a16z Podcast - Ben Horowitz and Brian Armstrong on Building and Overcoming the Hard Things

Episode Date: December 8, 2022

If you’ve been following the news, you’ve probably heard of the recent FTX scandal.While there’s much still unknown, in this episode we get the unique opportunity to hear from Brian Armstrong �� co-founder and CEO of Coinbase – about what’s top of mind for the crypto industry. That includes the impact of this current event on future regulation, how this crypto winter might be different from previous ones, founder psychology during downturns, the transparency that comes with being public, and much more.Brian is interviewed by a16z cofounder and general partner Ben Horowitz, who has the unique perspective of having invested in, built, and been on the board of numerous companies during the ups and downs, leading him to his well-known book The Hard Thing About Hard Things. Resources: Subscribe to web3 with a16z: web3-with-a16z.simplecast.com/Coinbase’s website: coinbase.comBrian’s Twitter: https://twitter.com/brian_armstrongBen’s Twitter: https://twitter.com/bhorowitz Stay Updated: Find us on Twitter: https://twitter.com/a16zFind us on LinkedIn: https://www.linkedin.com/company/a16zSubscribe on your favorite podcast app: https://a16z.simplecast.com/Follow our host: https://twitter.com/stephsmithioPlease 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 a16z fund. For more details please see a16z.com/disclosures.

Welcome back to the A16C podcast. This is your host, Steph Smith, and this week we have a very exciting crossover episode with our sister podcast, Web3 with A16C. If you've been following basically any news over the last few weeks, you've probably heard of the recent FTX scandal. And while there's still much unknown, in this episode, we get the unique opportunity to hear from Brian Armstrong, co-founder and CEO of Coinbase, but what's top of mind for the crypto industry?

That includes the impact of this current event on future regulation, how this crypto winner might be different from previous ones, founder's psychology during downturns, the transparency that comes with being public, and much more. Brian is interviewed here by A16C co-founder and general partner Ben Horowitz, who has the unique perspective of having invested in, built, and been on the board of numerous companies during the ups and the downs, also leading him to his well-known book, The Hard Thing About Hard Things. If you enjoy this conversation as much as I did, be sure to subscribe to Web3 with A16C wherever you get your podcasts. Welcome to Web3 with A6 and Z, a show about building the next generation of the internet from the team at A6 and Z crypto. This show is for anyone, whether company leader or other entrepreneur, developer, policymaker, and others seeking to understand and go deeper on all things crypto and web three.

Today's all-new guest-hosted episode is based on a fireside chat that took place just this week at our inaugural A6 and Z Crypto Founder Summit. And it's a conversation between A6 and Z co-founder Ben Horowitz, who authored the best-selling business books, The Hard Thing About Hard Things, and What You Do is Who You Are on how to create your business culture, interviewing our special guest, Brian Armstrong, CEO and co-founder of Coinbase. As a reminder, none of the following should be taken as business legal tax. or investment advice, please see a6.c.com slash disclosures for more important information, including a link to a list of our investments. The conversation goes into management, company culture, and much more on building and overcoming the hard things, but begins with what's top of mind for so many in the crypto industry and beyond and in the news right now. So, Brian, it's been a crazy couple of weeks with FDX.

FTCS collapses, SBF, for those of us who actually followed it, is emerging as like a super Bernie Madoff type character. And you, unusually for you, because you're not a spotlight type of guy. You're more of a behind-the-scenes type of guy, has been on TV and taking a leadership role and trying to explain to the world what this means. So what does this mean for the crypto industry? Yeah. Well, I think we were all pretty shocked to see the scope of the,

fraud that happened at FTCX. And let's call it a fraud. We have to call it what it actually is. It's been pretty bizarre that mainstream media hasn't really come out and sort of said, this guy's a criminal. Maybe they want to wait until he's actually indicted or something like that and in custody. But it seems very clear at this point that that's the

case. And we have to kind of come to terms as an industry with the fact that I think our industry is kind of attracting our disproportionate share of fraudsters and scammers. And that's really unfortunate. it's it doesn't mean that that's the representative of the whole industry that you know there's a bunch of people here in the audience as one example and coinbase is another example of the hard work that's being done to legitimize this industry and build it we want to bring the potential

of this technology to people all over the world and we're not going to cut any corners we're not here to make a quick buck we're in it for bigger ideals you know freedom and decentralization and and you know the power that bringing good financial infrastructure can be for everybody around the world so that's been part of my job is to kind of get out there And I don't normally like doing TV very much. I like building cool stuff with the team. But in this moment, it's important for me to get out there and say, look, there's a whole industry that's very different than what was happening with FTX.

Coinbase is based right here in the U.S. You know, we're a public company. You can go read our financial statements. They're audited by a third party. You don't have to trust us. All the customer funds are segregated. We don't invest any customer funds without their explicit direction. And we're not going to let one bad actor take down this whole industry.

We're going to keep building for the future. So I think it's important for someone to go out there and say that message in this moment and, you know, I'm trying to do my part to make that happen. Yeah, and it must be really weird for you because he was kind of like right next to you. Well, he was doing all this diabolical stuff. Did you ever suspect that he was like a criminal?

Were you like, something wrong with this guy? Or did you just, were you shocked as everybody was? You know, I was pretty shocked too. There was a weird thing that happened where they kind of came out of nowhere and then suddenly he was like at every conference that I was at, probably in a whole bunch of other ones. And there was a little part of me that was like, man, this guy is just like speed running the whole thing.

And he's like, you know, getting all these intros and relationships that I thought I was trying to work to get to. And he seemed to have done it in two years. And so I was like, oh, that's probably just my ego talking. So ignore all that shit. And like, let's just get back to work. And, you know, I guess it turned out that he wasn't entirely being honest with people and he was, you know, obviously, like,

there was a lot of money changing hands behind the scenes with a lot of these people. There was, I think it, the way I'm looking at it now is that basically there was reputation laundering happening and kind of this virtue signaling with all of these ideals, which apparently he came out to acknowledge that was just fake, and he was making it up. So, I don't know, these people kind of come out of nowhere sometimes,

and these, we've seen this with other companies in crypto, if you look back, you know, BitFinex and Mount Gox and, you know, Bitmex and others, where they kind of, they incorporate somewhere in the world, they're trying to kind of avoid the rules, they rock it up, and then they... That's always a tell, isn't it? Yeah.

I'm going to incorporate in the Bahamas. Yeah, it's... For no reason other than I love the Bahamas. Right. I mean, look, we want crypto to be an international movement, so there should be people building companies everywhere, but if you're jurisdiction hopping and trying to avoid the rules, the thing tends to rock it up and then blow up,

usually in spectacular fashion. And so we can't take any shortcuts. cuts, we've got to build this industry for the long term. And what do you think about the, because the rest of the ecosystem, because he did steal consumers' money and give it to other people. And interestingly, like, if you go back to Enron, you know, they took investors' money, not consumers' money, but investors' money, and clearly kind of had a bit of a Ponzi idea going with their mark-to-market accounting. But all the politicians who received money from Enron gave it back because, you know, it felt like it was

stolen money. But in this case, not a lot of people are giving the money back. How do you think about that? I think they should. Yeah. I mean, it's, it's customer money that was stolen at this point. I, you know, my hope is that as this becomes a little bit more clear, like, frankly, it's baffling to me why he's not in custody already. You know, DOJ or somebody should be able to make, just based on his public statements, I think there's a very open and shut case for fraud. You know, I'm not an expert on this, but the people I talk to seem to agree with that. And so it's unclear to me why he's not already in custody. Let's give benefit of the doubt and assume they're trying to piece the case together.

There's some extradition thing happening behind the scenes. But the minute he actually gets indicted or maybe convicted, I think that should be a moment where any sensible person who took this money should think about giving it back. Some of it may have been already deployed in various ways. and there's a bankruptcy process for that. But if he just recently made a donation and then the money's still there, people should do the right thing and give it back.

Definitely agree. So we had a great panel last night on the kind of regulatory environment, and one of the things that they said, look, for sure, we're going to have to come out with some regulation now because this is too big a catalyst to ignore. And if we ignore it, then the regulators,

and these were kind of policymakers, you know, Congress people and senator, then the regulators are going to, you know, just kind of go outside of their scope and start regulating on, you know, existing laws or try and enforce things that shouldn't be enforced. So how do you think about, like, what will be the impact of FTX on regulation? You know, what should it be and what do you think it will be? Yeah. Well, I think there's kind of like a level one, two, and three understanding that people have of this.

So, like, the level one is just a very simple narrative. something bad happening in crypto, regulators should crack down, right? And we've seen some people come out and make that very simple narrative. There's a level two understanding, which is more nuanced, which is that, you know, okay, well, you know, regulator, like the companies based in the U.S. are already regulated kind of under financial services regulation. What we don't have is clarity about the crypto piece of the regulation, and there was a huge missed opportunity by the regulators to come in and create that clarity,

like, what's a security, what's not? And, you know, because that clarity wasn't there, a lot of the business moved offshore, and now we're seeing some of those things blow up. So, yes, we should have more clear regulation here in the U.S., but the regulators kind of bear some of the responsibility for what happened. It's not just on these crypto companies. And then I think the level three understanding is that,

great, let's get regulatory clarity for the centralized pieces of crypto and in a crypto-specific regulation. But actually, the real solution here is defy and self-custodial wallets, and crypto has the opportunity to create something it's much better than the current system long term. You know, it's a little bit like, you know, Uber had a star rating system instead of using the taxi medallions as your regulator, right?

Like, you know, in Defi, we can have transparency with smart contracts. We can have probably a decentralized reputation system baked into ENS. You know, with self-custodial wallets, you can trust yourself in math instead of, you know, some third party. And so that's the future that we're really building to.

And so I think the level one, two, and three narratives just most people are somewhere along that spectrum, and we need to help them get a little bit farther. So those are my high-level thoughts. So here you are running one of the biggest centralized exchanges in the world arguing for decentralization. So tell me about how you reconcile, why you're doing that, how you reconcile that with the business that you're in. Yeah. Well, Coinbase is going to do both, right?

So we have our centralized products, our exchange, custodian, et cetera. Those are going to be regulated. We're leaning into that. we're trying to help propel, you know, good regulation forward. But we also are building the self-custodial wallet, you know, Coinbase wallet, I think is the most downloaded self-custodial wallet in the U.S. now. We've gotten that product to be a lot better over the last year or so. People haven't tried it recently, tried again.

And we're working on some decentralized protocols. And, you know, sort of some of our apps are more like Web 2.5, like our Coinbase NFT, but we're getting some that are more like, you know, really, truly Web 3. So I think we're going to do both. The way I think of it is, the centralized pieces need to help people get a bunch of fiat into crypto. But once they have crypto, they should really be playing in the decentralized crypto to crypto world. That's where the really innovative stuff, the freedom preserving stuff is going to be happening. And my hope is that, you know, in five years, actually most of our revenue, most of our users are using Coinbase wallet and not just, you know, our brokerage exchange product that's the more centralized piece today.

That would tell me that we're really on the right path to creating this decentralized open finance. system for the world. Yeah, really interesting. Let's kind of take a step back and say, we're in a kind of rough time for crypto over the last year. You know, it's been not easy for Coinbase either. You've had layoffs, the stock price has gone down a lot. But this isn't your first crypto winter,

and in fact, it's not your first set of layoffs or your first kind of crisis. In fact, in some ways it's easier in that you have a lot more money now than you have. then. So how is this crypto winter the same or different than the prior ones? Yeah. Well, I think in terms of people's psychology, it's similar. You know, there's despair. There's some bad stuff happening. People get a little disillusioned. The people who were in it for a quick buck kind of get distracted and go somewhere else. The part that's different is this

time the broader macro economy obviously went down along with it. And, you know, that's created environment that just it's not so much about is crypto going to be still be a thing that was like the question everybody asked me in prior crypto cycles you know i even had people come up to me at conferences and um they'd say like well what are you going to do now that bitcoin is dead you know well that's clearly not the case but no one's really asking me at this point bitcoin's died a few times yeah it has um nobody nobody is really asking that at this point it's just the broader macro environment is down and you know ftx kind of put a black eye on the industry but i don't think that it's going to change anything long term. So the same thing that we have to do in past cycles we're

doing in this cycle, which is be really rigorous about costs. You know, it's basically, make sure you don't die is like the number one thing. If you're, if you're Lehman Brothers, you're dead. You don't get to play any of the next rounds of the game. You know, if you're Goldman or JPMorgan or whatever, you know, to use a 2008 financial crisis analogy, you know, manage your costs, you know, cut burn where you need to be really responsible. And then if you survive through it, you're going to be one of the, you know, you're going to thrive. You're going to be one of the top companies because you made it through this down period. Any company that makes it through that is going to come out a lot stronger. There may be some good deals for companies that preserve

cash along that way, too, like if this lasts another one, two years, which, you know, we think it probably will until we see some real signs of life. I think there will be some of these, you know, private valuations that come down or there'll be other opportunities to get really good talent. And so every company, I think, should be thinking about how this is not just, not just surviving, but how do you turn it into an opportunity to actually pull out even stronger? And when you think about the kind of contrasts in your business between the, okay, like, let's be really, really careful with cash versus the opportunities, because psychologically, it's tricky, right?

In the old world, everybody's psychology was we have to get market share, we have to go faster, faster, faster, money is free, let's just go. and now it's gone all the way to the opposite end. And I think in retrospect, people would have been like, oh, maybe we should have saved some of that cash. And then how do you kind of get yourself to make an investment in an environment like this at the same time that you're doing a layoff

for kind of fattening down the hatches? Yeah, well, so I mean, I think Coinbase, we probably, I mean, we did. We overhired in 2021, right? This was an example where, you know, I was probably got caught up in it as well a little bit and was like, okay, we have a huge line of customers out the door. We can't even onboard them fast enough.

FDX is coming at you. Yeah, there is, you know, a new competitor getting a billion dollar evaluation like every week. It was like, okay, we just got to hire, hire, hire. But of course, anytime you do that, you know, a lot of efficiency just breaks down in the organization. You have too many layers of management, decision making gets broken, communication channels get broken. You have people who have barely been there hiring the next people. And so, you know, we ran into a lot of this.

I'm now in a place where I'm like trying to get the company to operate like a startup again, right? And okay, let's, why do we have like four layers of management to get somebody who's actually writing the code? You know, like, we don't need that. Flatten the org and like let's actually divide these into different almost like startups and give them more autonomy and, you know, cordon them off to get rid of these coordination headwinds. So that, you know, I think everybody, every company can do that in its own way to sort of who in any company, there's a power law distribution of employees who are adding the most value. right? And if you're going to, say, cut 30% of employees or something like that,

you don't have to do 30% less stuff. You may actually, you know, you may only go to 5% less stuff, or you may even be 10% faster because there's less coordination headwind, right? Right. This is not a pleasant thing to think about, but there are people adding disproportionately more value. And if you can go in there and do the talent assessments and figure out who's building the stuff that's actually making the product better, as opposed to, you know, making great internal presentations or whatever all the million other things that seem to somehow grow up in these companies, if you cut all that out, you'll often have a better, healthier company that's moving faster. So that's what I'm doing right now. And I think other companies in this down

environment, they're using it as an opportunity to get healthier as a company. And when you think about the process for that, because it's a really, you kind of face this Heisenberg uncertainty principle of management, right, where as soon as you go and look for, okay, who's not adding value, everything changes. People are aware that you're doing that. Right. So how do you think about kind of overcoming the kind of

the politics, the gamesmanship, the kind of things that go on in a company if you actually try and zoom in and go, okay, like, what do we really need to be doing? Who's really contributing? Yeah. Well, I mean, I feel like I should ask you this question, too. You're the expert on this.

But, you know, actually, I don't think we were just talking about this backstage a little bit. I don't think I've ever found a perfect solution to this. There's kind of two schools of thought. So one school of thought is get data and instrumented, right? And, you know, obviously we have this performance review process, but people, most employees will tend to rate each other really highly and for peer review. They don't really want to do the tough thing. Even a lot of managers, you know, you have to really push them over and over again. It's like, I don't have anybody who's not great on my team, right? And it's like, well, no matter how great your team is, there's always somebody who's better than someone else,

but you don't want to get into the stack ranking thing. So I think there's an opportunity to actually build some HR software in this space that does pull in data and does things like the Keeper Test, you know, from Netflix, which tends to pull out better signals. So one school of thought is get more data. The other school of thought is there's no substitute. You have to do it with humans. And it's literally hand-to-hand combat, like go in with each of your managers,

do a talent assessment, force them to do it. And in most companies, until you get to be, you know, 5,000, 10,000 people, you can take a small team of people of like three or four folks that you really trust and go in and almost just like meet with every single person for 10, 15 minutes and really get an understanding like what are you doing that's adding value to this company and show me the work. Like are you doing the actual work or are you somebody who's in the middle, you know, relaying messages or managing or whatever.

So you can do it with people. You can do it with humans, whatever is your preference. But you've got to find a way to go there and do it. Yeah. Yeah, no, it's interesting. Elon, one of the things Elon did at Twitter is he'd love. looked at the GitHub blogs, and he's like, if you haven't checked in code in the last 30 days, that's a real problem.

Right. So that may target you, speaking of data. So one of the kind of fallouts of the big boom period was, like, companies, employees decided that, like, the work wasn't necessarily the thing that they should be about. They should be about the larger society and these political issues and so forth. and you kind of now famously took a stand and said, well, not here, we're not going to do politics. We've got a mission, and that's the mission.

And if your mission is, you know, anything from whatever Roe v. Way to the environment or what have you, you're just not going to do that here. So now it's been a year. And how is it gone? Are you happy with how the culture has come out? Were there things that you would do differently? What would you recommend for the kind of founders here? Yeah, so I think it turned out to be one of the most important and positive things

that I ever did in the company, but obviously it really sucked to go through because at that time, you know, I think everybody was trying to create these kind of activist cultures inside companies. There was actually a handful of employees, a number of employees, I think, especially in certain areas like the Bay Area and Brooklyn. It was really only in certain geographies where they were, trying to get hired at these companies, not with the intention of really working towards the mission, but actually to go in there and hold the company to account for some other

broader societal issue that they were working on. And so I didn't really have any concept of why anybody would do that. And it was this very odd thing. And I noticed this starting to happen inside the org. And we were starting to get like demands from the employee resource groups and people kind of holding us hostage at the Q&A, like, you know, grandstanding with the mic, like putting us on the spot as the exec team was trying to answer questions. And it wasn't questions about the product or the business or, you know, competitors or whatever, it was like about these totally unrelated issues. And so we eventually, it felt so wrong to me, and we eventually had this walkout,

which kind of catalyzed the whole thing. And I was like, okay, I got to do something here. So I reluctantly put this out. I knew it was going to be super controversial. Yeah, the New York Times hated it. Yeah. It didn't align with their worldview and their politics. And it did, it showed me that, you know, there are media organizations out there

who are totally willing to publish, like, lies about a company if it doesn't, to attack them without, if it doesn't fit their worldview. But I guess I kind of realized at a certain point, you know, there's worse things in life than getting negative articles written about you or if you have an activist employee and, you know, people are, a lot of CEOs at that time, they were just so afraid to fire any employee who was causing trouble inside the organization because they're like, oh, they're going to write this tell-all blog post or, you know,

they're going to claim that we were discriminating or whatever and, like, we'll have to pay some settlement to them. It turns out there's worse things than getting a negative news article or a blog post written about you when someone leaves. the worst thing is to have a company you've just lost control of that's not actually moving towards the mission that you created the company for a company that you created

that you don't even want to work at. Right. Yeah. And it really almost got to a place where I was like, is this like the job of being a CEO and a tech company now where I just have to like squirm on stage of like these awkward, big societal questions? Like I don't know. I don't know the answers to these things. So I think a lot of that movement, you know, it started with some good premises and it got taken way too far.

I mean, the good parts of it are basically, you know, let's not discriminate against people in the hiring process. Like, let's treat everybody with respect. And there should actually be, you know, merit in the organization. I think this word meritocracy kind of got, became a bad word somehow during that whole time. Yeah, yeah. Well, they forgot that the meritocracy, like, replaced the crazy weird hierarchy where executives had special parking spots and giant offices and limos to take them to work and all. Right. Yeah.

Yeah. So, I mean, look, nobody wants to be hired because of or in spite of, you know, their race and their gender and all these things. Like, that's not, first of all it's illegal to hire somebody based on their race and gender and all these things. But it's also just unethical. And you're not doing a favor to that person. Like you're kind of undermining them the minute they come into organization. So, you know, there was all these things people were like, well, we should have quotas around this. Well, okay, we don't do quotas, but we're going to have hiring targets, sourcing targets. Those aren't quotas. And I'm like, that sounds like a quota to me, right? And so, look, I think All that stuff is like, treat people fairly with respect, hire the people who are most qualified for the job, get rid of bias in your hiring process, and then get rid of all that other stuff. Like, you shouldn't be hiring people with targets of diversity and things. Hire the people who are most qualified for the job that want to come in and do great work, support their colleagues to advance the mission. And if they have really strong opinions about other stuff in society, that's great. They just don't be distracting people in the workplace with it. So I accidentally became sort of like this representative of that thing, which I didn't really want to be,

but I'm glad that it had somewhat of an impact. And I took a few arrows so that other people could then go do it. Yeah, more than a few. And is there anything that you would have done differently, kind of in retrospect, in how you made the change? I mean, obviously, you like the company better now than you did before us, and the culture is better, and people like working there more. so that all came out well.

But was there anything kind of procedurally that you had gone, well, maybe I want to make the blog post or this or that? I mean, the thing that I messed up in hindsight was that I was not clear up front. So I was sort of walking on eggshells because I had never encountered this before. So whenever somebody brought up something like this to me, I was like, okay, you know, I just didn't know what to say. And so what it did was it allowed a schism to develop inside the organization by just my lack of leadership and lack of clarity.

So I think if I were to do it again, I would just be more clear up front with people that, you know, we're not going to do a, like we're not going to have a political company. We're going to just focus on this mission. And so try to put that in the hiring letters, you know, put it on the values of the company. Even today with Coinbase, you know, when people join, we have them sign an offer letter.

It describes all of the values, including this kind of mission first thing in there. So nobody can say, oh, I didn't know when I joined. So I would have just done it up front. And then there wouldn't have been this big drama when, when I later tried to clarify it, that we're all going to go in this direction. Yeah, it's interesting because that also does highlight, though, an important thing that you did,

which a lot of leaders are afraid to do, which is, look, it's better to be right than consistent. And, you know, you had to be inconsistent because you didn't say it up front. But having the courage to do that actually got you to where you needed to be, which is a great tribute to your leadership. Kind of moving right along.

One of the things, so one of the things that you and I discussed, I think it was two crypto winners ago, but we were kind of going through, well, like the ecosystem isn't there yet. And you're like, who's going to build storage and who's going to build naming and who's going to build this and so forth? And one of the things we talked about a lot was, well, you're a coinbase. You're going to have to fill in some of these gaps to move the whole industry forward as the leader of the industry.

As the leader of the industry, what are you thinking about building next? What does Coinbase have to do next to move all of crypto forward? Yeah, well, I mean, I go back and forth on this. I don't think it's like our responsibility to build everything. There's hundreds of companies in crypto now. And frankly, we can't even keep up with, you know, a tiny fraction of all the cool things being built. And so, you know, in some ways, we're already a little bit like, we have a number of different products where we build for consumers, institutions, developers.

And so I would hate to sort of say that we need to make all the content as well. But a long way of saying that I think within our products, there's the core things we want to focus on, right? You know, building our retail app and building more functionality in there around things like, you know, decentralized socializing is a really cool topic that's coming up. I know there's various people working on it here, right? Farcaster and other protocols out there.

I think that's an interesting one. I think, you know, defy gaming is an interesting one. I think DOWs are going to have another resurgence, like new forms of governance and voting. Ideally, all that stuff should be built natively right into the CoinBases apps to make it easy for people to participate in this on-chain governance type situations. And I think there's a lot of just, you know, there's sort of things that are non-financial service related with social and gaming and all that. But there's even just a lot to be done with the financial services piece, which is why don't we just make Defi easier to use for the average person? and they don't know how to transfer their funds to a Chrome extension and, you know, bridge their assets to another chain.

And, like, all that stuff is just way too complicated. And so we've got to get that just, if you want to use something, you can just click a button at somehow the coins and the assets all move and they work for you behind the scenes. So that's where I think Coinbase can probably add the most value. With our venture bets, you know, we're going to have a couple of things that we try to make, like, some of the next killer apps.

But I hope the community builds a lot of that stuff. And we can basically be people's primary financial account to access all that stuff. Right, right. And then really enhance the ease of use and the safety aspects and these kinds of things, right? So trusted leader.

Okay, final question before we go to Q&A. So crypto's all about transparency. You took the kind of step of becoming a public company, which in some ways is the ultimate in transparency. How is that gone? Would you recommend it for others? You know, how do you feel about that? there's a lot of lore, you know, particularly among private company CEOs, about, oh, if we go public, that's the end of us.

You know, no more control of our destiny. How do you feel has it gone? Yeah. So, you know, it's funny. Actually, when I was initially in the early stages of the company, I, you know, I hoped one day we might have the chance to do this. But I always thought, ah, being a public company, that's where you lose control. And, you know, I was basically pretty skeptical of it. And so as we got to be bigger, I started to do some research. I went and talked to a bunch of CEOs who had decided to stay private or they'd brought in a professional CEO to take it public. or something that had actually gone public, right? And look, there's pros and cons to being public, right? The pros are, there's a handful of things. One, it's a lot easier to raise money.

Like, actually, in 2021, Coinbase raised $3 billion of debt in, you know, with very favorable terms. I didn't do a single meeting. Our CFO did it. It took a week. And the money was in our account. So somehow, as a public company, you just have access to all these. You can't do that as a private company, just FYI.

Yeah. I mean, imagine the CEOs here in the room probably lap. Imagine doing a $3 billion fundraise. You didn't do a single meeting, right? That's pretty cool. But, you know, what else? I mean, it was also, it legitimized us as a company. It was kind of a great marketing thing.

And then also other Fortune 500 companies suddenly started to take us seriously, right? So we closed these deals with BlackRock, like the biggest asset manager in the world, and like meta and Google. And so all these people are now kind of integrating with Coinbase that, you know, we're a public company. We somehow were in that league with them.

They want to work with. You're blessed by the rabbi. Yeah. Yeah. And then, you know, there's some serious drawbacks, too, right? I mean, one is that, of course, you get marked to market every day in there. And so as a private company, you know, you can definitely raise money and you kind of go through cycles. But you're not, it doesn't feel like you're getting marked down every day.

And so, you know, everybody can see our revenue multiples and stuff and it were, you know, it's not great. Like our stock is down quite a lot with any kind of high growth tech stock in this environment is down quite a lot. I was worried about this idea of, you know, I was going to have to spend like 20, 30, 40% of my time speaking with public market investors. I don't, that turned out to not really be the case. I think I basically, you know, I do the earnings calls. We have a couple times a year in each quarter where I go spend time with public market investors. I've started to build good relationships with them. But it hasn't been a huge time sync for me.

And I actually don't really mind it. I think, you know, just like anything, don't overdo it and leverage the people on your team who are even better at it. like our CFO and our CLO. And I basically had to focus on the five or ten key relationships, like our largest shareholders. The last thing I'll say is that dual class stock is something people should go learn about. And everyone has their own opinion on that of, you know,

basically you can have a different class of shares that allow you to still maintain control so you're not dealing with kind of activist investors constantly, which for me was a good factor that allowed me to sort of focus on the stuff I'm good at. But that's a, that's a good. complex topic and I think one piece of advice someone gave me as I was thinking about that was you know pigs get fat hogs get slaughtered so like don't go too crazy with the with the dual vote

stock and or the dual class stock and you know do something reasonable but don't go crazy with it and I think yeah don't attach it to your grandchildren's grandchildren right yeah yeah right yeah great unless you're in New York Times unless you're the yeah yeah true story okay we'll we'll questions on that note from anybody have anything they want to know about anything go on yes sir um you talked about defy and self-custody as like sort of like your next recommendations so how are you messaging sort of like to retail customers what self-custody means like long-term specifically around security yeah well so i think everyone is a little divided right now they're thinking, okay, I can't trust the centralized exchanges, so let me do self-custody. But

people have lost a lot of money with self-custody, too, right? It doesn't happen in a big blow-up all at once, but every week there's somebody losing some money out there that doesn't make headlines, but as a percentage, it may be similar. I actually don't know. I've never run the data on it. So I think we as an industry, and this is something Coinbase is trying to help with, we can try to make self-custody the U.X around it and the security architecture around it essentially make it harder and harder for people to do something accidentally to lose funds, right? So MPC or multi-party computation is a big piece of this. We've invested a lot in that at Coinbase and we're trying to bring elements of that in where you can essentially

have a quorum of keys, right? So if you lose one of those or two of those, depending on how you architect it, like maybe you lose your phone, right? Or maybe you forget your password. But there's a quorum of it that you can reassemble from various pieces. You can do that with social recovery. You know, Vitolik is kind of hot on that idea. I think the ux around that is an opportunity for innovation. And then the question is, once you've created that really great architecture underneath, how do you then market it to the average person

to help them understand that it's actually better? You know, I think Apple is actually an interesting example here. You know, I'm not super happy with Apple for other reasons. Just they've been blocking a bunch of features in the app store, but put that aside for a minute. What they did with Face ID, I think that was a good example of taking a really hard computer science problem. You know, it used like LIDAR and all these live-noughts.

detection. There was a lot of complicated tech that went into that, but it has a simple name, you know, face ID. I kind of intuitively know what that is just from it, just from what hearing it as an average person. And it was simple to use where I just looked at it and it was in. And so I think there's an opportunity to do something like that. Multi-party computation is not the right marketing term for, you know, what the average person might use. And so I don't have a specific suggestion here. I want to share like for the whole industry, but I think that's the direction we need to go. Yes.

Looking back, the other crypto winters that you've been in, very uncertain times, I don't really sure where the industry is going to be heading. Are there times or particular decisions you felt were like really good for Coinbase or were there any sort of traps or temptations you might think founders are easy to fall into at times like this? In Crypto Winters? Yes. By the way, it's great to see Coinbase alumni here. Actually, there's a nice handful of Coinbase alumni in the audience, so hopefully, you know, Coinbase Mafia going strong.

That's awesome to see. So traps that we've companies fall into and down in crypto cycles. Yeah, I mean, I think, I don't know, the most common one I see is that, you know, we're just going to basically they don't cut costs soon enough, right? And it's harder if you wait, you have to cut more. And if you do it up front, you can basically capture some of the savings, you know, earlier on. And so I think everybody should just be thinking very closely about burn rate and runway and assume that, you know, base case is maybe this thing lasts like,

2023 is, you know, going to probably be a down year. 2024, maybe we'll see signs of life by the end of it. That's kind of what I'm hoping. It could be sooner than that. It could be much worse than that. It could actually go through 2026 or something, right? We could see a lost, a lost decade or something, right? But that's our base case. So make sure. that you're not in a really bad situation one or two years from now. That's probably the most common one. And then the other trick is

basically flip your mentality from pessimism and fear and scarcity to how is this actually an opportunity, right? And there actually always is an opportunity in every down market. And that's the next mindset

to get. And so, yeah, I mean, there's like these books like Shackleton's way about in Ernest Shackleton. And like, you know, is this despair and like one setback after another. And like basically, the leadership lesson is don't allow pessimism to like creep into your organization and people to kind of recruit each other into this, you know, very negative mentality. Like the history is very clear on this, which is great companies I've often gotten built

in down markets. And so we're all going to look back on this in three to five years and say, gosh, that was the best time to actually build this company. because there was no distraction. It was like we had nowhere to go. We couldn't go too much lower, so we had it all build back up from there. And don't die, and you're going to crush it coming out of this down cycle.

So they have to retain the optimism. Yeah, when we were in the great dot-com crash, Andreessen used to always say to me, Ben, don't worry, one day we'll look back at this, chuckle nervously, and change the subject. Yes, sir. over there. Hey. All right. So as somebody who's built a very large company and probably gone through all the people issues you can possibly have in scaling and all of that, like, how do you go through the phase of, all right, you get to 50 people and you have these like early execs who you built out

the team with and then now you need to hire for a new function or you need to bring in new senior leaders, etc. And like, how do you balance needing that function and to do that thing better in like getting it right because we've had some of this where you know we took us six months to hire because we want to make sure like this is something that was like very important to get right in the culture and just like still be in that pretty early phase but also we've spent six months like not doing it thankfully we've resolved that one but I'm curious for like future just how you think about that problem as you scale from you know 50 to 5,000 yeah so this is always a tough call because when you're a smaller company you're just getting started it's it's actually

harder to recruit, right? And I mean, we couldn't, we couldn't get good people to come in in the early days, oftentimes that were more senior, right? We couldn't find like a CFO or a head of finance. Like our, you know, our early stuff was kind of messy, and we couldn't find anyone to come in and clean it up. They were too risk averse, right? Or even like a really senior head of security or something like that. So we had to kind of start with the junior people we had. And as you start to find product market fit, you're increasingly thinking, okay, these people are over, they're over their skis. I need to bring in more management or more people with more experience. think the heart of your question is basically do we wait? Do we let the fires burn and hold out

for someone that we're really excited about? Or do we kind of compromise just to get someone in the role? And I guess I would say hold out and just wait. That's what we did. I mean, we basically let the fires burn and we tried to fill in the gaps where we could. And we waited until we could find someone who we were really excited about. Now, even with that, you know, the failure rate of hiring executives is pretty staggering. I think, you know, I remember Jeff Stum, and the whole team kind of came in to talk to us about this at one point when Coinbase was growing. And I think, you know, he said the failure rate is like,

if you count success as the executive is still there 18 months later, something like 50% of executive hires fail. And that was like roughly true in my experience as well. And so even if you wait and you think, okay, this is the right person, I'm going to held out. I'm going to find them, you know, 18 months later, something it may not work out. And that's fine.

Just everyone's going to freak out. You know, you need to part ways. And they're going to wonder what's happening. and some of the Quimbius alumni who are here, they can tell you the war stories of, it was chaos, right, at certain times. And people got battlefield promotions to things that they were probably totally, you know,

out of their expertise. So that's just startup life. That's what it looks like. So wait to find the right person. Even with that, 50% of them won't work out within 18 months, part ways and do it again. And, you know, some of our executive hires took 18 months or something like that,

where I was hoping they were, We're going to take three months. But that's just what it looks like to build a company. Yeah, and that's so true because, look, you don't know what you're doing when you're hiring executives. You know, you've not been CFO. You've not been, you know, head of HR. You don't know what that job should be.

So what I've seen is if you find yourself at a much better percentage than 50% failure, you're probably not even firing people at the right rate. You've probably got people who are destroying your company and you're not recognized. it. So it just is what it is. Yes. In the last few months, Coinbase has been a lot more active with protocol contributions and development, a lot more active in the process. I think the last week, Vitalik gave you guys a shout out for helping with the 4844 development. Do you guys have any particular aspirations or goals with that effort? I know it's a new effort for you. I'd love to hear more about it. Yeah, well, I just generally, I would say that we want to start building more

protocols at Coinbase. I mean, it's pretty clear that that's an important way that Web3 is going to get developed. And there's a handful of areas where I think it's always our culture and still the majority of our revenue is still coming from relatively centralized things. And so it's been a big effort for me internally to kind of go create these groups that can really be crypto-native, focus on decentralized apps, and sort of free them up to kind of not have a bunch of lawyers like around them too much that are, you know, shutting down every idea. in its infancy, right? We need the good feedback from lawyers in key moments, but we don't want it to destroy the innovation potential. And so thanks for noticing. And I guess we're going to

keep trying to do more and more of that as truly a crypto-forward company. And I don't know, some people probably think of Coinbase as somewhat trad-fi because, you know, we do have centralized products that we're sort of known for. But I think we also have a ton of really great crypto-forward talent. And many of them are very entrepreneurial. Some of them are here in the room. and some of that's going to get built inside Coinbase. Some of it's going to go outside of Coinbase. We're happy to do both of those and just help grow the whole ecosystem, hopefully.

All right. Well, we are out of time, so I'd like to thank Brian for joining us and sharing his first time. Thanks, everyone. Thank you for listening to Web 3 with A6 and Z. You can find show notes with links to resources, books, or papers discussed,

transcripts and more at A6NZ Crypto.com. This episode was produced and edited by Sonal Toxy. That's me. This episode was technically edited by our audio editor, Seven Morris. Credit also to Moonshot Design for the Art and all thanks to support from A6 and Z Crypto. To follow more of our work and get updates, resources from us, and from others, be sure to subscribe to our Web3 weekly newsletter. You can find it on our website at A6NZ Crypto.com. Thank you for listening.

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