a16z Podcast - a16z Podcast: Startups as Science Experiments -- Can VC Disrupt Academia?

Episode Date: October 2, 2014

It's a myth that startups happen in isolation. Those legendary two people in a garage are often building on the deep and basic research -- long funded by government and conducted in universities -- that has come before it. But with the advent of the internet, what's the future of peer-to-peer collaborations and startups-as-"science experiments"? Can venture capital disrupt academia… and vice versa? And finally, what's the secret to universities like Stanford making money off the entrepreneurial ideas coming out of them? (Hint: It starts with a 'p'. But not what you think.) a16z's new professor in residence Vijay Pande interviews Marc Andreessen at our recent Academic summit on these topics, as well as 'regulatory arbitrage', how to mix humanities and science, and what Marc would have majored in if he were 18 today.

So I'm Vijay Ponday, I'm a professor at Stanford, but also in an interesting new role here as a sort of professor in residence at Andreessen Horowitz. Towards that end, you know, there's a couple interesting things that we can think about for how a venture can disrupt academia and how academia can be disrupted in an interesting way. And so one way that we talked about is related to Bill Janeway's hypothesis that investing, especially long-term basic science investing over decades, is really really, really what's responsible for the success that we see in IT, and that biotech hasn't had quite that time yet, and that clean tech has really had nothing close to that. But now with government probably not be able to put the same type of money and emphasis into things, how we're going to have the seed corn for the future? Yeah, so this is, for those of you haven't read Bill, so Bill Janeway is a venture capitalist and actually a PhD in economics who studied from a student of Keynes,

and so he's kind of straight in the, what is it, the Oxford sort of lineage of economic So he's both a practitioner and academic, and his book is called Doing Capitalism, and it's probably the best single book on the theory of venture capital that I think came out last year. It's one of those books came out from academic press, and so it's kind of like a terribly ugly cover and like no marketing. And so nobody's heard of it. But it's a fantastic. It's an absolutely outstanding book. And so, yeah, what he basically observes.

He says, look, Venture Capital has tried to engage in all these categories. IT has been a huge success. It turns out four decades of federal R&D money preceded venture capital success in IT. biotech has been a moderate success, two decades of federal R&D money, and then everything else has just been a train wreck with Clean Tech being the most recent train wreck, and he says, look, there was no federal research funding, right? The federal government went straight to industry subsidies without passing through R&D, and so consequently there was no, literally, there was nothing to draw on. There was no, not enough science to draw on. And so he kind of makes

the, you know, sort of interesting, profound, potentially disturbing statement. of if you want to think about the future of entrepreneurial capitalism and venture capital, and startups, look where the federal R&D money is and then basically invest behind that between 20 and 40 years. Which also, by the way, goes to something I've observed. I completely agree. Somebody earlier said that such a William Gibson quote that the future is here, it's just not widely distributed yet.

I have been, I am just continuously struck by the number of times the hot new innovation that we see or the hot new innovation that becomes, you know, this huge thing is something that was running virtually invariably. was running in a research lab 20 years earlier. By the way, often 30 or 40 years earlier, right? I mean, in a lot of ways, Facebook, you know, very successful company right now, in a lot of ways, Facebook is Plato, right, from University of Illinois,

right, 50 or 60 years later, right? These ideas play out over very long periods of time. And a lot of that has to do with the early research. So the bad news is, right, to the extent that the research funding is not what it should be. And I think it's imperative on all of us in industry, you know, to try to push for as much basic research funding as possible, because that clearly is the key.

What else can you do? Well, so this is, I think it also, I forget who said it earlier, I think maybe biology said it earlier, which is I think the future, the hope, the optimistic view in lieu of lots of federal research money, the optimistic view would be a more, I would say, open networked collaborative peer-to-peer approach to research development. And you'd pull in the following threads. You would say you've got, the internet is like a new, basically coordinating mechanism for lots of smart people all over the world to be able to collaborate.

and share information and sort of build on each other. You've got open, things like open source, literally open source like open source software, but also the open source mindset, open source data and, you know, open source, you know, all these other things, you know, designs that could be open sourced. So you've got that as a thread to pull on. You've got globalization as a thread to pull on, and that there's just more people worldwide now engaged in research and development than ever before. And collaboration between countries is going to be very powerful.

And then you've got this really interesting kind of intermingling between research and development, again, going back to historical, you know, historical, you know, areas going back to original philosophy or going back to original engineering, which was like, let's go try to make something. And then let's derive, you know, principles out of what we've tried to make. And so, and then industry.

And, you know, we, you know, for all of the criticisms that, you know, we all levy against either venture capital, back startups or big technology companies, you know, there is a, generally speaking, there's a worldwide boom in industrial companies and technology companies getting built on the basis of R&D. And so a very, I would say, imperfect, like, in a sense, the 1950s style top-down, you know, there shall be the NIH and the NSF, and then 30 years later, you know,

Microsoft appears. Like, in a sense, like, that's very idealized and that's very predictable and that's very wonderful. It may be that we're just going to be living in a world where it's going to be much more bottoms up, much more collaborative, much more diffuse, much less well-organized, much sloppier. Yeah. Maybe, by the way, more dynamic, maybe more creative, maybe more intermingling between disciplines. Yeah. Well, what do you think of this crazy idea?

So let's say a VC firm wanted to put in $50 million in terms of $51 million seed funds. And maybe with a relatively low valuation because it's very early stage. So it's something that you normally would stay away from science projects. But at that sort of small stage, seed stage, you could actually see. And actually, if you had a big enough valuation, it would be worth for you later on. Do you see yourself doing that? Or what's the issue with that? Maybe there's just all the bandwidth that facilitate that.

So we do some of that, and actually, I would say in the Valley, Coastal Ventures probably is the most advanced on this. Exactly. They actually call them science experiments. Exactly. But by the way, the terms are like, you know, literally like they'll invest a million dollars at a million dollar pre-money valuation. One-on-one or one? One-on-one? Really?

Yeah. So, like, you know, you have to like, you know. So that makes one-on-two pretty good. One-on-two looks great. Yeah, exactly. We might even offer one-on-three. So there is a little bit of that. I guess the counter-argument on that.

would be that there is a difference in science and technology. There is a difference in research and development. It's not clear that research, as research benefits from having any short-term commercial, in fact, research is probably compromised by having short-term financial incentives. The other lever that I think you can pull, you know, if the question ultimately is how to get the, if the question is how to get $50 million into, you know, sort of from the venture capital ecosystem into research, the lever that you probably pull instead, I think, is philanthropy. And I think this is the other part of the system that's working better, is working better

out of them before. And I think there is going to be, I think this will be maybe be the big upside surprise in the next 20 or 30 years. The boughave of philanthropy coming out of the high tech community and coming out of high tech founders and CEOs and people have been successful in these companies going straight back into universities. I mean, right now it's staggering.

Like you just, you walk through the Stanford campus and you just, you know, the Yang Center and you see all the buildings and it's just fine-boggling. Actually, this week or next week is the unveiling of Ram Shri-Ram, who was an angel investor in Google, just funded a new biomedical research institute. So there already is, like, you know, Tom Siebel at University of Illinois has played this huge role.

My father-in-law, actually, at Stanford has played this huge role. And so there is a lot. I think you could see, you know, 10 times, 100 times the amount of philanthropy from industry and from successes in industry flowing back into universities. And I suspect that might be the real lever. By the way, that goes to something somebody mentioned this morning, which is the really, in my view, the enlightened universities that really think strategically about things like spinoffs and students and professors taking leave.

and so forth are the ones who realize that the long game here is probably philanthropy, as contrasted to, you know, University of venture capital or as contrasted to, you know, patent licensing or whatever it is. Yeah. Well, and I think Stanford certainly sees it that way from what I've seen, especially since, you know, this ability to go back and forth is something that is not looked down upon, but it's something that is actually a real flexibility. Great.

So one other question I think that is that when you think about academia, there is this large stream, a large spectrum of people we could talk about. We could talk about the undergrads, the grad students, junior faculty and senior faculty. And while senior faculty are probably the most interesting to talk about, you know, actually the undergrads are very interesting to talk about. I mean, could you imagine, let's say put yourself in as a first year undergrad, like what would you want to be doing? Oh, so I think about this a fair amount. We try to think about this to kind of think about what we should be investing in. So I would definitely be computer science.

For the last 10 years, I thought it would be some sort of combination of computer science and biomedicine. So it's something, and I don't know, I don't know enough about biology to really know exactly where I would go, but I would look for wherever the heat is at the intersection. So why biology? I just think there is so much, I think software and big data is going to be such an enormous lever to be used on affecting human health in the future. And we're making a whole series of investments against that, but I just think that we're at the very, very beginning of the intersection of those two fields. Yes. And the outcome, you know, the outcomes in people's lives, whether it's personalized medicine or new kinds of medical devices or, you know,

different forms of human augmentation are just going to be really breathtaking. The other one more recently, though, is I think if I were 18, I think I would very tempted to go headlong into cryptocurrency and into distributed systems. I think that there's the potential, I think if we were to create the internet today, I think we would do it completely different. I think it would have it be completely decentralized, and I think we would have cryptocurrency built in at the core, and I think it would be far more robust and would have all kinds of interesting properties that it actually doesn't happen.

So no more 404s. Yeah, for example. Well, but, but like, you know, you build in the concept of modernization, so then you can do, you know, all the issues with resource allocation, the Internet starting with spam and going all the way through to things like quality of service. You'd have a, you know, basically computer science meets economics would be a huge opportunity. So why not just start that now? Well, you know, there's this, the Internet does kind of have the snowball rolling down the hill kind of thing going for it.

So for all the, for all of its issues. I mean, and the answer is, by the way, we are, to the best of our ability, we are, and there are a bunch of, you know, the startups trying to recreate DNA. They're sort of trying to recreate, you know, file storage and, I mean, even like, you know, there's application of this even for things like sort of countering censorship regimes. Yeah. Right. If you could do peer-to-peer routing, then all of a sudden, the Great Firewall of China doesn't matter so much. And so there's more, you see more and more of these ideas popping up in startups now.

Yeah, yeah, yeah, that sounds fantastic. I think, you know, it is exciting to see with undergrad's being so excited about CS and becoming a dominant field. I think one of the things that's appealing, I think, is they see what entrepreneurial. power you can have with a CS degree. But I was always very curious to see, too, how that could be broadened. So you talked about biology, and I can imagine science has been entrepreneurial, but, so if

you had to advise people for how to have entrepreneurial liberal arts. Let me tell you my motivation here, which is that, you know, I think all of us have colleagues that look at computer science and see all the great things it's doing, and it's both exciting and maybe a little scary. And it's computer science is dominating

in terms of undergrads and so on. And I don't think any of us want to see that other part of the university disappear. That's something we'd love to help. And I think the entrepreneurial aspect of computer science has been very powerful. So to give examples, I mean, so in social sciences, you can imagine computational social science is becoming big,

especially with big data. And I've been trying to think, and so this is something where maybe not going to solve the problem over 30 seconds, but I'm trying to think about how we can sort of incorporate other aspects. And there's creative aspects in terms of art and dance and things like that that I can imagine being part of it. But if we can find a way to sort of take

the entrepreneurial spirit and apply it to other parts of the university. I think that could be disruptive in itself. Well, I think for sure we can bring computer science and science more broadly in math into more liberal arts fields. But the arts alone, you know, have music and movie, you know, sort of having huge impact, and there's people doing very interesting work. I will tell you, I'm an unabashed bigot, and I probably have a lot of people who won't argue with me in this room, although this is a really good way to clear out at a dinner party if you haven't tried it in about 10 minutes. You know, there's two basic, I think, aspirational modes for universities

being a university, like one is sort of the classic life of the mind, you know, Alan Bloom, philosophy science, or philosophy and liberal arts. The other, I think, you know, engineering, learn how to make things. And my view, and I've made a Midwestern farm boy, maybe we're just raised this way, but like, I think making things is what you do

is your job, and the life of the mind is what you do for fun. There's this book that is coming out, this is a Yale professor, Derisowitz, who's writing this book, and it's basically this book, it's gotten some some heat on it. He's like the ultra left-wing alternative to Peter Thiel will be the way to think about it. Basically, it's a comprehensive condemnation of basically what he views is the usurping of the academy for anything other than the life of the mind. And it's this like searing

indictment of today's undergraduates for like being too focused on like professional success and being too focused on gaining practical skills and being too focused on learning how to make things. And I'm just like, I just think he's out of his mind. I just think he's like completely crazy. But it feels like this is really going to intensify as an issue unless we figure out how to bring technology and science into more of these fields? I think that's exactly right. And I think this is the tension that we see right now in the academy.

And I think the solution is not to have one side dominate, but to sort of figure out how we can raise everything. One other issue that comes up that's very important is the tension between technology and regulation. So with me spending a lot of time with drug design, you know, if we had to do clinical trials for Google the way we do for drugs, they'd never be able to make any sort changes and improvements to search engine

or just take too long. You can't do A-B testing the same way. And now we're seeing this in other things in terms of Uber and other areas they're trying to push the envelope. I mean, how do you see this tension between regulation and innovation sort of panning out? Right. So I think you have a talk about E-Room's law? Yeah. Oh, no, I didn't bring it up.

I think Bology did. Okay. E-room's law, right, so every four years the cost to develop a drug doubles? Yes. And the time frame elongates? Absolutely. It's E-room's Moore's Law backwards. Like, it's the side of it you don't want to be on.

Yeah, yeah. So I, this goes, this goes straight back to the previous topic, which is, I think societally, I think societally we decide collectively, we decide how much innovation we want and based on, we decide how much risk we want. And based on that, we decide how much innovation we get, we get. And I think that there is a general principle that as society's sort of, you know, advanced slash get older slash mature, you know, we decide we want less and less risk. Yes. As a consequence, we get less innovation. And then at some point, it's sort of like the cycle of civilizations, right? At some point the barbarians show up. the barbarians like have less to lose, right? And so they're like, oh, well, we'll just go for it. So it may be that the right thing to do. I mean, there's kind of two ways I think to think about it. One is how to fight inside a system like in the United States and try to figure out how to navigate through this. And, you know, different companies have different tactics on this. The other is to go to basically go to new regulatory regimes. Like literally, you know, you go after basically what we call regulatory arbitrage. So if you can't do it in the U.S., find a country

where you can do it. And by the way, it could be us finding a country. that can do it, or it could just be an industry forming in a country where you can do it, that has nothing to do with us, because it just happens to be legal and supported there. And I think stem cell research in Korea has been an interesting example. In drones, we're seeing this now. It's still illegal to fly drones in the U.S., and so the initial drone deployments are all outside the U.S. And so we've been talking publicly about a couple of ideas on this. One is, you know, one is, if you think about a lot of countries, and in fact, a lot of cities in the U.S.,

and a lot of countries around the world want to have their own, quote, Silicon Valley. Yes. The answer probably is not to have their own Silicon Valley. it's probably to have a different kind of valley, the biomedical valley or a stem cell valley, or take your pick. With a friendly regulatory environment. Exactly.

It basically make a specific decision in a specific area of research to legalize a certain kind of risk in order to get that kind of innovation in that place. The other biology has been talking a lot about this would be the idea of taking the old economic zone idea that was used so successfully in places like Hong Kong and apply that

into this domain. And Larry Page has been talking about this as well. which is maybe we don't want like self-driving cars everywhere all of a sudden, but maybe, you know, a city that wants to have an economic boom around it would decide to legalize it. Well, and that would help people with the fear that we talked about, that you can sort of ease into things without having something be national law. Yeah.

And the nice thing about the way the U.S. is set up is that there is this possibility for local versus more federal government. And as long as that was possible, I think that could be a way that things could innovate. The problem is a very large number of people are very invested in the current power structures. Yes. And so this gets painted. The minute you start talking about this, you immediately gets painted as like you're abdicating secession.

Yeah, yeah. And it's like, no. We just want to have like a place where we can do something new. Yeah. Right? It doesn't need to like, you know, violate all the rules. It doesn't need to secede from the U.S. It's just like, how about we can just like have a drone fly, right?

Yeah, yeah, yeah. But back to the C.P. Snow thing, like the reaction is, it gets very visceral, very fast. Yeah. And that is something that requires a fair amount of energy to fight. Yeah. There's also sort of, uh, east coast, west coast, rap war of sorts, in terms of East Coast, you know, paper belts, newspaper, Wall Street

versus West Coast, you know, computers, innovation. You know, do you see, how do you see that changing, or do you think that those styles are pretty ingrained? Well, to start with, you'd say, like in hip-hop, it's a, it's a, they're descriptive rather than prescriptive, which is there are plenty of people on the East Coast who are very innovative, and there are plenty of people on the West Coast are very hidebound. Absolutely. I mean, just drive through San Francisco and look at the, look at the zoning.

And you'll discover plenty of conservatives who don't even realize they're conservative. So, but with the constraint that it is descriptive rather than prescriptive, there is definitely to that. And I would argue this actually goes deep in the American culture. It has for a very long time, which is the whole go-west kind of phenomenon, which is, you know, where's the frontier? And it's kind of, it's not a surprise that we happen to be right here, like, penned in by the... We all literally are the spiritual descendants of people who came as far away. as they could, literally, until they would drown if they took another step, right? I mean, we are the extreme case.

And so what I find so interesting about that from a cultural standpoint is, like, that's a 150-year-old or 200-year-olds, it's the urge to go to the frontier. And I really feel like the Valley really benefits from that to this day. The number of people who pick up stakes from, you know, growing up in the Midwest, or growing up on the East Coast, or growing up in other countries, and coming here is a wonderful thing. At the same time, I do very much believe it's a state of mind, not a job. geographic place. And I think one of the really exciting things about the last, especially the last 20 years, like way more so today than I think when I came out here, the ideas and the attitude

of innovation and new ideas seem to be spreading worldwide at an accelerating pace. You think so? I mean, what's an example of that? Oh, just the rise of, I'll just give you an example. A good friend of mine, Chris Schroeder wrote another great book I'd recommend called Startup Rising. So he's a former Internet CEO and State Department official who traveled around the Middle East for a year and a half and has friends in all these countries, you know, Jordan and Egypt and all throughout the Syria and all throughout the, we're an entire book, it turns out there's an explosion of internet entrepreneurship happening all throughout the Middle East.

Yeah. It's basically unknown, you know, and his book goes through the whole thing. He just went to, he just got one of the 20 business visas a year to go to Iran. And he just went to Tehran and spent three weeks. And it turns out there's this amazing, effectively underground internet startup ecosystem in Tehran. And he said the founders are exactly the same as the kind of people who were sitting at the Goophe Cafe in downtown Palo Alto. He said, interestingly, he said at least 40% and maybe 50% women. He said the gender, the gender balance is actually much more gender balanced.

And he said they are the most fired of young people you've ever met. And they have an, they have an unbelievable sense of future possibility. Coupled, of course, with enormous frustration at being, you know, in a country with all these, you know, with all the trade barriers and all the, you know, all the political issues. But the, the amount of energy, I don't know if you had gone to Tehran 20 years ago, 30 years ago, I don't know if you have found a lot of PC startups. Yeah, no. It feels like something new is happening.

At least he will tell you, and his book is about this, he will tell you this is a global movement. There's nothing about this anymore that's confined to Silicon Valley. Yeah, no, that's fantastic, especially the cost of the computer is pretty low, and the availability of the internet means that it can hook into anything.

We talked a lot about machine learning earlier, and that's something that I've gotten very excited about. I think many people in the room have gotten very excited about. I'm curious to see what you think that's going. I think often what people think about machine learning, and this came up in the previous talk, that machine learning is the dream

that will have Hal from 2001, maybe a little less nasty. But for me, actually, you came up earlier that people said, oh, it's just doing classification. I mean, classification is actually fantastic. If I can say, this is the drug I want to take, or this is the stock I want to invest, any of those things are really exciting. And so I see sort of machine learning just

classification being exciting. But I was curious to see how far you see it going. Do we have to get to howl to be interesting? What's in between classification and how? So I was at Computer Science University of Illinois, 89 and 93, after AI had been thoroughly discredited. So I managed to get through all four years without an AI class. In fact, I think there was still one,

but it was definitely an elective, and I don't think you were encouraged to take it. So you've taken more liberal arts classes than AI class. I suspect that would not be the case if I were to hear through the program today, but that was definitely the case then. So I'm for the wrong person to speculate on where the core science goes, I will say just kind of to your point, just given the techniques that we have today and then given the consequences of Moore's Law and all the other changes happening at the component level, the opportunities to us seem very large to take machine learning, sort of machine learning meets economics equals Bitcoin equals financial innovation. machine learning meets quantified self equals biomedical innovation

machine learning meets Uber equals you know my lift and these things and sensors in cars meets revolutionizing the transportation system meets you know potentially which means potentially a significant answer to the emission you know in the future to the emissions problem and so I we see a whole series of fields in which you can basically now bring machine learning to bear

and in particular anything where you've got the deployment of sensors Right. So machine learning meets the fact now that you have, you know, three billion, you know, going to six billion smartphones in the planet all with, all with cameras. Yeah. You know, what can you do with that? You know, so, you know, like, there's this breakthrough new iPhone app now, right, where it literally you just point the camera at a printed page and it like reads you the page. Yeah. Right. And if you're, if you have, you know, if you have, you know, if you don't have, if you don't have full site, like it's, you know, it's a revolutionary profound thing that was just not possible for it. And maybe not that far away. It doesn't read it to you. It summarizes it for you. Yeah, exactly. Right. Exactly. Exactly. And so I think it's this, you take the just massive deployment of sensors, you take the massive rise in big data, you take the ability we have to build these technologies now in a way where they intersect into the real world, into people's lives, financial services, healthcare, education,

real estate, transportation, government law, and then you bring in machine learning on top of that, the sort of cumulative effect of bringing those factors together. Those are new things. Like those combinations are new. And we have the opportunity to build both products and companies, that have never been even imagined before, even without more significant fundamental advances in machine learning.

Yeah, absolutely. Well, I think we're out of time, so let's thank Mark one more time. Good, great.