like puts some agency into a system that there isn't anyone making decisions. It's just the emerging.

In reality, yeah, exactly. In reality, the weather system, I mean, you know, this is after 100 years of meteorological science, and they still can't predict it was going to rain tomorrow. And it's because the atmospheric system is a complex adaptive system and it's too complicated to model. And just like, and you can keep throwing supercomputers at it and it's still too complicated a model. So, by the way, it's the same thing to human body. Like, we don't, it's actually, we think about this lot in the biofund. It's like, we don't understand, like, we don't even, there's not even settled intritional science. Like, we still don't know. Like, there's still, there's no, a whole new category revision of science now questioning

this whole, the whole protein fat thesis. And so, like, it's, the example he uses in the book of the fall of Rome is like, you know, the single most studied kind of historical story is like the rise and fall of Rome. And it's like, and basically what happens is like, if, like, a science is working properly, you converge on the correct answer, really, who converge on Newton's laws, you converge on quantum mechanics or something like that. He's like, the problem in history is that the more time goes past, the more explanations they come up with, the more new explanations they come up with. And there's like, historians have documented there's like 250 now different causes for the fall of Rome. Right. And so like it just, it leaves you with nothing.

And so it's, it's, it's a disconcerting theory because it basically says getting handle a cause and effect in the world is impossible. It's a very convenient theory because it means you can just ignore history. It saves you a lot of time. It saves you a lot of time. And then it's an inspiring story or theory I find because it's like, okay, things can change. Like nothing is actually carved in stone. Like not even a little bit. Yeah. And who knows what's going to be the next person who's going to make the decision that's going to cause everything to go one way or the other. And that could be you. And so I find that inspiring. And then the other book I love to tell people about it is David Gagans, who's the only guy in history. He's a triple qualified as a

Navy SEAL, an Army Ranger and what's called an Air Force tactical air controller, which is a special forces unit of the Air Force. So triple qualified special forces. He wrote a book called Can't hurt me. And it is one of the most amazing stories that anybody has ever written. His story is really amazing. He's one of the only African-American Navy SEALs in history. And, you know, just manages incredible accomplishments, both inside and outside the military. And it's the book. Like, if Ben's book is about, like, the struggle in business, like David's book is about the struggle in life. And so anytime anybody feels mopey about what's happening in their startup or in their life, this is the book to read to kind of reset all the expectations.

All right. Great. Well, thank you so much. It was a pleasure and an honor to be able to do this with you. All right. Stuart. Thank you so much. Thank you, Stuart.