Dwarkesh Podcast - Marc Andreessen — AI, crypto, 1000 Elon Musks, regrets, vulnerabilities, & managerial revolution

Episode Date: February 1, 2023

My podcast with the brilliant Marc Andreessen is out!We discuss:* how AI will revolutionize software* whether NFTs are useless, & whether he should be funding flying cars instead* a16z's biggest vulnerabilities* the future of fusion, education, Twitter, venture, managerialism, & big techWatch on YouTube. Listen on Apple Podcasts, Spotify, or any other podcast platform. Read the full transcript here. Follow me on Twitter for updates on future episodes.Timestamps(0:00:17) - Chewing glass(0:04:21) - AI(0:06:42) - Regrets(0:08:51) - Managerial capitalism(0:18:43) - 100 year fund(0:22:15) - Basic research(0:27:07) - $100b fund?(0:30:32) - Crypto debate(0:43:29) - Future of VC(0:50:20) - Founders(0:56:42) - a16z vulnerabilities(1:01:28) - Monetizing Twitter(1:07:09) - Future of big tech(1:14:07) - Is VC Overstaffed? Get full access to Dwarkesh Podcast at www.dwarkesh.com/subscribe

Okay, today I have the great pleasure of speaking with Mark Andreessen, which means for the first time on the podcast, the guest and the host, playback speed will actually match. So Mark, welcome to the Lunar Society. Good morning, and thank you for having me. It's great to be here. My pleasure. So have you been tempted any time in the last 14 years to start a company? Not A16C, but another company? No, it's, I mean, we have.

I mean, so the short answer is we did. So we started our venture firm in 2009. And so it's sort of given my partner, Ben and I, actually has to kind of fully exercise our entrepreneurial ambitions and energies to build this firm. We're over 500 people now with the firm, which is small for a tech company, but it's big for a venture capital firm. And so it's let us kind of fully get all those urges out. But there's no product where you think, oh, God, this needs to exist and I should be the one to make it happen?

You know, I think a lot, I mean, we look at this kind of through the lens of like, what would I do if I were 23 again? And so I, you know, I always have those ideas. But, you know, starting a company is really, you know, look, starting a company is like a real commitment. Like it really changes your life. You know, my favorite all-time quote on being a startup founder is from Sean Parker who says starting a company is like chewing glass. Eventually, you start to like the taste of your own blood. That quote, that quote always gives people like this. I always get this queasy look, you know, on the face of people I'm talking to and I roll that quote out. But like, it really is.

I mean, it's really intense. And so I always tell people, you know, whenever anybody asks me if they just start a company, you know, the answer is always no. Because it's just, it's such a just like gigantic, like emotional or rational, you know, kind of thing to do. Like the implications of that decision is so profound in terms of how you live your life that I, yeah, I mean, look, there are plenty of great ideas and plenty of interesting things to do. But the actual process is so difficult.

It gets romanticized a lot. And it's not romantic. It's a very difficult thing to do. do. And so, and I, you know, I did it, I did it multiple times before. So at least for now, I don't, I don't revisit that. But being a venture capitalist is not like that. When you're in the 30th pitch of the day, you're not wondering if chewing glass might not be more comfortable. No, it's different. Well, so it's different. Well, I'll just, I'll tell you how I experienced it. You know, people are wired to respond to stress in different ways. And I think there are people who are

wired to be, you know, extremely productive and extreme, you know, actually get me who get like very happy under extreme levels of stress. I, I have a different, like, I'm fine with. I'm fine of stress. In fact, I incline towards it and I, you know, if I don't have any, I seek it out. But like, I don't pass to a certain level. I don't really enjoy it. Like it doesn't, it degrades the quality in my life, not improves it. Maybe you have an affinity for self-torture. But, and so it's, I mean, look, there's stress in everything, you know, and there's stress in every profession, and there's certainly stress in being an investor. But it's a completely different kind of stress. Because when you're a startup founder, like, it's all on you, right? It's like,

everything that happens is on you. Everything that goes wrong is on you. Like, when there's an issue in the company, a crisis in the company, like, it's on you to fix it. Like, you're, you know, you're up at four in the morning, like all the time, like worrying about things. And just, investors, there's just a layer of buffer. You know, we have, you know, we have no end of problems. And, you know, we help our portfolio companies as best we can with, with all kinds of issues. But like, you know, some crisis inside a company. Like, it's not my company. Like, it's not, not everything is my fault. it's a it's a it's a it's a more diffuse kind of stress uh and and and honestly easy to deal with

got it yeah made sense but why did you stop your blog would you ever start it again so i write intermittently um you know i just um i i mean i stopped the original blog was like i what 2007 to 2009 you know kind of thing um and then we started the firm and then that that kind of uh it's like having a new baby that kind of soaked up all my time yeah um and then i you know i write intermittently and then i do you know i'm doing i do social media intermittently and you know basically as just, you know, part of it is I, you know, I have a lot to say and a lot that I'm interested in, but also, you know, I like to experiment with the new formats. And I like to, you know, kind of, you know, like, you know, we do live in a fundamentally different world as a result of social

media and the internet, blogging and Twitter and all the rest of it. So I try to keep my hand in it and experiment, but, you know, I kind of rotate. I rotate both how I spend my time and rotate, but I think, you know, makes sense. Now, before AWS deploying applications was probably the bottleneck on new software? What is the biggest bottleneck today? At what layer of abstraction do we need new tools? Yeah. So I think literally sitting here today, I think overwhelmingly, it's the impact AI is having on coding. Right. So like, I think there's a real possibility that basically, I think there's a possibility that basically every application category gets upended in the next in the next five years. Like I think the whole model of how applications get built

across every domain. I think it might just completely change because I think, you know, the old model without AI, you know, you typically had like some sort of database. You have some sort of front end of the database. You had forms, right? You had, you know, these sort of known user interaction models, you know, mobile apps and so forth. You know, we kind of got to a pretty good kind of shared understanding of how humans and machines communicate kind of in the windowing era and then in the mobile era, in the web era. You know, I think AI might just append all that. And I think the future apps might just be much more of a dialogue between computer and machine, you know, that's either a text written dialogue or a spoken dialogue or some other form of dialogue and, you know, the human is guiding the

machine and what to do and receiving real-time feedback. And there's a, there's a loop and then the machine just does what it does and it gives you the results. I, you know, I think we're potentially on the front end of that. I think that all might change. So the very fundamental assumptions about how software gets built, I think, might just change. And so the, yeah, the tools on that are at the very front end. Like, there's an entirely new stack that used to get built to do that. So that's, that's yeah that's that's that's probably the big thing is is there a reason though AI is not one of your focus areas or as far as I know you guys don't have an AI fund dedicated to the technology specifically yeah so basically we look at it as it's all of software right and so the we look at it

it's like it is the core business so software is the core of the firm you know we've you know we've been public on that for for a long time you know the core fund the core venture fund is the kind of core software fund and then AI basically is the next is the next turn on software and so it's I view it kind of is the opposite of what you said it's it's sort of it is like the most integral thing that we're doing. Interesting. The separate funds get created for the new areas, like for the new areas that are like structurally different

in terms of like how industries work, right? And so, you know, but like AI is basically the future of software. And so it's it's the future of the core of the firm. Got it, got it. Now let's look a little bit about your past. So you sold that's gay for $10 billion. But today Chrome has what, like 2.7 billion users or something. And then Opsware was sold for like $1.7 billion.

AWS is going to probably make close to $100 billion in revenue yearly. In retrospect, do you think if these companies had remained startups, they would have ended up dominating these large markets? Yeah, so I spent virtually no time on the past. The one thing I know about the past is I can't change it. So I spend virtually no time kind of revisiting old decisions. People I know who spend a lot of time revisiting old decisions are less effective because they mire themselves in what-ifs and counterfactuals.

So, yeah, I really don't spend any time on it. I really don't even really have theories on it. I guess the big thing I would just say is reality plays out in really complicated ways. Like everything on paper is straightforward. Reality is very complicated and messy. The technical way that I think about it is basically every startup is charting a path-dependent course through a complex adaptive system. And because of that, like, you know, it's sort of this. If you remember, if I read about this in the old days,

People had this obsession a while back with what's called, you know, chaos theory. It's sort of this thing of like, okay, we're used to thinking about like systems as if they're like deterministic, you know, so you start at point A, you end up at point B and you can do that over and over again, right? Like, you know, what happens when you drop an apple out of a tree or whatever? You know, in the real world, like in the world of humans and, you know, 8 billion people interacting and then trying to start companies that intersecting these markets and do all these complicated things and have all these employees. It's just there's, there's like random elements all over the place. there's path dependence as a consequence. You run the same scenario to start with point A, one time you end up point B, one time you end up point Z. You know, there's a million reasons why the sort of, you know, fork's branch or the branches fork.

And so you just can't like, yeah, I mean, this is always, by the, this is my advice to every founder who has to revisit all decisions. It's just like, it's not a useful and productive thing to do. The world is too complicated and messy. So you just, you know, you take whatever you, you know, you take whatever skills you think you have and you just do something new. Makes sense. Aren't venture capitalists part of the managerial elite? So Burdom says that the rise of the finance capitalist is a decisive phase in the managerial revolution. What would he think about venture capitalists? Yeah. So this actually, this I actually think about a lot.

So, and I know you said everybody can Google it, but I'll just, I will provide this just so this makes sense. So James Burna basically famously said there's basically two kinds of capitalism. We call them both capitalism, but they're actually very different how they operate. there's the old model of capitalism, which is bourgeois capitalism. And bourgeois capitalism was the classic model where the owner of the business, there was a person who, by the way, often put their name on the door, right, Ford Motor Company, right? Andrews and Horowitz.

And then that person owned the business, right? And then that person owned the business, right? Often 100% of the business. And then that person ran the business, right? And so this is sort of the classic, you know, these are the people the communists hated, right? this is like the bourgeois capitalist company owner, builder, CEO, right, as sort of one person. It's very key with like a direct link, right, between ownership and control, right? The person who owns it controls it, the person who controls it, it runs it.

It's just, it's just a thing. There's a proprietor of the business. So that's that's the old model. And then what he said basically is as of the middle of the 20th century, most of the economy was transitioning. And I think that transition has happened and has, you know, is basically now complete. most of the economy transitions to a different mode of operating, a different kind of capitalism called managerial capitalism. In managerial capitalism, you basically, you have a separation of ownership and management.

So you have one set of, you know, think public company, you have one set of owners, you know, who are like dispersed shareholders, and there's like a million of them for a big company, and who knows where they are, they're not paying any attention to the company, and they have no ability to run the company and like whatever. And then you've got a professional manager class, and they step in and they run the company. And then what he said basically is as a consequence of that, the manager, end up in control. Even though the managers don't own the company, right, even though their ownership stake in a lot of public companies, the managers might own like 1% of the company, but they end up in

total control and then they can do whatever they want. And he actually said, look, it doesn't even matter if you think this is good or bad or whatever. It's just inevitable, and it's inevitable because of scale and complexity, right? And so the modern industrial and post-industrial organizations are going to end up being so big and so complex and so technical that you're going to need this professional managerial class to run them, and it's just an inevitability. This is how it's going to go. And so I really think this is exactly what's played out. A consequence of that that I think is pretty obvious is that managerial capitalism has a big advantage that Burnham identified, which is the managers are often very good at running things at scale. And we have these giant industries and sectors of the economy and healthcare and education, all these things that are running at like, you know, giant levels of scale, you know, which was new in the 20th century.

But there's a correlate, there's sort of a consequence of that, which is managers don't build new things. They're not trained to do it. They don't have the background to do it. They don't have the personality to do it. They don't have the temperate to do it. And they don't have the incentives to do it because they basically, the number one job if you're a manager is not to upset the Applecart. You want to like stay in that job for as long as possible.

You want to get paid your annual comp for as long as possible. And you don't want to do anything that would introduce risk. And so managers can't and won't build new things. And so specifically, to your question, the role of startups, like the role of entrepreneurial capitalism, right, is to be a business. basically bring back the old bourgeois capitalist model enough, right? Now, it's a rump effort because it's not most of the economy today, but bring back the older model of bourgeois capitalism or what we call entrepreneurial capitalism, like bring it back enough to at least be able to build

the new things. And so basically what we do is what we do basically is like we fund the new bourgeois capitalists, who we call tech founders. And then there's basically two layers of finance that basically enable basically bourgeois capitalism to at least resurface a little bit, within this managerial system. Venture capital does that at the point of inception, and then private equity does that at a point when a company used to actually transform. And so I view it as like we're an enabling agent for at least enough of a resumption of bourgeois capitalism to be able to get new things built, even if most of the companies that we built ultimately themselves end up being run in the managerial model.

And as Brunham would say, like, that's just the way of the modern world. Like that's just how it's going to work. But you guys get like preferred shares and board seats, and rightfully so. But wouldn't Burnham look at this and say, you guys, are all like, you know, you're not the owners and you do have some amount of control over your companies. Yeah. So he would say, I think he would say that we're like a hybrid.

We're like a managerial entity that is in the business of catalyzing and supporting bourgeois companies, bourgeois capitalists companies. Like I think he would clearly identify the startups that we fund. I think he would be like, oh, yeah, that's the old model. Like that's the old model of like Thomas Edison or Henry Ford or one of these guys. You know, you know, you could just grow like a straight line from Thomas Edison and Henry Ford to like, you know, Steve Jobs and Larry Page and Mark Zuckerberg. Like, you know, that's, that model.

That's, you know, it's a, it's a, it's a, it's a, it's a, it's a, it's a, you know, when they start out owning 100%, you know, they do have to raise money most of the time. But like, you know, they're throwbacks. Like the modern tech founders are throwbacks to this, this older model of bourgeois capitalism. And I think he, so he, so I think you're right in that he would view us as a managerial entity, but he would view us as a managerial entity that is in the business of causing new bourgeois capitalist institutions to at least be created. And I think he would credit us with that.

And then, and then I think he would say what I also said, I think he would say is, however, our fate is that most of the companies that we fund and most of the founders that we back end up over time handing off control of their companies to a managerial class. And so our companies, the companies we fund, when they get to scale, they tend to get pulled into the managerial orbit, right? They tend to get pulled into the managerial matrix, which, by the way, is when they stop being able to build new things, right? Which is what causes the smart and aggressive of people at those companies to leave and then come back to us and raise money and start a new bourgeois capitalist company.

Right. And so, so basically like I viewed as like, I don't know, the economy is like 99% managerial. And if we can just keep the 1% of the old model alive, we'll keep getting new things. If the 1% by the way, if we get snuffed, like a venture capital ever gets snuffed, it's outlawed or whatever, whatever, you know, and there is no more venture capital. There's no more, you know, tech startups or whatever. Like then at that point, the economy is going to be 100% managerial. and at that point, there will be no innovation forever. I think people might think they want that.

I don't think they actually want that. I don't think we want to live in that world. Now, will this trend towards managerialism also happen to A16 Z as its skills? Or will it be immune? Like what happens to A16CZ in five decades? Yeah. So this becomes, you know, at a certain point, this becomes the succession problem. Right.

So as long as Ben and I are running it, like our determination is to kind of keep it as much in the bourgeois model as possible. And as you pointed out, like it literally, it's like our name's on the door. you know like Ben and I control Ben and I control the firm like you know there's no there's no board like the firm doesn't have a board of directors like it's just it's just Ben and me running it. You know, it's a private entity. It's there are no outside shareholders. And so as long as Ben and I are running it and we're running it in the way that we're running it,

it will be as bourgeois. It will be in the bourgeois model as much as any as any as any as any investment firm could be. You know, someday, you know, there's the succession challenge. And I bring that up because like the succession chance. is basically, you know, for tech companies, the succession point is usually sort of when that transformation happens, right, when it goes for being a bourgeois in the bourgeois model to being in the managerial model. And then this gets to sort of the philosophy of succession in tech companies. And the general thing that happens there is that, you know, the great,

and you see this over and over again with like the great founder CEOs, when it comes time to hand it off, there's basically two kinds of people that they could hand it off to. You know, they could hand it off to somebody like them, right, who's like a mercurial, you know, idiosyncratic, high disagreeableness, you know, ornery, you know, sort of, you know, entrepreneurial kind of personality, right? You know, somebody in their mold, or they could hand it off to somebody who knows how to run things at scale. Almost always what they do is they hand it off to somebody who can run it at scale.

The reason they do that is actually two reasons. There's the theoretical reason they do that, which is it is at scale at that point, and somebody does need to run it at scale. And then the other is they often have what I call the long-suffering number two. So they've got like, you know, you've had like, you know, whatever, you know, you've had like this like high octane, you know, kind of founder's CEO who like breaks a lot of glass. And then there's often like the number two. There's like the chief operating officer or something who's like the person who like fundamentally keeps the trains running on time and keeps everybody from quitting. And that long suffering, is often been in that job for 10 or 15 years at that point.

And it's literally the long, you know, is long suffering. Like they've always been the underling. And then it's like, okay, you know, they've quote unquote, they now deserve the chance to run the company themselves. And that's the handover. Now those founders often end up regretting that decision. later years, they will tell you, boy, I wish I had handed it off to this other person who was, you know, maybe deeper in the organization, who was maybe younger, who was more like I am and maybe would have built new products and maybe that was a mistake. But the fact that they do this

over and over again to me illustrates why the Burnham theory is correct, which is large, complex organizations ultimately do end up getting run by managers in almost all cases. Again, the only sort of upside, the only sort of good, you know, I don't know, good news, the only optimistic kind of, you know, view on that is that it's the transition from these companies being in the bourgeois capitalist model to the managerial model that creates the opportunity for the new generation of startups, right? Because in the counterfactual, like, if these companies remain bourgeois capitalist companies for 100 years, then they would be the companies that create all the new products. And then, you know, we wouldn't necessarily need to exist

because those companies would just like do what the startups do. They just build all the new stuff. But because they won't do that in that model, they won't do that and they don't do that, almost without exception, you know, therefore there's always the opportunity for the next new startup. And I, and I, And I think that's good. Like, I think that, that, you know, that keeps the economy, you know, vital, even in the face of this overwhelming, you know, trend towards managerialism. Mm-hmm. Now, if you had a fund without a hundred year lock-in, what would you able to be invest in that you can't invest in right now? Yeah.

So the thing with a longer, you know, so our lockup now, you know, the base lockup for venture is like 10 years. And then we have the ability to kind of push that out. You know, we can kind of push that to 15. And then, you know, I think if we, you know, for really high quality companies, we can push that to 20. we haven't been a business long enough to try to push it beyond that. So, you know, we'll see. You know, the question if you could push it to 100 years, you know, the question is like, is it really time that's the bottleneck, right?

Like, are there, in other words, like, the implication of the question would be like, are there more ambitious projects that would take longer that you would fund that you're not funding because the time frame's too short? And the problem with 100, the problem of the 100 year timeframe or even a 50 year timeframe or even a 20 year timeframe is that new things don't. tend to, they don't tend to like go through a 20 year incubation phase in business and then come out the other end and be good. Like they basically, what seems to happen is they need milestones. Like they, you know, they need points of contact with reality. Every once in a while, there will be

a company, a very special company will get funded with a founder who's like, look, I'm going to do the long term thing. And then they kind of go into a tunnel, you know, for 10 or 15 years where they're building something. And the theory is they're going to come out the other side. Like these have existed and these do get funded. You know, generally they never come out anything. Like they end up going, they end up in their own private, we call it, they end up in their own private Idaho, like they end up in their own internal world. They don't have contact with reality. They're not ever in the market. They're not working with customers. You know, they just, they start to become like basically bubbles of their, of their own reality. And then, you know,

they don't like, look, contact with the real world, like contact with the real world is difficult, like every single time. Like, the real world is a pain in the butt. And, you know, to, to like, Mark to market your views of like what you're doing with the reality of what like anybody's actually going to want to pay for, like requires you to go expose yourself to that. Like it's really hard to do that in the abstract or to build a product that anybody's going to want to use. And so this thing where people go in a tunnel for 10 or 15 or 20 years, like it doesn't go well. I think 100 years would be an even more degenerate version of that. Like I just think they'd end up, it would just, it would end up, you know, kind of best case is kind of this unbounded research lab that maybe would write papers and I don't know. you know, something maybe comes out the other end of the far future in the form of some

open source thing or something. But like they're, they're not going to build an enterprise that way. And so I think having some level of contact with reality over the course of for sure the first like five to seven years is pretty important. The other question that I would that I would ask, you know, the other way to, to get a kind of your underlying underlying question. The other thing would just be like, what if you just had more zeros on the amount of money, right? And so what if instead of funding companies for $20 million, you could fund them for $2 billion or $20 billion, dollars, right? In other words, you know, maybe they would operate on the time frame of today's

companies. They'd operate on like whatever five or ten year time frame. But, you know, you could, you could fund them with 20 billion of venture financing instead of 20 million. You know, I think that's a more interesting question. I think it's possible that there are, you know, pretty big, you know, fundamental things that could be built with larger amounts of money in this kind of entrepreneurial model. You know, everyone, I mean, look, you get, you know, every once in a while, you do see, you know, you do see these like giant, you know, Tesla and SpaceX is two obvious examples like, you know, of these like world-changing things that just, you know, took a lot of money and then had had really big impact. And so, so maybe there's something there and maybe that's

something that the venture, you know, ecosystem should experiment with in the years ahead. So I would be more focused on that as opposed to elongating the time. But like what about basic research, right? So I think you've spoken about the dysfunctions of the academic government research complex. But like the next internet, the next thing that the Andrewsend from 10 years from now is building on top of. maybe there needs to be some sort of if the government effort is broken and maybe you just need to bootstrap something yourself

or have you considered that? Yeah, so the strong version of this argument is from a guy named Bill Janeway and he was a legendary VC actually Janeway's a great, a great, a wonderful guy if people haven't heard of him. He's a, he was actually a, he was a PhD in economics. I think he's a student of a student of John Maynard Keynes.

So he kind of comes from like a highly pedigreed like economic theory background. And then he was a himself a legendary venture capitalist in his career. He became a hands-led investor at the firm Warburg-Pinkus and funded some really interesting companies. And so he's one of these rare people who's both theoretical and practical on this kind of question. And he wrote this book, which is, I really recommend, it's called Doing Capitalism and where he kind of goes through this question. And so the argument that he makes, you know, along the lines of what you're saying, the argument that he makes is basically, and it's a little bit of a, I don't know, it's a little bit of a

pessimistic argument. The argument he makes basically is if you look at the entire, if you look at basically the history of professional venture capital, which is now like a 60 year journey basically, you know, or maybe even 50 years, it's basically from the late 60s, early 70s and kind of modern form. He said basically the, he said basically the big category that's worked is computer science. And then he said there's the second category that's worked is biotech. And then he said, at least at the time of writing, he said everything else didn't work. And so, you know, all the that people poured into clean tech and, you know, da-da-da-da-da, like all these other, you know, the venture capital is trying to fund, you know, they basically, they just, from a return

standpoint, they just didn't work. They just, you just watch the cap, you know, burn the capital. And then, and then he says is, it's like the number, when he wrote the book, you run the numbers, and it's like basically computer sciences work twice as well as biotech or something like that, right? And then what he said is, what he said is, this is a direct result of basically federal research funding over the, over the previous 50 years. And so he said, basically, What computer science-based venture capital is able to do is it was able to productize 50 prior years of basic research in computer science, right? Information science, information theory, communications theory, right? You know, algorithms, right, all the stuff that was done in engineering schools, you know, basically from, you know, 1940 through like 1990.

Right. And so he said basically, we are, you know, we are productizing that. That's been the big thing, right? And then he said, you know, biotech were, you know, that sector, we're productizing. basically the work that NIH, right, and others, you know, put into basic research in the biological sciences. And he said, you know, that that was, you know, about half as much money. And maybe about like half as much time. Like, like that work really started kicking in the 60s and 70s a little bit later. And then he said, look, he said, the problem is there aren't other

sectors that have had these huge investments in basic research. Like they just, you know, there has been no basic, you know, there's just not this huge backlog of like basic research and like climate science or into, you know, take your pick of, I don't know, online content. or like, you know, whatever the other sectors are where people burn a lot of money. And so he says, look, he says, if you want to predict the future venture capital, you basically just look at where, you know, the previous 50 years of where research, R&D, you know, basic research has happened, federal research funding has happened. And he said, and again, his strong form of it is, you know, it's like there's no shortcuts

on this, right? And so if you're trying to do venture capital in a sector that doesn't have this big, basically, you know, kind of install base of basic research has already happened, like you're basically just building at windmills. I think there's a lot, too, his argument. I'm a little more optimistic about a broader spread of categories. A big reason I'm more optimistic about a broader set of categories is because I think computer science, right, in particular, now applies across more categories, right?

So this is sort of the underlying point of the software east of the world thesis, which is computer science used to be, you know, computers used to be just like an industry where just like people made and sold computers. But now you can apply computer science into many other markets, you know, financial services and healthcare and many, many others where it can be a, where it could be a disruptive force. And so I think there's a payoff to computer science and software for sure that can apply in the sectors. I think maybe some of the biological sciences can be stretched into other sectors. You know, and then look, there's a lot of smart people in the world. You know, there's niche

research efforts all over the place in many fields that are, you know, doing an arrest in work. Maybe there's, you know, maybe you don't get a giant industry out the other end in some new sector, but maybe you get some very special companies, you know, doing special. I mean, you know, like SpaceX, like, you know, SpaceX is like a massive advance in aeronautics. It, you know, took advantage. of a lot of aeronautics or indeed, you know, it's not like there's some huge aeronautics venture industry. But yeah, you know, there is a big winner, you know, at least, at least one and I think, and I think more to come. And so I'm a little bit more optimistic and open-minded, you know, I think Bill would probably say that I'm naive.

No, but you mentioned earlier being able to write potentially nine or ten-figure checks to these companies like SpaceX or Tesla, who might require the capital to do something grand. Last I checked, do you guys have 35 billion or something under management? Do we need to add a few more zeros to that as well? Will A. Seen Z's out of assets and dramatic and just keep growing, or will you cap it at some point? So we cap it as best we can, right? We basically cap it to the opportunity set, right?

And so basically our entire model, right? And it's not a single, you know, it's maybe obvious, but it's not a single chunk of money. Like it's broken into various strategies. And we apply different strategies in different sectors at different stages. You know, so it's decomposed. You know, we have like six, you know,

primary investment groups internally. So in then different stages. And so that money's broken out in different ways. But, um, Yeah, I mean, look, you know, we cap it as best we can to the opportunity set. We always tell LPs the same thing, which is we're not trying to grow SS center management. Like, that's not a goal. Like, we're, to the best of our ability, we're trying to maintain whatever return level we're maintaining.

You know, we are trying to eat market share. Like, we'd like to eat as much market share as possible. And then we would like to go fully exploit the available opportunities. We'd like to fund all the, you know, we'd like to fund all the really good founders. We'd like to back, you know, all the interesting new spaces. You know, but we're not, what we wouldn't want to do is double asset center management in return for, you know, five percent lower returns or something like that. Like that, that would be a bad trade for us. Um, so to put another zero on that, I think what we would need would be a theory,

as I said, I think we would need a theory on a different kind of venture capital model, which would be basically trying to back much larger scale projects. Um, and again, I think there's a really big argument you could make that that's precisely what firms like ours should be doing. Like there are these really big problems in the world and maybe we just need to be like much more aggressive about how we go at it and we just need, you know, and we need founders who are more aggressive and then we need to back them with more money. Look, I think you can also argue like either that wouldn't work or we don't need it. You know, the counter argument on the Tesla and SpaceX examples that I gave is that they didn't need it, right? They raised money the old fashioned way, right?

They raised money round by round in the existing venture ecosystem. And so, you know, for whatever limitations you think the existing ecosystem has and maybe it's not ambitious enough or whatever, like it did fund Tesla and SpaceX. And so, you know, maybe it works. And then this goes to this underlying question, right? So the underlying question underneath all this, basically, is not the money part. The underlying question is, like, how many great entrepreneurs are there? Right.

And then how many really big ideas are there for those entrepreneurs to go after? Right. And then that goes, you know, one level deeper, which is, okay, well, like, what makes a great entrepreneur? Are they born? Like, are they trained? Right? Like, what, you know, what made Elon Elon? What would you need to do to get 10 more Elons?

What would you need to do to get 100 more Elon? What would you need to do to make a thousand more elons, right? Are they already out there and we just haven't found them yet? Could we grow them some? Could we grow them in tanks? You know? Does that testosterone under the water supply? Yeah, like, yeah.

I mean, like, yeah. Or do we need a, by the way, do we need a different kind of training program, right? Do we need, I don't know, does there need to be a new kind of entrepreneurial university that trains entrepreneurs, right? Like, it's just like a totally different thing. Like, those are the underlying questions, right? I think if you show me 10 more Elons, I'll figure out how to fund their companies. I can tell you, like, we work with a lot of great founders, and we also work with Elon and, like, he's still special.

Like, he's still highly, he's still highly, he's still highly unusual, even relative to the other great entrepreneurs. Yeah, yeah, yeah. Let's talk about crypto for a second. When you're investing in crypto projects, how do you distinguish cases where there's some real new good or service that a new technology is enabling and cases where it's just speculation of some kind? Yeah. So what we definitely don't do is the speculation side. Like we just don't do that. And I mean that very specifically, which is like we're not like we're not running a hedge fund.

So what we do is we apply the classic venture capital 101 playbook to crypto. And we do that the exact same way that we do that with every other venture sector that we invest in, which is to say we're trying to back basically, you know, new ventures. By the way, in crypto, that venture might be a new company or it might be a new network, right? Or it might be actually a, you know, a hybrid of the two. And we're completely agnostic as to as to which way that goes. we actually write our crypto term sheets where even when we're backing like a crypto C corp, we always write in the term sheets that they can flip it into being a tokenized network anytime they want to.

Right. And so we don't distinguish between companies and networks. But we approach it with the venture capital one-on-one playbook, which is like, look, we're looking for basically really sharp founders who have a vision and the determination to go after it that basically where there's some reason to believe that there's some sort deep level of technological economic change happening, which is what you need, basically for a new startup to wedge into a market. And then there's a reason for it to exist.

Like there's a market for what they're building and, you know, they're going to build a product and there's going to be an intersection between product and market and there's going to be a way to make money and, you know, kind of, you know, the core playbook. We go into every venture, every crypto investment with the same time frame we go into venture investing. So we go in with, you know, at least a five to 10 year timeframe, if not a 15 to 20 year timeframe.

And so that's what we do. The reason that's not necessarily the norm of crypto, I think, is basically an artifact of the fact that, you know, especially anything with crypto tokens, like there, there is this thing where they do tend to publicly float like a lot sooner than startup equity floats. And so, you know, these, if these, let's say we're backing a new crypto network, it goes ahead and like floats a token, you know, as sort of one of the first steps of what it does.

You know, it has a liquid, you know, thing, you know, years in advance of when a corresponding, you know, normal Seacorp would. This is one thing in behavioral economics where when something has a daily price signal and where you can trade it, people tend to obsess on the daily price signal and they tend to trade it too much. Right? And there's all this literature on this that kind of shows how this happens. Like it's part of the human experience. Like we can't help us. Like it's like Moss to a flame. We can't like if I can trade the stock every day, I trade the stock every day. Right. Like almost all almost every asset class trade trades too often in a way that damages their returns. And so and then as a

consequence of that, what's happened is a lot of the for a lot of the investment firms that invest in crypto startups are actually hedge funds. Right. They're they're structured as hedge funds. Right. They trade. They have trading desks. They trade. frequently, you know, they have these, you know, they have the equivalent of what's called a public book and hedge fund land. They've got like, you know, these, these, these crypto assets, they're trading frequently. And then they'll back a startup and then they'll trade that startup's token just like they trade Bitcoin or Ethereum or whatever. But in our view, like, that's the wrong way. And then, there's a, there's an incentive issue, which is then they,

they pay themselves on a hedge fund model. They pay themselves annually, right? And so they're paying themselves annually based on the markup of projects that might still be years away from, you know, realization of ultimate underlying value. And then you, and then there's this big issue, you know, of misalignment between them and their OPs. And so that, so anyway, so that's all led to this thing where it basically just these new crypto projects that the tokens are traded too aggressively. They just, in our model, they just shouldn't be. They're not ready for that yet.

And so we anchor hard on the venture capital model. We treat these investments the exact same way as if we're investing in metric capital equity. We basically buy and hold, you know, for as long as we can. And, you know, and try to get to the, you know, have a real focus on the underlying intrinsic value of the product and technology that's being developed. So in other words, like, yeah, basically no speculate, like no, if by, if by speculation you mean like daily trading or whatever, trying to look at prices and charts and all that stuff, like we don't, that we don't do.

Or separately, another category would be things that are basically the equivalent of, I don't know, baseball cards where there's no, there's no real good or service that's being created. It is something that, you know, you might think might be valuable in the future, but not because, like, the GDP has gone up. Oh, baseball cards are a totally valid good and service. That's a misnomer. Like, that's not, yeah, that I think is a, that, that, I would entirely disagree with the premise of that question. But are they going to raise median incomes or even slightly?

Yeah, yeah, there are people who make, yeah, there are people who make their living on baseball cards. Right, right. Look, art, art is a, art is, art has been a part of the economy for thousands of, I mean, art, art's one of the original things that people bought and sold, right? Like, it's, it's, it's, art is fundamental to any, I mean, any, any kind of, I mean, would you really want to be part of an economy? me where they didn't value art. But like that would be depressing. Yeah, yeah. Or like, there's a question of like, do they value art versus are they speculating on art? And then how much of the effort is being spent on speculating on the art versus creating the art? Well, so this gets into this old kind of taboo, right, cultural taboo. You know, again, this depends

what you mean by speculation. Like if what you mean by speculation is like obsessing on like daily price signals and like buying and selling and churning a portfolio, right, being like a day trader, right like that kind of speculation that that that that that's what i think of speculation is like that's let's say that's the bad form of speculation like that's the nonproductive form if by speculation on the other hand you know you mean look there there are different kinds of things in the world that have different possible future values and you know people are trying to estimate those future values and people are trying to figure out you know utility and they're trying to figure out aesthetic value right I mean look you just look at how the look at how the traditional art market works right like

is somebody supporting a new contemporary artist speculating or not it's like you know Yes, maybe, you know, from one lens they are and maybe they're buying and selling paintings and maybe they're, you know, maybe they buy in. And if it doesn't start going up in price, they flip it and buy something else, maybe the speculation. But also, maybe they're supporting a new young artist, right? And maybe they build a portfolio of new, you know, a speculative portfolio of new young artists. And as a consequence, those artists can then afford, you know, they can get paid and they can afford to be full-time artists. And then it turns out, you know, they're the next, you know, next Picasso. And so that kind of speculation, I think, is good and healthy. And I think, and I think it's, and I I think it's core to everything. Like, I'd also say this. Like, I don't know that there's, I don't know that there's actually dividing line between that form of speculation, speculation of what people call investments. Because even when people make investments, I mean, you just look at the bond, even just the institutional bond market, I mean, look, U.S. government debt, right?

Like, people are today in the bond market trying to figure out what that's worth, right? Because, like, is the debt ceiling getting it raised? Like, you know, they're, like, even that's up for grabs. Right. And so, and that's the, that's not, to me, that's not speculation in the bad sense. That's in market working properly. Like people are trying to estimate, you know, people, you know, Ben Graham said, right? Financial markets are both a voting machine and a weighing machine, right?

And in the short term, they tend to be a voting machine. In the long run, they tend to be a weighing machine. What's the difference between a voting machine and weighing machine? I mean, I don't know. Some people would say they're very different. Maybe it's actually the same thing. Why do prices go up, right? Because there are more buyers and sellers.

Why do prices go down? There are more sellers than buyers. Like the way markets work is you get individuals, you know, basically trying to make these estimations and then you get the collective effect. And I just, there's this dirty interpretation of any kind of trading or any kind of basically people trying to do the voting and weighing process that I just, you know, I just think it's this, it's this historical ancient taboo against like money, you know, it's like in the Bible. Like it's like, you know, Jesus kicking the money changers out of the temple, right? It's this, you know, this old taboo against like charging interest on debt. Right. We just have, right, we just have this fundamental, you know, different religions and cultures tend to have, they all tend to have like some underlying unease, right, with the concept of money, the concept of trade, the concept of interest, right? And I just think it's like superstition. It's like resentment. You know, it's like, you know, fear of the unknown. But it those things are the things that make economies work. And so I'm all in favor. I don't mean to get hung up on this. But if you think it like something

like the stock market or the bond market, I mean, fundamentally, you can tell a story there where basically the reason what these, you know, stockbrokers or these hedge fund managers are doing is valuable is they're basically deciding where capital should go. Should we build a factory in Milwaukee? should we build it in Toronto? Like, where should it, like, fundamentally, where should capital go? Whereas what is the story there for, like, what is the NFT helping allocate the capital towards? Like, why is it, why does it matter if the price is efficient there? Well, because it's art.

I mean, I mean, let's just take the pure, and look, NFT is a very general concept, right? NFTs basically just like a form of digital ownership. There are many kinds, there will be many kinds of NFTs in the future. Many of them will, for example, represent claims on real underlying property, right? Like, I think a lot of real assets are going to be wrapped in NFTs. And so, like, NFTs is a very broad technology. logical mechanism. But let's, let's specifically take the form of NFT that everybody likes to criticize, which is like an NFT is like a creative, you know, basically a creative project, a creative,

you know, an image or a character in a fictional universe or something like that, like the, you know, the part that people like to beat on. And I'm just saying like, they're just art. Like, that's just digital art, right? And so every criticism people make of that is the same criticism you would make of buying and selling paintings. It would be the same, buying and selling photographs, right, a buying and selling sculpture, right? Like, you know, I mean, I always like to really push this. I always like to push this. Like, what's the Mona Lisa worth?

I don't want to spoil the movie, but, you know, the new Knives Out movie. Let's say the Mona Lisa plays a role in the movie. What's the Mona Lisa worth? Right. And so one way of looking at the Mona Lisa is that it's worth the cost of producing it, right? It's worth the canvas and the paint. And you can create a completely identical reproduction of the Mona Lisa with, you know, like 25 bucks of canvas and paint. So the Mona Lisa is worth 25 bucks.

or you could say the Mona Lisa is like a cultural artifact and as a cultural artifact it's worth probably a billion dollars or 10 billion dollars right and so and like I bring this stuff specifically on your question of like okay what's the spread like what explains the spread between $25 and like the 10 billion dollars or whatever it would go out if it ever hit the market it's like because people care right because it's art because it's aesthetic because it's cultural right because it's it's part of what we've decided is the cultural heritage of humanity the thing that makes like life worth living is that it's not just about like subsistence, right?

Is it that we're going to have higher values and we're going to value aesthetics, right? Do you see a difference between, you know, the funding, the flying cars and the SpaceX's and Tesla's versus, but sure, maybe it like improves an aesthetic heritage of humanity, but does one of them seem a different category than the other to you? Or is it basically, is that all included in the venture stuff you're interested in? I mean, it's a little bit like saying, you know, should I, should we fund a Thomas Edison or Beethoven, right? Like, like if push comes to shove and we can only fund one of them, we probably should

on Edison and not Beethoven, right? Like, indoor lighting is probably more important than like music. But like, I don't want to live without Beethoven, right? Like, and I don't want the world to, like, the point of the world, this actually I think is a very important point. The point of the world, right, the point of human existence, like people have lots and lots of views in human existence. There's lots and lots of people trying to figure out the point of human existence, you know, religions and philosophies and so forth. But kind of what they all have in common is, right, other than maybe Marxism, what they all have in common is, we're not just here to like, get up in the morning, work in a factory all day, go home at night, like, you know, be depressed and sad,

go to bed. Like, we're not, we're not just material, right? Like, whatever this is all about, like, it's not just about materiality. There are higher aspirations and higher goals, right? And we create art, we create literature. We create paintings. We create sculptures. We create, like, aesthetics.

Like, we create fashion. Right? We create music. We create, you know, like all of these things. And, you know, fiction, like, why does fiction exist? Like, why is a fake story worth anything? Well, because people, it enhances your. your life to get like wrapped up in a fake story, right?

It like makes your life better that these things exist. Like, and you wouldn't want to live in a world, you know, imagine living in a world where there's no fiction because everybody's like, you know, the grinds are all like, oh, fiction's not useful. Like it's not real. Right? It's like, no, like it's great. Like, I want to live in a world where there's fiction.

Like I like nothing more at the end of the day than having a couple hours to be able to get outside of my own head and like watch a really good movie. And like, I don't want to live in a world where that doesn't happen. As a consequence, funding movies, right, as another example of what you're talking about is I think a thing that like really makes the world better. So. And then look, here's the other thing. The world we live in actually is the opposite, I think, of the world you're alluding to.

The world we live in is not a world in which we have to choose between funding flying cars and funding NFTs, right? Or like in my example, funding Edison versus funding Beethoven. The world we live in is actually the opposite of that, where we have a massive oversupply of capital and not nearly enough things to fund. Right. Just broadly in the world, the nature of the modern economy is we have what Ben Bernanke called the global savings glut. We've just got this like massive oversupply of capital that was generated by the world. last 200 years of economic activity. And there is just, and then there's only one Elon. Like, there's just this massive supply demand imbalance between the amount of capital that basically

needs to generate a return. And then the actual number of like viable investable projects and great entrepreneurs to actually create those projects. And so like if anything we don't, I mean, we kind of say, we don't, we certainly don't have enough flying car startups. We also don't have enough art startups. Like we need more of all of this, right? And so that, I don't think there's a tradeoff. I think it's actually we need, we need more of all of it. Have we reached the end of history when it comes to how venture capital works? So, you know, for decades, there's like the, you basically get equity in these early stage companies, you invest more of a rounds.

It's a 220 structure. Is that basically what venture is going to look like in 50 years or what's going to change? So I think the details will change. And the details have changed a lot. And the details will change a lot. And if, you know, if you go back to the late 60s, early 70s, like the details were different than. And then, you know, the details were different 20 years ago.

By the way, they're changing again right now in a bunch of ways. And so the details will change. Having said that, I think there's a core kind of, I don't know, there's a core activity that is, there's a core activity that seems very fundamental. And the term that, the term I use I brought from Tyler Cohen, who's talked about this, he calls it project picking. When you're doing new things, right, and by the way, new things,

new tech startups, by the way, making new movies, publishing new books, you know, creating new art, right? when you're doing something new, there's this pattern that just repeats over and over again. If you look back in history, it's basically been the pattern for hundreds or thousands of years. And it seems like it's still a pattern, which is you're going to do something new. It's going to be very risky. It's going to be a very complex undertaking, right? Like I said earlier, it's going to be some very complicated effort that's going to involve a path-dependent kind of journey through a complex adaptive system.

Reality is going to be very fuzzy and messy. And you're going to have a very idiosyncratic set of people who, you know, start and run that project. They're going to be highly disagreeable, you know, ordinary people, because that's the kind of people who do new things. They're going to need to build something bigger than themselves, right? They're going to need to, like, assemble a team and, like, a whole effort. They're going to run into all kinds of problems and issues along the way.

And then there's just this role. Every time you see that pattern, there's just this role where there's somebody in the background who's like, okay, this one, not that one. This founder, not that founder. This expedition, not that expedition. This movie, not that movie. Right. And those people kind of play a judgment, a taste role.

They play an endorsement, branding, marketing role. And then they often play a financing role, right? And then by the way, they often are very hands-on. And they try to contribute to the success of the project. The historical example of this I always use is that the current model of venture capital is actually very similar to how whaling expeditions got funded 400 years ago. Right? To the point of like the term that we actually have, which is carried interest or carry,

which is sort of the profit sharing that the VCs get on a successful startup. That term actually goes back to the whaling industry 400 years ago where the financiers of whaling journeys, like literally out of like Moby Dick, they go like hunt a whale and bring its, you know, it's basically its carcass back, you know, to land. The carry was literally the percentage of the carried amount of whale that the investors got. It was called carry because it was literally the amount of whale that the ship could carry back. And so if you go back to how the whaling journeys off like the coasted Maine and like the 1600s are funded.

They were a group of what we, you know, they didn't call themselves venture capitalists at that time, but there were a group of basically, you know, capitalists. And they would sit, you know, in a tavern or something and they would, you know, get pitches by whaling captains, you know, about, you know, and you can imagine the whaling captains, right. Like, I mean, like, whaling, right, whaling. Like a third of the whaling journeys never came back, right? Like, a third of the time the boats got destroyed and everybody drowned, right?

And so it's like, okay, I'm the captain who's going to be able to like, not only go get the whale, but like I'm going to be able to keep my crew alive. By the way, I have a strategy and a theory for where the whale is, right? And maybe one guy's like, look, I'm going to go where everybody knows there are whales and other guy's going to be like, no, that place is overfished. I'm going to go to some other place where nobody thinks there's a whale, but I think there is. And then one guy's going to say, I'm better at assembling a crew than the other. And the other one's like, well, no, I don't even need the crew. I just need like a bunch of like whatever grunts to like, and I'm going to do all the work. And then another guy might say, you know, I want a small

fast boat. Another guy might say I want a, you know, a big slowboat. Right. And so there's a set of people, like imagine in the tavern at candlelight, like at night, like debating all this back and forth saying, okay, this captain on this journey, not that captain on that journey, and then putting the money behind it, right, to finance the thing. And like, that's what they did then. That's still what we do, right? And so, so what I'm pretty confident about is there will be, there will be somebody like us who's doing that in 50 years, 100 years, 200 years. It will be something like that. Will it be called venture capital? That I don't know. Will it be, you know, I don't know, You know, where will it be happening?

I don't know. But that seems like a very fundamental role. Yep, yeah. But will the public-private distinction that exists now, will that exist in 50 years? That's really, public and private market, like, companies, right? You mean like companies going public? Yeah, yeah. And just like the fact, like, there's different rules for investing in both and, you know,

just kind of a separate category. Is that going to exist? Yeah. So that's already, there's already shades of gray. So I would say that's already dissolving, you know, there's very formal, you know, there's very formal kind of rules here. But, you know, there's already shading this taking place, right? And so in the last 20 years, this has become much more common for especially later stage private companies to have their stocks actually trade, right?

Actually be, you know, let's say semi-liquid, right? And trading either through secondary exchanges or, you know, tender offers or whatever. And so like that, that didn't used to happen, right? That didn't happen really in the 1990s. And then it started happening in the late 2000s. And then you've got, you know, lots of people with different kinds of approaches to have different kinds of private markets and new kinds of private liquidity. And so, and then look, you've got these new mechanisms. you've got crypto tokens, right? You've got entirely new mechanisms as well, you know, kind of popping up,

representing, you know, kind of underlying value. And then, you know, you have big, you know, arguments and debates all the time in public and with regulators and in the newspapers about what counts as, you know, this, you know, who can invest and, you know, this whole accredited investor thing, right? A lot of this is around, quote, unquote, protecting investors. And then there's this concept of like high net worth investors should be allowed to take more risk because they can kind of bear, you know, the losses, whereas kind of normal investors should not be allowed to invest in private companies. But then there's a counter argument that says then you're cutting off growth investing as an opportunity for normal investors and you're

making, you know, wealth inequality worse. And so, you know, that, that debate will keep playing out. You know, it'll, it'll kind of fuzz a bit. Like I'd expect probably both sides will, we'll moderate a little bit. You know, so in other words, public companies will get to be a little bit more, you know, they'll probably get a little more liquid over time. The definition of what it means to be public will probably broaden out. You know, the regulators will probably expect, well, I'll give you an example. Here's an interesting thing. So you can have this interesting case where you can take a company private, but yet it's still effectively public because it has publicly traded bonds. And then it ends up with like publicly filed financials on the bond side, even though its stock is private. Right. And so it's effectively, it's effectively still public for the because of information disclosure. And then the argument's like, well, if it's already have full information disclosure as a result of the bond trading, you might as well take the stock public again because you're not losing. So anyway, it'll it'll fuzz out somewhere in. there. Okay, so there's a clear pipeline of successful founders who then become venture capitalist like yourself, obviously. But I'm curious why the opposite is not more true,

right? So if you're a venture capitalist, you've seen dozens of companies go through hundreds of different problems. And you would think that this would be in a perfect position to kind of be a great entrepreneur. So why don't more venture capitalists become entrepreneurs? Yeah, so I think the answer, I think one is it's just harder. It is just it is harder to build a company. Like, it just, it flat out is. Like, it's not easy to be VC, but it's harder to build a company. And it, and it requires a level of personal commitment. Like, people get to a point, like, successful venture capitalists do get to a point in life where they start to become pretty comfortable. You know, they make money and like, you know, they start to kind of settle into

a sort of fairly nice way of living at some point in a lot of cases. And so going back to the, you know, two AM chewing glass, you know, kind of thing, you know, is maybe a little bit of a stretch for how they want to spend their time. So that's part of the. of it. I think the other part of it is, look, the activities are pretty different. You know, the way I describe it is actually starting and running a company is it's a full-on contact sport. You know, it's 100 decisions a day. I'll give an example, bias to action. Like anybody who's running a running a company, like you have to have a bias to action. Like you have, you're faced with 100 decisions a day. You don't have definitive answers on any of them. And you have to make this, you have to actually act anyway.

Because if you sit and analyze, you know, the world will pass you by. Right. And it's like, what is it? A good plan executed It bylantly, it was much better than a great plan executed later. Right. And so it's just, it's a mode of operating that basically, it rewards like aggression, contact with reality, constantly testing hypotheses, screwing up a lot, changing your mind a lot, you know, revisiting things, you know, just like it's, you know, it's, you know, thousands and thousands of like crazy real world variables all intersecting. Being an investor is different. It's much more analytical, clinical, outside.

in like the decision cycles are much longer. You get a much longer period of time to think about what you should invest in. You get a much longer period of time to figure out when you should sell. Like I said, you generally don't want to trade frequently. Like I think if you're doing your job right, so you actually want to take a long time to like really make the investment decisions and then make the ultimately sale decisions. You know, you know, VCs, we help along the way, you know,

when companies have, you know, kind of issues that they're in the middle of. But like, you know, fundamentally it's like a much bigger level of watching observing, learning, thinking, arguing in the abstract, as opposed to day-to-day, just like bloody combat. And so it's a different, I don't know, it's like, you know, honestly, it's a little bit like, why don't the great football broadcasters, right, you know, go get on the field, right? And try being, you know, running back for a season. Yeah. It's a little bit like that, to be totally honest. Yeah, yeah, yeah. Get it. How soon can you tell whether, you're going to be, there's somebody who will make for a good CEO of a large company specifically. So can you tell as soon

as they've got like a new startup that they're pitching you or does it, does it become more clear over time as they gain more and more employees? Yeah, well, look, sometimes they've done it before, right? And so, well, okay, so I guess I'd say this. The big thing with like being able to run things at scale, there's actually a very big breakthrough that people either make or they don't make. And the very big breakthrough is whether they know how to manage managers, right? And so, because the reason for that is like running a big company, you don't have, you don't, say you're running a company with 100,000 employees, you don't have 100,000 direct reports, right?

You still only have, like, eight or 10 direct reports, and then each of them have eight or 10 direct reports, then each of them have eight or 10 direct reports. And so even the CEOs of really big companies, they're only really dealing with, like, eight or 10 and 12 people on a daily basis. Like, and so, and so the key breakthrough, right? And then how do you become trained as a manager? The way you become trained as a manager initially is you manage a team of individual contributors, right?

So I'm an engineering manager. I have eight, you know, or 10 coders working for me. And then the breakthrough is, am I trained in how to become a manager of managers, right? And so if I'm early in my career, the way I think about that as I start out as an individual contributor, let's say an engineer, I get trained in how to be a manager of individual contributors. And that makes me an engineering manager. And then if I get promoted to what they call engineering director, which is one level up, now I'm a director and now I'm managing a team of managers, anybody who can make that jump now has a generalizable skill of being able to manage managers. And then what makes that skill so great is that skill can scale, right? Because then you can get promoted to VP of engineering.

Now you have a team of directors who have teams of managers who have teams of ICs, right? And so forth. And then at some point, if you keep climbing that ladder, at some point you get promoted to CEO. And then you have a team of managers who are the executives of the company. And then everything fans out from there. And so if you can manage managers, like at least in theory, you have the basic skill and temperament required to be able to scale all the way up. You know, then it becomes a question of like how much complexity can you deal with?

like, can you learn enough about all the different domains of what it means to run a business? You know, are you going to enjoy being in the job and being on the hot seat? Like, you know, all kinds of those questions. I think most of the people we back, let's put it this way. I think 100% of the people we back have the intelligence to do it. I think maybe half of them have the temperament to do it. And then maybe half of those have the intelligence and the temperament and they really want to do it. And by that, by I want to do it, I mean 20 years from the others, they still want to be running their company.

Right. And so, you know, enough of them where we get the success cases, but you, but having said that, like, look, as an entrepreneur, you have to really want that. Like, you have to be smart enough and you have to have the temperament and you have to actually want to learn the skills. And not everybody is able to line those up. Got it, got it. Managing the manager of revolution. Yes, exactly. Well, that's the thing, right?

Well, actually, that's exactly right. So, right, the best case scenario is a bourgeois capitalist entrepreneurial CEO managing a team of managers who are doing all the managers. stuff required at scale, right? Like, that's the best case scenario for a large modern organization, right, which is they're able to harness the benefits of scale and they're able to still build new things. You know, the degenerate version of that, right, is a manager running a company, right, of basically like, you know, basically, you know, basically, you know, in theory of people who can build new products. But if the manager, in the burnham sense, if the CEO is manager in the burnham sense is running a team of people who want to build new products, that company probably will not actually

building new products. Those people will probably all even start their own companies. Yeah. Yeah. Now, as unlikely as this may be, just humored the hypothetical, let's say A16 Z for the next 10 to 20 years has mediocre returns. If you had to guess looking back, what would be the most likely reason this might happen? Would it have to be some sort of macro headwind? Would it have to be betting on the wrong tech sectors? What would have to be? So 20 years is a long enough time where it's probably not just a macroeconomic thing, right? And that the cycles play out, you know, the big macro cycle seem to play out over like seven to 10 year periods. And so over 20 years, you'd expect to kind of get two or three big cycles through that.

And so you'd expect to get, you know, at least some chance to, you know, make money and harvest profits. So probably it wouldn't be a macro problem. I mean, you can look, you can imagine it. Like if we have like, you know, if the black plague return, you know, it's like a real pandemic happens. Right. By the way, I'm now going to get you demonetized on Google because I'm going to reference pandemics. But don't worry. I don't know. I didn't have enough views to be monetized anyway. So. If there's a, you know, I don't know, if something horrible happens, then you could have a, you could be in a ditch for 20 years, you know, but if, if things continue kind of the way that they have for the last, you know, 50 years or 80 years, like there will be multiple cycles and

there'll be a chance to make money for people who are, who make good investments. So it's probably not that. And then, and then there's like the micro, there would be the micro explanation, which is we just make bad investments. Like we invest the money, but we just invest in the wrong companies and we, we screw up. And that's, of course, voice of possibility and probably the most always the kind of most likely downside case. The other downside case is, it would build basically on what I was mentioning earlier from Bill Janeway. The other downside case would just be like, you know, there's just not enough technological change happening. Right. There's just there, there wasn't enough,

you know, investment in basic research in the preceding 50 years in areas that actually paid off. There wasn't enough sort of therefore underlying technological change to provide an opportunity for new entrepreneurial, you know, innovation. And, you know, the entrepreneurs, you know, started the companies and they tried to build products and we funded them. And, like, it just for whatever reason, like the sectors in which everybody was operating just, like, didn't pay off. You know, if we hit, like, I don't know, five clean tech sectors in a row or something like, then, you know, then the whole thing just doesn't work. Yeah. Yeah.

I think that that's, that, that would be, that's the biggest. In a sense, that's the scariest one because that's the one that's most out of our control. You know, that's like purely, you know, exogenous, right? Like, if we, if, you know, we can't wish new science into existence. And so that would be a scary one. I don't think that's the case. In fact, I think quite possibly the opposite of it's happening, but that would be the downside scenario. How vulnerable is A16Z to any given single tech sector not working out, whether it's because of technical immaturity or whether regulation or anything else?

But like if one, if like your top sector doesn't work out, how vulnerable is the whole firm? Innovation could just be outlawed. Right. And that is, that's a real risk because innovation is outlawed in big and important areas, right? Like so, you know, nuclear, there's, you know, I always love meaning with new nuclear entrepreneurs because it's just like so obvious that they're, you know, we should have this big, you know, investment nuclear energy. And there's all these new designs, but the nuclear regulatory commission has not authorized a new nuclear design since its inception nearly 50 years ago. And so it's just illegal to build new nuclear, right, in the U.S. By the way, there's all these fusion entrepreneurs that, again, they're like super geniuses.

The products are great. It looks fantastic. I don't think there's any prospect of nuclear fusion being legal in the U.S. Right. I just don't think. I think it's just impossible. it can't be done. And so, you know, maybe, maybe it's just all outlawed, you know, in which case, look, at a societal level, we'll deserve the result, but that would, that would be a bummer for us.

And like, so, yeah, well, I don't know, let's say crypto gets regulated or it's like just not ready yet or something. Like what happens to, it isn't to be crypto in specific, but like what happens to A16C as a whole? I mean, does a whole firm carry on or? Yeah, you know, I mean, look, it's up to our LPs, right? So it's, you know, we raise money on a cycle. So it's, you know, our LPs have an option every cycle to not continue to invest. You know, I just logically, I think, you know, the firm is somewhat diversified now. Like, as I said, we have like six primary investment domains now. And so at least in theory, we have some diversification across categories.

You know, and so at least in theory, we could like lose a category or two. And like the firm, you know, the investment returns could still be good and the investors would still fund us. You know, the downside case from there would be that those categories are actually more correlated, you know, than we would want them to be. you know, as a firm, we have a big focus on software. Like, we think software is a wedge across, you know, each of those, each of those verticals, you know, maybe soft, you know, look, maybe AI turns out whatever reason not to work or gets outlawed or something, you know, happens or just like fundamentally makes economics worse or something.

You know, then you can imagine that hitting multiple sectors. Again, I don't think that's going to happen, but I guess it's a possibility. Yeah, yeah, yeah. What did the old management of Twitter feel to see about the potential of the platform? You know, so first, I guess I'd say it's, I have a very hard time second-guessing management teams because like I said, my belief is that like it's so easy, it's so easy to criticize companies and teams from the outside. It's so hard to run these companies. There are always a thousand factors that you are invisible from the outside that make it really hard to make decisions

internally. By the way, the histories and all this stuff are really always screwed up because what you almost always find, right, is that in the histories of the great companies, you almost always find that there were moments early on where it was really tenuous and it could have easily gone the other way. And like, you know, Netflix could have sold out to Blockbuster early on. And and Google could have sold out to Yahoo, and we never would have even heard of those companies. Right. And so, you know, it's really, really hard to second guess.

I guess I just put it this way. I've always believed, and I was an angel investor in Twitter back when it first got started. I just, I've always believed the public graph is something that should just be like just titanically valuable in the world, right? Like the public follow graph, you know, in the computer science terms, Twitter is what's called published, subscribe. to the idea of a one-way public follow graph.

Like that ought to be just like absolutely titanically valuable. Like that ought to be like the most valuable like intent, you know, loyalty brand signal in the world. That ought to be like, you know, the most complete expression of what people care about in the world. That ought to be the primary way that every creator of everything, you know, interacts with their customers and their audience. You know, this ought to be where all of politics, you know, operates.

This ought to be where, you know, basically every creative profession operates. It ought to be where, you know, a huge amount of the economy operates. that's just such a, like they were always onto such a big idea. And then, yeah, and then, you know, like with everything, it's set a question of like, okay, like, what does that mean in terms of like what kind of product you can build around that? And then, you know, how big ultimately, you know, get people to pay for it. But, yeah, I've always viewed that, like, the economic opportunity around that core innovation that they had is just much, much larger than anybody has seen so far.

But how specifically do you monetize that graph? Oh, I mean, there's a gazillion ways. I mean, there's tons and tons of ways. I was just, Elon has talked about this publicly. So it's not, there's not spoiling anything. But like, look, like Twitter is a promotional vehicle, right, for a lot of people who then, like, will provide you stuff on other, you know, you know, I'm just taking an obvious example.

He's talked about his video, right? People create video. They market it on Twitter and then they monetize it on YouTube, right? Like, like, why? Right? Like, why is that not happening? You know, musicians, you know, will have followings of, you know, five, 10 million people on Twitter.

They aren't selling concert. You know, they ought to sell out concerts. I actually first noticed this with, um, um, um, I'm sure this was happening before, but where it first came to mind was, I don't remember, Conan O'Brien, when he got famously fired from the Tonight Show,

he did this tour. And I was a fan of his, so I was following him at the time. And so he did his first live tour, his live, live kind of comedy music tour, and he sold out the tour across, I don't know, whatever,

40 cities. He sold out the tour in like two hours. How did he do it? Well, he just put up on this Twitter account. He said, you know, I'm going on the road, here are the day, it's like click here to buy tickets.

Boom, they all sold out. Now, click here to buy tickets was not click here to buy tickets on Twitter, right? It was click here to buy tickets somewhere else. But like, why isn't every concert in the world? Why isn't every live event getting booked on Twitter? It's just, you know, it's like there's a lot of this kind of thing that just, as Elon's fond of saying, it's not rocket science. Yeah, yeah.

It's funny that a few revolutions in the Middle East were organizing the same way that Conan O'Brien organizes tour, just by posting it on Twitter. So this is the thing, this is the thing that got me so convinced on social media, I think, relatively, early. So even before the Arab Spring, so I don't if you remember, you might be too young, but I don't remember that there was this overwhelming critique of social media between like inception and like 2001 to basically mean streaming in like 2011, 2012. There was like a decade where there was just this overwhelming critique from all the smart people, as I like to say, that was basically this thing is useless. Like this thing is useless. This is narcissism, right? This is just like pointless, you know, self-ego stroking like narcissism. Nobody cares. You know, the cliche, all,

always was Twitter is where you go to learn what you're you know what somebody's cat had for breakfast who cares what your cat had for breakfast like nothing will ever come from any of this right and then I remember like reading and you could you could pick up any newspaper at any given day kind of through that period and you could read something like this and then I remember Erdogan when Erdogan was consolidating control of Turkey Erdogan came out and he said I think Twitter is the primary challenge to the survival of any political regime in the modern world and I was like okay all the smart analysts all think this is worthless. And then a guy who's actually trying to keep control of a country is like, this is my number one threat.

I mean, like, just the spread, right, of what that meant, right, of what the outcomes were, I was just like, oh, my God. And, of course, my conclusion was Erdogan is right. You know, and all the smart Westerners are wrong. And, you know, and by the way, quite honestly, that's played out. By the way, quite honestly, I think it's still early on. I think we're still pretty early in the long arc of social media. Like we're new. I mean, the high level thing here would be just like we're new.

You know, the world in which five billion people are on the internet, right, is still only a decade or so old. Right. So that's still really early. Right. And then the world in which like five billion people are on social networks is like five years old, right? It's still like super early.

Right. And if you just look at the history of these transitions in the past, like if you just look at like the printing press as sort of as a as a as a precedent example like it took 200 years right to fully play out the consequences of the printing press like we're still in the very early stages with these things yep yep I was like 10 in 2011 so I don't know if I would have personally I would like to think that I would have caught on if I was older but maybe maybe not it's it's hard to know but you know it is kind of interesting you are basically personally invested in I think every single major social media company but so it's interesting to get your thoughts on

where that sector might go. Do you think the next 10 years will look like the last 10 years when it comes to big tech? Does it just keep becoming a bigger and bigger fraction of GDP? But like, will that ever stop? Yeah, so as a fraction of GDP,

it's only going to go up. And yeah, and it's just literally, it is the process of sort of tech, tech infusing itself in every sector. And I think that's just like an overwhelming trend because it just, there are better ways to do things. There are things that are possible today

that were not possible 10 years ago. there were things that will be possible five years now that are possible today. And so from a sector standpoint, the sector will certainly rise as a percent. You know, look, you know, I'm putting my money where my mouth is in the following statement, like entrepreneurial capitalism will deliver most of that, right? A lot of that gain will be companies that were funded in the kind of venture capital, you know, kind of Silicon Valley kind of model for the basic reason we discussed, which is, you know, that you do need to have that kind of throwback kind of bourgeois capital.

model to do new things. You know, incumbents generally are still very poor at changing themselves in response to new technology for the reasons we've discussed. So I think that process will continue to play out. Another thing I would just highlight is the opportunity set for tech is, I think, changing over time in another interesting way, which is I think we've been good at going after the very dynamic but small slices of GDP in the last 50 years. And I think more and more now we're going to be going after the less dynamic, but much larger sectors of GDP. So I think, you know, education, health care, you know, real estate, finance, you know, law, government, right, are really starting to come up for grabs.

They're very complicated markets and they're hard to function in. The startups, it's harder to build the companies, but the payoff is potentially much bigger because those are such huge slices of GDP. So the shape of the industry will change a bit over time. But, you know, look, like, you know, what, you know, it's just a very basic. Like, what is technology? Technology is a better way of doing things. Like, at some point, the better way of doing things is the way that people do things.

At some point, that does shift market share from people doing things the old way to people doing things the new way. Right. But so if, like, you, let's say you build, like, a better education system somehow, the government is still going to be dumping trillions of dollars into the old education system or the old healthcare system. Do you just kind of accept this as a lost cause that, you know, basically like 50% of GDP will just be wasted, but we'll make the other 50% really good? or like when you build up, alternatives, could you just accept the loss of the existing system? Yeah, so look, let's take education as a great example.

Like, I think the incumbent education system is trying to destroy itself, right? Like, I think it's, I think it is, I think it and the people running it and the people funding it are trying to kill it. Right? And they're kind of doing that every possible way they can, right? They're, you know, so for K through 12,

they're prioritizing the teachers over the students, right? Which is just like the opposite of what any, like, properly run company would do, right? At, you know, at the university level, like, they are, you know, the problems in the modern university are been well covered by other people. You know, they, they have become a cartel. You know, they, you know, the student loan, you know, the, you know, what is it? What is it? Stanford now has more administrators and they have students.

Right again, it's like you wouldn't, no company would run that way. There's like a positive vision where you could turn that into the Bloom, 2 Sigma is a single student for single administrator. But I don't think that's what's happening. Yes, yes, that's correct. You could. You could and they're not. That's right. That's exactly right. And then look, it's like, you know, look, you see the federal student loan, you know, kind of crazy thing. And by the way, you know, the universities are voluntarily shutting down use of admissions testing, right? They're shutting down SAT, ACT, G.R.E. They're very deliberately eliminating the intelligence signal, right? Which is like a big part of the signal that employers kind of piggyback on top of. You know, they're, they become intensely politicized. You know, we now know, by the way, the replication crisis, most of the research that happens to these universities, is fake, right? Most of it's not real, generating real research results. We know that because it won't replicate. You know, it's just like you've got these, you know, you've just got these, you've just got these kind of increasingly disconnected, you know, kind of mentalities. And, you know, there's some set of people obviously who are going to keep going to these schools, but, you know,

like a degree from a, and then you just look at cost, right. So like a degree from a, you know, mainstream university that costs, you know, in 10 years, a half million to a million dollars, right, that has no intelligence signal attached to it anymore, right, where, like, most of the, like, classes are fake. Most of the degrees are fake. Most of the research is fake, right? Where they're, like, you know, wrapped up in these political obsessions. Like, that's probably not the future of how employers are going to staff. That's probably not where people are actually going to learn valuable, marketable skills, right?

Like, that's, like, the last thing that they want is to, like, actually teach somebody like a marketable skill. Like teaching somebody marketable skill is so far down on the list of priorities at a university now. It's like not even on the top 20. And so, you know, a lot of it is just their cartel. Like they operate as a cartel. They run as a cartel. It's a literal cartel. Like they run as a cartel because the cartel is administered through the agencies,

the sort of quasi-governmental bodies that determine who gets access to federal student loan funding. And those bodies are staffed by the current university administrators. Right. And so it's a self-governing cartel. it does exactly what cartels do. It's stagnating in going crazy in a kind of in spectacular ways. And so there is clearly going to there is going to be an education revolution. Like does that happen by the way?

Does that happen today or five years or 10 years? I don't know. Right. Does it happen in the form of new in-person institutions versus internet based? I don't know. Is it driven by, you know, is it driven by us or is it driven by employers who just get fed up and they're like, you know, screw it. Like we're not going to live like this anymore and we're just going to hire people in a totally different way. That I don't know.

Like, there's lots and lots of questions about what's going to happen from here, but, like, the, the system is breaking, like, in really kind of fundamental and obvious ways. And then, you know, healthcare is same thing, right? Health care is just, like, health care is just very broadly, like, just outcomes on health care. Like, it's almost, it's extraordinarily difficult to find any, it's extraordinarily difficult to find positive outcomes in health care. Positive outcomes. Like, in other words, like, there's lots of activity in health care. It's very hard to find anything that caused. people to like live longer, right, or to like be healthier longer.

And every once in a while there's like a successful form of cancer treatment or something. But like there are all these analyses that show like massive investment in like, you know, public support for health insurance and all these things. And then it's just like health outcomes basically don't move. Right. And so there's just like to the extent that people care at all about the reality of like their health, then they're going to have to be new ways of doing things. And tech is going to be the wedge into the market for people who have those new ideas.

Yeah, yeah. Hopefully these revolutions in education and healthcare are not like health care itself, where we're always 20 years away from a cure to cancer, and we're always 20 years away from making educational technological. You've talked about how big tech is 2 to 4X overstaffed in the best case. I'm curious how overstaffed do you think venture capital is? How many partners and associates could we let go, and there really wouldn't be a difference in the performance of venture capital?

So my friend Andy Rockleff, who was a founder of benchmark and teaches venture capital at Stanford, his description of this is, I think, correct, which he says venture capital is always overstaffed. and overfunded. And his estimate is it's like it's like overstaffed and overfunded by like at least 80% of it is over what it's it's it's like overfunded by like a factor of five. It should probably be in other words, it's probably 20% of the size that it is. There should be 20% of the number of people.

There should be 20% the number of funds. There should be 20% the number of the amount of money. And in his conclusion after watching this for a long time and analyzing it was it's basically a permanent like 5x overfunding, over staffing. And it goes to what I referenced earlier, which is the world we live in just has its massive imbalance of too much money chasing too few opportunities to invest the money productively. And so there's just too much money that needs long run returns that looks to venture as part of their asset allocation in the way that modern investors do asset allocation.

And so the full version of this, he describes it's basically there's only ever been two models of institutional investment. There's the old model of institutional investment, which is 6040 stocks and bonds that kind of dominated the 20th century up until the 1970s. And then there's what's called the Swenson model, named after Dave Swenson, who created the Yale endowment in its modern form. And that's the model that all the endowments and foundations have today. And increasingly the sovereign wealth funds where they invest in alternative assets, which means hedge funds, venture capital, real estate, right? And, you know, things that aren't stocks and bonds. And so anybody following the Swenson model has an allocation of venture capital, you know, on average, maybe that's 4% of their assets.

But 4% of the entire global asset base is just a gigantic number. And so, and then hope, you know, it's like, it's like, it's like, it's like, you know, having a sixth marriage, right? It's like, you know, hope for having a thing over experience. You know, the thing you'll hear from LPs is every LP says they only invest in the top 10 venture capital funds and then every LP has a different list of who that is. Right. And so it's, it's sort of this thing of like, you know, everybody, and they all kind of know

that they all kind of know that they suffer from a real, a lack of, you know, where else is the money going to go? Yeah. And then, yeah, and then look, it's always possible. Like, you never know. Like, it's always possible that you'll have some great new fund that's going to do spectacular well. It's some great new sector that will open up.

You know, a huge advantage that venture capital has, right, is that the long-dated part of it, right, means that you don't suffer the consequences of a bad venture capital investment, like, up front, right? Like, so you get, like, a 10-year lease on life when you make a venture capital investment. Like, you're not going to get judged for a long time. And so I think that causes people probably to invest more in the sector, probably than they should. Is Vinner's Curse also a big component here where the guy who bids the most is the one who sets the price?

That can happen. At the early stages, the best companies tend to raise at less than the optimal price because the signal of who invests is more important than the absolute price. And so almost every investment that we fund, like at the Series A stage, they could raise money, I think, at two to four times the price they raise from us. But they value the signal. And I think that's also true of the seed landscape. and I think it's also still true in a lot of cases of the series B level. Series C and beyond, it becomes much more of an efficient market. Again, it's not a full auction.

It's a little bit like your earlier question. It's not, it's not just money. It's not, but at least here's the theory. It's not just a liquid, you know, it's not just a straight up liquid financial market. Like these are, you know, these are whaling journeys, right? And so, and by the way, like there's a much blunter answer to this question, which is people who raise, you know, seed money and series A money from the, the, the high bidder often end up really regretting it because they end up raising for people who don't

actually understand the nature of a whaling journey or a tech startup. And then they panic at the wrong times and they freak out. And the wrong investors can really screw up a company. And so at least historically, there's a self-correcting equilibrium that comes out of that where the best entrepreneurs understand that they want people on their team who really know what they're doing and they don't want to take chances that somebody is going to like freak out and try to shut the company down the first time something goes wrong. Got it. Got it. But we'll see. Hey, everybody. I hope we enjoyed that episode.

Just wanted to let you know that in order to help pay for the bills associated with this podcast, I'm turning on paid subscriptions on my substack at Warkeshpatel.com. No important content on this podcast will ever be paywalled. So please don't donate if you have to think twice before buying a cup of coffee. But if you have the means and you've enjoyed this podcast, or gotten some kind of value out of it, I would really appreciate your support. As always, the most helpful thing you can do is to share the podcast. Send it to people you think might enjoy it, put it in Twitter, your group chats, etc.

It just splits the world. I appreciate your listening. I'll see you next time. Cheers.