You either want revenge or redemption.
And some of the best entrepreneurs have this in common.
And you see this with some of the best entrepreneurs.
Like, what is the driving motivation?
These are all industries that I wouldn't say they've been untouched by software.
They've been untouched by specialty software.
And the reason why is because the market was perceived to be too small.
That's the really hard thing to disambiguate today, which is you can have things grow so quickly, but they can also go to zero so quickly, because anybody can build software in like a weekend, which is both great and terrifying at the same time.
Today's episode is a conversation with Alex Rampell on TDPN, following the announcement of A16Z's new fund.
In this discussion, Alex reflects on his path from early software entrepreneur to leading A16Z's apps fund and how those experiences shaped the way he evaluates founders today.
He shares what he looks for in exceptional builders, including high agency, deep knowledge of category history and the ability to materialize talent, capital and customers, as well as why motivation beyond money what he calls revenge or redemption often determines who endures.
What a day.
Congratulations.
How are you doing?
Good, good.
Fantastic.
Super excited to have you on.
I've enjoyed.
You're somebody who's I've read your writing and listened to your podcast appearances for a decade now and always appreciated your point of view on a bunch of different things.
So welcome to the show.
Thank you.
I'm here to prove that I'm real.
Fantastic.
It's like proof of life is very important increasingly, right?
Yeah, it is.
I mean first time on the show.
Can you give us a little bit of the backstory, the journey to Andreessen and how long you've been there?
Sure.
So I've been here for 10 years.
Previously, I've been a long time on...
And then out of college, I was like, I graduated in 2003.
I was probably the only person from my class that just kind of became an entrepreneur right away.
And it wasn't because I was smart or dumb, probably more dumb than smart.
It's like I had a little business that I was running in college.
So I kind of kept doing that.
Met this guy named Chris Dixon. who was at Harvard Business School when I was at Harvard College.
You have to remember like 2002 when we met, the internet 1.0 had just died.
Everybody lost their jobs.
September 11th it happened.
And what do you do if you're a dried up entrepreneur?
You go to business school.
I remember there was a company called Cosmo.com, a huge hit that kind of went to zero.
What did that guy do?
He went to HBS.
No way.
So Chris Dixon was there and he and I were like the only two people I swear in like the entire state of Massachusetts that thought that the internet was still kind of cool.
We got introduced by a mutual friend, had coffee at Au Bon Pain, this little East Coast chain, and then cooked up a product called Did They Read It?
Which is still around today.
It's an email tracking tool.
It embeds a tracking pixel in every email that you send out.
That did pretty well.
Then we started a venture-backed company together that became SiteAdvisor.
That got acquired.
And then I started another company called TrialPay to like.
The thing that we learned at SiteAdvisor is that nobody likes paying for software.
Like you're willing to pay for an intangible good like a glass of wine.
20 for that seems totally reasonable, right.
But paying $20 for one song on iTunes, there would be riots in the streets.
So the idea was, I'll give you this digital good for free if you buy something else.
And if you know how affiliate marketing works, it kind of plugs into that.
So it's like hey, we'll give you this product for free if you sign up for Netflix, or if you switch to Geico, or if you shop at The Gap, or if you get a Discover card using the affiliate commission to go pay for the product.
That did pretty well.
It was like half of the revenue side advisor.
It was like from a little shareware business that I used to have back in the day.
It doubled our revenue.
So I turned that into a company called TrialPay.
That did great for a while, then it did terribly, then it kind of resumed to okay, sold it to Visa.
And then along the way I met this guy, Max Levchin, after he had sold Slide to Google, and we cooked up a company called Affirm.
So I co-founded Affirm with Max in 2012 and actually brought Affirm to Andreessen Horowitz as a funding opportunity, which they did.
And Chris Dixon kind of ended up talking me into joining here in 2015.
So I've been here ever since. uh how how quickly did you realize that that uh chris and max were special because i imagine you during those two periods you were meeting hundreds of different people i'm sure people wanted to build stuff with you other entrepreneurs uh and you picked well uh back to back uh and uh it's probably the hardest hardest uh you know one of the hardest things to actually clock at times I think a lot of the greatest people, they have two things in common.
They have this term that's going around a lot, like high agency.
They don't just follow the rules, they just take matters into their own hands and do something.
Um, and then they just kind of know the history of everything before.
Like they?
They just like students of history philosophy.
Like you know, Chris was a philosophy major.
People don't know about him.
He went to grad like he he went to you know.
He got his bachelor's degree in philosophy, was going to do a PhD, kind of realized that was a bad idea.
Um, and then eventually went to business school, which is, he will probably say the worst idea, but.
It was kind of self-evident.
The history thing is a real thing.
If you're talking to an entrepreneur that has been building their business for one to two years and you can tell them companies that in somewhat recent history, in the last decade even that have attempted that, or companies that are adjacent and they're like oh, I'm not familiar with that.
It's immediately such a bear signal because well, the opposite, like that's the red flag, the whatever, the opposite, green flag yeah, that's what I'm saying.
But yeah, the green flag is the green flag.
What's the green flag?
The green flag is not only do I know everything.
I mean, I'll give you one example.
I think the Collison brothers went out to like D-Hawk's ranch.
Like D-Hawk started Visa.
He's kind of like a weird quasi-communist, even though he started one of the biggest companies in the world.
Because Visa was meant to be this like, it was a nonprofit.
Visa was a nonprofit until 20, I don't know, 2008, maybe 2009.
It was the biggest IPO.
Yeah.
But it was a nonprofit until then.
A nonprofit like the NFL is a nonprofit.
It makes a lot of money, but it's owned by the constituents, and the constituents that owned Visa were the banks.
And it's like, okay, I'm starting a payment company.
There were a lot of payment companies that came before, but it's like let's find this guy who's 90 years old, who's moved outside of capitalism, is working as a farmer, just to learn from him.
And I have this mental model that I now use for entrepreneurs and it's a memo that I've written that we use internally a lot.
I got to say the best entrepreneurs.
They have five things that I look for.
They can materialize labor capital and customers, and hopefully those are self-evident.
It's like you can get people to quit their high-paying job for certain failure.
It's like the Ernest Shackleton thing.
It's like you wanted men for a dangerous journey, almost certain failure and death, but if it worked you might be famous.
It's like you want that.
Very, very hard to do.
You have to find people that can materialize capital.
It's like, get people to give you money.
And the best sign of future fundraising success, like if we do round end.
We want to make sure there's going to be a round end plus one, or you're going to be profitable on round end, which is unlikely.
So are you good at fundraising?
Can you get customers?
Like imagine, it's like, I have two weeks of cash left.
Please be my first customer.
I have none.
It's very hard to pull that off.
Yeah.
Then you want to know the history of the space, which is super important to your point.
You want that green flag version, not just the intermediate.
What's the combination of green and red flag?
You don't want the turquoise.
You want the green flag.
This person knows everything that's tried before and they have a new angle of attack.
They're not going to learn on the job.
They've actually learned through history.
And then the last thing that I care about a lot everybody on my team knows this My favorite book is The Count of Monte Cristo by Alexander Dumas.
And it documents the story of this guy, Edmond Dantes, who's like wrongfully accused, is like in prison for 17 years, but then becomes the richest person in the world but doesn't give a shit, right.
It's like all the riches in the world do not matter.
He wants revenge.
Yeah.
So revenge kind of sounds bad, but you either want revenge or redemption.
And some of the best entrepreneurs have this in common.
And the reason why it's so important from a venture lens is imagine that you're a 20-year-old kid, you start a company and somebody offers you I don't know half a billion dollars to buy your company.
And you own 25% of it.
You're going to make over $100 million.
You'd have to be insane to turn that down.
And we need people that are insane.
It's not that we don't want people that aren't capitalists, that don't care about money, but it's like they care about.
If you've seen the movie Spaceballs, it's like we're not doing this for the money, we're doing it for a shitload of money.
A little different here.
I'm doing it for another reason.
And a great example of this is there's this guy, Renaud Laplanche, who started a company called LendingClub.
Very famous company at the time.
There was like a dearth of IPOs, like Lending Club kind of gets to scale, goes public.
He gets fired from his board, ousted from the company.
He's probably made hundreds of millions of dollars.
He's the Count of Monte Cristo.
He's like, fuck those guys.
I'm going to start a new company.
I'm going to start an upgrade.
And you know what he called his new company?
Upgrade.
It does the exact same thing as Lending Club.
It's probably 10 times the size of Lending Club now.
And what's motivating him is not just the hopefully shit ton of money Spaceballs quote, but he wants revenge.
He wants redemption.
And you see this with some of the best entrepreneurs.
What is the driving motivation?
Because when times get tough, you need something because there is no money.
If your company is going to zero, If you're Ernest Shackleton in the winter of Antarctica like your voyage is not successful, right?
You need something else driving you at that point.
And that's why that medal is something that I find extremely valuable.
Have you seen Spaceballs, Jordy?
I have not.
You got to.
I famously have seen like 110 movies.
He's seen no movies.
He's not a Spaceball.
Last question.
One of my, probably like a, I really, I was going to say maybe, it's hard to exactly place a top 10.
Like I loved your episode on Invest Like the Best on operating systems.
How is AI kind of like updating your thinking on moats and operating systems and how somebody can create a lot of value with a startup?
Maybe I can rewind a little bit.
Just because we announced this new fundraiser, I can tell you exactly what we told our LPs in terms of what we want to invest in at the application layer.
Because I do application layer stuff.
And it's really three things.
Category one is, I call it greenfield bingo.
And maybe another way of answering your question is.
There's a quote that I use a lot the best companies have hostages, not customers.
Right?
Like, that's why nobody likes using Salesforce.
You got to be taking revenge.
You got to be taking hostages.
You know, it's very old-customer stuff.
But the best companies have hostages, not customers.
Those are great companies to invest in, right?
And that kind of goes to the point that I was making.
Like you know, NetSuite Workday Salesforce like they're all hated by their customers but none of those customers can leave.
However, if you build a better version, like kind of a more AI-first version of all of these companies, and you're selling into the green field, you've got a shot.
Because I was lucky enough to be the first investor in Mercury And Mercury worked, not by stealing people from SVB.
They just worked.
It's like oh, you're a brand new company, you can use shitty SVB or you can use really good Mercury.
And that worked, whereas they never got customers from SVB until the weekend that SVB failed.
So that greenfield opportunity for software that is AI-enabled.
In the same way that that was true for cloud, that was true for mobile.
It's like, here's the new thing, The incumbent will eventually build it.
Another expression I use a lot is the battle between every startup and incumbent is whether the startup gets the distribution before the incumbent gets the innovation.
My default assumption is that the incumbent normally wins.
Because they have the distribution, they will get their act together three years later.
And with AI and Cursor and everything else, they'll get their act together maybe three weeks later.
So the kind of The might of distribution is very, very powerful.
So one option is you just go into the greenfield.
So that's kind of category one.
We call it greenfield bingo.
It's just like build.
We have a bet.
It's just like NetSuite.
It's better.
It's AI-enabled, but they're not going to steal customers from NetSuite.
They're just going to get greenfield.
Category two is this kind of new, super exciting category of software does labor.
There is no incumbent software product for trial attorneys.
It's called Microsoft Office, but Eve does that and does that really well.
There's no incumbent software product for dental office receptionists, but Tenor does that and does that very well.
These are all industries that I wouldn't say they've been untouched by software.
They've been untouched by specialization, And the reason why is because the market was perceived to be too small.
And this is exactly what happened to SaaS.
Fintech really changed SaaS significantly because take, I'm sure you've heard of Toast.
Toast is one of my favorite businesses.
It's like Square, but it's only for restaurants.
It's this whole operating system for restaurants.
How many restaurants on their IBM PC Junior in 1984 use software?
Like zero.
Yeah.
And how many of them would pay tens of thousands of dollars a year for software?
Zero.
But they all need payment processing.
They all need payroll.
They need these other services.
You kind of bundle them in with software.
And this is the really exciting thing about AI is you go say hey, trial attorney, I want you to pay 50000 a year for software.
You said this 10 years ago.
Like, no way.
Like we'll pay for Microsoft Word because we use it to write demand letters.
Like that's it.
And now you can say, hey, we'll handle all these cases for you that you could not handle profitably.
And that's AI plus software.
Now they are software buyers.
So that's category two.
And then category three, I call the walled garden.
And I wrote a post about this a little while ago, but walled garden businesses are amazing.
Because if you assume that in the world that we live in today, and this is another way of thinking about kind of defensibility in AI, open AI has their sights kind of on everything, right?
Like Anthropic probably has their sights on everything.
It's so easy to build everything.
So have you guys heard of open evidence?
Yeah.
Okay, so I tore my Achilles in February.
It's almost a year ago.
It sucks, right?
It's all better now.
Doing something fun?
I need to know what to do.
It was.
I was skiing in Japan.
There we go.
That's a good reason.
There we go.
What do I do?
So I go to ChatGPT.
I'm in the clinic in Niseko Japan, talking to this Scottish doctor, and he tells me oh yeah, you only have surgery in the US.
Nobody does it outside the U.S.
I was like, this guy's on crack.
Of course you have surgery to fix an Achilles.
I go to ChatGPT.
He tells me everything.
Then I find this thing, Open Evidence, and it's like ChatGPT, but it has every single medical document in the world.
And imagine that tomorrow ChatGPT 53 comes out.
It's AGI.
Everybody agrees it's AGI, human race is over.
But it has no medical data.
And then, on the other side, you have GPT 35, and it has every single piece of medical knowledge ever known to mankind.
What would you rather use?
And the answer, at least for me, and I did use this, is open evidence.
There are so many businesses that look like this where they find some proprietary piece of data.
They're the only ones that have, because before you would have to sell data.
That was like your only, that was your only hope as a business.
And like another example that I mentioned in this post, there's a company called Velex.
And Velex.
Is this like 25-year-old European data business that bought up you know legal records in Spain to start.
And they would sell it to firms like Wilson Sincini that needed it for case law.
Now they sell an outcome because they're the only ones that have all the records.
Hmm.
So you can build a really interesting business if you're the only source of some unique form of data.
And I love businesses like that because that's the other.
Sorry for being so long-winded here on the answer to your question, but the businesses that can be very, very large in AI, that can grow very, very quickly, you still need to make sure that they're fundamentally defensible.
And that's the really hard thing to disambiguate today, which is you can have things grow so quickly, but they can also go to zero so quickly, because anybody can build software in like a weekend, which is both great and terrifying at the same time.
Yeah, indeed.
Well, thank you so much for hopping on the show and breaking it down.
Incredible overview.
Yeah, great to meet you.
And subscribe to our Substack at a16z.substack.com.
Thanks again for listening, and I'll see you in the next episode.
Thank you so much for having me.
