Andreessen Horowitz Part I | Acquired

What do you think about playing the full Who Got the Truth song at the end?

At the end?

I like that.

Yeah, it's so good.

Who got the truth?

Is it you?

Who got the truth now?

Is it you?

Sit me down.

Say it straight.

Another story on the way.

Welcome to Season 9, Episode 1 of Acquired, the podcast about great technology companies and the stories and playbooks behind them.

I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.

And I'm David Rosenthal, and I am an angel investor based in San Francisco.

And we are your hosts, which of course means telling the history of the web browser, the creation of Mosaic, the founding and eventual IPO of Netscape, which was the first real internet tech startup and, of course, the tumultuous story of LoudCloud and Opsware.

And so much more than that that you don't even know, Ben.

Well, this is great.

This is the first time I've literally not opened your notes at all.

Normally, we don't trade notes, but I have no idea what you've prepared.

And listeners.

The impetus for that is that this was going to be a one-part episode until last night when David texted me and said how about we do a two-parter?

So there are early things about Mark and Ben that I did zero research on, and I'm excited to learn from David, along with you all today.

I'm like the old, the legendary Chicago Cubs shortstop, Ernie Banks.

Let's play two.

Well, I'm really pumped to do this one as a two-parter.

I think the history of Mark and Ben is really important to understand the worldviews of both of them and how they were shaped by it.

I think for all of us working in a startup ecosystem that was so shaped by the 2009 creation of the firm Andreessen Horowitz.

I think it's paramount to understand the things that shaped them because they have shaped us all.

And I don't know.

I'm really excited because I feel like my investor psychology has already changed since starting the research into Mark and Ben.

Totally.

Can't wait to dive in.

Yep.

Well, listeners, two things to be aware of if you like the show.

One is our Slack.

There is awesome discussion that takes place on not just our episodes but also the tech news of the day going on there.

We're now 8,000 strong, so you can come and join us at acquired.fm slash slack.

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And this is where we drop subscriber-only content, like our library of over 50 interviews and deep dives on company building topics like venture capital fundamentals.

And you'll also get access to our LP Zoom calls with David and I, So you can click the link in the show notes or go to acquiredfm slash LP.

All right, listeners, now is a great time to thank a new friend of the show, Koifin.

And it's funny, they're new, but actually I've been using their product for years.

My research project for every single new acquired episode involves Koifin.

So when they reached out to sponsor the show, I thought, well, this is convenient.

Indeed.

So Coifin is a financial research tool loved by both individual investors and financial advisors.

Individuals use it for stock research, graphing financials and portfolio tracking, and financial advisors use it to build model portfolios and create client proposals.

They have live market data and powerful analytics tools.

So it's kind of like a Bloomberg terminal, except without the huge price tag, right?

Yes, essentially.

It's a web app, and it's totally self-serve.

I've actually not talked to anyone at the company for the first few years that I used it.

So Koifin is a product that the broader market, like all acquired listeners, would use, not just Wall Street investment bankers.

It's where I pull things like growth rate or gross margins or the PE ratio or revenue multiples for every company we study.

And you can compare these things over time with historical graphs or against other companies.

It's often what I use when we're studying private companies too, like Rolex or Mars or Ikea, to look at the comparables, to estimate what these companies would be worth if they were public.

They also have a screener that lets you filter across thousands of stocks, so you can quickly surface investment ideas.

Yep.

So the general idea is, if you're someone who's used to living in data, you should have that at your fingertips as you think about investing.

Exactly.

It's got these great graphs for data visualization wrapped around institutional grade data.

So if you want to understand what assumptions are baked into the stock price today, Coifin is for you.

I was about to say that acquired listeners have a great offer.

But Koifin's free product is actually already really robust.

Which is what I was using for years.

I know.

But indeed for Acquired listeners and also for you, Ben.

If you go to koifincom slash acquired and you end up upgrading to paid, you'll get 20 off your first year.

Our thanks to Koifin.

That's K-O-Y-F-I-N dot com slash acquired or click the link in the show notes.

Well, David, take us in.

And listeners, normally this is where I would warn you that this show is not investment advice.

David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.

But this episode, all this stuff's pretty old.

Good luck investing in any of this defunct technology.

We're going to be talking about a lot of dead companies on this episode.

Next time, we'll be talking about a lot of live companies.

One disclosure before we jump in here.

I think this is the first time I at least have done this on this show.

I have a new investing vehicle that I'm not quite ready to talk about just yet, but I'm doing it with my buddy, Nat Manning, who's the COO of Kettle and should tell everybody that a couple of the GPs at Andreessen Horowitz are LPs in that vehicle.

I don't think it has affected anything my telling of the history, but everybody should just know that.

Go again.

Congratulations, david.

Thanks super excited.

Can't wait to talk more about it soon.

All right, so we start history and facts in 1966 in london, england.

Not what you expected, was it Ben?

So this is not Mark.

Nope, not Mark that we're talking about here.

We are talking about Ben, who was born in 1966 in London, England.

England.

I did not know that.

It was the 60s.

The counterculture is in full swing in London.

You've got the mods and the rockers, the who, the Rolling Stones, all that.

And Ben's family that he was born into, a young family, is living in London at the time.

They're American expats.

The husband of Ben's father had come to London to work for Bertrand Russell, the Philosopher?

Philosopher, polymath, logician, mathematician.

Oh, wow.

So the family already had either one or two children.

I'm not sure if Ben is the second child or third child.

But nonetheless, in 1966 Benjamin Abraham Horowitz is born.

Of course would grow up to become the Ben Horowitz.

So usually on this show, on most episodes, we would just kind of like stop there with the family.

Like, oh yeah, this is the like milieu that our protagonists were born into.

We can now move on to the people themselves.

This time we're going to spend a little more time on Ben's family.

His mom's name is Alyssa, then Horowitz and now Krauthammer.

And his dad is David Krauthammer.

David Horowitz.

Now that name may not mean much to probably most people listening, but some of you listening are saying wait, David Horowitz.

That David Horowitz.

Yeah, I have no idea what you're talking about.

Yeah well, so David was and is a radical political activist and very much a large and still active part of American history, even though I think most people these days are not aware of it.

So at this time the reason he was in London is he was one of the leading young intellectual radicals that was championing the new left at the time and the counterculture.

And they were in London.

He was working with Bertrand Russell, protesting the Vietnam War and advocating for world peace and worldwide nuclear disarmament.

Oh, wow.

So he was working with not only Russell, but Jean-Paul Sartre, Simone de Beauvoir, James Baldwin Stokely, Karma.

He is in the middle of everything happening in the 60s.

So this continues for a couple of years.

And then, in 1968, David gets an opportunity he can't refuse, which is to move back to America and become the co-editor of the magazine Ramparts, which was like one of the leading publications of the hippies and the counterculture.

They originally published Che Guevara's diaries.

It's crazy.

And Ramparts was based in Berkeley California, which is how Ben Horowitz ends up growing up in Berkeley California.

It's funny I knew Ben grew up in Berkeley and I just didn't make the connection that like anytime you hear that someone was in Berkeley in the late 60s, you should ask the question like well, what were they doing in the counterculture movement?

Like, what role were they playing?

And how did they end up there, rather than just being like the way you would today, which is like yeah, it's a little bit of a hippie dippy town?

But you know, it's part of the Bay Area.

It's part of technology.

Nice suburb, you get the college campus there, better weather than San Francisco.

It was a little different back in the day.

Okay, so speaking of different, we know David's sort of already part of the counterculture.

When they get back to Berkeley, get this he intersects with Huey Newton, the leader of the Black Panthers, and becomes very close with him and with the Panthers.

And when I say very close, I mean like very close.

So he writes about them and ramparts all the time, helps bring them to national prominence.

The whole family, including of course young Ben, would go to the Black Panther Church every Sunday in Oakland.

The Son of Man Temple.

Wow.

Crazy.

And you know this is like a little bit, certainly outside the scope of acquired, but just to paint the picture of like where Ben came from.

The Black Panther Party, like if you're not American or from the US and studied American history, like it was one of the most powerful forces for black and civil rights in America's history.

And the whole family is right in the middle of it.

But unlike Martin Luther King and the civil rights movement, the Panthers did not advocate for nonviolence, shall we say.

Less about the civil disobedience, more about the disobedience.

More about the disobedience.

I didn't know this, but it was actually originally founded as the Black Panther Party for Self-Defense.

Oh, wow.

And the whole purpose of it was to resist police brutality against Black people in Oakland.

That was the origin of the Black Panthers.

Wow.

I mean, this was like wild times.

So in 1969, FBI Director J Edgar Hoover described the Black Panthers as the greatest threat to the internal security of America.

That's how wild this was.

So they're like right in the middle of it, including young Ben the Patty Hearst, kidnapping like everything.

So then in 1974, when Ben is eight...

An incident happens which changes things dramatically, very dramatically.

So the Panthers needed help with their bookkeeping.

And so Huey turns to David, who's running this organization, Ramparts and says hey, can you help me?

We need bookkeeping.

Now, if only they had Pilot, history would have taken a very different course.

So David introduces them to Ramparts bookkeeper, a woman named Betty Van Patter.

The Panthers bring her on.

Six months later, Betty disappears.

And a few weeks after that, her body washes up ashore across the bay in San Francisco.

Oh, wild.

So the crime was never solved.

No one was ever charged.

But David and many, many others believe that she found out too much and the Panthers had ordered her killed.

Wow.

So later Ben, of course, would write the hard thing about hard things and live through all this crazy technology stuff.

You just got to imagine he was eight and his family went through this.

Wow.

A busted IPO doesn't seem so hard after stuff like this.

So anyway, we will move on and get to Mark and Netscape and Loud Cloud and Andreessen Horowitz now.

But yeah, it's crazy.

And for David, he does a complete 180 and ends up becoming an arch-conservativist.

He was one of the primary strategists behind Trump's political strategy for defeating Hillary Clinton in 2016.

Jeff Sessions and Stephen Miller were like protégés of his.

Oh, I had no idea.

The David Horowitz Freedom Center is one of the biggest funders of Trump-leading political ideology in America.

And crazy enough, they still talk, Ben and David.

They apparently still have a great relationship.

There is a wonderful New York Times piece that we'll link to in the show notes.

I recommend everybody go read about all of this that came out a few years ago by David Streitfield about it.

But yeah, this family history is just wild.

That's fascinating.

And it's so cool that family bonds can transcend, and not just political beliefs but like deeply seated ideological beliefs about the way the world should be.

Totally.

And yeah, that out of all of this, 50 years later comes Andreessen Horowitz.

Uh, okay.

So back to Ben.

Obviously he like, soaks all this in and has a huge influence on him, but he also wants to blaze his own path and get out of his dad's shadow.

And he gets turned on to this other revolution that is happening in the Bay area in the seventies, which is the computer revolution.

He ends up going to Columbia in New York for undergrad and studying computer science there.

Probably wanted to get sort of away from everything happening in the family life at that point in time.

He then goes to UCLA afterwards and gets a master's in computer science.

And while he's there, he interns at the legendary Silicon Graphics.

Otherwise known as SGI, led by... Jim Clark.

Jim Clark, who will come up later many times.

Oh, he's definitely going to come up in the story.

And SGI is just legendary.

I don't think we've talked about them as much on Acquired, but they were right alongside Intel and Microsoft and Apple.

One of the big early computing companies in Silicon Valley, the current Google campus was originally-.

Yeah, that's crazy.

The SGI campus.

It's wild.

They did the, not just graphical computing, but 3D graphical computing.

So they did the effects for tons of Hollywood movies like Terminator, Jurassic Park, the N64 Nintendo video game console, which is going to come back up later in the story.

SGI made that.

They made the processors for the N64.

Really?

Yeah.

So if you played Mario Kart back in the day, you have SGI.

Okay.

The thing that I know that we're going to talk about later about N64 coming back up makes way more sense with Jim Clark having the SGI background and SGI making the chip for that now.

So is there any ties between Lucasfilm and SGI?

Oh, that's a good question.

The University of Utah folks that ultimately became Industrial Light and Magic.

So Jim Clark was one of those Utah folks.

Along with, of course, Nolan Bushnell and Alan Kay.

I think that's right.

I don't know if there are any direct ties between Lucasfilm and SGI, although I'm sure they were using SGI's hardware for the effects at ILM, at Industrial Light and Magic.

It was.

It was Alan Kay went to the University of Utah and graduated with his master's in 68.

So it would have been that same time as Nolan Bushnell.

All this stuff going on.

So later, we're now in the very early 90s.

Young Ben.

Coming out of school, coming out of his master's program, he joins SGI.

He doesn't stay that long though.

After about a year, he leaves and he joins a startup that's coming out of SGI.

And that startup kind of fails, but it's his first startup experience.

And then he moves on and he joins Lotus.

Ah, yes.

What should have been the way that we all processed words and numbers but alas, Microsoft crushed them.

Yeah, what was it?

Lotus 1, 2, 3, I think.

Yep.

And Lotus Notes.

Lotus Notes.

Yep.

So it's while Ben is at Lotus that he hears about this new, exciting paradigm development, new piece of software coming out of not Silicon Valley, but the middle of the country, the Midwest, the heartland of America, Illinois.

We are talking about Mosaic, the Mosaic web browser.

The NCSA Mosaic.

Indeed.

Wasn't it originally X Mosaic?

Ooh, I don't know that.

Yeah, it was originally released as a sort of prototype piece of software, originally only for Unix systems and used the X Windows system, and it was sort of a common thing to denote it with an X in the name of the piece of software.

Ah, wow.

Well, we're going to get into the name more in a minute here.

But Ben here is about Mosaic.

And of course, it's celebrity, wunderkind, young, brash founder, I guess?

Question mark?

Mark Andreessen.

So who was Mark Andreessen?

A man who needs no introduction, but...

His background was, let's just say, pretty different than the milieu that Ben was growing up in.

So he was born in Cedar Falls Iowa, which is not a super, super small town, but he was raised in New Lisbon, Wisconsin.

Do you know what the population of New Lisbon, Wisconsin is today, Ben?

10 000, 2 554 people wow, wow.

So mark's father lowell, was a sales manager for a seed company called the pioneer hybrid international seed company, and his mother pat, worked in customer service at land's end, i think, land's end.

I think they would go on to become a sizable customer of LoudCloud, but that is in the future to come.

So Mark, he talks about this all the time.

If you've heard Mark talk about his background, he could not wait to get out of this small town and the Midwest, and computers and the internet were the vehicle he was going to do it.

He says of his family, which he rarely, rarely talks about.

The one quote I was able to find is he says they were Scandinavian hardcore, very self-denying people who go through life never expecting to be happy.

Wow.

Yeah.

Wow.

Well, and it's worth pointing out too that, like when you say this nontraditional background, you alluded to him as this wunderkind.

And that was just not true yet.

At this point in history, and we have Brian McCullough from the Internet History Podcast to thank for this.

I binged like the first 10 episodes of that podcast to prep for this.

But he brings up the point that Mark was like an hourly worker at NCSA.

Oh, yeah.

He was getting paid $6.25 an hour.

Yeah, like no one recognizes his genius yet.

And the innovation of creating Mosaic, of actually mobilizing people to work on this thing, was like hey, we have a lot of fallow resource here.

We have some smart people.

I have no authority, but I'm going to wrangle the troops to try and do this with me.

Well, and I think if there's one thing that young Mark Andreessen and now older Mark Andreessen is very good at, it is putting himself in the right environment to meet the right people and to succeed.

So we're referring to the University of Illinois where he would end up going to college.

He was very intentional about deciding that.

He decided that he wanted to go to school, A, to study computer science.

So he wanted to go to school with a great CS program that his family could afford.

And B.

He also wanted a place where he would have the opportunity not just to study CS but to actually work while he's in school on cool stuff that's going on.

And, of course, Urbana-Champaign had not just a great CS school, but what we refer to a few times now.

The National Center for Supercomputing Applications was attached to it, the NCSA.

So, Mark, when he gets to Illinois, he immediately starts interning, doing work-study at the NCSA.

And while he's there.

So how does this kid, as you mentioned, who he's not yet?

Mark Andreessen?

How does he end up coming up with Mosaic?

So, while he's at NCSA...

They're interfacing with all of the other supercomputing centers around the world, including academic research like particle accelerators, particularly with CERN over in Switzerland the particle accelerator, which is where Tim Berners-Lee is.

And that's where Tim Berners-Lee comes up with the set of standards like HTTP and all that stuff that he dubs the World Wide Web.

And all the way across the world, like halfway across the world in Illinois, this kid working there, Mark Andreessen.

He hears about it and he's like, oh well, that sounds very interesting.

Totally.

It's cool thinking about how this came to be because you got Tim Berners-Lee there on one of the few next workstations, like the next cube that actually... shipped and was actually used by people because it was this crazy expensive thing that only went to people working in academia.

And of course, this is sort of Steve Jobs' company before returning to Apple.

And it says so much about Tim and the environment in which the internet and the World Wide Web was sort of started that it was on a next machine because it came out of this rigorous academia corner of the world which is frankly so different than a lot of the startup innovation that is happening today.

I mean, a lot of the frontier tech stuff comes out of academic labs.

But I think we often forget especially with how sort of countercultural a lot of new things on the internet have become, that it started in a very, A very closed way.

You know the original intention behind all these set of protocols and the World Wide Web it was supposed to be just for universities and research.

So they could share research notes.

Yeah.

And it was very controversial what Mark was doing because people didn't want to let the riffraff in.

They thought it would dilute the quality of like.

This is supposed to be a pure thing about like conducting research.

I got this great quote from Mark.

So he gave this an interview in 2003 that's talking about on Starting Mosaic.

And he says but the internet community back then the key technical people didn't want the internet to become easy to use or graphical, because that would pollute the environment.

Only smart people could use the internet was the theory.

So we needed to keep it hard to use.

We fundamentally disagreed with that.

We thought it should be easy to use and graphical.

So you should be able to point and click.

Totally.

Oh, it's so great.

And like, it's really just because of my like, he doesn't give a crap.

He's getting paid 625 an hour over it.

So he's like, well, what's the worst that can happen?

You know, I'll just code this thing up.

He convinces Eric Bina, who's a full time employee there, to work with him and code up an easy to use graphical browser to sort of open this up to everybody.

Yeah.

They'll fire me if it doesn't work.

Who cares totally.

And this is the first playbook theme that I want to pull forward and listeners are trying something a little new today, interspersing more of the playbook throughout the story, but this is the very first time mark runs the playbook of there's something.

Right now there's only for some small, closed group of people that's in an inaccessible way.

I think there's something very interesting to be done by opening up to the masses.

And of course, there's no business model behind this yet.

It's just let's let everyone use the internet and let's make that possible.

And when you think about Andreessen Horowitz all these years later funding things like Clubhouse and investing in social media platforms like Twitter, like Mark did very early.

Or hell, Coinbase.

Absolutely.

It is very much this let's take something very esoteric and make it very available to everyone, and then we will figure it out later.

This is the very first time he runs that playbook.

Totally.

And the other sort of counterintuitive thing or going against the grain element of building a mass market browser for the web was that this was not how most people thought the internet was going to go at the time.

At the time, this is in the early 90s, people are talking about the information superhighway.

And actually, SGI was a big part of this.

SGI was working with the cable companies to build these internet-enabled set-top boxes that were...

Everyone thought it was going to be TVs.

It was going to be TVs.

And, even worse, it was going to be the cable companies and the government, in like private public partnership, that owned all these pipes.

Could you imagine?

And that they were going to control the stuff that was going to go on there and Americans were going to access it through their televisions.

This was a big platform with the Clinton administration when they were campaigning for the 94 election was that we are going to be a big part of the information superhighway from the federal government.

And it's fascinating to like zoom out a little bit.

It makes sense that you have these like big screens, and you have fat bandwidth that's able to send perfect not choppy high fidelity audio and video to TVs.

And then you look over at this internet thing, which is only a thing for academic institutions.

There's like 40 nodes or something at all.

Like there's 40 servers period on the whole internet.

And all it can do is send texts back and forth.

Like, no, you're not going to bet on that platform to be the way that this ends up coming to market.

Yeah, totally.

Now to be fair to the soon to be Clinton administration and in particular to Al Gore, who would become vice president Gore.

In the 1991 Gore bill, which is allocating funding for all these various Internet projects that are being built out in America, they actually specifically allocate funding to the Mosaic project at the NCSA.

So this is how they get the resources to pay Mark's 625 an hour salary for all the hours that he and Eric are going to work on coding this thing up.

So you're telling me Al Gore did invent the internet?

He did, sort of.

I guess he was kind of like the VC who funded the internet.

Wow, Al Gore was Marc Andreessen's VC.

You heard it here first.

So they do this.

They create Mosaic.

And in 1993, they open it up for anyone to download and use for free.

But importantly and this is going to come up again later they do not open source Mosaic the code.

So the ncsa retains the code behind mosaic.

It's not free and available in open source, but anybody can download it and use it and of course people go nuts and do in 1994, wired would write the second phase of the revolution has begun.

Don't look now, but prodigy, aol and compu serve, all are suddenly obsolete and mosaic is well on its way to becoming the world's standard interface.

Well, because those were all these walled gardens.

I mean, AOL, like everyone should remember, AOL was not the internet.

It was AOL keywords.

It was pay to play.

It was.

You could only publish the content on AOL if you did a deal with AOL, which is, of course, how they had these incredible revenues that they were reporting.

And everyone thought this was the most unbelievable company ever.

But the internet was fundamentally something different.

The World Wide Web was something completely different.

That was open is probably not the right word yet but used standard protocols.

And so when you mentioned that, it grew like crazy, I grabbed some stats on that in February of 93, when they released the first version.

And this is like super prototype-y.

There's some great comments from Marc Andreessen out on the NCSA xMosaic listserv when they released version 05 in January of 93.

That say things like I'm looking more for feedback on design and functionality than bug reports right now.

Don't take the current code too seriously.

New releases will probably come out every 7 to 14 days until 1.0 arrives.

The bulk of the program will be rewritten in C++ anyway.

So there's like disclaimers all over the mailing list that he's distributing this thing out to.

But the stats are crazy.

It's like the early Ethereum.

Totally.

So the next month, there's 12 users in February of 93.

Within three to four weeks, there's a thousand.

And by spring.

So you got January.

Is that listserv?

February is 12 users.

A month later it's 1000 by spring.

So two months later after that, it had 10,000 users.

And then nine months later, in early 94, it has a million users.

So the very first thing that Marc Andreessen shipped had insane growth and perfect product market fit right out the gate.

Those are still pretty good numbers today.

Sure.

Oh, absolutely.

And this is in an era when people maybe have a dial-up connection.

Probably people have PCs, but not that many people.

Oh, yeah.

The TAM of the internet was super small.

If you had a million people by early 94 using your software on the internet.

I don't know what percent of internet users that is, but it's meaningful.

You had like 10% of all internet users.

Totally.

It was the killer app for the internet.

So this is funny, right?

So we're talking about it's 1993.

This is also Mark's senior year at Illinois.

So he graduates in spring of 93, probably when Mosaic is at the like, I don't know.

10000, 20000 ish user adoption curve.

He doesn't think that this is going to be a thing.

He's like, oh, this is a cool thing I did as an internship during my college years.

I want to move out to Silicon Valley, move out to California and get a job at a real computing company.

And famously, he talks about this.

He felt like he already missed it.

He felt like Silicon Valley had happened.

Absolutely.

I got the quote from this too.

So Mark did a great interview on the Tim Ferriss show a few years ago.

And he says, when I got to the Valley in 93 and 94, I thought I had missed the whole thing.

The great PC companies had gotten built during the 70s and 80s.

And by the time the 90s arrived, PC was done.

It was finished.

You could go buy one and it was great, but it was done.

People in the Valley thought there was nothing else left to do.

And then there was this moment where I and various people wrapped our heads around the implication of the internet, which today seems obvious, but at the time it was very contrarian.

If you said the internet would become a mainstream consumer medium that 3 billion people are going to use worldwide for all forms of human activity, you would have been laughed at.

You would have been institutionalized.

Spoken only as Marc Andreessen can.

To insert a playbook theme here, I mean, this is always true.

There is no moment in Silicon Valley writ large in tech where this is not true.

I mean, I remember graduating from GSB in 2014 and commiserating with all my friends being like we missed it.

It's over.

The valuations are so high.

It's crazy.

I felt like this after shipping apps to the app store and then iOS 5 or 6 hit and suddenly there were a million apps and I was like shoot it's over.

And meanwhile, machine learning had yet to arrive.

Crypto had yet to arrive.

There's actually a really, really great... Mike Moritz at Sequoia has a wonderful saying on this.

I don't know that this is actually publicly written anywhere, but this is the biggest lesson that he took from Sequoia's Cisco investment, which he was looking at the returns on Cisco and he was like how are we ever going to top this?

This is the top.

We'll never do better.

And he was talking with Don Valentine about it.

And Don was like... it's always going to be bigger.

Like, as long as Moore's law continues, then just like the number and scale of industries that computing and technology can address is always going to grow, as long as that is happening.

So the next generation is always going to be an order of magnitude bigger than this generation.

That has played out time and time and time again.

And of course Moore's law technically didn't continue but like the number of cores for the same price that you can put on a single system on a chip has sort of followed the same trajectory as Moore's law.

So even when we hit the upper limit on certain things in physics, the industry seems to figure out a way to continue to have the spirit of Moore's law and the sort of price and power of compute continues such that and this is another Andreessen saying but At some point the hardware limitations go away and compute becomes free.

And then it's really all about with an infinite and free resource of compute, what can you do with software?

Yep.

So, okay, back to Mark.

He can't even get a job at like a big respected PC or software company.

He moves out to Palo Alto and he gets a job at Enterprise Integration Technologies, which I think was a tech implementation consulting firm doing PeopleSoft installations for companies.

Sweet.

You can imagine Marc Andreessen's fit with an environment like this.

So of course, but as this is happening, this is when Mosaic is rocketing up this adoption curve.

So he kind of.

It's this weird thing where he's this kid out of school working a no-name job, but he's kind of a celebrity.

And he's gotten kind of shoved out.

And there's two sides of this story.

I think the folks at NCSA would say that Mosaic was an official project.

Mark says they sort of self-organized.

It became very clear to him that the sort of bureaucratic leadership at the NCSA was going to sort of take the lead on this and start doing the press interviews.

And they did own the license to the source code.

And so they, you know, he was an employee and it became NCSA's thing, not Mark Andreessen's thing.

Yep.

Oh boy, is that going to come back?

So enter Jim Clark.

Of course, Jim Clark, founder of Silicon Graphics, SGI, Utah, you know, mafia alumni.

He had just left SGI.

He had been feuding with the board and he's out.

He's looking for his next thing, but he has a non solicit from SGI so he can't take any of his people with him.

But he knows he wants to start a new thing.

He's got a chip on his shoulder.

He's like I got another act, I'm gonna prove all these people wrong.

He needs to go find new blood.

He hears about mosaic.

He tries it out.

He's like oh, this is amazing, this is the future.

I gotta look up.

This mark andreason guy who's there on the about page is like mosaic by mark andreason.

So he calls him up, he just cold calls him and they get together.

They have breakfast.

Uh, i think mark would famously say this is like the one and only time he got up at 7 am in his 20s.

So here's how it goes down.

They have breakfast and jim is like mark, You should commercialize this thing that you're doing with Mosaic.

You got to get out of this job, and I think we should do it together.

And Mark is like, I don't know.

I'm really enjoying this consulting lifestyle, doing software implementations, PeopleSoft.

I'm like, hell no, let me get out of here.

Let's go do this damn thing.

Yeah, yeah, yeah.

No, that's not how it went down at all.

You probably know this, Ben from the research, but you would think that that would be the now, in retrospect, obvious thing.

No, Jim does take a shine to Mark and he's like, OK, great.

I want you on my team on this new team I'm assembling.

I want some young blood.

But the idea I have is this N64 Nintendo console that we've been working with Nintendo over at Silicon Graphics.

This is going to be the perfect information superhighway node into living rooms.

This is how we're going to win the Internet.

We're going to build an online service for the N64 console.

It makes sense.

I mean, given the background, given the hype that was going on around N64 at the time, I see why that was the belief.

I mean, I remember being a 12-year-old reading every single gaming magazine that would come out, just trying to get details on the N64.

I got mine on launch day.

I would have convinced my parents to pay any amount of money for an online service for that console.

Which is so interesting that this was what they conceived of instead of the browser, because this would go on to become a huge business.

You look at Xbox Live three, four decades later, this becomes an enormous opportunity.

But at the time, This would have been absolutely the wrong move.

And there's another playbook theme.

Mark has a quote that says if they had shipped a year earlier, referring to the N64, we probably would have done that instead of Netscape.

Yeah.

So this is the history turns on a knife point.

The console gets delayed for a year.

And because of that, they're never able to reach a deal with Nintendo.

And it's unclear that anything's going to happen.

Meanwhile, they're both itching to get a company going.

So they have a kind of brainstorming session where they're thinking of other ideas for stuff to do.

And eventually Mark is like, well...

You know, this mosaic thing, like I did build that.

And all my buddies that I kind of did it with back in Illinois.

They're about to graduate too, or they already have graduated.

We could just go hire all of them and recreate it and commercialize it.

And Jim's like, OK, fine, let's do it.

So they incorporate and they start the world renowned, go on to be history, making Mosaic Communications Corporation to commercialize Mosaic.

I love that they were like, yeah, we'll just use the same name.

We'll name our company Mosaic, even though that's a thing that's owned by that lab at the university.

Yep.

So obviously, NCSA was none too happy with this.

They threatened lawsuits.

It's all back and forth.

Eventually, they changed the name to Netscape Communications.

And that is how it comes to be.

It was actually Greg Sands, who was the first PM that they hired.

Greg Sands of Costa Nova?

Greg Sands of Costa Nova, previously of Sutter Hill.

Oh, awesome.

And Greg Sands' little sister Emily, was at Princeton with me and Jenny and was I think she was salutatorian of Jenny's class.

One of the absolute top five most brilliant people I've ever met in my life.

So they changed the name of the company to Netscape.

But the internal code name.

I was going to ask you if you knew this.

Yes.

The internal code name that they use, and they continue to refer to the actual browser code itself, is Mozilla, which stands for Mosaic Killer.

Oh, it's so good.

It's so good.

So if you are wondering where Mozilla came from, that's it.

Yep.

So, as they're getting going Clark, at this point in time his net worth from SGI is, he would say, around like 15 million or so.

He puts in four million bucks.

He finances the whole thing himself, hiring all these people, great people like Greg.

Which, by the way, his net worth was 15 million from SGI, not because that was a little company, but because he had to take on a colossal amount of financing on very onerous terms in order to make that company succeed.

Totally.

Yeah, that he would walk away with $15 million from SGI after decades.

$15 million and a chip on his shoulder.

He had a huge chip on his shoulder.

So he's wary of all these VCs that financed SGI.

I think NEA was the big VC behind them and took so much of the equity.

So he puts in 4 million.

But then he's worried about like well, this is really getting a lot of buzz starting to take off.

We're going to need more capital.

I don't have enough to finance it myself.

I guess I will bring on some venture capitalists.

He goes and he talks to his old buddies at NEA, but...

Enter Kleiner Perkins and John Doerr hears about the deal and outbids NEA.

Invest 5 million in the fledgling Netscape Communications Corporation for 25 of the company.

So 20 post.

Yep.

Wow.

Times are different back then.

So not too long after that Ben, our erstwhile steeped in hippie Berkeley, true Bay Area counterculture DNA friend Ben.

He's over working at Lotus at the time.

And he had heard about Mosaic, of course, had been using it.

He thinks this is the future.

He hears about all this going on at Netscape and he's like...

I got to get in there.

I got to make it happen.

So he has a friend, get him into connection.

He goes in the interviews and he gets a job and he gets put in charge of the enterprise web server product line at Netscape.

And this is because there aren't web servers yet, right?

What's the point of having a browser to load web pages if there's no software that can sit on servers that can create web pages?

Exactly.

So this is going to become like really big.

But at the time, I don't know how Ben was feeling, whether he was excited about this or not.

But it was kind of like, OK, I mean, like this is how we're going to make money.

We're going to sell licenses for the server business so that companies can create websites and have commercial websites.

But the big sexy thing is this browser that is getting millions of people using it.

So it was kind of this part of the company that was like, yeah, necessary.

This is how we're going to make money.

And it is a beautiful time-tested business model.

Give away the consumer thing for free.

Get as many people on that as you possibly can.

It's actually kind of the first real example of aggregation theory.

Netscape ends up becoming powerful in the ecosystem because they're able to get all the internet users using it and thus then sort of apply pressure to businesses that if you want to create great websites, you can do so, and we promise it'll be compatible with Netscape, the browser that everyone uses.

So you should buy these tools from us.

It makes a lot of sense, Yeah.

And really, I think only came about because of the history of Mosaic being part of NCSA.

Like, if I don't know some company like Microsoft say, were to otherwise have gone out and created a new piece of software, like they did with Word or Excel or PowerPoint that they bought.

Consumer licenses.

Yeah.

Yeah, natural thing you do.

You put it in a box, you put it on a CD, you shrink, wrap it, you get it into CompUSA and you would sell that sucker for 50, 100 bucks to every consumer that walked in the door.

Not the route that the browser took to its great advantage.

Which is fascinating because that affected everything henceforth.

I've never paid for a web browser.

You could make an argument people are paying for Brave in different ways, or I'm sure people pay for specialized browsers, but like It set the trend that you do not pay to get access to the web.

Yeah, totally.

So famously, people at Netscape would talk about how we invented internet time and that it was this parallel universe that was accelerating faster than reality time.

By August 1995, so we're just 16 months after the company starts.

In April 94.

In April 94, Netscape has an 80% market share of web browsers in the world.

And they decide, Jim Clark pushes them, that they're going to go public.

And they've successfully killed Mosaic at this point.

Right.

80%.

Just, I don't know, 12 months ago, the other thing that Marc Andreessen created had close to 100 of the market share, which is wild.

All right.

Well, it turns out they haven't totally killed Mosaic.

Right.

Okay.

So 16 months, you're talking from founding to IPO, like any good tech company, you know?

Right.

Any good tech company.

So you know, the bankers, Morgan Stanley and Frank Quattrone and Mary Meeker on the analyst side are taking them public.

Just absolute killers.

Killer superstar team.

Frank Quattrone of the Amazon IPO, Mary Meeker of Bond Capital and famously, the Kleiner Perkins state of the internet.

Yeah.

Yep.

The people who would go on to do unbelievable things took this company public.

Totally.

So they're not quite sure how to price that.

I mean, nothing like this has ever happened before.

So they decide they're supposed to price at 14 a share, which I didn't do the exact math, but that would be roughly like I don't know 500, 600 million market cap, shall we say?

So like astronomical.

At the time i mean 12 months ago this was like a 20 post uh series a the glider did so they're thinking 14 a share the night before clark remember, he's like he's pretty salty from what he walked away with at sti.

He pushes them to up the ipo price what they end up pricing at the night before to 28 a share The next day.

The stock doesn't open because there is so much buzz about this company.

Obviously, the institutional demand is high.

And famously, institutional investors were kicking themselves for having missed out on Microsoft a decade earlier and how big that became.

And so the hype is like, this can be the next platform.

This can be the next Microsoft platform.

But meanwhile they've got millions of people like moms and pops and kids using this thing on their home PCs.

They all hear in the news that Netscape is going public.

They're using Netscape.

Retail wants it on the IPO.

You're telling me there's going to be a pop?

Yeah.

This is like the origin of the pop, the IPO pop, or at least the extreme IPO pop.

So famously, Charles Schwab, the brokerage.

They had to change their phone systems leading up to the IPO.

Because remember, there's no internet brokerages at this point.

You can't place orders online, even through Netscape.

So they changed their phone system that when you called your broker at Charles Schwab you would get a message in the couple days leading up to the Netscape IPO that said welcome to Charles Schwab.

If you're interested in the Netscape IPO, press one.

Press one.

One.

Oh, my goodness.

So there is so much demand.

It takes hours to open up the stock on the day of the IPO.

It opens at $75 a share.

Wow.

Remember, the bankers were like, I don't know that we can go up to $28 the night before.

So they thought they were going to price at 14.

The bankers reluctantly IPO'd it at 28.

And then the first retail trade happens at 75.

75.

Yep.

It falls a little bit during the day, but it closes at 58 a share, giving the company a 3 billion market cap.

Just insane.

Totally insane.

I think Microsoft was about $10 billion at this point in time, if I remember right.

And it's worth saying a few things.

One, this absolutely kicked off the dot-com bubble.

This was the moment that it started.

There were a couple of internet IPOs before this, but this is the one that blew the doors wide open, made valuations not matter and created four and a half years of absolute madness from this point forward.

But Netscape had an unbelievable growth trajectory, not just in users, but in revenue.

In the Ben Horowitz corner of the business, revenues were doubling every quarter, which means they were 16x-ing revenue year over year.

Well, they'd only been around for five quarters.

Sure.

But at a 16, X year over year run rate on revenue.

They did 17 million in revenue in the first six months of 1995 alone which, like you know, for a company that entered 1995, being what eight, nine months old and then was doing you know what call it run rate 50, 60 million revenue in that first full year of existence.

That is very impressive.

Yeah.

Yeah, for sure.

The other thing that's worth mentioning here is that it was unusual for companies at this point in time to IPO without being profitable.

And so people were sort of like bankers were making this exception of like well, this one's going to be hot, even though the company's not profitable.

Whereas now you look around and it's absolutely the minority of the time that a company is profitable before the public is willing to take on the risk of continuing to finance that company.

So it's just funny how much things have changed.

I mean really the Netscape IPO.

This was like a cultural moment for tech, for the world, for finance, for everything.

Yeah.

Funny story, this was only six days before the launch of Windows 95.

So this is the most interesting month ever in the tech industry to this point.

And if there's... I mean, this must have been in the risk factors of the IPO prospectus.

I didn't look it up.

But if there is one... bear narrative on the Netscape IPO, it's Microsoft out there.

Everybody knows Microsoft is.

They control Windows, they control the operating system of 95 of the install base of PCs in America, in the world at that point in time.

What are they going to do?

But nobody pays too much attention to it.

And famously, shout out to Brian McCullough for finding this and calling it out.

Around the IPO.

Andreessen gives an interview, Mark gives an interview and says famously that you know they ask if he's worried about Microsoft competing.

And he says, I'm not worried about it.

Netscape can become a company that will turn Windows into a quote mundane collection of not entirely debugged device drivers.

Yeah.

Well, pride comes before the fall, as we all know.

Obviously, you know, this is Microsoft in the 90s, which is like absolute killers.

Pre-DOJ.

Pre-DOJ, which happens because of all this.

So in May of that year, you know, Bill Gates saw this happening.

He saw an escape.

He saw where this was going to go.

And in May of 95, he had written the internal internet tidal wave memo.

Their strategy was the information superhighway.

They were long.

All this stuff, interactive TV but they, just like most other people, did not predict that this low-end disruptor, the internet based on text being sent over HTTP and Ooh, images in line that Marc Andreessen managed to get into the browser too that that actually was going to be the thing.

And it's not until early 95 when he pens that memo where it becomes obvious to even the smartest, most well-positioned people in the whole tech industry to react to this.

But once he realizes and writes that memo, oh boy, is it ever game on.

Guns out.

So Gates says, you know, this is strategic priority, like number one of the company.

We're going to compete here and we're going to win.

So turns out, they actually have the perfect strategy to kill Netscape, and already in progress within Microsoft, which is that, back in 1994, Thomas Reardon, a famous Microsoft employee and then would go on to be founder of Control Labs, which Facebook acquired a couple of years ago.

He had actually licensed.

He was playing around with you know, he thought browsers were interesting.

This was going to be a thing.

He had licensed for Microsoft some code for a browser from a little company called Spyglass Inc, which happened to be located in Illinois, in Urbana-Champaign.

Why was it located in Urbana-Champaign?

Because it was the commercial entity started by the university to spin out and commercialize the IP that they developed at the NCSA, including the Mosaic web browser.

Ooh.

So Microsoft's got a license to the Mosaic web browser.

And they're like, well, we've got this license.

We can use it.

And the terms of the license actually are that we pay Spyglass a portion of the revenues that we make from distributing this thing.

Well, what if we just bundle it into Windows and we give it to everybody for free?

Oh, my God.

Stone cold killers.

There actually ends up being a big lawsuit about this.

Spyglass sues Microsoft and is like hey, you're giving this away to like hundreds of millions of people and you're not paying us anything because you're not charging for it.

And classic Microsoft.

Legally they're like hey, look like we savvily negotiated an agreement with you.

And you know sorry, your fault, that you didn't anticipate the way that we would go on to distribute this thing.

Famously, they run this playbook and done the same thing with DOS back in the day.

This is worth a quick sidebar, because this is absolutely unbelievable and is part of the reason Microsoft got sued.

You had to pay them whether or not you chose to use DOS as the operating system on that PC.

It was a per CPU shipped license.

So if you're a PC manufacturer in order to get access to DOS Microsoft's, like sure we'll license it to you.

But We're not tying the amount of money that you owe us to the amount of computers with Windows on it.

It's the amount of CPUs you ship, period.

So then, of course, the incentive there is for the OEM to say well, we're going to make the most of this license, since we're getting charged for it anyway.

They put Windows on everything they ship, and that is how Microsoft became the dominant platform with DOS, where then every application became written on top of DOS, because every CPU had DOS on it.

Wow.

Well, and famously, Microsoft did not develop DOS.

They did a very similar deal.

They licensed it.

From another Seattle company.

Yeah.

Another story for another day.

God, they were killers.

So the net of it is even after the lawsuit, they pay a grand total Microsoft does of 8 million to Spyglass, which will go back to the University of Illinois.

The NCSA in Illinois get $8 million for Mosaic.

Yeah. which becomes Internet Explorer.

That's right.

Mosaic, which, you know, Mark and Jason and Eric Bina wrote at NCSA.

The IP stays at NCSA in Illinois, spun out into Spyglass, licensed from Microsoft.

That is Internet Explorer.

And for anyone who is thinking geez, how did Internet Explorer launch so quickly after Microsoft needed to catch up and create a browser?

This is how they did it.

Yeah.

So people know that this is happening and Netscape knows that all this is going on.

Meanwhile, Netscape at this point is helmed.

Joining before the IPO was a new CEO, Jim Barksdale.

They brought in sort of a professional CEO operator.

He was the former COO of FedEx.

He came actually from McCaw Cellular and AT&T before that.

They have this sort of grizzled industry veteran at this point because even Jim Clark, for all of his executiveness from SGI for the IPO Netscape, actually did want this sort of robust professional public markets CEO position.

So everybody knows this is going on, but Netscape thinks and the market thinks that OK, you know Microsoft's, now they've got this Internet Explorer thing.

They'd license the mosaic.

They're going to run the office playbook here.

They're going to sell this at CompUSA and, you know, you're going to buy it and blah, blah, blah.

And then, as you said, Ben, two weeks after the Netscape IPO, they launch Windows 95.

And not fully bundled in then, but they say that there's the Windows 95 Plus pack.

And Internet Explorer is bundled into it for free.

And of course this would eventually very quickly.

Internet Explorer would just be bundled online for free directly into every copy of windows 95 and then windows xp.

All of a sudden, netscape is now forced to compete with free and bundled brutal every operating system basically on the planet.

Absolutely brutal.

Totally brutal.

So now this little division that Ben Horowitz is running, the enterprise server division, that becomes hugely more important.

This is the only part of the company where they can even conceivably compete against Microsoft.

And this becomes major strategic initiative at Netscape.

We're going to focus on selling enterprise server products.

And, of course, the enterprise server products have to produce web pages that are compatible with Internet Explorer, because that's not what everybody is using.

It sucks.

Oh, it's so, so brutal.

So famously, they start scrambling.

Ben and the team start scrambling.

They're going to make the product way better than Microsoft Server product.

They're working on a bunch of new features.

They line up a big announcement event in New York City for March of 1996 about the new version of the product.

And famously, two weeks before the event, Mark ends up giving an interview to Computer Reseller News of all publications, where he just reveals the whole thing.

And Ben sends an email to Mark and the email says one line.

I guess we're not going to wait until the 5th to launch the strategy.

Mark responds, the email was just from Ben, just to Mark.

Mark responds copies in Jim Clark, copies in Jim Barksdale and says, quote apparently you do not understand how serious the situation is.

We are getting killed, killed, killed out there.

Our current product is radically worse than the competition, competition being Microsoft.

We've had nothing to say for months.

As a result, we've lost over 3 billion in market capitalization.

We are now in danger of losing the entire company and it's all server product management's fault.

Next time, do the effing interview yourself.

F you, Mark.

Reading this email is like in print.

And of course, we're being family friendly here on the air.

But just seeing like F you comma Mark.

I just can't imagine signing an email that way.

Here's the best part.

That email was written.

The very same day that the Time Magazine cover came out.

The barefoot, no way.

The barefoot Marc Andreessen on the cover of Time Magazine.

Barefoot on a throne, as the throne of the next new Silicon Valley king.

Wow.

Marc would later say about this whole escapade, quote, this is why I should not run a company.

Yeah.

Yeah, no kidding.

No kidding.

Maybe you should be a venture capitalist instead.

Oh, boy.

Wow.

That's actually a good question.

In Mark's entire career, including the Loud Cloud story that we're going to go on to tell later has Mark ever been the CEO of a company?

I don't know.

Was he the CEO of Ning?

He was the CEO of Ning.

You're right.

Okay, so once.

We'll get to that.

But it's very interesting that all the biggest successes he was either effectively the co-founding CTO or a board member or the venture capitalist behind it, and not the CEO of any of the most successful stuff he's done.

Well, this is going to be the great...

I don't want to say lie, because it's not a lie, but the sort of posturing from one of the key elements of the beginning of Andreessen Horowitz, which was their motto that you know.

All the general partners here need to have been CEOs.

Like half of the first like five or six general partners had never been CEOs.

There's a lot of credibility behind that.

They were strong operational leaders and executives.

But yeah, it's a good point.

Absolutely.

Jeff Jordan led the PayPal acquisition and ran PayPal within eBay.

He was not the CEO of eBay, but I would take him on my board.

But yeah, that's funny.

Well, I think this is a good point.

Before we get into the 96, 97, 98 continuation of the browser wars, what happens to Netscape, and I'll leave it there for the moment.

All right, listeners, it's time to talk about another one of our favorite companies, Statsig.

Since you last heard from us about Statsig, they have a very exciting update.

They raised their Series C, valuing them at $1.1 billion.

Yeah, huge milestone.

Congrats to the team.

Timing is interesting because the experimentation space is really heating up.

Yes.

So why do investors value stat seg at over a billion dollars?

It's because experimentation has become a critical part of the product stack for the world's best product teams.

Yep.

This trend started with Web 2.0 companies like Facebook and Netflix and Airbnb.

Those companies faced a problem.

How do you maintain a fast, decentralized product and engineering culture while also scaling up to thousands of employees?

Experimentation systems were a huge part of that answer.

These systems gave everyone at those companies access to a global set of product metrics, from page views to watch, time to performance.

And then every time a team released a new feature or product, they could measure the impact of that feature on those metrics.

So Facebook could set a company-wide goal like increasing time in app and let individual teams go and figure out how to achieve it.

Multiply this across thousands of engineers and PMs, and boom, you get exponential growth.

It's no wonder that experimentation is now seen as essential infrastructure.

Yep today's best product teams like Notion OpenAI, Rippling and Figma are equally reliant on experimentation.

But instead of building it in-house, they just use Statsig.

And they don't just use Statsig for experimentation.

Over the last few years, Statsig has added all the tools that fast product teams need, like feature flags, product analytics, session replays and more.

So if you would like to help your team's engineers and PMs figure out how to build faster and make smarter decisions, go to statsigcom slash acquired or click the link in the show notes.

They have a super generous free tier, a 50000 startup program and affordable enterprise contracts for large companies.

Just tell them that Ben and David sent you.

All right, well, David, so we're in the browser wars.

Microsoft just blew Netscape out of the water.

What's going on for Netscape now?

It's such a tragedy.

I mean, that year of the IPO in 1995, this is the thing.

This actually was a really great company.

It did $85 million in revenue, Netscape did, in 1995.

And then in 1996, it did $346 million in revenue.

Wow.

And then $534 the next year in 1997.

Wow, people like love to dunk on this now as, like mania, you know, ipo mania unprofitable blah blah, blah.

Tech bubble like It was for real.

But the stock once Microsoft's bundling strategy became obvious here in December 95 I think, which is when they announced that it was going to be bundled into all copies of Windows 95 going forward.

The stock had peaked then at 171 a share, which is even hugely up from where the IPO was.

But it never got above that.

It was just kind of straight downhill from there uh, unfortunately.

And then in 1999 finally uh famously, netscape sells itself to aol for 42 billion dollars, but it's an all stock deal with aol yikes and uh, that's pre uh time warner merger.

So who knows, by the time shareholders actually ultimately got liquid on that, what they were able to get out?

So Mark Andreessen, as part of the sale, becomes CTO of AOL.

I love this.

You can imagine how well that's going to work out.

The funny thing is he's not actually responsible for any day-to-day operations.

He's kind of like chief futurist at AOL.

I think his role is forward-looking technologies or something like that.

He only lasts until September of 99, right ahead of the Time Warner deal.

He's like, yeah, I want no part of this and leaves before that.

Yeah.

Oh, wow.

I didn't realize he didn't even stay a year.

No.

So I wonder if he forfeited some earn out element, or maybe he was just like the stock is going to be worthless soon.

Probably.

I'm out.

Wow.

So Ben, though, this is going to become very interesting.

Actually, this deal becomes huge for the next chapter and ultimately for Andreessen Horowitz, the firm.

So Ben becomes the VP of AOL's e-commerce division.

And what he ends up doing is him and pretty much the whole old server team from Netscape.

What he figures out that they ultimately are tasked with doing is that all of the brands that are trying to sell on AOL within the AOL walled garden this is Nike, this is LLB and this is Land's End.

We're talking about all these retailers and CPG companies.

They want to sell, but they're not internet companies.

Right.

They don't have, like e-commerce apps and servers and all the infrastructure that they need to make this happen.

So AOL can help them, but they got to go stand up like servers and data centers for all of these customers.

And that's what Ben's team ends up doing.

And quickly he realizes like, there's actually an opportunity here.

Like AOL is going to do this for their partners selling on AOL.

Which, again, is not the internet.

Is not the internet.

Or at least is not the web.

Is not the web, yeah.

It's the internet, but not the web.

The web is.

You know, I know that this is where the whole market is and is going to be in the future.

These companies Nike, etc.

They're going to need help doing this same thing for their web applications.

Yeah.

Why don't we go start a company where we can operate this infrastructure for all these companies that are not technology companies?

And then they can just host their websites and their web applications on our infrastructure.

It's kind of like a cloud, like a cloud of internet infrastructure that you can just deploy your applications to.

You can dynamically spin up and spin down these like virtual machines, David.

So not even like owning your own server, but like having virtualization across multiple servers that scale elastically as you need them.

Yeah, I mean, that's kind of a big idea, right, Ben?

Wow.

In 99, that feels a little ahead of their time.

Maybe a little ahead of their time.

But they like the idea so much that they move back to Silicon Valley.

They leave DC where AOL was based.

Actually, I don't know if they ever moved there or if they stayed in Silicon Valley.

But they leave AOL and they start the company.

They call it... They really want to embrace this cloud concept that they're pioneering.

They call it LoudCloud.

LoudCloud.

Ooh, yeah, I can't wait to get into this.

I do want to close the loop on a couple of Netscape things though, before we move into the LoudCloud chapter.

So I was wondering, first of all, why did AOL buy Netscape?

Like, if they're getting wrecked by Microsoft, why are they giving $4.2 billion of their stock?

Is it A?

Because they knew their stock was wildly overvalued.

And let's say it's 10x overvalued eh, what's 400 million of actual value?

To go and pick this company up, which what we now know about the way that they were motivated to do the Time Warner deal, to basically do a stock swap for a company whose stock they felt actually had real intrinsic value, it makes a lot of sense that they would wildly overpay for this sort of pseudo-defunct Netscape, even if all they got was the people and some technology behind it.

So that's one explanation.

The other would be basically to get a bargaining chip against Microsoft in case it became relevant for them to try and be less dependent on IE, to have a browser of their own that they could bundle in and distribute.

There are other people who believe that AOL was interested in Net Center, which is basically Netscape's web properties, which drew a lot of the traffic.

It's sort of the MSN play that Microsoft had to be the destination website.

So that's sort of the reasons why AOL could have been willing to part with 42 billion of their stock to do this.

Now, if you trace it all the way through to today, I really have been trying to figure out well what happened to the Netscape brand and what happened to the Netscape IP.

Well, the brand is an easy one to trace.

That stayed with AOL until they ultimately were bought by Verizon.

So the big red checkmark Verizon owns the Netscape brand today.

But somewhere along the line the brand actually got separated from the technology, the bundle of all the intellectual property and everything that Netscape was, which did need a new name because they couldn't use the Netscape name anymore because that brand was owned by Verizon.

So that got renamed New Aurora Corporation, which AOL sold to Microsoft, who then in turn sold them again.

To wait for it, David to Facebook.

Oh, yes.

Oh, my gosh.

I'm so glad you found this.

So this is from Jamie Zawinski or JWZ, who was an early employee pseudo founder.

I think many credit him with being a founder of Netscape.

He has this great blog and crazy sort of bar and concert venue in San Francisco called the DNA Lounge.

He writes.

The former Netscape company is currently a non-operating subsidiary of Facebook, still known as the new Aurora Corporation.

The Netscape brand remained with AOL.

Wow.

How crazy is that?

That's so crazy.

I'm so glad you paused us, because there's another thing we got to talk about coming out of the Netscape.

Mozilla.

Of course.

Yeah.

So I didn't realize this actually happened before the AOL acquisition.

They open sourced in 1998, i believe.

But yeah, you're right, before aol they open sourced all the browser code.

Ironically, like it's so interesting, that mozilla, the code name of the mosaic killer, ended up becoming the name of the foundation who ended up stewarding the open source code project which, of course, then created firefox.

So, out of the ashes of the sort of uh duplicated, without ever looking at the code Netscape, which kind of came from Mosaic.

You then have Mozilla, and they did name the browser Mozilla for a while and had a separate browser called Mozilla, which was compiled from similar source code.

And then Firefox, which was a whole new thing, right?

There was some code in common with the original Netscape browser.

But it was very different.

Firefox when it first launched I remember this had the search bar in the browser, which was a concept they borrowed from Opera, but that was not in Netscape.

Correct.

It was in the top right.

It wasn't the Omnibar that Chrome pioneered.

It was sort of that separate search window.

But it makes sense to me now, knowing all this lineage, why user agents have always been such a mess.

This is going to date me.

But if you've ever written raw HTML code and needed to do a user agent check because you need to figure out if it's IE and you need to account for some three stupid pixel offset that they have, that shouldn't actually be in there.

But the rendering engine sucks because it's licensed from whatever old mosaic thing.

That's actually an unfair criticism.

The real reason why it sucks is because they had such dominant market share that Microsoft could do whatever they wanted deviate from spec and just say eh, everybody's using our stuff anyway, so who cares what the World Wide Web Consortium says it should do?

The truth is what we say it is.

So anyway, if you ever do these user agent checks on the strings...

It has like every browser name under the sun listed.

So if you're doing like a string search, you're looking and you're like what is this?

Mozilla slash, Firefox slash, Netscape slash blah blah, blah.

And it's because it all freaking comes from the same original branch.

And all these different browsers are competing against each other, but there's kind of only two major lineages.

There is the Mosaic lineage, and then all those engineers left and, without looking back at the old code, they wrote new code called Mozilla.

And everything is basically either from Mosaic or Mozilla.

And there's been different stuff over the years with WebKit and with whatever other.

I don't know where Opera is derived from, but it's amazing how much of the browser market share over time really just comes from those two.

Yeah, and it all still funnels through to today, which is crazy.

It's so fun to actually have the right excuse now to be able to tell this whole story on Acquired.

It always felt like Netscape was kind of.

There was a point in Acquired's life where we would have done a whole episode on Netscape, but now it's like I don't know that we can do that.

And this is the perfect vehicle.

I'm so glad to do it.

Totally.

Well, thank God, from the lessons of Netscape and LoudCloud, which we're about to go into, became the ashes upon which the phoenix of a landscape-changing venture firm would come from.

So we have the excuse.

The Firefox of venture firms, shall we say.

I mean honestly though, after the financial crash, when all the funding like it's not crazy to call it a Firefox or a Phoenix or whatever in founding a venture firm in 2009 and deploying capital the way they did.

I'm jumping ahead.

I know we'll get there.

Absolutely.

If you want to be really nerdy, you could call it the Thunderbird of venture firms.

I used to use Thunderbird.

I thought it was great.

Yeah.

Okay, so back to the story.

Ben and his server team, they've realized this market opportunity.

They've got this idea for a cloud computing, cloud infrastructure.

So he hooks up with two of his core team, Tim Howes and Sikri.

They leave AOL.

They go back to Silicon Valley.

They're like, we're doing this.

And it's still 1999.

The bubble is still quite inflated at this point.

And there is a lot of hype.

And everyone's drunk.

Netscape IPO'd with great revenues and great growth, but now everyone's just drunk.

Yes.

So immediately they want to get Mark involved, of course.

Who wouldn't want Mark Andreessen involved in something like this?

Mark totally gets it.

He's like, yep, this is a big idea.

And actually, this is amazing.

At the press briefing for the launch of LoudCloud...

Mark would be there and he would use in trying to describe what this concept is, this cloud infrastructure concept.

He would use the very same electricity metaphor that Bezos would then use eight years later describing AWS at the YC event.

And what is the metaphor?

So Bezos's analogy that he used was German beer distilleries used to produce their own electricity to mash the hops and everything and do what they were doing in the distilleries.

And then they hooked up to the grid and just used electricity from the grid.

And the innovation they realized is the electricity doesn't make the beer taste any better.

Yeah.

There's no reason why they should create the electricity.

And the whole idea of cloud infrastructure is the same thing.

Renting your infrastructure from loud cloud or Amazon or Azure or Google doesn't make your beer taste any better if you're an application provider.

Hmm.

So Mark was the first one to use this.

So of course they want to get him involved.

But remember, Mark has learned at this point that he shouldn't run companies.

Although I guess he made that mistake with Ning later.

Mark says, I don't want to be an active co-founder, but I'll be chairman and I'll invest $6 million.

So I guess he was able to get enough money out of the AOL stock that he can invest $6 million.

So they go out to raise, Ben and team go out to raise venture money on top of this.

And they meet Andy Ratcliffe at Benchmark Capital, who they just love.

And Ben in Hard Thing About Hard Things, there's a quote that he has describing Andy.

He says, if I had to describe Andy with one word, it would be gentleman.

And the relationship between him and Ben and Mark is deep and continues to be deep to this day.

And Andy, of course, was Benchmark's infrastructure guy.

He started as a telecom investor.

So this is completely in his wheelhouse and he gets it.

So now this... is where things get a little murky.

And no doubt this scene is one of the major seeds of Andreessen Horowitz and the firm's whole philosophy.

And it would get sewn right here.

So I don't know exactly how it went down.

I don't think anybody's ever given the whole story, but this is as best as we can reconstruct it.

So we'll have to just have the protagonists on for a kumbaya one day.

Yep.

So obviously, this was a super hot deal.

And yeah, Netscape had failed, quote unquote.

But like you said, Ben, everybody was drunk at this point in time.

Somehow, I believe that Andy and Benchmark agreed to do the deal without a full partner meeting.

And they agree to do it for a very high price, even at the time, which was a 45 million pre-money valuation.

And Benchmark is going to invest $15 million in the company.

It's a big check for them.

Are they even doing their $400 million funds at this point?

Probably around that.

No.

And I think this was before their billion dollar fund which famously, they said they'll never repeat.

I think their funds were like maybe 250, 300 million at this point in time.

So big check, big valuation, brand new company and no partner meeting, at least as far as I can tell.

So the deal's going down and the benchmark partnership though, doesn't like that Mark is investing so much personally.

He's not an actively involved co-founder.

He's investing six million bucks.

And here's the thing.

The price of the deal is based on a pre-money valuation because venture deals, you know, until the last five six, seven years, they all used to be priced on a pre-money valuation.

Now the problem with a pre-money valuation Nobody knows what they actually own until you specify exactly how much is being raised.

Exactly.

So if more money gets raised, then you're going to own less of the company, because the post money valuation goes up based on the amount of money raised.

So Benchmark is writing this huge check.

They want to get 15 divided by 60.

They want to be the only money into the round.

Well, then they should have specified the post, David.

They should have specified the post, but people didn't do that back in the day.

So here's Mark coming in now.

He's pumping the valuation up by six million bucks and he's coming in.

So they try to cut Mark out of the round.

Oh, yeah.

So that was wrong move number one.

You don't really want to cross Mark Andreessen.

Even if we just stop the episode there and say let's look at this from a single turn game versus multi turn or iterated game.

Massive, massive bad idea for Benchmark to contribute to creating Andreessen Horowitz in the future.

Sure, it could have been the most valuable thing to do for this deal in that moment, but for the next 20 50, 100 years, it would be great for Benchmark if Andreessen Horowitz didn't exist.

Not only if Andreessen Horowitz didn't exist...

But if Ben and Mark were part of the Benchmark family... Totally.

That's an even better point.

Oh my gosh.

Yeah.

Creating a little bit of a friction point here, assuming that that is any factor contributing to going on to create their own venture firm.

Well, that wasn't the only part, so it gets worse.

So supposedly, after the deal is done and closed, Mark, of course, is like...

F.

You, I'm going to uh, I'm putting my 6 million bucks in and you think you're going to come between me and Ben.

Like we've been through this.

So it'd be like, you know, it'd be like benchmark trying to come between you and me.

Like that's not going to happen.

Right.

So Mark invests the 6 million bucks.

It's a 66 million post money valuation benchmark only gets like 22.7% ownership.

After the deal's done.

Remember, and I think this is why I think they didn't present the whole partnership before the deal was done, because Ben and Mark and the whole leadership team of LoudCloud, of this new company, they come in to meet the full benchmark partnership.

I think they only really knew Andy at this point.

They come in, it's supposed to be like a slap on the back, get to know you, like, oh, this is great.

You're our VC firm.

Hey, that was weird with Mark, but we'll get over it right.

So supposedly in this meeting, david burn, who was then one of the gps at benchmark and he had been a very successful executive recruiter before joining benchmark as a gp ben is presenting and the whole management team's there and he says to ben in front of everyone hey, just stop, when are you going to get a real ceo?

And ben is like uh well, what do you mean?

Like he knows what David means here, but like he's trying to like hey like, this is a friendly meeting.

Like let's not break out the knives yet.

And in front of the management team.

In front of the management team and Mark.

Like that just pulls out the rug underneath his ability to lead these people to do that.

Yeah.

So apparently then, Byrne just like doubles down again and keeps attacking Ben and is like you're not qualified to lead this company.

Like, how are you going to take this thing public?

You know blah blah blah, all of this stuff, which also is ridiculous because, of course, Ben is qualified to lead this company.

Even if you weren't, why on earth would you say this?

He was doubling revenue quarter over quarter at Netscape in his division.

I mean, and on top of all of that, Marc Andreessen threw six million in.

So, I mean, he kind of needs you, but doesn't really need you.

And you've already committed.

Like just do, the value creating activity, of giving the leadership team the confidence in their leader at this point.

Totally.

So this creates, as you can imagine, an intense dislike between Ben and Mark and all of the benchmark partnership except for Andy, because you know I guess nobody else really like stepped up to defend them here.

So we will later in part two get to the amazing profile that Tad Friend did in the New Yorker of Mark Andreessen in 2015, but 2015.

So 16 years later, there are these great quotes in there.

Ben says about the whole philosophy of Andreessen.

He says, we were always the anti benchmark.

Our design was not to do what they did.

And he's talking about this and, And then Mark says about Bill Gurley, of course, the most visible benchmark partner at the time.

I can't stand him.

If you've seen Seinfeld, Bill Gurley is my Newman.

Jerry's bête noire.

Wow.

This is something that you definitely have to know about Andreessen Horowitz, especially in their early days, about when they were starting.

They were loud about being different.

Like they wanted to position themselves as in every way we possibly can.

We are the opposite of your classic venture capital firm personified by Benchmark, which is totally we're going to get into this in part two but is so great because that is the exact same playbook that Benchmark took against Kleiner Perkins when they started.

It's fascinating.

It's such a good strategy.

And who was the architect of that strategy?

Andy Ratcliffe.

And who is the one Benchmark partner that they love?

Andy Ratcliffe.

And Andy would then retire from Benchmark not long after.

And the ties here end up actually running deep.

Like Eric Fisheria, who was a loud, proud exec, would go on to become fantastic partner at Benchmark.

Well, here's the funny thing about all of it.

This is so great.

It's such drama.

And I really do think that this experience was a big part of what planted the seed for Ben and Mark to start Andreessen Horowitz.

But all of this drama is just great for everybody.

It's great for Andreessen.

It's great for Benchmark.

No press is bad press.

And the more that people are talking about and writing about this, as Andreessen Horowitz is getting off the ground, the more it just increases the stature of both firms.

Well, and the 2015 piece you're talking about is literally called Tomorrow's Advanceman, about Marc Andreessen.

That's the one you were mentioning, right?

Yep.

That is the puff piece of puff pieces.

It's a great analytical piece, but it's like, hey, you're the best futurist in the world.

Say whatever you want.

And so having a platform to be able to kind of do any of this stuff, Marc takes full advantage.

Oh, totally.

It's so smart.

All of this drama around the funding aside, nonetheless, people are still jazzed about Loud Cloud.

Two months after the Series A, they raise another $45 million.

Wired runs an article calling Loud Cloud, Marc Andreessen's second coming, but then the clock starts to run out.

It's also crazy that the press can't get enough of Marc Andreessen.

Ben Horowitz is running the company, but Marc.

It's like this internet king narrative that everyone just wants to keep perpetuating, which is true in many ways, but just interesting that he was not the CEO of neither of those companies.

I mean, yes, but he was on the cover of Time Magazine on a throne.

Okay, so here's the thing, though, about LoudCloud, which is very, very different than Netscape.

It's not a software company.

It's an infrastructure company.

And the thing about an infrastructure company, about what they're doing, is that if you want to grow, if you want to take on more customers, you got to go lease some more data centers.

And you got to go... Buy some more servers and rack them and... Rack them and stack them.

Sounds like CapEx to me, David.

Sounds like a lot of CapEx to me.

So, as they're raising all this money, they're investing forward in all this CapEx and they're getting orders in.

Like you know, petscom is like, oh yeah, thrilled to get some of this infrastructure.

So, then in early 2000, of course, in March 2000, the bubble starts to deflate.

A lot of these orders start vaporizing, but they have forward contracts to buy all this CapEx.

So they need money.

Even though they just raised $65 million, they go around.

This is such a great moment.

They're trying to raise money from everyone.

And all the VCs are spooked at what's going on.

So they're literally traveling around the world.

They go to SoftBank.

I don't know if they actually fly to Japan or if they meet with SoftBank in the US.

Oh, I had no idea.

They meet with Masa.

This is great.

So Bill Campbell, the legendary coach, is by this point in time on the board of LoudCloud.

And Masa back channels to Bill and says, this is a hard thing about hard things.

Ben's like, Bill, how'd it go?

How'd it go with Masa?

And Bill's like, honestly, he thought you were smoking crack.

Yeah.

So you know it's bad even when he's like, this is crazy.

So eventually they do raise a Series C of 120 million at a 700 post, but it's like by the skin of their teeth.

This is in mid-2000.

They still burn through all of that quickly and are once again on the brink by the beginning of 2001.

The only crazy last ditch potential financing option available to them is to try and go public because weirdly, there were still some like believers in the public markets, even though all the VCs and private investors at this point were like Oh boy, we don't want to be funding any of these weird money burning companies.

So in March of 2001, the, they actually go public at $6 a share.

And the Wall Street Journal runs a piece leading up to the IPO where they have.

It's called the IPO from hell.

I think it might've been either referenced in the piece or the title of the piece.

Everybody's calling this the IPO from hell.

They have a quote from Dick Kramlich at NEA saying, quote, this is what we call a Hail Mary deal.

You throw it up in the air and you hope for the best.

Oh my God.

Wow.

You know that's not good.

Immediately after the IPO, which they do get done...

They lower their guidance.

It's a great thing to be doing in your first quarter as a public company.

Totally.

The stock drops by two thirds to $2 a share.

And Goldman and Morgan Stanley had book run the IPO.

They drop research coverage on the company.

No way.

Before even like one quarter is done.

Amazing.

So what's the logic there?

It's just expensive to have analysts covering your company.

And they're like, look, we just don't believe in the company anymore, even though we underwrote it.

So we're going to stop paying analysts to do this work.

That's a good question.

It could be that.

Or I wonder if it's more that like hey, if we were to cover this company, we would say you should not invest in this company.

Yeah, you should sell.

And we don't really want to do that because we were just the book runners on the IPO.

So probably easier to just drop coverage.

Right.

Yeah.

Wow.

And the logic of why they're dropping guidance is like look, all the companies that we thought were going to be customers are going out of business.

So like we are a picks and shovels business for an industry that is going away.

Yes.

The gold rush is drying up.

People are not going to want to buy Levi's.

And at this point in time, no one is moving to California.

It's unclear yet that Levi's are going to become a fashion statement, which of course they do, metaphorically speaking.

David, you're like three levels deep here.

Take me back to storytelling.

Exactly.

Okay.

So by 2002, it's clear that they're running into a brick wall.

Ben manages to engineer a deal to offload the entire infrastructure business to EDS.

Ross Perot's electronic data systems company.

Which that we need to do a company profile on at some point.

That's like a fascinating one.

Oh, totally.

Totally.

So they sell basically the entire business for $63.5 million.

They lay off almost everybody at the company.

That's one tenth of what they last raised at.

Or no, when they went public for more than that, for more than $700 million.

I think it was actually about flat when they went public.

So 10 cents on the dollar is what they're liquidating the server business for.

Totally.

But they don't want to give up.

They decide hey, we've got this tool that we've built internally to help us provision the servers that we're racking in our data centers.

We might be able to sell that as software.

It's pretty good.

And EDS is actually really interested in this.

They want to own the infrastructure business because that's part of their business.

But they're like yeah, I mean, if you can deliver that as a software product, we'll pre-sign up and we'll be a 20 million a year customer for you for the server automation product, which that's 20 million.

That LoudCloud's like great, we can use that to make payroll.

Exactly.

So they do this.

They lay off most of the company and they restart as this software firm doing data center server automation.

There's only one problem, the tool that they built, which is so great.

It has no UI and it is called the Jive and is entirely pimp themed.

Yeah.

That's just one problem.

It's not exactly something you can really deliver to EDS or any customer.

When this happens, the stock craters to 35 cents, which is a $28 million market cap.

Remember they've whoa talk about trading below book value.

The street is valuing them at half of the cash on the books.

But ben is undeterred and this is, you know, mostly what he writes about.

In the hard thing about hard things.

They go to work and they rebuild the company back up.

They claw their way all the way back over really not that long a period of time to five years later they sell the company to HP for 1425 a share, or 16 billion.

Close to 2x what they went public for.

Totally.

So this is a win.

Ben would write later about this.

If I'd learned anything, it was that conventional wisdom had nothing to do with the truth and that the efficient market hypothesis was deceptive.

How else could one explain Opsware, which is what they changed the name of the company to trading at half the cash we had in the bank when we had a 20 million a year contract and 50 of the smartest engineers in the world?

No, markets weren't efficient at finding the truth, they were just very efficient at converging on a conclusion, often the wrong conclusion.

And this experience, i think, would totally inform really, what i think was kind of the founding thesis of andreessen horowitz, which was there is no bubble and the internet is going to keep getting bigger and y'all think we're crazy for paying these prices for these companies.

And what you're alluding to there.

For folks that don't know, Andreessen Horowitz's early sort of reputation is these guys started a brand new venture firm.

They raised too much money because in 2009, a $300 million fund was big.

And they're just giving startups these crazy valuations and overpaying and blowing everybody else out of the water.

And David, you're exactly right.

It's A, the efficient market hypothesis is wrong.

And also that any crash we're in is a local minima.

So all that matters is can you get through this localized crash and continue to ride the sort of intrinsic value wave that is the internet and software taking over everything?

Totally.

And it's not easy, right?

Literally, the title of the book that Ben writes about this is The Hard Thing About Hard Things.

Which is so good.

So good.

Such a good title.

It's like they had good marketing people there or something.

Oh I mean.

And to your point about it not being easy, like Ben gets asked in interviews, you know how'd you get through that when you had to lay off half the company and then get the other half to recommit to basically starting a new startup with you?

And his answer is a lot of crying by me.

Yeah.

It's brutal.

Yeah.

It's not good to be in that situation.

But if you could just hang on and stay alive until the market can catch up with you, these markets will grow and you can become a big, big player, even if everybody's already written you off.

Can you stay alive long enough to become lucky?

Yep.

Obviously better to be lucky up front.

But if you're not, wait for luck to come to you.

Anyway, so there's one more other fun little part of the Loud Cloud Opsware journey.

One other character that's going to become very important later in part two, which is one of their other board members.

So the board of Loud Cloud, pretty awesome.

Mark Andreessen, Andy Ratcliffe, Bill Campbell, the coach, obviously Ben and the other independent board member who they had.

Do you know who it is, Ben?

No.

Michael Ovitz.

Oh, that's how they met Michael Ovitz?

That's how they met Michael Ovitz.

Of course we're talking about super Hollywood agent, founder of creative artist agency Michael Ovitz, later erstwhile COO and president of Disney under Eisner.

Briefly.

Briefly, briefly.

So after the whole Disney debacle he was looking for stuff to keep him entertained and wanted to invest in the then hot internet area.

And so he gets introduced to Ben and Mark and ends up joining the board of LoudCloud.

Isn't that wild?

Wow.

So that's how Mark and Ben get infected with the idea of creating the CAA of Venture.

Adventure.

Totally.

It's so funny how we've painted hopefully, the picture on this episode of all the life experiences leading into Netscape, leading into LoudCloud, leading into that moment with Benchmark and then Ovid's joining.

It all gets expressed in Andreessen Horowitz.

Wow.

There's one more principle that you touched on earlier that I want to tie a little bit of a bow on.

That's a founding principle of the company.

When Ben Horowitz is getting dressed down in the partner meeting at Benchmark and they ask him when are you going to hire a professional CEO?

This becomes a major tenet of Andreessen Horowitz about technical founders being CEOs and being armed with the resources that they need and the ability to, even before they would otherwise acquire those skills, sort of have a leap on being a professional CEO.

And there's this 2003 interview.

I love reading things from 2003 about Mark and Ben, because it's this really interesting perspective where it's post Netscape, post LoudCloud, post Crash, but they're just angel investors.

It's six years before they started Andreessen Horowitz.

And one of the questions in this great QA that we'll link to in the show notes is should a founding technologist run a mature company?

And Mark's answer, he's a brilliant person.

He gives these long philosophical answers to every other question.

This one, he just answers, absolutely.

It's so great.

This is so brilliant.

We'll talk about this much more in the next episode.

But what's so smart about this and so dumb about the rest of the venture capital industry?

Until Andreessen changed the game, which is like let's put aside what's right or wrong, or what you believe or don't believe.

It was so dumb to preach and practice anything else except that founders should run the companies they start.

Because if you say anything else, who are you alienating?

You're alienating founders, right?

So if you want to win deals, why on earth would you say anything other than I support my founders and I'm loyal to them to the end?

Yeah, just wild.

Just wild.

Okay, David, so take us forward.

They sell the Opsware business to HP.

What's going on after that?

So we've alluded to Ning a couple times.

Along the way, Mark had started Ning.

What year is this?

What year is the Opsware sale?

We did the episode with Michelle Feaster.

Yeah, which was so great.

She was at HP and bought the company. way back in early acquired history.

So I want to say it was 2005.

I think I actually don't have written down when Mark started Ning.

It was 2007 when Opsware was sold to HP.

Okay.

So Mark was going along with Ning, and Ning was sort of a way for any community to launch their own social network.

I guess kind of in a way like what we have with our Slack community.

It's like white label Facebook.

Yeah.

Once again, ahead of its time, Mark, I think, was not super thrilled with how that was going.

So he ended up stepping back full time brought in right after the acquisition.

The Opsware acquisition brought in Jason Rosenthal from Opsware, who had been a Netscape guy before that, to come in and run Ning.

And Mark stepped back to just being a chairman.

So remember, now we're in 2007.

We're now in the heyday of Web 2.0, which it's so funny.

Any other point in time.

If we hadn't had the tech bubble and the crash and everything everybody lived through here, the rest of the market would have been gaga over Facebook, LinkedIn and Zynga and Shutterfly.

And what was Stuart Butterfield's first?

Flickr.

Flickr and everything that was going on.

It was so exciting in the Valley but because everybody still had the hangover from Web 10, valuations were minuscule for these companies.

Well, and in 2000, 2001, 2002, even in 2003...

Venture firms weren't raising new funds, so everyone's preciously holding on to the last fund they raise, parceling out each dollar to their own portfolios, trying to make sure they're only investing if it's the very next Yahoo, and using their bullets very carefully.

So when Facebook comes along in 2004, it's like one of the only sort of obvious ones that's growing like absolute crazy and kind of kicks off that next generation of okay, we're going to start venture capitalists are going to be able to start raising big funds again and kind of come out of the tech bubble screaming.

But even that takes a long time.

And ironically, it's Mark and Ben arguably people who got hammered hardest by the dot-com crash who recognize like oh wow no, this is the time to put capital to work and embrace everything that's going on.

So they start angel investing together.

Right.

This is the era of super angels.

If you think back to the sort of Ron Conway and Dave McClure era, and there was the famous sort of Bin 38 scandal.

But Mark and Ben are the super angels that are individually investing tens of millions of dollars in startups.

It's easy to forget now, but they were like the prototype super angels.

Easy to forget now because now, of course, they're a venture firm.

And of course Mark made like 150 million bucks on the Opsware sale from.

I think it's about right, because he owned about 10 of Opsware at the sale to HP.

Ben owned 5.5%.

So they've got cash to invest and they're dedicated to helping to build the next generation of startups.

Yeah.

And not only that, this is where the pieces start to come together.

They also embrace as users Web 2.0.

And what's a big part of Web 2.0?

It's blogging.

Blogs.

Blogging.

The P Mark A blog and Ben's blog.

This is where it all starts.

Was so good.

And it's before.

I mean Mark obviously became a prolific tweeter, tweeting like 100 times a day until in 2016.

He stopped and we'll cover all that in the next episode.

But like, very much embracing the idea that like, I'm going to be loud on the internet.

I am going to share my thoughts with the world and very early to blogging.

Yep.

So, through all this, they end up angel investing in companies like Twitter, of course, like Zynga, Facebook.

LinkedIn.

Like LinkedIn.

And Mark is still on the board of Facebook and still keeps up with Mark Zuckerberg.

I hope so.

So the Facebook story is super interesting.

When Andreessen Horowitz the firm would launch.

They launched with a big piece in CNN money and Zuck is quoted in the piece and he says I moved to Silicon Valley in 2004 and I was introduced to Mark Andreessen by Peter Thiel in 2005.

So what's Zuck talking about here?

So remember the Yahoo situation? where Zuck turned down the billion-dollar offer.

When Zuck goes and vomits in the bathroom, turning down the billion-dollar Yahoo offer, literally everybody around the table is telling him like sell.

Supposedly all the VCs, everybody involved with the company, all the rest of the management team, are like we got to take this offer.

Because remember, it's Web 2.0.

Flickr sold to Yahoo for, what, $30 million?

Something like that?

Something like that.

The idea that there could be a billion-dollar outcome now post-bubble is crazy.

Apparently, the only one of the advisors who told Mark not to sell was Mark Andreessen.

Wow.

Andreessen has a quote about this.

He says, every single person involved in Facebook wanted Mark to take the Yahoo offer.

The psychological pressure they put on this 22 year old was intense.

Mark and I really bonded in that period because I told him, don't sell, don't sell, don't sell.

And because of that is why Andreessen ends up joining the Facebook board in 2008, as well as the eBay board in 2008.

Yeah, that's a fascinating one.

Oh, that'll come up next time for sure.

And he stayed on the HP board, by the way, after the LoudCloud Opsware deal until 2018.

He was a longtime HP board member too.

Oof, yeah.

So it's pretty crazy.

They built up this vehemently founder-friendly.

Don't sell.

Build big companies.

We're going to finance you.

Technical co-founders stay as CEOs forever.

Yep.

We love technical co-founders.

We are willing, just the two of us, to finance 45 different companies.

Including Dig.com, AngelList, Foursquare, LinkedIn, a lot of very meaningful companies of that era.

High hit rate.

I mean, they're like the most active venture capitalists in Silicon Valley at this point.

But this is when Sequoia is writing the RIP Good Times memo.

And they're not even venture capitalists.

So this is the best.

This is the best.

I think this is my favorite part of the whole episode.

So one day, Ben is still at HP.

He becomes a VP of something or other at HP, and it's clear like...

This is going to be just like the AOL situation.

He's going to stay there a year and then move on to his next thing.

He gets a call from Doug Leone at Sequoia.

Oh, interesting.

This is so classic.

Such a classic Doug story.

I love it.

Doug says, I want to know how you did it.

And Ben's like, did what?

And Doug says in maybe not quite these words, but maybe actually these words knowing Doug.

I want to know how you took a dog of a company and turned it into a billion dollar outcome.

I've never seen this happen before.

And I want to learn how you did it.

So great.

Great because A, it's so Doug, like what a learning machine.

B, it's so great because it's obvious what is happening here.

Oh, he's trying to get Ben to come to Sequoia.

He's totally trying to get Ben to come to Sequoia.

Oh, so great.

So great.

Do you think they wanted to recruit him as a partner or as like a person to come fund next?

I'm sure they would have been happy with either, but I'm assuming probably as a partner.

I bet they were trying to run the same playbook they did with Alfred which, when Alfred joined Sequoia after Zappos, the original idea.

And Don Valentine says this in the Stanford GSB talk that we always recommend when he holds up Alfred's resume he says yeah, Alfred's here.

He's a partner at Sequoia for now, but he'll start more companies and we can't wait for him to start companies and spin them out.

Obviously that doesn't happen with Alfred, but I'm sure they just want Ben, and presumably Mark as well, to just come be part of Sequoia.

Man, we don't do this section on episodes anymore, but in the spirit of what would have happened otherwise, you think about if Ben had accepted an offer to go be a partner at Sequoia and if Benchmark hadn't made the cardinal mistake of causing the executive team to potentially lose faith in their CEO right there in the boardroom, how things could have been different in the Valley.

Yeah.

Totally.

Well, the funny thing I was thinking about through all this is obviously, as we've alluded to, Andreessen Horowitz is going to counter position against Benchmark when they launch.

Nobody ever counter positions against Sequoia.

I think it's just because, like, how could you?

They're so good.

Yeah, it reminds me of the quote from The Wire.

You come at the king, you best not miss.

I don't really want to make a run at Sequoia.

I wouldn't publicly counter position against them.

I was thinking the exact same thing.

So great.

So Ben takes this call.

I don't know the exact timeline here.

So I'm both hypothesizing and dramatizing for effect.

But with that said, he takes the call.

He knows what Doug is up to.

He hangs up with Doug and he shoots Mark an instant message.

We ought to start a venture capital firm.

And Mark replies, I was thinking the same thing.

Boom.

And that, our friends, is where we're going to leave part one.

Ooh, that is a perfect, perfect spot.

I feel like I now have a really robust understanding about the frame of mind they're in going into starting Andreessen Horowitz, the firm.

The question is when they're texting.

Is this before or when they're on IM?

Is this before the financial crisis?

I am imagining this is sometime in 2008.

Yeah, which is fascinating because then, between the time where they have the idea to do this and when they actually launch the firm, there's a global recession and bank financial crisis that they have to fundraise during.

It's pretty wild.

Totally.

Well, I think we did a lot of great sort of playbook themes during the episode.

Is there anything you want to highlight here?

Yeah, there is actually one, and we'll get into this more next time, but it's pretty... courageous.

Ooh, do you choose that word carefully?

I did not.

Okay.

It came to mind.

It's pretty courageous what they do here, right?

Like, I mean, okay.

It's not courageous in that they have a lot of money.

They never need to work again, et cetera, et cetera.

But you know to turn down Doug Leone to say we have a lot of money, but we're going to deploy this money and put it at risk while all the rest of the world thinks everything is falling apart.

Right.

I think it's easy to look back now and be like oh, you guys have Andreessen Horowitz, has 19 billion in capital under management and is this massive enormous, 200-plus person firm with all of these funds?

And like, yeah, yeah, yeah, you guys are money managers.

Like...

That is not how it started by any stretch of the imagination.

Yeah, it's such a good point.

And we'll get into this next episode.

But from everything that I can sort of hear, that's still the way that Mark and Ben act today, that they're by no means sort of like enjoying the 19 billion under management lifestyle.

I think they're very much thinking about what is the next lifestyle.

Not just generation, but what does the next epoch of Andreessen Horowitz, the firm, look like?

What are we beyond a venture capital firm?

What will this institution be in the future?

And the way that you chose courage carefully, I chose future carefully.

And we're going to talk about both of those in the next episode.

I love it.

I've got a few just to bring it back.

I mean, the timing, luck, and right place, right time is so strong here.

I mean, especially in the N64 slipping one year part of the story.

Netscape wouldn't have existed if N64 had shipped on time.

And as crucial as it is to be brilliant.

You have to be brilliant in the right place at the right time and get lucky also.

And I think that we've seen that.

People always talk about Steve Jobs and Bill Gates being born at the right time and the right place to be able to start Apple and Microsoft.

Kind of the same thing, with Mark being around right from the start of the internet and being able to really jump onto the emerging web and create a huge part of it.

I also think a big playbook theme is knowing what good feels like, because you've experienced it yourself.

In launching Mosaic and getting a million users in the first year on a very nascent web.

For Mark's whole rest of his career, that's the bar.

I think if you've never experienced something like that viscerally, where you've operated or founded or worked at a high level at a company that was undergoing that experience Because you don't know what the benchmark is, you don't quite know what you're chasing.

And I think it meaningfully shaped all of his future experiences and Ben's experiences and Andreessen Horowitz's experience when they knew what true product market fit and crazy growth felt like from the very first experience.

Ooh, I've got one I really want to add on to that.

So yeah, totally agree.

Yes, everything you said.

And what makes it really powerful is the contrast.

Like they also know what total failure looks like.

And I think you see a lot.

People think like what you said, knowing the benchmark, knowing success, that's what you need.

I think you need both.

Because if you only know success, you don't know the difference between success and failure and you don't really know what made for success and what was skill and what was luck.

But I think what's really unique here in this story is they have absolutely have both, like highest of the highs, lowest of the lows.

And I think that can really help one triangulate on where you are in any given point in time and why.

Totally agree.

I think it's a great point.

Well, listeners, we are going to hold on grading until the end of our next episode.

We'll have that conversation about actually the firm entries in Horowitz rather than trying to grade something Mark and Ben's past.

And David, do you want to do some carve outs before we bring it home?

Yeah, let's do it.

I've got a fun one that is tangentially related to at least the N64 aspect of the episode.

I've just been on such a like gaming and classic gaming kick lately.

I don't know what it is.

Maybe it's like everybody you hit your mid 30s and then you just get nostalgic for the era when you were a kid.

So my carve-out is my new favorite podcast, besides Acquired, of course, the Resonant Arc YouTube channel and podcast.

These guys are so great.

They take... What do they call themselves?

They call themselves a video game story book club.

So they take old classic video games like rpgs, like from this era, uh.

So they did final fantasy 8.

They're now doing xenogears.

They did near the first new york game uh, which is more modern in the interim.

And then they do like a book club, they do playthroughs.

So they're like we're gonna play, not not a stream, but like we're gonna play from the beginning of the game to x point and let's all you know.

We'll go play, you audience go play.

And then we're going to do a podcast.

We're going to do a three-hour podcast at each checkpoint where we're going to dissect the story, the development.

Who was the dev team?

How did this project come together?

What is the context behind all of this?

That's a clever structure.

It's really, really clever.

I really like it.

So it ends up for all these games like being 10, 15, 20 hours worth of podcast time.

But it's so cool.

It is a really innovative format.

And you know you're talking to people who are willing to dedicate 10 hours of podcast time to a single podcast, like a Berkshire Hathaway trilogy.

So exactly.

Couldn't have found a better place to recommend it.

A podcast after my known heart.

I love it.

Well, I have a little bit more of like a more serious one.

I'm not serious.

It's a nonfiction book called The Elephant in the Brain.

And it is a psychology book that was originally going to be this person's academic paper.

And then they decided I'm just going to get together with my friend and actually write it as a book instead and reach a much broader audience.

And just like... publish it as a consumer facing book.

And it is a really interesting book.

One of the main theses is we humans are animals.

And so why do we sort of try and go around pretending that we're not and trying to do things that are socially acceptable, when they're sort of an elephant in the brain, that we are animals and we are subject to these very base desires that come from evolution?

And it's not saying act on those.

But every chapter sort of points out a different and very observable basic animalistic thing that exists in our brain.

The thing that I took away from it was once you can be more mindful of the way in which your brain is not acting quote-unquote logically or appropriately, as you should present in society.

As it says, it's acceptable to just like.

Being aware of the way that your brain is working and why it is working in that way, so that you can then apply your higher functions on top of it is very interesting.

And I highly recommend it for anybody who is interested in psychology capitalism, how to fundraise for nonprofits, how to lead, how to organization build.

All of this stuff is sort of tied in there.

And they basically take anything that seems like people are doing purely altruistically or purely for whatever reason and they find the animalistic desires that underpin that and then find the data to support why that is often happening.

Especially if you're interested in going into politics, it's a phenomenal read.

I love it, so recommend that.

Now is a great time to thank good friend of the show.

Service now.

We have talked to listeners about service now's amazing origin story and how they've been one of the best performing companies the last decade, but we've gotten some questions from listeners about what service now actually does.

So today we are going to answer that question.

Well, to start, a phrase that has been used often here recently in the press is that ServiceNow is the quote-unquote AI operating system for the enterprise.

But to make that more concrete, ServiceNow started 22 years ago focused simply on automation.

They turned physical paperwork into software workflows, initially for the IT department within enterprises.

That was it.

And over time, they built on this platform going to more powerful and complex tasks.

They were expanding from serving just IT to other departments like HR finance, customer service, field operations and more.

And in the process, over the last two decades, ServiceNow has laid all the tedious groundwork necessary to connect every corner of the enterprise and enable automation to happen.

So when AI arrived, well, AI kind of just by definition is massively sophisticated task automation.

And who had already built the platform and the connective tissue within enterprises to enable that automation.

ServiceNow.

So to answer the question, what does ServiceNow do today?

We mean it when they say they connect and power every department.

IT and HR use it to manage people, devices, software licenses across the company.

Customer service uses ServiceNow for things like detecting payment failures and routing to the right team or process internally to solve it.

Or the supply chain org uses it for capacity planning, integrating with data and plans from other departments to ensure that everybody's on the same page.

No more swivel-chairing between apps to enter the same data multiple times in different places.

And just recently ServiceNow launched AI agents so that anyone working in any job can spin up an AI agent to handle the tedious stuff.

Freeing up humans for bigger picture work.

ServiceNow was named to Fortune's World's Most Admired Companies list last year and Fast Company's Best Workplace for Innovators last year.

And it's because of this vision.

If you want to take advantage of the scale and speed of ServiceNow in every corner of your business, go to servicenowcom slash acquired and just tell them that Ben and David sent you.

Thanks, ServiceNow.

All right, well, listeners, thank you for joining us on part one of this journey.

And if you want to join us and talk about all things Acquired, all things tech, with a great community, really thoughtful respectful good, highbrow discussion, join us at acquiredfm slash slack.

As always, if you want to be a deeper part of what we do on the show, you can become an LP at acquiredfm slash LP.

David, anything else you want to say?

Pumped for season nine.

We are underway.

I know.

Me too.

And I think this next episode is going to be really fun.

Andreessen Horowitz has played such a seminal role in the development of the tech ecosystem of the last 12 years that it's a walk down like kind of my whole adult life and career to walk through from 2009 to today.

So I'm excited to do it.

Yeah.

Should we start recording right now?

Just run it back?

Let's play two.

No, I need a break.

Listeners, we'll see you next time.

We'll see you next time.

And until then, Young Spielberg, Mike Taylor, take us out.

Is it you, is it you, is it you?

Sit me down, say it straight Another story on the way Who got the truth now?

Who got the truth?

Everybody's talking Nobody's listening These days I feel lost, man Lost in opinion Is it you?

Is it you?

Who got the truth now?

Now the world see what we saw people wonder what to do now Is it you?

Is it you?

Who got the truth now?

Is it you?

Sit me down.

Say it straight.

Another story on the way.

We got the truth.

[The Genesis of Andreessen Horowitz: A Tale of Two Founders]-[Andreessen Horowitz Part I]

📋 Summary

The Genesis of Andreessen Horowitz: A Tale of Two Founders

The Roots of the Protagonists

The Mosaic Revolution and the Browser Wars

From LoudCloud to Opsware: Learning Through Failure

The Birth of a Venture Philosophy

🎯Key Sentences

📝Key Phrases

📖 Transcript

[The Genesis of Andreessen Horowitz: A Tale of Two Founders]-[Andreessen Horowitz Part I]

📋 Summary

The Genesis of Andreessen Horowitz: A Tale of Two Founders

The Roots of the Protagonists

The Mosaic Revolution and the Browser Wars

From LoudCloud to Opsware: Learning Through Failure

The Birth of a Venture Philosophy

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🎯Key Sentences

📝Key Phrases

📖 Transcript

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