a16z Podcast - a16z Podcast: Hall of Fame Football Meets Venture Capital

Episode Date: February 5, 2016

The NFL has descended upon Silicon Valley for Superbowl 50, and a16z was fortunate to have 30 of the world’s best football players post-up at the firm to talk about the intersection between the world of professional sports and venture capital. Joe Montana -- yes, the Hall of Fame 49ers quarterback – joins a discussion with a16z’s Jeff Jordan and Ben Horowitz about their approaches to tech investing and the startup ecosystem, how they manage the risk involved (there’s plenty), and whether athletes and other high-profile folks can -- and indeed should – get involved. Here’s one piece of common ground: The hardest thing for NFL legends and VC’s alike? Losing.

Welcome to the A16Z podcast. I'm Michael Copeland. The NFL is descended upon Silicon Valley for Super Bowl 50, and A16Z was fortunate to have 30 of the world's best football players post up at the firm to talk about the intersection between the world of professional sports and venture capital. Joe Montana, yes, the Hall of Fame 49ers quarterback, joins a discussion with A16Z's Jeff Jordan and Ben Horowitz about their approaches to tech investing and the startup ecosystem, how they manage the risk involved, there's plenty,

and whether athletes and other high-profile folks can and indeed should get involved. Here's one piece of common ground. The hardest thing for NFL legends and VCs alike, losing. Jeff, Joe, can I call you, Joe? What we want to talk about with you guys is this kind of intersection between sports, investing, and technology. And you guys actually come at sports and technology investing from sort of different size of it.

Jeff, you're an investor and a technologist, and Joe, obviously, you come from the sports side. But I want to know, and let's start with you, Jeff, and then we'll go to you, Joe. From your perspective, where is the common ground? Like, where is there a sort of common language and common ideas between, you know, the world that these guys inhabit and that, Joe, that you inhabited and your world? I mean, the other founder of Andresen Horowitz is Mark Andresen, who was the co-founder of Netscape. And he had coined a phrase a few years back, software eats the world. Software is increasingly impacting like every business in the world. And, you know, it's obvious, okay, you know, music got impacted, but, you know, you're getting driverless cars.

And, you know, the head of Pepsi was here telling us how digital is disrupting her business. And that's soda and snacks. So, you know, what we're seeing is, you know, that digital revolution is coming into all businesses, including the sports business. And it's going to have, you know, some enormous impacts. We've seen companies trying to deal, help with the concussion issue. We've seen, you know, there's enormous disruption in the TV business and the cutting of the cord, the unplugging of the bundles, the ESPN's subscribers have started to go down. But people are still consuming sports, so they're consuming them in different ways. So there's virtually no part of any business that is being impacted right now by, you know, by Moore's Law, digital computers, and, yeah, and, you know, what we call it just disruption.

Joe, what's your perspective on that? And do you sort of keep them separate, kind of the sports world and then your interest in technology, or do they collide and intercept? Unfortunately, they collide from, we probably see more sports-oriented investments because of, you know, my back. background in sports. Everyone thinks that we're a sports focused fund, I think. And so we're seeing all kinds of things on the sports world. But the one thing that I think we all had in common is everybody here, when you're in the locker room, the guys were always in our locker room, we're always interested in investing. And what can they do and what can they say? And we were in a unique place. And early on, I really didn't realize how important

it was the area when I was in. My head was down and I was trying to play. a game I wanted to play for all my life. And so I missed the early part of that. But in the meantime, what we did was start learning a little bit more about the Valley and about the people who are around us and leveraged our relationships into the fund of funds and started learning more about the technology world. And we're always talking about companies that we liked and didn't like in the locker room. And then, you know, Ronnie and Harris and I really hadn't thought about.

having another job after football. After I retired I was just taking it easy and breathing and they came to me and say we want to do this and we leveraged our relationships like Doug Leone who obviously from Sequoia Capital was coached my kids in baseball and better investor than coach I'll say that but but we leverage that and we started learning about what they do how they do it. I got started on seed funds with Ron Conway.

One of the legendary seedin mistress here, yeah. Yeah, and he is kind of been a mentor to me, and I think that's the thing the key is, in sports, is trying to find someone someone, I love the industry. I'm not the greatest technology person

in the world. I still have to call my son. Scoot, man, fix me up. If I've got to FaceTime and can fix this. So, but it's still, you have to find someone who can really teach you the business. As you heard Ben talking about earlier, it's crazy the things that you look at and how they look at it differently. And especially the earlier you look at a company, the tougher it is to make that decision because there are a lot of them out there in the same parts of the world. And sometimes when you

see it and there's so many of them there, you're already probably too late in that industry. Well, Jeff, how do you approach? what's your lens that you come into when people come through the door? How are you looking at the people and then also the possibility of the technology and the business that they're building? Okay, so I'm not a deep technologist. I was a liberal arts major at school. So all the businesses I've been involved in are all kind of marketplace and payment businesses.

So eBay, PayPal, OpenTable as an operator, and now Airbnb, Pinterest, and Instacart as an investor. So the companies I meet with typically aren't incredibly deep technologically. So you're trying to figure out a couple things. First and foremost, it's a people business. You know, you're investing in someone who is signing up to take your money and try to build a business over a decade or two decades or three decades. And so you really need to know that person. You really need to believe in their ability, their conviction,

and one that's really important to us, their courage, because things will go wrong in every single business. And, you know, every single business faces these potential fatal periods where all the effort, all the money could just evaporate and die. And you need someone who powers through that. So the key criteria for us is the person and their courage and their talent and their ability. So when we invested in Pinterest, which is now, it's got an $11 billion value. It was eight guys.

Airbnb was about 30. And so you can't see the fact that Airbnb now consumers are going to spend $10 billion this year on Airbnb for that couch and room in your house. You have to, when you're looking at 30 people in a dumpy office and you have to be able to say, okay, this guy, this team is going to take the, it's an interesting idea, it's got a lot of upside and I believe in their ability to do it. So first and foremost is that. Second is probably the idea, kind of the product market fit. Is this an idea that's resonating with at least someone well? And we'd rather have it resonate with a small number of people incredibly well than a large number of people modestly well,

because you want that passion and engagement in the community. The last thing is one we kind of ignore is market, because almost all of the really great new technology companies created their own market. Or they started with a trivial idea and made it big. I mean, I was early at eBay. eBay was creating collectibles.

I mean, we didn't broadcast this at the time of the IPO, but eight or nine percent of all the items trading on eBay when we went public were beanie babies. You know, beanie babies. We did not put that in the document. You know, just kind of like,

so Airbnb, you know, rooms in your house. Facebook started hot or not on college campuses. And so all these businesses, if you looked at the market, you'd say, there's no market there, but they created it because it was a unique, different, disruptive idea. Right. Joe, Ben talked about how, you know, you need the best entrepreneurs to come to you and you need to have the option to invest in them. For you, I'm sure they're, and for these guys in this room, everybody's coming at you and at them, and they want you to participate. So how did you kind of filter out what you wanted to do in the same way? way and what you wanted to participate in.

And then how has your role in that participation changed over time? Well, one of the things I found is that most of the time when people were coming to me initially, it was, like Ben said, it was the one you really didn't want to invest in. And how did you know that, though? You learn the hard way. You know, you make an investment. Yeah, you invest in them. Yeah.

Exactly. Exactly. And it's, you go, oh my gosh, why did I do that? But the one thing that you found, and you have to kind of, you have to earn that part of it, that what people, you want the people to come to you, but you want the right people to come to you for the right reason. And so in this, investing in the seed round, one of the most important things is can you help that company progress along the, and grow, and can't, what value do you bring to them?

And so when I was assembling the team that we have, there's three members, soon to be a fourth one, I looked a little bit for diversity from the guys. You know, I have one guy who built, started and sold his company to Google, went back to Harvard Business School, finished there. But he basically ran Google my business for a while, and his co-founder now is the CEO of, Y Combinator. Right. The other one is a molecular physicist and one of the smartest guys. You know, I've seen, especially on the commerce side, if you use anything to do with IBM's

cloud, he built, IBM bought his business, and he came out of lockup in 2014. So I tried to build a group of people that not only understand the marketplace and are young so they can go out to those parties. My wife won't let me go anymore. But so that we could support companies as we move forward. I tried to build a team that could help support companies moving forward and help get them to the right places because they're always looking at some point for the C,

they're always going, hey, we need introduction to some A-series investors on the venture world. So we reach out to and try to help them get further down the line and progress. After that part of it, usually when guys like you guys come in, our hands are kind of off of it anymore after that because they come in with a lot more money and they have a lot more power behind it. But we're able to disperse and try to help that process. And that's when people start, when they start rating you as an investor. And when you start getting rated as an investor, people know whether you can't or can't support them and help them move to the next

step, the next level. What can athletes who are still playing for that matter, but then thinking about after the game, what can they bring, you know, besides their money maybe, to sort of build up an investing track record, which takes time? Or should they even, for that matter? Yeah. My biggest advice to you guys is there's a not well-known fact in venture capital

is about the best performing funds in the history of venture capital about half the company has lost all the money. So if you invest in one company, it's 50-50 you're going to lose all your money. I mean, they're the best performing funds in the history of venture capital. So the big thing you need to do is if you're going to invest, you have to figure out a way to get diversification, invest in multiple companies, because we're not good enough, we're pretty good at what we do. We're not good enough to say, if you made me pick one company ahead of time and said,

I'm going to put all my chips on that company, you know, you'll likely lose your money. And so the first thing is, you know, it's really risky to try to be the picker on a small number of deals. One of the reasons, we have 100 investments, and part of that is to get diversification. Be really careful because when they, when the one deal comes to you, it's usually the show. shitty deal that couldn't get money elsewhere. But there's a lot you can bring. One is if you can, you know, get in, if you interested in investing in this asset class, get into a fund, get into a couple funds, you know, just so that gets you diversification there.

You're going to see Tristan Walker this afternoon, I guess, who's in one of my investments, Walker and company, personal care business for people of color. Tristan's coming out with a brand new pair of tremors that he's really psyched about in order to get oomph behind in the marketplace he's assigned to deal with Naz to be the spokesperson for the tremors. You know, that is a perfect example.

Andre Iguodal has gotten involved with a number of our companies, particularly in the fashion area, which is a passion of his, and he brings a lot of influence and contacts in those businesses that have been helpful to the entrepreneurs and to the companies, So part of the transaction can be money, but part of it can just be influenced, social

networks, followers, you know, endorsers and things like that. So there is a lot of potential for involvement like that. Joe, you know, you and everyone in this room, myself included, have one person, one personal brand. How do you think about how you really expend and or leverage that brand? What do you need to be aware of? Again, if people are coming at you all the time, how do you best leverage your brand?

And how did you think about that? Well, I think you... It's really a tough situation for everyone here because you have so many people coming to you. And all I can say is usually the worst ones that when they start talking about money is the family. My family was the worst, too. But you really have to find the right people.

It's just like anything else. It's finding the right teammates. Find the right guy to have on your team. You have to find the right person that can help you understand what you bring and how important that is and how to protect it. Because the protecting it is the toughest part. Everybody knows the worst thing to me that ever happened for you guys and one that wasn't here when I was around

was that phone so you always have to be aware about what's going on and that's why just like you protect yourself from that you have to find someone that can help you protect your image on the financial side of it because you can find anybody who will want to take your money

it's just you want to make sure they're the right people and it's not an easy process and I mean we've all been through it even we think our agents you know I went through three and you know I had like everyone else I had one steal from me and I never thought it would happen

and it was a well-known one so that trust is you know you have to find a way inside of you and understand really what what you bring and then find someone who has that same type of value and understanding that's really

a difficult process for us because you know you guys see so many people all the time that it's really hard to find out someone who's you're just being introduced to is he for real or is he just want to take advantage of me so I think that's a I don't even know how you get across it because I you know we put trust in in agents and even even till today you know you I still have to check everything that's done because there are certain things I don't want to do and it goes in a contract and if I don't read the contract, I get stuck doing something.

I go, this wasn't part of the deal and goes, yeah, it's been in every piece of paperwork, you've got to read it. So I think you're paying more attention into anything, just like you have to study your playbook, you have to put forth an effort in studying and trying to find the right people to where you want to put your money. And, I mean, you in your current venture, have two of the most prominent, well-respected early-stage investors in Ron Conway and Paul Graham. I mean, you, I mean, it's just, yeah, it's because what I, one of the hardest things to find, like you were saying earlier, about this industry is losing.

I said, I, it's hard to understand that when you, even when you invest, 50% of that portfolio is going to go see you, and it's gone. And that's really was difficult to get my arms around because even Ron Conway, who's probably, if not the top angel investor, one of them there, he's at 60%. I mean, so he loses about 40% of his deals. And that's considered great. Well, if you're a baseball player, yeah. Yeah, yeah, yeah. I mean, it's funny, though, because one of the differences in Dresen Horowitz brought to Silicon Valley is all of the investing partners operated technology businesses at scale. And so we're also used to not losing, I mean, you don't want to lose a, you don't want to ever lose. You're out there trying to win. If you want to get involved in technology and tech investing, can you do it from any part of the country?

Do you need to, does everyone need to sort of figure out how they're going to play for the Raiders and the Niners and start learning about technology? Selfishly, the Niners perspective, I think that's true. No, sorry, we need any, all the help we can get. There are great companies, sorry, there are great companies being built everywhere in the country. I mean, because there's entrepreneurs everywhere. The, a lot of them find as they, as they're growing, they scale out of their cities. So, you know, Chicago had Groupon and, you know, Foursquare had, it was in New York, and they can only hire so many engineers, particularly engineers, but also the senior

executives who've done digital marketing and done technology and done all these, they end up a lot of the companies, that's why a lot of the companies end up here, because they're more good engineers and they're more good executives. is in Silicon Valley. It's kind of a, you know, the network here is well-developed. So there's the opportunity to get involved anywhere. We made the bet that the opportunity is more, more robust here, and there's certainly much more deal flow. And the deal flow, as Ben and Joe both said, is critical. You want to see as many deals as you can because that's, you know, that's how you calibrate. That's how you get to, you know, some of them are going to be good. And so, you know,

be really careful of, hey, I found a technology company in Cleveland. And, you know, because I got one. And because, you know, like, okay, that's one. You know, it's a 50-50 chance. You're going to lose all your money. I know we're going to have time for Q&A. Maybe we should just open it up now. Ben, we'll put you back in the hot seat,

and you guys have questions far away. Let me just repeat the question in case you didn't hear it. What are the qualities you are looking at when people are in there pitching you? And are there common traits among the best entrepreneurs, I'll throw out a couple there. One is product founder fit? You know, why is this person sitting at the table with this idea at this time? And typically, like Brian Chesky, they came to their secret in an interesting way.

So you're looking for that. You're looking for someone who can sell because selling is raising capital, selling investors, hiring employees, you know, getting partners. They're all sell. A big one, as I mentioned before, is courage. You just need someone who has resilience. Facebook's growth stopped like four times before it became a public company. And, you know, one time when it stopped, Mark Zuckerberg, who's the founder there, had an offer from Yahoo to buy the company at a billion dollars.

So this offer was worth $400,000 to mark at the time. And he looked on all his board as saying, sell, sell, sell, you know, the growth stop, sell. And all of the management team saying, sell, sell, we want to, you know, we get his money. And Mark said, no, we're not, you know, this company's nowhere near done. You know, we're going to keep going. He didn't sell. He fired his management team. He got mad at his board.

And then he grew the company into like a quarter trillion dollar company. And so that kind of resilience and courage is what you're trying to get, trying to source for. Yeah, you got to be really careful on that one, though, because. there are like very good people who are playing out a position or like doing the wrong thing or what have you. And we always ask ourselves, is this person, do we think this person is a very best person in the world to build this company? Because the thing about technology companies is there's no local technology business. Like you never compete with the guys in California. You're competing with the people in China, India, New York, everywhere.

So this has to be the very best. and you can easily talk yourself into investing in the wrong person for the wrong thing. You get a lot of that kind of thing, a lot of really talented people who can't build the company that they are trying to build, and you just have to make sure that this is the person for this company. A lot of it is, like, what is their background?

So we made an investment in a company called Nassira Networks, and this company, the guy, the guy, I, the founder, and it was really an interesting idea because everybody in the networking field that I knew thought it would never work because they're like, it's impossible. What he's doing is impossible. But this founder had spent 10 years building networks at the NSA, understood where all the technology that these guys were telling me it was impossible, tried to sell them. Didn't work for like building really secure networks. And so he goes and gets a PhD at Stanford. And at Stanford, I knew that his professor, the guy who was advising him on his Ph.D., Nick McEwen, said, this is the best PhD student we've ever had in networking at Stanford in the history of Stanford. And so this guy, with that background, said, I can solve this problem, everybody thinks is impossible. I was like, well, look, I'll bet on that. Like, even if I'm wrong, like, I feel good about that bet because, like, this guy's got the credentials.

He's the guy. But like if he had come and said, I want to build a social networking platform, that's not the same. The exact opposite example. The two founder, the two original founders of Airbnb were classmates at the Rhode Island School of Design. But there, you know, it's kind of like for what they were doing, it's community-based, it's, you know, it was product founder-fit. You know, you bet on guys who were completely non-technical, I mean, because of a non-technical product. And so a lot of it comes down to the intangible, you know, personal characteristics. And the hard part is you're trying to read them in a hour or two.

The typical pitch meeting is a one-hour reading. So someone comes in asking for $20, $50 million, and the main interaction is a one-hour pitch meeting. And you're trying to assess, do they have the backbone to be able to drive it? We make a lot of mistakes. And some of it's been making sure you spend a lot more time than just one meeting. And it takes a lot to get used to just like trying to figure out, can you trust the guy playing next to you?

It takes some time, right, to be able to build that up between and whether he can trust you at the same time. And that takes more than one or two meetings. So it takes a while to get used to that. And then some of it you'll find that some of the guys that come to you are pitching have done this two or three times, have been successful. And those are the type.

Like I remember asking Ron Conway one time and said, So how'd you get in, when did you see this coming? I wouldn't, we just like the founders. We love what they do. We know that whatever they're going to do, they can make proper changes if they need to make a change and make a switch. And a lot of times in the early side, you're betting on people. And it takes time to learn to trust those people. And once you do, it seems like they, these guys, that's what they love doing.

They love starting companies. They like to get out, get their exit. And some guys just want to get right back into it again immediately. That makes, shortens the process a little bit, but still you want to try to build that relationship up between the people you're looking at. I want to thank Joe, Jeff, and Ben for all your wisdom. Thanks for doing it, I appreciate you.