Andreessen Horowitz Part II | Acquired

I need an M1 so that we can not have this very quiet little background noise that hums that we have to remove in our audio.

That annoys me to the nth degree.

There's a million reasons I need an M1 Mac, but this one is clear and present.

I can't wait.

September.

Who got the truth?

Is it you?

Who got the truth now?

Welcome to Season 9, Episode 2 of Acquired, the podcast about great technology companies and the stories and playbooks behind them.

I'm Ben Gilbert and I am 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.

Well, listeners, welcome to Andreessen Horowitz part two.

We last left Mark and Ben in their instant messenger conversation in 2009 with the famous first words we ought to start a venture capital firm.

And I was thinking the same thing.

Yeah, I think that conversation was actually, it was actually 2008.

2008.

That makes more sense.

Launched in 09.

Takes a little while.

We'll get into it.

It takes a little while to, you know, set up a venture firm, raise the money.

You don't just like snap your fingers and have $300 million.

Well today, listeners, we will cover the next 11 years from the firm's founding to today.

This is the story of the VC firm that basically changed everything in the whole landscape.

Super high valuations, massive fund sizes criticism for both of those things.

Becoming an investment firm and a media company, popularizing the message that former operators make better VCs than career investors do.

I mean, David, reflecting back, it's pretty crazy that A16Z is only 11, 12 years old.

Wow.

Yeah, they became a big dominant force so quickly.

To put it in perspective, they were founded two years after the iPhone came out.

Oh, that's right.

That's right.

Pretty good time to start a venture capital firm.

Perfect timing.

Well, listeners, two things to highlight if you like the show.

One is our Slack.

And when I say Slack, I do indeed mean the company that A16Z made three-ish billion dollars investing in.

Do you mean TinySpec?

Oh, sorry.

I do mean tiny spec.

You're right.

We've got a great discussion of these episodes crypto investment ideas, all good stuff with a community of 8000 super smart people like yourself.

Join at acquired.fm slash slack and the limited partner program.

This is our members only community where we drop... special for subscribers content.

The most recent one was with Kyle Samani, who is the co-founder and managing director of Multicoin Capital.

We talked with him about how to manage a crypto fund, how it's different than managing a normal fund, which we'll talk about on this show.

What was his line?

He was like, oh, because they have a hedge fund and a venture fund all doing crypto.

And he was like well, the demarcation is, you know, if time to liquidity is more than like six, nine months or so, we put that in the venture fund.

Oh, wow.

Yeah.

Yeah, a whole completely different universe.

If you want to listen to that or any of the other LP show episodes or join us on our next upcoming Zoom call with LPs, 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, 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.

All right.

Well, listeners, as usual, the show is not investment advice.

David and I certainly hold equity in some of the companies that we're going to talk about in the show.

So please do your own independent research.

None of this is investment advice.

It's for informational entertainment purposes only.

And one other disclaimer disclosure.

I do have a new investing vehicle that I am super excited about.

It is called Kindergarten Ventures.

And it is a angel fund that I've started with my buddy, Nat Manning, who's the COO of Kettle, a great company that we've talked about a bunch on this show.

So as I said last time, a few of the Andreessen Horowitz GPs are small LPs in the fund.

I don't think that that has had any influence on.

I've been keeping you honest.

Yeah.

I mean, Ben, you keep me honest here.

I mean I'm going to be pretty laudatory of Andreessen here, but I think I would have done that anyway.

But you can keep me honest here.

Well, David, congratulations.

Exciting.

You are moving from angel to super angel in the 2008 parlance.

That's right.

Pretty cool.

And just like Ben and Mark originally, it's not just about seed investing.

Really, it's about, in a large part, all the great folks on Acquired.

We invest at any stage, any sector.

We are super angels.

All right, you're starting to spoil stuff.

Take us in.

You're sounding exactly like one of the tentpole theses of the start of Andreessen Horowitz.

Indeed, indeed.

Well, we'll see where kindergarten goes over time.

Okay.

So as you said at the top of the show, we finished last time with the, Ben Horowitz, not Ben Gilbert, gets off the obvious recruiting call from Doug Leone at Sequoia.

He hangs up and he IMs Mark.

IM, I love it.

So you might be wondering like, huh, why aren't they starting a company?

Why are they starting a venture firm?

Well venture was something that Mark at least had supposedly been interested in.

You know back from his first kind of early days in the Valley.

He says to him about venture capital, quote I always thought the entire venture thing was incredibly cool.

Going to Kleiner Perkins with the high ceilings, the markers on the wall of all the great companies they IPO'd, Larry Ellison walking through and at 11 am, the biggest buffet you'd ever seen.

At a time when I was eating at Subway it was the closest thing to a cathedral for nerds.

That's some way to talk about the venture capital industry.

So as we talked about, Mark and Ben, of course, have been doing their super angel investing thing.

You know, this wasn't entirely a huge leap, but as many, many people would point out to them.

And, of course, as they knew themselves, building a venture capital firm that is going to like lead deals and beat out other venture capital firms to lead deals is a very, very different proposition than being an angel investor.

Yeah.

I mean in this angel investing they were doing and we should say Mark and Ben did 36 deals together over just three years, so a deal a month with their own money of, I think, about 200K of a max check size.

They're pretty much not leading rounds.

So they already don't have the dynamic of needing to be the one to set the terms and come in.

That is about to hit them in a big way of a total difference between coming in as a participating versus lead investor.

Oh man, I'll say, having now made the opposite journey, it is way easier and way more fun not to be a lead investor.

But that's a whole nother story.

But like we said, it's a pretty interesting and definitely contrarian time to start a venture firm.

Here we are in late 2008, early 2009.

Of course, what's going on?

The financial crisis.

And so most other VCs, and if not VCs, certainly the LPs.

They're all tucking their tails and triaging their portfolios right now.

This is not about deploying more money or starting a new firm.

Sequoia has literally just done the RIP Good Times presentation.

It's kind of crazy to... think that, oh, we're going to go start a new firm right now.

Yeah, it's wild.

So here they are.

And obviously we've talked about the last time the big thesis that they have that there is no bubble.

They're kind of all alone in shouting from the rooftops here that hey, things are actually great in Silicon Valley.

This is not like the dotcom crash.

The financial crisis is actually only going to be great for Silicon Valley startups.

And of course, they are right about all this.

But pretty much nobody else is saying this.

And Tad would write in the New Yorker piece later that A16Z was designed from the beginning to be a full-throated argument about the future.

Of course, at a time when nobody else was making that argument.

So they've got this insight.

They've got the interest in VC and the drive to make it happen, to go build a firm.

They're Mark Andreessen and Ben Horowitz, but they're still just two dudes.

And if you want to pull off what they want to pull off, they're going to need a whole lot more than that.

So they go to see who else but their old friend, Andy Ratcliffe.

And Andy, by this point of course, had stepped back from Benchmark and he's teaching at Stanford GSB.

And he has just made the jump to become an entrepreneur himself.

He has founded Wealthfront.

But of course, knowing Andy, there is nothing that gets him more jazzed than the idea of a, in the words of Howard Marks, that he uses a correct non-consensus bet.

And that is obviously exactly what Ben and Mark are trying to do here.

So Andy tells them, this is great.

I love you guys.

And I love this contrarian bet that you're making.

But you want to be in the upper echelon of VC firms and you need a strategy to break in.

And you see, we did this at Benchmark about 10 years ago when we started Benchmark.

And we've talked about this a lot on the show but what we did at Benchmark was we counter positioned against one of the two major incumbents at the time, which was Kleiner Perkins.

Kleiner, as we've talked about, there was the Koretsu approach to venture capital, and all of our companies work together in different ways.

It's sort of like, you know, they're like a mesh network and we sort of sit in the network as the capital provider, but they work with each other in all these different ways.

Yep.

And like, on the one hand, that was great.

But on the other hand, you know, certainly some of the Kleiner entrepreneurs felt like they were pressured into doing deals and working with other client or portfolio companies.

That didn't really make sense for them.

So what Andy and Benchmark did is they said, there is no pressure from us to do anything else.

We are going to treat you as sovereign states and help you make the best decisions for you.

So that was fun.

The second piece of the benchmark counter-positioning against Kleiner.

Maybe this is the most important.

The thing about Kleiner during its heyday was it really was John Doerr.

And we got to do a whole episode on Kleiner itself and storied history even before John Doerr.

The glory days, it was all John, all their big wins from Netscape to Amazon and beyond.

It was John that sourced them.

And John was the reason why the entrepreneurs wanted to take Kleiner's money.

But the thing about how it worked that wasn't talked about a lot was John would source the deals.

He would be the face of Kleiner, the reason everybody wanted to work with them.

But then he'd farm out the board seats for to other partners and even associates.

So how do you counter position about against that?

Benchmark is like well, this is great, we're going to be a small, equal partnership.

All the partners here are going to be great people you want on your board.

You know what you're getting somebody from benchmark.

You're getting an equivalent maybe not quite an equivalent, but they talked about like an equivalent of john doerr, and your partner is actually going to sit on your board.

So then, if you're Benchmark, you need to start talking about how important it is who your board member is.

Right.

And it's sort of this all about the individual.

You form one trusted relationship.

They aren't promising to do anything for you that we're not going to staff up your company.

We're not going to help you with PR.

We're going to be the best financial investor and board member possible.

And you're going to have this really tight one-to-one relationship with someone that you really really want involved in your company personally.

Totally.

And I think it's worth doubly underlining this because...

Obviously, it is super important who your board member is.

And the right advice from the right board member can make a huge difference.

Today, we just take this for granted.

It's like, you know, fish and water.

You're like oh yes, of course, the board member that you have from your venture firm is super super, super important.

That wasn't the case.

And you could actually ask the question of like, is that the truth?

Period.

Totally.

We're going to talk about a lot of things on this episode that Andreessen Horowitz introduced into common startup wisdom.

This was the one that Benchmark introduced into common startup wisdom.

Yep.

And the reason they introduced this into startup wisdom was specifically to fight against Kleiner Perkins.

It was a strategy credit.

It worked really well for them.

Exactly.

So then, of course, the last piece of the benchmark counter-positioning related to all of this and all working in concert together, was Kleiner.

Is this huge firm?

It's got lots of tiers of partners and lots of people there and lots of politics and lots of functions that aren't investing partners.

So Benchmark, they said, we're going to do the opposite.

We're going to be a small, flat, equal partnership.

So we're all going to get on board in a way that politics at a bigger firm like Kleiner would sometimes make difficult.

Of course, there's a lot of luck that goes into building a venture capital firm as well.

And probably the most important thing for Benchmark was that they made that early investment in eBay.

And all of this strategy and all this counter-positioning.

Sure that helped, but got ebay, you know nothing else kind of mattered after that, and that helped them ascend to the top of the venture capital heap.

So now okay, mark and ben, like they sort of knew all this, and they're hearing this from andy and they're like huh okay well, what are we gonna do?

And remember of course they love Andy, but they hate Benchmark.

Yeah.

And we should say, the way that Benchmark established these tenets, that they hold true, the way that Andreessen Horowitz is about to, it's not pure marketing, at least from what I can tell in all the research.

It is a self-examination of what are the things we hold to be true and And then what are the subset of those things that we can make a really loud marketing message about.

That we were kind of going to do anyway, but play to a massive advantage for us.

Yep.

So they're like, well, we like this counter positioning thing, Ben and Mark are.

Who are we going to counter position against?

Not Kleiner and probably not Sequoia like we talked about on the last episode.

Like you're going to come at the king.

You best not miss.

And that just seems like really hard.

Maybe we should counter position against Benchmark.

Our buddy Andy's not there.

No, it's like the old saying you either die a hero or you live long enough to see yourself become the villain, right?

Oh, and on that note, I know you're about to talk about this later.

And so I won't disclose how Mark announced the existence of the fund.

But in the first sentence of the interview that he did, announcing the fund, he literally said the sentence.

I'm crossing over into the dark side.

Yeah.

That's actually great because I cut that from the quote that I was going to use.

Perfect.

So much later, Ben would actually just say point blank.

He was like, yeah, we were always the anti-benchmark.

Our design was not to do what they did.

And of course, he's referring to them, telling him that he wasn't CEO material, but also, just like in general, we're going to do the opposite of what they do.

So now the question becomes, okay, Mark and Ben know what they're going to do.

They're going to counter position against Benchmark.

How do they do that?

Well, the obvious first thing is we don't fire founders here.

And we support young technical founders, help them become the best CEOs that they can be.

And we're not going to do what David Byrne tried to do to us.

And I love the way they talk about this because clearly it's something they deeply believe, having both been computer science undergrads and gone on to become founders of companies.

The way that they sort of describe it is without a synthetic network, without a network of what Andreessen Horowitz would become.

A technical founder doesn't really have a chance of becoming a professional CEO.

The pace of the company's growth is going to require a CEO network, a CEO's sort of understanding of how to organization build much faster than someone can develop those skills.

So the thesis behind developing what would later become platform at the entire VC ecosystem, platform teams is was really Mark and Ben saying well, how can we synthetically create or simulate all the tools that a real professional CEO has, if you are a technical founder, if you are the innovator?

Because their core belief.

They believe that the innovator should be the one who is running the company.

And if that is true, oh my gosh, there's all these problems that now we have to help them fix.

Totally.

Well, now...

Think about how this all fits back into these various VC firms' strategies.

So what was Kleiner's strategy for overcoming this?

It was the Koretsu, you know?

Great.

We're going to take all these founders and all these young companies and how do we turbocharge them into being real companies and building their networks and doing deals?

We're going to have them all work together and we have the best companies.

And so that's great.

Now think about the benchmark strategy, right?

Of like, we're going to position against Kleiner.

What do you need if you're the benchmark strategy?

You need CEOs who are grownups, who are capable of standing on their own and running the companies, because they're not going to get a lot of support on that front from benchmark, because it's just the partners.

So now it starts to explain some of the behaviors here over the past few decades.

You show me the incentives, I'll show you the behavior.

Exactly.

Okay.

So they start thinking about this.

They're like, what are we going to do?

Well, we want to raise a big fund and we want to be a big firm.

We're going to have a lot of management fees associated with that.

And we, Mark and Ben, we don't really need the management fee income streams.

We've made plenty of money and we're used to as being entrepreneurs, not VCs, not getting high ongoing salaries.

Lumpy cash flows.

Exactly.

So what if we take all these management fees and we staff up, we build a platform at Andreessen Horowitz.

So two and a half percent of $300 million is seven and a half million dollars a year.

That's a lot of money.

Right.

And classically, the when people say two and 20, it's 2% on average for the lifetime of the fund.

So you can sort of say in the back half we're not going to be doing as much active work on this particular portfolio.

So we'll take one and a half at the front end, we want to take two and a half to balance it out.

But yeah, David, you're right.

It's like gosh if we're not paying ourselves, which we should say.

For at least the first two years, Mark and Ben did not take a salary.

We got a lot of cash we can spend on stuff.

Yeah, on people and resources.

So then you start thinking about this dynamic.

You start thinking about the rest of the venture industry through Mark and Ben's lenses as former entrepreneurs.

If you've got these firms that are small partnerships, not that many people, but they're just getting these huge management fee streams online.

Well, it's kind of weird then, that these VCs are telling entrepreneurs oh you know, you should take like 50000 annual salaries, which is what was the norm back in these days.

$50,000, $60,000 is your annual salary.

And you know you should give us this big ownership.

But we're going to make a few mil a year each.

You know rain or shine out of these management fees.

Interesting.

So the next piece that they start thinking about is of how they can counter position.

So benchmark more so than pretty much any other venture firm even to this day.

But lots of venture firms felt the same way.

They had this series A purist approach and really this idea that still permeates venture to this day, that the series A, that's the real craft of venture.

That's the like board, it's related to this board member thing that, like that round, is this sacred special round where the shoe leather really gets polished, so to speak, And to say why?

Because in this very clear-cut world which we're not in now, of these crazy names for rounds and incredible fluidity of rounds, there was not a seed asset class.

There were no seed firms.

And so the Series A was your first professional venture capital institution, coming in and writing a check into your company, taking a board seat.

The first time you have real governance.

And before that you have whatever cowboy would help you as an angel investor to, If that even happened at all.

I mean in many cases the Series A.

That was the very beginning, because you needed a few million dollars to go buy servers and do all that.

But by the time we're talking about here in 2008 2009, the Series A has really become this like catbird seat for the venture capitalists, because they can outsource all the real early stage risk to the seed stage with way less capital.

Have these companies get going?

And then once they kind of start to show product market fit and a lot of the risk has been removed, then the Series A venture firms can come in, lead a round and there's still all this sort of hangover baggage with the round where it's like well, it's the norm that whoever leads your Series A is going to get a huge ownership percentage in your company, like 25, 30 ownership.

And it turns into this total bonanza for the venture firms who aren't really taking that much risk.

So Mark and Ben are like hmm Well, what if we say that Andreessen Horowitz will do any round at any time?

We'll do seed.

We'll do lots of seeds.

And we won't take board seats in the seed investments.

And you don't need that much capital.

We won't give you that much capital.

And we won't take that much ownership.

And then we'll do series A's, sure.

But we'll also do series B's.

And we'll also do growth rounds.

So listeners who are not professional venture capitalists listening to this it kind of sounds like okay, cool.

They'd have a different strategy.

They don't focus on a stage.

They just focus on lots of stages.

And for anyone who has raised a fund before, you will know how insane this sounds.

Like what venture capitalists classically pitch to LPs is our sweet spot investment is this.

It is a company that looks like this.

It is a stage that looks like this.

It is an ownership percentage that looks like this.

It is a check size that looks like this.

And it's a set of governance rights that generally look like this.

And we intend to do that 20 to 40 times.

And that is how we will construct our portfolio.

And so therefore, there can be a bunch of different variations among the companies as they go along.

There'll be winners, there'll be losers, but they'll all kind of start out like this.

So that's what you're buying.

And by starting a venture firm and being like, we're like stage agnostic, we're governance agnostic.

It's just like, so wait, sorry, what's the thesis?

Totally.

It seems crazy.

But again, they look out at the ecosystem and they're like...

Wait a minute.

There's these super angels of which we've been them.

We're doing great.

We're cleaning up on Twitter and Facebook and LinkedIn and Zynga, I think.

Groupon, like all of these companies.

We're in them.

We're doing great at Seed.

Why on earth would we stop that?

Then they look downstream, past the Series A.

There's a whole set of venture firms at this point in time that all they do is they just ride the coattails of Sequoia and Benchmark and Kleiner.

And they say, what Series A's did they do?

Great, we're going to come in.

We'll mark it up like 2X at the Series B. We'll ride along.

And they're doing great.

And so Andreessen's like you know, Andreessen Orritz, they're like we can blow these guys out of the water.

Then they look across even further and they're like, whoa.

There's this whole other asset class out there.

I'm talking about Summit and TA and Silver Lake, which is going to come back up.

Now, those guys, they're deploying a lot of capital.

They're getting less multiple returns, but the dollar returns that they're generating are enormous right now.

In pretty short periods of time with very, very protected downside.

So like very low risk, low multiple, but fast return, big dollar amount investments.

Totally.

And they don't even pretend to offer any of the stuff that like venture firms pretend to offer.

So like, huh, okay, great.

So this whole set of things, this we're going to build a big firm people-wise.

We're going to use the management fee resources to build out platforms to help technical founder CEOs become CEOs.

And they would later call these networks, like each individual function, recruiting or finance or acquiring enterprise customers.

They call these networks at the firm.

Yep.

So we're going to do that.

We're going to not necessarily focus solely on series A's like we'll do series A's.

Series A's are great, but we'll also do seeds.

We'll also do growth rounds because we think there's opportunity there and we can break in.

And then the governance thing, like sometimes we'll take board seats.

Sometimes we won't take board seats, but we don't necessarily need to.

And maybe that'll help us scale.

I would say all of that collectively becomes the counter positioning against benchmark, you know, and it works to varying degrees.

Like on the whole, it works great.

There are a few specific things that don't work.

And this became talked about for like five to seven years after this was an issue.

Oh, my God.

People are still talking about this like three, four years ago, which is insane.

All right, so what is it, David?

So if Ben and Mark are going to go out there and do all these seeds and not take board seats well, the question then becomes if they don't invest in the next round in the Series A or later, is that going to send a really negative signal to the market of like.

Oh well, Andreessen Horowitz had the inside information on this company because they did the seed and now they're doing the A in a competitor.

Does that mean that the original company that they seeded is no good?

Other VCs in private and in public vehemently attack Andreessen Horowitz on this front.

The reality is the most exemplary cautionary tale about this is completely the opposite.

And that is, of course, Instagram.

Instagram.

Yep. which is so great.

So Andreessen, along with Baseline, does the seed in Instagram and then chooses at the Series A, in one of the most boneheaded decisions of all time, to instead back competitor pick, please.

Well right, because they ended up both being in their portfolio, because Instagram started as bourbon pivoted into Instagram.

Suddenly Andreessen Horowitz has a problem because they have two competing things in their portfolio.

And they're like, well, we got to pick one and we're picking pick, please.

Totally.

So now what actually happens here?

Like.

Oh, what you would think.

You know, if you buy the narrative of the attack against Andreessen Horowitz signaling effect Instagram they're toast.

Far from it.

They go raise a Series A from Benchmark, from Matt Kohler at Benchmark.

And of course, we know what happens there and what happens to PickPlease, which is nothing exciting.

So the reality is the signaling effect kind of works more against the VC firm than against the companies.

But, you know, hey.

So David, we've got this thing where the innovator should be running the company.

Andreessen Horowitz is going to have all these networks that are going to augment that innovator and give them a CEO-like resources at their disposal.

So they can really be the professional CEO and the technologist who brought it into the world.

They're going to spend a bunch of management fees to make this possible.

They're going to raise a pretty big fund for the time, $300 million.

They're doing wacky stuff with portfolio construction.

Okay.

So all this is great, right?

They've got this great theory, the grand unified theory of counter-positioning and market entry strategy into the venture industry.

Blah blah blah, all good.

But Andy's like, you know, look, guys, this is one other thing, which is the reality on the field.

I've done a bunch of research here since I joined the faculty at GSB and I've concluded with data proved what we all knew all along, which is that there's a very small, finite set of companies that get started in the Valley every year that actually matter.

And it is a blood sport to win the lead position as an investor in those companies.

And you're fighting against Benchmark and Sequoia and Kleiner and you can counter position all you want.

And how are you going to win?

Just like, you know, the Mike Tyson quote, you've got your plan.

You're going to.

You know it's going to work until you get punched in the mouth.

And they are going to punch you in the mouth.

And how are they going to punch you in the mouth?

Well, they're going to say things like you know yeah, Mark and Ben, like Mark and Ben sit the browser and that's great and whatnot.

But, you know, they haven't been VCs.

They haven't been board members.

They haven't been professionals here.

But the other thing that they're going to say, and that's going to cut way deeper for you guys, is they're going to say that you guys don't have staying power.

As Don Valentine would have said back in the day, obviously not about Mark and Ben, but he would have said where are the monuments?

What's Netscape?

What's Opsware?

You guys have built these good stories, good companies.

They're not around anymore.

Who's using Netscape?

Nobody.

So you talk this big game, but where's your eBay?

Where's your Cisco?

Where's your Oracle?

Where's your Google?

They aren't there.

You want to work with us, we've got those monuments.

So there's this great quote from the Fortune cover story when they launched the firm.

But there's this quote in there that says just five years ago, Andreessen's image was more that of a smart amiable, billionaire playboy who dabbled ineffectually at technology's fringes.

He seemed more Paul Allen than Bill Gates."

Then in the same piece, this is from the launch of Andreessen Horowitz.

Think about who was placing these quotes.

There's a quote from Steve Case.

Somebody ginned up Steve Case to give a quote here.

Mark is like a rock star who had his first album hit big and then the next ones were not quite the same.

Whoa.

Brutal, right?

Like they're getting punched in the mouth hard.

Wow.

Those are brutal.

So David, you're implying then that in this punch you in the mouth landscape that's going on, the journalist is doing research for the story and they just get connected with people who are going to from day one, right out of the gate, beat the crap out of Mark and Ben's accomplishments.

Yeah, I'm sure Mark and Ben and the great people they were working with on the PR side which we'll get into in a sec they weren't the ones that pointed people to this quote.

The Steve Case thing is interesting too, given that Mark reported to him for nine months as the CTO of AOL.

Totally.

There's actually another sentence to the quote where it really softens the blow.

Something like, people have a lot of respect for him that he's persevered or something like that.

But the point, the damage is done here.

Yep.

So they're like, huh, we're going to have to deal with this.

Fortunately, they know somebody who knows a thing or two about punching other people in the mouth.

And that is their other old board member from the Loud Cloud Opsware days.

The original OG Hollywood super agent, Michael Ovitz.

Yeah.

So great.

We've talked a lot about Ovitz on this show, CAA and the whole Disney debacle where he goes and becomes president of Disney.

And then we of course talked about him joining the Loud Cloud board after that on the last episode.

But I think if Andy was the you know, the inspiration for the sort of highfalutin strategy of entries in Horowitz, Michael was the inspiration for the like.

Okay, how are we going to get this done?

So the quick story you know on Ovitz is he started in the late sixties in the mail room of William Morris.

You know the storied long term Hollywood talent agency.

And everybody started in the mail room back in the days.

And, uh, The dynamic in Hollywood was totally broken.

We're talking here about how the venture and startup dynamics were a little broken at this time.

Hollywood was bad.

The studios controlled everything.

They held all the power.

They held all the creative decisions.

The talent and the artists, the actors, the directors, the writers, etc., they were...

They were more, but little more than indentured servants.

And the agencies like William Morris, they claim to represent the talent, but they knew who the real customers were, which were the studios.

I don't know if we've talked about it before on the show, but I've talked about it before with other folks in the Pioneer Square Labs context of how startup studios fit into the landscape.

But I love this equivalence between...

Hollywood and tech where, especially in the old school days, you sort of have the VCs, which are a lot like the studios.

And there were three to five major VC firms with money and there were three to five major studios with money that could greenlight a movie.

And then, of course, you've got the CEO founder, who's a lot like the director of a film.

And then everyone else, including the actors who works on the film, is a lot like the team of the startup.

And watching the way that the power dynamics evolved between these two ecosystems in parallel is really fascinating.

Totally.

So what Ovitz does, so he and a bunch of buddies from William Morris, they're like, screw this.

There's got to be a better way.

They leave and they go start their own firm.

It's exactly like Jerry Maguire.

Jerry Maguire was actually about this guy, Lee Steinberg, in the sports agent world, but it's the same story.

So they leave, they're going to start a new firm and they're going to focus on the talent, not the studios.

They're going to figure out how to deliver the power to the artists and the talent and take it away from the studio.

So how do they do that?

One.

They package projects and talent together and then they sell whole packages to studios and say we'll sell the rights to you.

But by doing that versus like oh, we represent this actor and you studio, you're making this project.

It's more like no no no, we got the project and the artists on the project and we packaged it and we're going to bid these studios off against one another to finance it at the highest price.

So how do they do that?

Well, they got to connect up the talent, right?

They got to take the talent from being each individual person of their own to working together against the studios.

How did they do that?

Well, they transformed the firm from being each individual agent is a silo to we are a network.

We're like a web network.

They call it the franchise.

And so anybody who's part of CAA.

Your job is to have your clients, but to get them to work with all the other clients of the firm that are represented by- A shared Rolodex.

A shared Rolodex.

And so to do that, everybody at CAA is a partner.

No mailroom, no blah, blah, blah.

We're all here.

We're all together.

This is about the franchise.

And it's really fascinating in like a business strategy context, zooming out what they did.

And this is a common discussion point on Stratechery of like what is the point of integration within a value chain?

And what it used to be was at the studio level, because that's where the money would come from.

And then they would get to aggregate all the resources together using their money.

And the fact that it wasn't that competitive because there were very few people that they were competing against and they knew them very well and nobody wanted to lose their power.

And when you start having caa say, actually we're going to package all this together, the point of integration shifted down the value chain one click to where now it was happening with caa exactly.

And the important thing here is wherever the point of integration is, that's where you gain power.

That's where you're able to become more than a commodity, where you're able to gain.

Basically, you're able to create margin, where you're able to get more cash for something than it costs you to assemble it.

So what does CAA do? they create the projects.

So like Jurassic Park, Lethal Weapon, Schindler's List.

These are CAA projects.

These are not studio projects.

They pull them together and then they bid them out to the studio.

Since now, all of a sudden, all these studios bidding against one another, the price goes way up, the dollars flowing into the space goes way up and the artists all do way better.

So Tom Cruise, Kevin Costner, Barbara Streisand, Steven Spielberg.

Within a couple of years.

CAA is just vacuuming up everybody, and so literally the term that they use that i think ovitz coins are become said about caa and hollywood about all this is they become quote the dream execution machine.

You're an artist, you have a dream.

Caa is your dream execution machine.

It's great marketing, oh my god.

So ben and mark, they're like oh, holy crap, this is so great.

What better, what better analogy to use than we're going to go build the dream execution machine in startups.

Which happens to work particularly well because they're working with technical founders.

Exactly.

You have the glint of a dream and the ability to create the sort of core piece of value, the core way a customer interacts with it and gets value out of the product.

But you can't do all the other stuff.

We are the dream execution machine.

You should come to us.

Yep.

They're just like a director or a great actor or a great writer.

Yeah, etc.

So the sort of last unwritten, but it didn't need to be written.

Principle at caa was take no prisoners and we're going to burn the old system to the ground like f.

All of those people, and of course ben and mark, have that same ethos about the venture ecosystem And whether theirs was written or not internally, it certainly became written externally in all of their communications.

Like they pulled no punches in talking about how the entire existing incumbent industry sucked and people were greedy or we'll pull some quotes later but they were not shy about being critical of the establishment.

Totally.

So this is the punch back in the mouth.

Like, great.

You're going to punch us in the mouth.

Say that we're, you know, has been rock stars who are one hit wonders.

Like we're coming at you twice as hard.

So that's what they do.

And they also, you know, basically wholesale copy the firm building approach from CIA.

So, you know, as you said, the platform and the networks that they build up.

They hire a whole bunch of people.

They have a biz dev network to connect founders with large company customers.

They've got an executive recruiting network.

They've got an engineer recruiting network.

They've got a future financings like other venture firms network and an MA network associated with that too.

You need an acquirer, we'll hook you up with acquirers.

And then, of course, probably the most differentiated and important last piece of this is they have a PR network.

Yeah, which they wouldn't say is the most differentiated.

The most differentiated, I think they would say, is the executive briefing center and our ability to galvanize a set of Fortune 500 companies to become your customers.

But in reality, yes, they are masterful at PR.

Well, Ben would say later, I had this quote later, but here's the perfect spot for it.

He would say, literally, we introduced a new concept to the field of VC, which was called marketing.

Yeah.

And it's true.

Nobody.

You know no venture firms were doing this for themselves or helping their companies with PR and marketing before Andreessen Horowitz.

Well, the interesting thing about why no venture firms were doing it about themselves was the commonly accepted wisdom is that opacity plays to our advantage.

I think most people didn't actually think through it.

They just thought, what have successful venture capitalists done in the past?

And that was be opaque.

Don't make too much PR noise other than to claim your win when you have it.

But you don't need to take these big positions and be brash and counterposition publicly.

And Andreessen Horowitz not only saw that as a thing they could exploit, but I can't remember if it was Mark or Ben I was listening to on a podcast that we'll link to in the show notes, along with a lot of other sources we did for research for this.

One brought up the fact that if you trace back the origins of institutional firms like venture capital firms, it comes from the investment banks of the 40s and 50s, who were opaque because they were financing wars, right.

There was lots of reasons about why they wouldn't talk about where their returns were coming from or their excitement about the projects they were financing.

Whereas Mark and Ben are unabashed optimists about the future, Mark in particular of just standing on the largest soapbox possible and preaching about how cool the future will be and how much better off everyone will be, both on average and in every spot in the distribution, in the long run.

So let's bring that closer as fast as possible and be really loud about the future that we see and about the companies that we're investing in to build it, and how much we believe in that and how unapologetic we are about that.

And that was just totally different than the commonly accepted wisdom of how venture capitalists should go to market.

Yeah.

Well, two things.

One.

I think the version of hiding the war financing of investment bankers that VCs were doing here is they're hiding the management fees.

Come on, you got a 10 person organization, half of which are assistants, and you're making 20 mil across your funds and management fees a year.

I don't want to shout that from the rooftops if I'm a VC firm.

Or brag about how I'm putting 2 million into work to own 30 to 40% of a company.

Yeah, exactly.

Then the other thing though, like the flip side is, if you are going to go be unabashed about pounding the table, about what you're doing in the future, if you're an entrepreneur who you think you're part of building that future God, now you've got a champion.

This is great.

Yep.

So there's one other person along these lines that they go see before launching the firm, which is the number one hands down best PR person in Silicon Valley at the time Margit Wenmachers at the OutKast PR agency.

So Margit had co-founded OutKast and they had all the best clients, like all the best clients Facebook Salesforce, VMware.

And they worked with them from like the time they were nobodies still up through, you know, being huge companies.

Amazon, they did the Kindle launch and still work, to this day, still work with the Kindle team.

So the story of how they get connected is, Margaret tells this on an A16Z podcast episode.

She says that one of the companies that Mark and Ben had been angels in wanted to work with OutKast, but Facebook blocked it and said it was a conflict and wouldn't let OutKast work with them.

So market just joined the board of Facebook and he gets involved in trying to smooth this all over.

And he's like, wow, market is really amazing.

And I see a Facebook, like what she's doing there.

So he gins up an excuse to get her contact info, calls her up, you know, supposedly to talk about this situation and instead brings her to the creamery in Palo Alto, sits down with Ben.

And they just like talk the whole time about how they're going to launch a venture capital firm.

I've got another project for you. which is great.

So Margaret's like, okay, you know, like we work with venture capital firms.

I can do this.

What are you going to call the firm?

And they're like, we're going to name it Andreessen Horowitz.

She's like, that is a terrible idea.

You're talking about this big game about how you're going to be a franchise.

You're not going to be about the partners.

It's all about the entrepreneurship network.

And you're literally going to put your own names on the door.

Like, are you serious?

And they're like, no, no, no, no, no.

It's not what you think.

We did a whole big branding exercise about this.

We hired a big branding firm.

We did all this work and we decided we need to do this for two reasons.

One, Andreessen, you know, Mark Andreessen is a known quantity.

He invented the browser.

It's already a brand.

He's already a brand.

So we can draft off of that to get going.

And then, once we get going, we transition from Andreessen Horowitz to A16Z, which is A to Z.

So supposedly the story is I guess it's probably true that people used to abbreviate internationalization to- Oh, I actually.

No, it's definitely true.

My first job when I was 14 was as a product test engineer at this medical printer company in Cleveland.

And- I did not know that.

That's awesome.

We're learning some Ben Gilbert history.

Yeah, and I did some internationalization work, which you only need to type that once before you're like well, I never want to type that word again.

And that is abbreviated I-18N.

Ha ha ha.

So people really do do this.

Absolutely.

And there's another one.

I think it's localization.

Might be L something N, L16N or L11N.

I can't remember how many letters, but yeah.

Interesting.

So they're like, well, it's perfect.

It's kind of a geeky reference.

Super esoteric.

But it's A to Z. And we're going to do...

A to Z at Andreessen Horowitz.

We'll do any round.

A to Z. This is great.

By the way, you'll get a heads up that Mark and Ben are going to step back from the firm when they actually formally change the name to A16Z.

I was looking for it in this most recent visual refresh that they did.

I'm like, oh, is it time?

Are they actually flipping it to A16Z?

But nope, nope.

The official logo, as you'll see on the art for this episode, is still Andreessen Horowitz.

Still Andreessen Horowitz.

Interesting.

It's got to be coming.

I mean, all across the website, everywhere and on all the media they do.

It's a 16C.

It's not Andreessen Horowitz.

Yeah, but it's still the unofficial moniker.

Still there, baby.

So there's one other thing, one other benefit about the name which we know very, very well at Acquired.

They're going to be listed first in the phone book.

Huge advantage.

I mean, it literally is a huge advantage.

You know anytime that a reporter's writing a piece about them talking about various venture capital firms.

You know as much as not.

They're just going to alphabetize stuff.

And who's going to come first?

Andres Norowitz is going to come first.

We happen to be just very lucky that podcast clients are not terribly sophisticated in how they do sorting.

And so whenever you subscribe to a show, it just displays them in alphabetical order.

Totally.

So Margaret's like, yeah, all right, whatever.

Fine.

All right.

You guys have done a lot of justification to put your names on the door.

I won't argue with you.

Rationalize, rationalize, rationalize.

Great.

Yep.

But what you need is you need to build a pipe and you need a cover story.

So...

What do you want to do?

What outlets do you want to go on?

Where's your cover story?

I can get you whatever you want.

What do you want to do?

So February of 2009, Mark goes on.

Charlie Rose.

Even 15 years later, it holds up really well.

Yeah, it was really good.

So landing Mark on the show when there's no reason for it's not like he has a new company or anything like there's no.

In fact, the funniest thing is that I tweeted this from the acquired account last night.

There's some point where it brings up the little like title tag underneath and it says Mark Andreessen.

I think it's founder.

Yeah, founder Ning.

Yeah.

And you're like, founder of Ning?

It was true at the time, but did anyone care about Ning?

Not really.

That's the best you can come up with?

Yeah.

We should be clear.

He is on the board of Facebook.

He's involved in some stuff that's going crazy.

He's an investor in Twitter, and Twitter is in its third month of vertical line growth.

He's not just the Netscape guy.

He's involved in something that these companies that are part of a cultural phenomenon at the moment.

Totally.

Still, it was a pretty big win for OutKast to get him on the show.

So Charlie starts off and says you know, when we interview people like you, we always have to ask the question what's the hottest idea there in Silicon Valley?

What's the next big idea?

So Mark replies, well, maybe this goes off track from your question.

He's great at redirecting.

He's obviously had some training.

But I think the hottest idea is that innovation is actually alive and well.

Remember, this is February 2009.

But look, there are a lot of people out there who are arguing the other side of that.

So he's already setting up like, we are the champions of innovation.

Only we can save you.

Then Charlie asks him about rumors he's been hearing that Mark is starting a venture capital firm.

It's like rumors you've been hearing.

This is why he's on the show.

Totally.

Generous of you to give him Rumors.

He's been hearing from Margit that you are starting a venture capital firm.

And you have to realize, before you finish, I think it is worth planting the seed.

I watched this interview because I was reading an article and I was like oh, this article says that he announced it on the show.

I should go watch the Charlie Rose interview where he announces it.

And I start watching it and I get 20 minutes in and I'm like, this isn't about Andreessen Horowitz.

And then I remembered exactly what you opened with.

Obviously, it wasn't a brand yet.

He wasn't known for being an investor yet.

And so if you're making the pitch to Charlie Rose of you need to have this guy on the show...

Charlie's throwing Mark a bone by letting him mention his new project to galvanize it on this show.

And so, of course, it only occupies three minutes of a 50 minute interview.

So Mark replies with, as he said at the top of the show, yes, I'm going to the dark side.

But then he says, so I'm creating a fund.

And as you know, our claim to fame is we've actually been entrepreneurs.

We're by entrepreneurs for entrepreneurs.

We've done it.

We've been on that side of the table for a long time.

We know what it's like.

Yet another way they're counter-positioning.

It's like, oh my gosh, these professional investors out there, you don't want to work with them.

You want to work with us because we've been in your shoes.

Which is now the dominant dogma that VCs feed to founders?

Yeah.

And then just kind of uncommon.

Like they were the first.

You heard it here first on Charlie Rose.

Yeah.

It's actually really funny.

Did you get to the part later in the episode where they're talking about, like various new seed stage companies in Silicon Valley?

And Mark starts talking about this really interesting guy who's starting a company and he's proven demand for it.

Yes.

He describes what we do at PSL the validation process of driving traffic and having a brand, and testing conversions.

He just built a landing page.

There's no product.

Did you get to the part where he says who it is?

Yes.

It's Andrew Chen.

Who would become his partner 10 years later.

So great.

And he's trying to remember, oh, what was that guy's name?

Right.

He pitched me on this thing.

I think he's getting close to having a round that's coming together.

Good for him.

And of course, this is pre-Uber.

Andrew hadn't even done the growth thing at Uber yet.

Oh, so great.

These artifacts of history.

I just love them.

It's like when Don Valentine holds up the resume and it turns out to be Alfred Lins.

Like it's like that kind of reference.

It's one of those moments.

Totally.

So the actual big cover story reveal, as we've said, July 2009.

Cover story Fortune magazine.

Marcus, I think not barefoot in this one, on a throne.

I actually didn't see what the image was.

I'll be very curious.

I'll look it up while you talk.

Great.

They announced Andreessen Horowitz 300 million fund, which was very large at the time, especially for a first time fund.

The piece starts off with the old Netscape email story that we told last time about Ben emailing Mark about the launch back at Netscape and Mark replying like next time, do the effing interview yourself, F you Mark.

Yeah.

And then this is where the quote from mark of this is why i should not run another company comes up which, of course, like this, is the perfect.

Oh yes, we're starting a venture capital firm because i shouldn't run another company.

Ha ha ha, perfect.

So the cover image is this like pretty hokey uncle sam gag, where it's mark pointing at the camera and it says i want you to get the future and david i'll, i'll hold it up so you can see it here in the camera.

Oh my God, that's so great.

I want you to get the future so present given that future would be the future for them.

That's awesome.

Okay, so a couple of quotes later in the article.

First quote entrepreneurs are sure to be attracted to Andreessen drafting off the Andreessen brand here, who expresses more kinship with founders than with his peers in the finance world.

One blog post that Mark has written, titled The Truth About Venture Capitalists, Raised the Question VCs.

Soulless and Rapacious Capitalists or Surprisingly Generous Philanthropists?

Two guesses which side of the coin he comes down on in that piece.

Talk about punching back in the mouth.

It's like, how could you even have listed the second one?

It's like, of course, it's not the second one.

Yeah.

Has anyone in John Doerr's life or Don Valentine's life ever accused them of being merely a philanthropist?

Like, no, come on.

It's the readers of Fortune, too.

They do some great philanthropy, but... For sure, but not through Sequoia and Kleiner Perkins.

No, definitely not.

I mean, it's a value created for the world.

Clearly I believe that or I wouldn't be in this line of work and you and us doing this show and everyone listening.

But like, it's not philanthropy.

It's just so easy for Mark to set up these straw men here.

But the punches are flying in this article.

We've already alluded to this a little bit.

So later in the piece another quote the Andreessen Horowitz strategy of investing in a menagerie of startups could pose hazards.

And here's a direct quote in the article.

If I were one of those guys whose company stumbles, will they they being Mark and Ben be there to help me, or will they have time?

Says Paul Holland, general partner at Foundation Capital, a Silicon Valley venture firm.

Where the pain part of it comes is when you get up to those 60 or 70 investments.

It will be an interesting chore to keep track of all that.

Bad idea to go on the record here, Paul.

Yeah.

It's like everyone's just finding a way to talk their own book.

It's like, whatever my strategy is is superior because X Y Z.

Whatever they're doing is stupid because of X Y Z.

Yeah totally, totally.

So it lands with a big splash.

They're in business.

They got this $300 million fund.

It's summer 2009.

I think, according to PitchBook, the very first check they write is actually a small, very small check early.

I think they hadn't even done a final close on the fund into, do you know the company, Ben?

Is it Seattle-based?

Not a Seattle-based company.

This is a very small check that they write.

No.

Into a larger round, a Series C that is led by somebody else, of a, then this is like at the end of 2008, so it must have been just like a first close on the fund, like a warehoused investment or something like that.

A then very, very hot company, end of 2008 in Silicon Valley.

Not Facebook, not Twitter, another social media company.

LinkedIn?

Nope.

Dig.

Dig.com.

Dig.

I knew he was.

I thought that was a personal investment.

I think it was, but I think they managed to get a little bit of fund money into their series C.

I was obsessed with Dig.

Oh, so great.

Kevin Rose.

Amazing.

In the Reddit versus Dig war, I was so team Dig.

It's like better designed.

It makes more sense.

I watched Dignation.

I think every episode of Dignation, I was all in.

So great.

Me too.

Oh, it was the best.

So that was the first.

Then the first like real actual, like large check round that they lead is a Seattle company, AppDio aptio.

While doing research for this episode, i was on a bike ride and i rode past the aptio building and uh, i was like listening to some podcast interviews with mark and ben and i took a selfie and sent it to david.

And i was like doing research and the irony is i was going to a giants game in san francisco right at the same time and when i get out of the uber like a block away from the giant stadium, I get out right in front of Andreessen Horowitz's new San Francisco office building with the big sign up front.

I didn't notice if it was A16C or Andreessen Horowitz.

I think it was Andreessen Horowitz.

It's Andreessen Horowitz.

Yeah.

You know if they're putting it on the sign that the intention is for it to stay around for at least a few more years.

At least a few more years.

But yeah, the Aptio investment.

I mean, it's a co-investment with both of our former employer, Madrona.

Yep.

And Greylock, I think, too.

Yeah.

And I think they had worked with Sunny in the past, the founder at... Was it at LoudCloud?

So I think Sunny's previous company had been acquired into LoudCloud.

But that was really emblematic of part of what the thesis was at that point is we've worked with these amazing people over the course of our careers.

We're going to be a network-driven firm and they didn't have the firepower yet to be a thesis-driven firm.

Now they're extremely thesis-driven.

But at that point it was like oh, this guy's an entrepreneur and starting a company, or it was, I think, already a company in flight.

Absolutely, we should invest in him.

We know him very well.

He's a great employee.

Yeah.

Totally.

Well, so one of their other first checks.

Speaking of stage agnostic.

Oh, speaking of that same, you know, we're going to invest in the Opsware, LoudCloud diaspora.

Great, great indeed.

Truly great people.

I think this is one of their first like five or 10 investments.

Rockmelt.

Our boy, great friend of the show.

Eric Vichria.

Former Opsware VP of Marketing, future Benchmark Capital general partner, Eric Vichria.

Pretty cool.

So funny that they led his round.

Benchmark, I don't think, was an investor in Rockmelt.

Well, the other funny thing about that is that it was supposed to be a next generation web browser.

And obviously, like Mark knows a thing or two about web browsers.

And Rockmount was like.

You know what if the browser had built in social characteristics and could bring in your news feed and Twitter and all this stuff right into the browser?

So it was like a sweet spot investment for Mark and Ben having worked directly with Eric.

And then also, you know, Mark saying that seems plausible.

Yep, totally.

It was.

It was a great idea.

I remember using it.

I thought the browser was great.

It was built on Chromium.

In many ways, it was brave too early and before crypto was a thing.

Yeah.

Okay.

Do you know what I was referring to speaking of stage agnostic?

Oh, you're talking about their $50 million investment in September 2009?

In the first year of operations of the fund out of a $300 million fund...

They're just going to put one sixth of it.

$15 billion into one company.

That ended up looking genius.

But boy did this cause a lot of kerfuffle and criticism when they did it.

Boy, did it ever.

September 2009, $50 million deployed alongside Silver Lake.

The private equity firm, Silver Lake.

Tech private equity firm Silver Lake, who I believe the Silver Lake headquarters are in the same Rosewood office park on Sand Hill Road that the Andreessen headquarters are in.

Maybe they talked about it at lunch at the Rosewood one day.

We haven't talked about the headquarters on literally in the Rosewood complex on Sand Hill.

Like can't get any better than that.

Nope.

So yeah, $50 million into the spin out of Skype from eBay.

So the whole transaction a 2 billion purchase of 65 of Skype from eBay worked out pretty well, but they probably should have spun out PayPal instead of Skype.

That would have been a lot better.

Hey, I mean, well, they did eventually, but both of them ended up being really fantastic ideas.

Both of them created a lot more value independently.

Oh, I did.

But yeah, Andreessen Horowitz wasn't part of the PayPal spit out.

Early stage investors often talk about how there's a minimum ownership percentage that they need to hit in order for it to be meaningful for the fund return, which is true if you're only deploying a very small percentage of your fund.

But this is a case where they used $50 million to buy 1.8% of Skype.

So on the one hand, you're like, oh man, that 18 gosh.

We need to own a lot more for this to be meaningful for our fund.

However, since you were putting 50 million to work, that even if you got a 2x on that which is not great by venture standards for a normal early stage investment but that really is meaningful toward helping to return the fund.

Yeah.

And they ended up getting, what, like a 4X on it?

A 3X, yeah.

3X.

And it was quickly, it was just a year and a half, it ended up turning into $153 million for them.

Yeah.

So a couple of things on this.

One, Mark, back to like, okay, what are we going to do here at Injury Snow?

This is going to become a case study.

So he helps broker a Facebook partnership for skype uh, which i remember this, remember when facebook integrated skype.

Yes, for video calling messenger.

Yeah man, huge.

Could you imagine something like that happening today?

No, effing way.

No, that was all mark.

And then he helps recruit tony bates to come in as the ceo.

Tony from cisco was a rising star there and then in a later fortune piece that market would place another great one.

Talking about the deal, The clincher was Bates' meeting with Andreessen.

I'd always been a big admirer, but never met him, Bates says of Andreessen.

Going into the Andreessen Horowitz office was an experience.

They have this wonderful library in the lobby and I looked for a couple books that were special to me.

One was Neuromancer by William Gibson.

I couldn't find it, so that became a good opening to the conversation."

Ah, and I think it's Mark's personal library is the library in the lobby.

But you can just see the whole mystique, the firm, the franchise, all of this being woven together here.

Yeah.

And it's happening in public in Fortune magazine.

In the press.

So great.

Yeah.

There's another great little end to this story, which is there's a blog post where Ben Horowitz said that the Skype deal generated a tremendous amount of controversy for us.

That controversy ended this morning.

And of course, this is when the deal gets done.

What was it, $9.5 billion that Microsoft acquired it for?

I think eight and a half, somewhere in that neighborhood.

Oh, eight and a half.

That's right.

Still pretty nice quick return.

Unfortunately, shortly after this, right around this time, I don't know.

I keep saying the biggest mistake in the firm's life, but the reality is Instagram only got acquired for a billion dollars.

There were two mistakes.

One, Andreessen screws up not continuing to invest in Instagram to Instagram sells to Facebook for a billion dollars.

Versus, I don't know, 200 billion, 500 billion, some massive company inside of Facebook that it is today.

Totally.

So sad.

So that was March 2010.

Fortunately, though, also in early 2010, they make a great decision.

Wait, David.

I just have to pause for one quick second and say Instagram was definitely not their biggest miss ever.

Their biggest miss ever is definitely Uber, right?

That's coming.

Don't worry.

Yeah, no, you're right.

Not the biggest miss for Andreessen, but Silicon Valley's biggest miss to the past 15 years was Instagram being sold to Facebook.

Accrued to Facebook shareholders, but not the rest of the venture ecosystem.

Totally.

That's a whole nother rabbit hole that we've been down many times.

So a great decision that they make in early 2010 is they lead the series a of Okta, the identity company which they would then own.

What 18 at IPO, I think.

Yep.

They owned just a hair under 20% pre-money at the IPO before the IPO cash came in.

So that and what was IPO valuation was $6 billion.

Is that right?

$6 billion.

And today it's, what is it?

$33 billion.

That company has continued to just be a monster.

Yeah.

And this is out of a $300 million fund.

So at IPO, their stake was worth, call it one and a half to two billion yeah, at ipo.

At ipo and this one company, and if they've held to today, which it's unlikely, given it was a fund one for them and totally, and i'm sure you know, they distributed over time so they probably captured some of this upside.

But just as a thought exercise, what 20 of or 15 of, that's what?

Five billion ish ish yeah, not bad, not bad.

And Okta this is another one that Mark talks about publicly, as we were totally laughed at.

Identity providers were a thing already.

And Microsoft with Active Directory, it was owned.

But the CEO of Okta, Todd McKinnon, had this big thesis around the shift to the cloud means that there's time for a new identity provider.

There's room for a new person to come in and none of the incumbents are going to be able to react to it, and mark always talks about that.

Like this is the kind of thing that we loved hearing, when there's like a rearranging of the technology paradigms that are used, and right now it's just by a small select set of people, but over time everyone will shift to the cloud.

But yeah, he said they were totally laughed at for doing the octa deal because it was uh, very against collective wisdom that that would be successful.

Well, two things.

One.

It even goes deeper than that because Tim Howes, who was early Nutscape guy and then co-founder of LoudCloud with Ben and Mark and Sikri and everybody, he invented LDAP, the directory access protocol.

So they knew a lot about this.

And then the other thing.

Just everything you said reminds me of the classic Sequoia question, the why?

Well, it was a great why now for Okta.

The cloud was changing everything.

There were a lot of companies around this time and even for the next five years, were just saying hey, we're going to do a thing that's already a settled frontier and a very settled frontier in the on-premise world, but we're going to bet big on cloud and we're going to architect it in such a way that we're not even compatible with the on-premise world.

If they mistimed the enterprise shift to cloud, the whole thing would have gone under, because there would have been no way to be.

I'm thinking specifically of, like a Snowflake, the cloud-based data warehouse.

You had to be binary in your bet and say like, we believe in this thesis at this timing.

And obviously with Okta and Snowflake, it paid off.

But with other cloud bets like LoudCloud, it did not.

The timing was not right.

The why now was not great.

Well, actually, it was great.

It was a good story.

It just didn't play out well.

Yeah.

So they're spending money, as let's see.

Maybe their VC enemies would say drunken sailors, maybe would be a good term at this point.

We're in the early parts of 2010.

They've done 50 mil into Skype.

They've done all of these deals.

They're doing tons of seed deals on top of it.

It's a lot.

They're almost out of cash, you know, and they're reserving half the fund for follow-ons.

So they only have 150 mil of new money to deploy.

So they're like, we got to go raise another fund.

And so this actually just came out recently.

I saw this in.

I forget which publication this was in, but I quote recently that Ben said in a this is a quote.

Horowitz said in a recent clubhouse interview that that when the duo were raising their first investment fund of 300 million a big sum for a VC firm at the time, indeed Andreessen told him they needed to raise a second, much bigger fund right away.

And here's a quote.

In fundraising and in venture capital.

Strength leads to strength, Andreessen said.

According to Horowitz.

It's so true.

Oh boy, strength leads to strength.

It's so true.

It's so funny.

And it's so true.

Have you read the Michael Mobison paper on persistent differential returns by asset class?

I have.

We'll put a link in the sources.

But for those who haven't read it, there's all this data to support the fact that you look on one side of the spectrum, at hedge fund managers.

And if you're the top performing hedge fund manager this year...

It has almost no bearing on whether you will be a top performer five years from now, maybe not even one year from now.

But if you look all the way on the other side of the spectrum, at venture capital, and because he's a good academic, he doesn't presume to state the cause.

He just states that there is a correlation, that the top performing firms stay the top performing firms for a long time.

If you're the top performing venture investor this year, it's very likely that you will be 10 years from now, or at least, one of the top performing ones.

And the sort of postulate is that, well, strength follows strength.

That when you do the best deals, you then start to realize the flywheel of getting the best entrepreneurs that are referred to you.

Totally.

I mean, this is everything that we talked about.

We spent the last hour and a half talking about of like how are Mark and Ben going to break in to this dynamic?

I mean, I remember I think I've maybe talked about this on an episode in the past, but back when I was a even younger whippersnapper just starting out in BC at Madrona, I got a chance to get drinks with Bill Gurley once and I was like so eager, like I had like all my questions prepared.

You know, I was literally like I had like a notebook and the biggest one I wanted to ask him was like Bill, tell me the secret, like what is the secret to success in venture capital?

And he just kind of looked at me and he was like David, the secret to success in venture capital is success in venture capital.

It's so true.

You have success, and that gets you more success.

You don't have success, good luck.

And to Mark's point here, it also is true in startups.

If you are massively out-raising everyone else in your category, you're going to be able to keep that mindshare of the category leader.

You're going to be able to recruit the best executives.

You're going to be able to land those customers.

So there is this...

On the one hand, it's hype.

And on the other hand, hype is a self-fulfilling prophecy in a lot of ways.

Totally true.

I mean, God, what a great encapsulation of startups and venture and everything.

It is hype. but it's also real.

Anyway, so they go out summer 2010 and they raise a second fund.

One year after deploying an already large 300 million fund, they raise a 650 million second fund in 2010.

This was nuts.

This was like an atom bomb going off in the industry.

Two reasons.

A, that is so much money.

I mean when I was at Madrona.

At the time, we were investing out of a 250 million fund and we were a 20-year-old firm.

It's still pretty closely after the financial crisis.

Yeah.

I mean 2010, 2010.

The pace like the idea that you would blow quote unquote, blow 300 million worth of a fund in one year and be back a year later to your LPs to go raise another fund.

This was crazy.

You know the established VC firms.

They were still coming off the hangover from the dot-com bust where they stretched their 99 funds for like four or five, six years.

You know, we did that special with Ho at Altos talking about how they had to stretch a fund.

God, how long was it?

Like six, seven, eight years before they could raise their next one.

So this is just like wild what's happening here.

And the press eats it all up now.

The other thing that raising now having almost a billion dollars in capital under management gives them is even more management fees to go out and recruit more people.

So this is when they go back to market, who's been just doing a bang up job for them on PR?

And they're like, which we should say when you say a lot like this, is 16 million of new fees coming in every year, or about 15.

So you got a budget.

Wow.

You got a budget.

How about you leave OutKast and join Andreessen Horowitz full-time?

Now, this wasn't totally crazy because she had already sold OutKast to a holding company.

So she had co-founded it, but it had been sold and they just brought in a separate CEO.

Right.

So she comes and full-time joins as head of marketing for Andreessen.

No venture firm had a head of marketing before this.

They also bring on Jeff Stump to run talent.

They bring on John O'Farrell, who was head of biz dev, I think, at Opsware as a GP.

Now interestingly, he had not obviously been a CEO, despite the mantra of you know, we only have CEOs as GPs here.

But anyway, it works out well.

So what do they do?

They've had the strength.

They now have more strength.

They keep the foot on the gas.

They keep deploying the money quickly.

So early 2011.

This is crazy and totally works out great for them, but gets pilloried in the industry at the time.

They take all this money, they start going and buying private secondary shares in pre-IPO companies like Facebook and Twitter and Groupon.

I don't know how well Groupon worked out for them, but they deploy what was, I think, over 80 million into buying pre-IPO secondaries in these companies.

Wild.

Yeah.

Which they probably were investing exactly the upper limit of each fund in secondaries because they weren't a registered investment advisory yet.

They were just a regular venture firm.

Yep.

That makes sense.

Which is what?

20% per firm is what you can do into... Yep.

20% per fund.

So 20% of 650 would have been like, yeah, I don't know, 120, 130 million.

So I bet they did.

It's like up to that, give themselves a little breathing room.

That's how you come up with the 80.

Yep.

It may have been more than 82.

That may have been just Facebook.

Anyway.

So then, in April of 2011, they lead a hotly contested Series B for a little gaming company making a game called Glitch.

Tiny Spec.

By the name of Tiny Spec.

Mark had invested in the seed for TinySpec personally.

And of course, the head, the CEO of TinySpec is Stuart Butterfield.

Stuart Butterfield.

I know that name.

So, shortly after, like very shortly after, I believe, Andreessen Invest leads this round, this series B, Stewart sends an email to the board.

Quote, we've had this quote on Acquired before.

I did not feel that we are pouring gas on a fire here.

More like pouring good whiskey on a drugstore heating pad.

It is unlikely to burst into flames.

And he means that bursting into flames being good for the company, not bursting into flames being quite bad for this new Andreessen Horowitz investment.

I loved his honesty.

I mean, it's great.

Yeah, just keeping it real.

So he recommends, you know, they sort of all figured out his board.

And I think, you know, Mark's involved in all this.

And all right, well, what else are we going to do?

We don't necessarily want the money back.

And, you know, they pivot into...

But this is one way where it massively plays to the company's advantage that Stuart from Flickr knew what bursting into flames felt like.

You could call it escape velocity.

You could call it getting real traction or product market fit, or starting the flight, whatever it is.

Stuart knew what that felt like, much like Mark did from his Netscape experience.

And this wasn't it.

It was not it.

No, it was not.

So, of course, they pivot into this little front end that they'd built on.

It was on IRC, I think.

IRC.

Yeah, it was like extensions on top of IRC.

Yeah, extensions on IRC for workplace communication that they were using internally.

Decided to call it Slack.

They call up our friends, Andrew and the crew at Metalab.

Andrew now, of course, of Tiny Capital.

Get Metalab to design the UI, take it to market as a product called Slack.

Yeah, works out pretty well for everybody involved.

That it did.

And I threw out that 3 billion number earlier.

A lot of these exit numbers are estimated, since it's not like we actually know Andreessen Horowitz's returns, but we can back into it based on what we think they own from participating in various rounds or what they owned at IPO and when we think they may have liquidated.

Assuming that they held it from IPO to the 18 months afterwards till the Salesforce transaction, it would have been about a 3 billion outcome.

So very good decision for Andreessen Horowitz to let Stewart keep running with the money, even though the game was not bursting into flames.

Yeah, that's a good couple of multiples on that huge $650 million fund, too.

How would they ever return that?

Oh, boy.

And when you say, how would they ever return that?

That's because that was the knock on Andreessen Horowitz at the time.

That was the bare narrative.

It was like, these guys made this huge fund.

There's no way.

$650 million venture fund.

Can anybody return that amount of capital, let alone these new guys?

So 2011, oh boy, what a schizophrenic year.

Here's some of the investments that they made in 2011.

Do you remember Shoe Dazzle?

I do.

Yep.

Shoe Dazzle.

Jawbone.

How about that one?

Oh, yeah.

Boy, everyone lost money on that.

Oh, boy.

It was a great quote from Mark.

I forget where.

Maybe it was in the New Yorker piece saying that Jawbone is the new Sony.

Ooh.

Not quite.

I mean, such an unbelievable, cool technology innovation that just... Yeah.

Yeah.

Lytro Camera.

Remember that one?

Oh, yeah.

Yeah.

How about this one?

Fab.com.

Jason Goldberg.

Yeah.

Oh, boy.

That was a flame out, unfortunately.

And there was a lot of other big name folks.

Speaking of Dig, Kevin Rose was involved in that one, too.

Oh, and Fab, was he?

Yeah, I bought some stuff on Fab.

They had really unique merchandise.

Yeah, I did too.

It was cool.

But man, burned through a lot of money.

But it doesn't matter because also in 2011, they bring on a new general partner.

They bring on a few new general partners, I think, but one in particular, Jeff Jordan.

Boom.

Wow.

So Jeff, I believe, started his career in the famous Disney Strat planning group.

I think he worked for Meg Whitman there.

I didn't realize that.

Yet another.

That's quite the mafia.

Yeah, totally.

I think that's how he, if I'm remembering this right, I think this is how he ended up at eBay.

And, of course, at eBay.

He was North America GM and then championed the PayPal acquisition and ran PayPal within eBay.

Pretty good.

Then after that remember, he left and became CEO of OpenTable.

Who was OpenTable's main venture capitalist and board member, Bill Gurley.

Ah, wow.

The bet noir of Andreessen Horowitz.

But Jeff becomes one of the best consumer investors of the last decade at Andreessen Horowitz.

He would go on to do the Airbnb investment, right?

Oh, yeah.

In 2011, right after joining.

So I believe the first right after joining Pinterest.

Wow.

Pretty good.

Then Airbnb, then Instacart, then Affirm a couple of years later, many others.

He's done so well that in 2019, he actually became a managing partner.

They made him a managing partner of Andreessen Horowitz, the firm alongside Mark and Ben and Scott Cooper, who's also a managing partner, but more like the COO of Andreessen.

And I get the sense.

It's sort of the four of them are like really the sort of stewards of the firm at this point.

Yeah.

Oh, that's a good word.

That's what Sequoia calls the Sequoia stewards.

They're the four stewards of Andreessen Horowitz.

So quick recap.

And this is just a small sampling of the 2011 deals at Andreessen Horowitz, according to PitchBook.

Shoe Dazzle, Jawbone, Bump, Lytro, Fab, Airbnb, Pinterest, Stripe, Nicera, TinySpec, Facebook, Twitter, Groupon.

Yeah.

What a collection.

Whoa.

Also they did stripe.

They did the seed.

They didn't lead it, but they were part of the seed.

Fascinating.

Yeah, man.

Slugging percentage, not batting average.

But Ben, you've already alluded to it.

You've already spoiled the biggest mistake in the history of Andreessen Horowitz that they make in 2011.

I was going to ask if you knew what it was, but obviously you know what it is.

Which would lead to a subsequent success, like a multi-billion dollar success, but... Yeah.

Uber, fall of 2011.

Oh, this is brutal.

Brad Stone does great reporting on this in the upstarts.

Andreessen Horowitz is in line, specifically Jeff Jordan.

Man, could you imagine what a monster year it already was for Jeff.

Pinterest, Airbnb, all in the same year.

He's in line handshake on a deal to lead Uber's Series B And, of course, who was Uber's Series A investor?

Benchmark.

Benchmark and Bill Gurley.

And we've got this huge feud between the firms.

But like hey, you know, Bill Gurley was on Jeff's board.

They're great.

They know each other.

We're going to make the peace here.

Handshake deal.

It's all done.

Jeff is going to lead it.

Hot streak is going to continue.

Mark's involved.

Everybody's shaking hands on a deal at a slightly over 300 million post-money valuation for Uber's Series B.

God, this reminds me of the Berkshire episode, when Warren buys Berkshire.

Oh, I know.

It's brutal.

God, it's so brutal.

So somebody and Brad kind of implies in the upstarts that it was Mark himself starts to get cold feet about the deal.

He takes Travis out to dinner and he tells him at dinner they still want to do the deal, but they can only do 220 posts, not 305 or 310 or whatever it was supposed to be.

That's a pretty big haircut.

Gets worse.

Supposedly, Travis was still going to take the deal.

He really wanted Andreessen Horowitz to be the lead.

All the marketing had worked.

He was going to do it.

But then the actual term sheet arrives, and in the actual term sheet they must have really had cold feet.

They didn't want to do this deal.

This is half-assing your way into a term sheet right here.

This is limping across the finish line if I've ever seen it.

They put a huge new option pool refresh in there, which of course would dilute existing shareholders, and particularly the entrepreneurs, even more.

And that's the straw that breaks the camel's back.

Travis is like, he very politely tells them he's not going to take the terms.

Yeah, right.

Typical Travis fashion.

Nope.

Scorched earth.

Big mistake.

And is it Menlo that ends up doing the deal?

Menlo, who was, according to Brad, the stalking horse for the deal on valuation.

They come in.

They're like, oh, yeah, we'll do.

You want over 300 posts?

No problem.

We got that. which ironically is the Andreessen Horowitz playbook that everybody's bashing them on.

Andreessen Horowitz has conditioned us all that we can pay 50 to 100 more than we thought for deals.

And not only will we win them, but that may actually work out for us well in the future.

And it worked out real well for Menlo, not Andreessen Horowitz.

So sad for Andreessen.

Great for Menlo.

Of course, they would go on to invest in Lyft and own... Let me go look at my best guess data here.

I think they owned about 6% at IPO.

And so, if you think about when the lockup would have ended, it'd be about a 16 billion market cap at that point.

They ended up with a billion dollar stake of Lyft at the time that they could liquidate.

And if you want to get really nerdy about this, we covered this, of course, on our Lyft and Uber episodes back in the day.

At this time, while this Series B is happening, Uber is a black car company.

Nobody's doing peer-to-peer ride sharing yet.

Nobody.

And it wasn't until 2013, when Lyft would be the one that would pioneer, take the homemobiles playbook and do true peer-to-peer ride sharing.

And that's when Andreessen invested in Lyft.

They saw the future.

And then Uber launches UberX and the war is on.

Exactly.

Don't really want to cross Travis Kalanick.

But just to be like super crisp about this, it's a huge, huge loss.

Like sure, Lyft ended up being worth $16 billion.

Uber at that point was worth $80 billion.

I mean, it would have been a completely different fun dynamic if they were an Uber instead of Lyft.

Totally.

Huge loss.

Man, 2011, what a freaking year for tech period, but also for Andreessen Horowitz.

Do you know what else happens in 2011?

Ooh.

Literally right before the Uber deal goes down, which just makes it all the more mind bending that Mark would get cold feet here.

No.

Software is eating the world.

Oh my gosh.

That's when he published the op-ed?

August 2011, right before the Uber deal goes down.

Yeah.

Op-ed in the Wall Street Journal.

Crazy.

I mean, the piece itself, it's kind of a masterwork of arguing this, there is no bubble thesis.

I mean, at this point in time, people still think tech is overvalued.

We're still in the shadow of the financial crisis.

Mark talks about in the piece.

He says.

This is a quote 'Today's stock market actually hates technology, as shown by the all-time low price-to-earnings ratios for major public technology companies.

Apple, for example, has a PE ratio of around 152, the same as the broader stock market, despite Apple's immense profitability and dominant market position'.

Today, Apple's PE ratio is 32.5, Microsoft is 39, Amazon is 69.

The market did hate tech or just didn't recognize tech at this point in time.

Which is fascinating because those companies did have unbelievable gross margin profiles and continually high growth rates for public companies.

So it is not as high as they have now.

It's crazy to watch all these companies continue to grow the rate at which they're accelerating, even today, even later in their life.

But yeah, at that point he's totally right that investors in public markets hadn't really realized this about tech companies yet.

The other thing that...

He sort of sharpens his pencil on this point later.

I don't think he makes it as directly in the software is eating the world thesis.

But he now argues, look, compute costs are just going to zero.

Like truly, it's going to asymptotically approach zero.

And so at some point, if you have infinite free compute, which we should say like that does require continuous innovations in energy, because it does take a lot of energy to do stuff.

And that's the big knock on crypto.

But hey, Moore's Law.

Let's make the assumption that compute asymptotically approaches a cost of $0.

Then truly software can just continue to.

The question becomes what's the interesting thing that you can do with software, even if you have to have it do a lot of compute to do the thing that you want it to do?

Well, the thing that's so cool that I didn't put together until doing the research for this episode.

Remember last time we talked about the Mike Moritz line that I don't think is public.

I think it's kind of more like an internal sort of saying that every successive generation of technology companies should be an order of magnitude larger because of Moore's law, because the cost of compute declines.

That means that you can address every successive generation can address an order of magnitude more industries, more people, and thus the outcome should be bigger and every fund's performance should surpass the last.

It's the same argument as software is eating the world.

It's exactly the same argument.

Compute cost declines.

And Mark says in the piece, more and more major businesses and industries are being run on software and delivered as online services, from movies to agriculture, to national defense.

Over the next 10 years, I expect more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

That's exactly what happens.

The only thing I will disagree with in your comment is that every successive generation of funds should be that much better than the previous because, as we've seen even in the earliest stages, price goes up.

And so your entry point continues to be higher and higher, even though, as you're pointing out, your exit value or the addressable market of every single company continues to be greater and greater as software companies.

Look at you making the anti-Andreessen Horowitz argument.

Someone's got to make it here on this optimistic program.

I love it.

So great.

And also, then there is this question of, will that always be true?

There's 3 billion people on Facebook now.

At some point.

If you saturate the entire global population with compute at their fingertips and you take up 24 hours of their day and you have 100 of their value-creating activities aka their jobs running on software, at some point especially because the population's not growing it would seem that you no longer have an order of magnitude greater addressable market than in the previous year.

But we're probably very far from that horizon, or an order of magnitude more than the previous decade.

Well, and I think it looks like now that crypto is going to be the next answer to that, right?

Like, what is the next value of Moore's Law accelerating and decreasing?

You know, you said, like, a lot of energy.

Ooh, David Rosenthal calling it here on air.

Well, I think Andreessen Horowitz has been calling it for a while.

2013.

Okay, so back to that.

So, after software is eating the world, at the end of 2011, in January 2012, they go out and they raise Fund 3, 15 billion.

Oh my gosh.

Get at me.

You thought we were big before.

Watch this.

So that $1.5 billion fund, get this, was 7.5% of all of the venture money raised globally in 2012.

Whoa.

One fund, one firm.

Wow.

That's wild.

Isn't that crazy?

It's interesting because it's basically like, in a lot of ways Andreessen Horowitz was just slightly out of step with the growth of the rest of the venture ecosystem.

And they took advantage of these like arbitrageable moments where, like the one that you were talking about, where they realized wait a minute.

There's actually less risk in Series A than there used to be because there's all these seed investors.

So therefore we should invest at Series A, because we can kind of get paid too much in equity for the risk that we're taking.

Or, more appropriately, other people are getting paid too much in equity for the risk that they're taking, so we can price higher.

And they're kind of doing it again here, where this is really like two years before the race is really on in raising massive, massive funds.

So they can kind of play that to their advantage too.

Yep.

And what's the other piece of the arbitrage here?

It's the summits, it's the TAs, it's the Silver Lakes.

So they raise a $1.5 billion venture fund, 7.5% of all venture money raised in 2012.

But a big portion of that isn't going to venture in the same way.

So pretty quickly after they raise the fund, they do...

At the time, you're like, this was nuts.

$100 million Series A in GitHub.

GitHub, that's right.

GitHub, yep.

And that was like the first real capital that GitHub had raised, right?

It had been bootstrapped all the way.

Yeah, yeah, it was the first real capital.

So this wasn't a Series A.

You know, this was the type of deal that a generation earlier, you know, Summit or Insider or Silverlake or whoever would be doing.

And this was like the largest, quote unquote, Series A ever.

Oh, masterful PR and branding of this as a Series A.

There's no way in hell.

This was a Series A Yeah, but anyway, I think they bought 10 of the company, or something.

Yeah.

I think even more, I think it was a seven 50 post money valuation.

So that sounds familiar.

Yeah.

Whatever, you know, slightly more than 10%.

I do know that they would end up making a billion dollars on this in the ultimate sale to Microsoft in 2018.

Yep.

So that almost returns the whole fund, right?

I mean, this is how that type of investing works is like very low downside, you know, still pretty high upside.

I mean, they 10x that money, right?

Yeah, again going back to before.

A 10x actually not interesting to an early stage investor.

You kind of need to be in that 50 to 100x territory to make the portfolio math work for that to be the big winner in the portfolio.

However, if you're investing 100 million out of your 16 billion fund then, like that, 100 million 10xing very impactful for the fund.

Very impactful.

Yep, totally.

So later in 2012, Chris Dixon joins the firm.

And Chris, of course, was a very, very well-known New York entrepreneur, venture capitalist.

He started SiteAdvisor and then Hunch, which was acquired by eBay.

He'd started Founder Collective, the seed VC firm.

He'd been part of Bessemer earlier in his career.

I remember it because I used to live in New York.

People really identified him with New York venture capital.

He's like, going to Silicon Valley, joining Andre Snorowitz.

This was big news.

And shortly after he gets there in 2013, he leads a Series B. Coinbase?

$25 million in Coinbase at a 150 post.

Wow.

Oh, man.

Really overpaying for that one.

150 posts.

What does this thing even do?

Crypto.

Here's the kicker.

Over the years, Andreessen Horowitz would keep buying shares from other investors.

So other early investors were selling shares, including USB and others.

And Andreessen was just buying, buying, buying, buying.

Man, I mean, this is like Ventures of Power Law.

We're talking about so many great outcomes here.

Like this one dwarfs everything, everything else.

At the DPO, Andreessen Horowitz's stake earlier this year in Coinbase is worth $11 billion.

Oh, my God.

That's 7x that entire $1.5 billion fund.

Oh, my God.

Thank God for the investors in that 16 billion fund that that Coinbase investment was out of this fund instead of one of the smaller funds, because returning a 16 billion fund, no easy feat.

But if you have one $11 billion return in there, okay.

Yeah.

And this is the whole thesis, right?

These outcomes are bigger than you think.

There is no bubble.

These valuations are not just justified, but the crazy prices we're paying.

Now we're getting the deal.

Yeah.

It's wild.

They invest, all told, in 76 new companies in 2012.

In 2013, they had another 97 new companies, including Lyft and PagerDuty, which is going to be another great win for them.

Robinhood.

They only do the seed in Robinhood.

I think they don't continue until later.

I think that's right.

I think until 2020 or something, and they did it with the growth fund.

Yeah.

Oculus.

Yeah.

By the way, all this great data that we're finding from our friends of the show at PitchBook just an awesome resource for digging through this and figuring out who participated in what round.

Totally.

Oh, so great for this episode.

Databricks is in 2013, which is still private, but that's going to be a monster for them.

Most recently valued at $28 billion.

They led the seed round and have participated in, I think, every round since.

I bet they own a ton of that company.

I bet.

Yeah.

Can't wait to see that S1.

I just love this episode.

We've got so much great stuff and we've got just so much funny stuff too.

Uh, Zenefits.

That was 2013.

Oh, I forgot they were in Zenefits.

Oh, they were the big ones in Zenefits.

They were, they were holding that bag for sure.

Clinkle.

Remember Clinkle?

Oh yeah.

Oh boy.

Uh, one of my GSP classmates spent his, uh, summer at Clinkle.

He didn't go back full time.

That was a good choice.

And then the kicker, this may be my favorite part of the whole episode.

In 2013.

Uh, They band together a band of brothers, three musketeers.

It ends up being called, with Google Ventures and Kleiner Perkins, to create the Google Glass Collective.

This is the most ridiculous thing ever.

It wasn't a fund.

It wasn't like their crypto fund or their bio fund that we're going to talk about in a minute here.

It was a collective where the three firms said they were going to share Google Glass related deal flow but no actual commitment to invest in any of them.

Oh my God.

What?

That's an incredible PR.

To be able to plant that story is impressive work because that's a non-story.

It's a total non-story.

I agree to share deals with other investors all the time.

That's a non-story.

So there's a huge press release.

There's an event, a big TechCrunch piece, money quote from Marc Andreessen in the TechCrunch piece.

You put on glass and you say, yep, that's the future.

Yep.

That's the future, Mark.

Can't win them all.

I do legitimately think augmented reality, both visually and audio, is the next big compute platform.

Oh, totally.

Yeah.

But was Google Glass?

No.

Oh, they're so great.

We tweeted the photo of Bill Maris from Google Ventures and John Doerr from Kleiner and Mark Andreessen-Waring.

Wearing the Google glasses and posing on Sand Hill.

Oh my God, what a classic photo.

It's just great.

Despite all that, things continue to go pretty well.

In 2014, Mark gets really into Twitter.

He tweets something like... It was over 100 times a day.

Despite being an angel investor in Twitter, he had only tweeted twice before 2014.

I remember thinking that was ridiculous back in the day that, like all these people who were talking about how they invested in Twitter and blah, blah blah, had never actually participated on the platform.

I think Fred Wilson was the only one who like actually was active on the platform.

But then for whatever reason in 2014, Mark decides, oh yeah, I'm going to get really into this.

He tweets like 20,000 times in six months.

It's wild.

And he was like the best person to follow.

Cause, like if you were interested in mental models and exploring wacky futuristic ideas, like it was a buffet table of that.

Yup.

He actually people, you know, of course also creates press and everybody wants to know why is he tweeting so much?

And like, It's so great.

And he says in some interview.

He says he loves Twitter because quote reporters are obsessed with it.

It's like a tube and I have loudspeakers installed in every reporting cubicle around the world.

So great.

March of 2014, they close another one and a half billion dollar fund just a little over two years after fund three, the one and a half billion dollar fund.

So assets under management here are about four billion.

Yep.

They do Instacart.

They do Reddit.

They do Magic Leap.

They do all sorts of stuff.

Interestingly, though, the pace actually steps down a little bit.

They stopped doing quite as many seeds during this time period.

They've now since stepped back up the seeds.

But I think maybe they started listening to folks about the signaling talk, or maybe entrepreneurs were actually listening to the signaling effect of It was resonating with people.

It was.

I mean.

David, like to recall a conversation we had when you were starting your venture firm in.

When was that?

2017, 2018?

Yeah.

This was part of the thesis.

You were like.

Well, no one wants to raise seed rounds from the Series A firms because of the signaling risk.

So we're a pure play seed firm.

And I think that makes a lot of sense.

And that was the professionalization of the asset class of seed happened because of that.

Of the signaling effect.

Yeah.

Yeah, totally.

It's just so funny.

It's completely disappeared now.

Yeah.

Well, in so many ways, everyone has followed Andreessen Horowitz's lead in truly every way.

The one that we're describing here is kind of shrugging a little bit on.

What stage is the right one for me, and how much do I need to stick to my knitting and how much does signal matter?

Yep.

So, okay.

In 2015, finally, the New Yorker piece comes out.

It's so good.

It's so damn good.

You got to go read it.

Tomorrow's Advance Man.

Tad Friend is such a good writer.

And this is, like you know, once every year, couple of years, the New Yorker is like we're going to do a profile on an industry.

And they talk about this on the A16C podcast and like...

I think it's the episode with Margaret like the opportunity to have the profile on venture capital in the New Yorker and to have Marc Andreessen be like the mouthpiece for it.

Oh, it's so great.

So I'm just going to... Can I read a couple of lines?

Please do.

These are so good.

Okay.

So first off, the piece starts off with a little vignette of Mixpanel, which of course was a big Andreessen investment.

And he's talking to the founder, Suhail Doshi, about his experience raising venture capital and whatnot.

And he says...

This quote is so good.

Mediocre VCs want to see that your company has traction.

The top VCs want you to show them that you can invent the future.

It's so funny and it's so true.

It's just great.

Let's see.

Andreessen and Horowitz modeled their brand strategy not on the industry's elite, but on Larry Ellison's Oracle and its aggressive marketing during the enterprise software wars.

For one investor in their funds Princeton University's chief investment officer, Andrew Golden.

It became a running joke how long it would take other firms to complain about Andreessen Horowitz.

In the early days, it was within two minutes, he says.

Yeah.

Here we go.

This might be my favorite part.

One morning, as I sat down to breakfast with Andreessen, a rival VC sent me a long email about A16Z's holdings.

The VC estimated that, because Andreessen's firm had taken so many growth positions, its average ownership stake was roughly 75.

It's actually 8, which meant that to get 5 to 10X across its four funds, you would need your aggregate portfolio to be worth 240 to 480 billion.

How could that possibly be?

I started to check the math with Andreessen.

He made a jerking off motion and said, blah, blah, blah.

We have all the models.

We're elephant hunting, going after big game.

Yeah.

Oh, my God.

A, that a rival VC would take the time to type out a long email.

And would take the time to have themselves or an analyst go model out a different firm's average ownership.

Are you kidding me?

So great.

And model out close enough to be within half a percent of the actual number.

And wait a minute.

So that's actually an interesting question.

So they would need.

What were the numbers of how much market cap in aggregate would need to be created?

$240 to $480 billion of market cap.

So you got Coinbase at, what is it, 100?

Right around a cool 100.

You got Roblox at 45.

So that's 145.

You got Okta at 33.

So that's around 170.

Yep.

You got Slack at 24.

No.

Something like that.

Let's take it to 200.

Okay.

Around the 200.

You got Airbnb.

That's another Hyundai right there.

Yep.

You got Pinterest, which is another 45, 50.

Yep.

All right.

So we're at 350.

So you can see sending that email being like, good effing luck.

And you do look at the companies they invest in.

You're like, yep, they far surpassed that.

And we haven't talked about Instacart or Databricks or Robinhood.

And of course, these are smaller positions.

But yeah.

Yep.

It's so, so good.

And then Mark's response makes a jerking off motion with his hand.

It says we're elephant hunting.

We're going after big game.

That has to be the first time that was printed in the New Yorker.

In the New Yorker.

It must be.

Oh, so great.

Yeah.

I mean.

Well, the interesting thing is the whole industry seems to massively give whiplash from some new disruptive entrant, often who's writing bigger checks and has a bigger fund.

And the first reaction is, oh my God, complain about them.

See Tiger today.

Yeah.

Exactly.

It was Andreessen Horowitz, and then it was SoftBank, and then it was Tiger.

And at least with Andreessen Horowitz, and it seems like I don't mean information that's not public, but it seems like with SoftBank, Vision Fund 1 strategy worked a heck of a lot better than people thought it was, at least a lot better than the media was reporting.

So I don't know.

I suppose the next time my knee-jerk reaction is to be like oh these new guys, they don't know what they're doing and they're being irresponsible and they're blowing us out of the about, just complaining and figure out okay, how do I actually need to adjust my strategy?

Because maybe this is going to work.

Oh, you couldn't have teed me up any better here.

Back to the New Yorker article.

His quote, A16Z's services model made a strong impression on Sand Hill Road.

Quote, Andreessen caused us to up our game on the marketing side, said Sequoia Capital's Doug Leone.

Ooh.

Younger founders pay attention to media and we don't want to be depositioned.

Sequoia hired an in-house publicist and two new marketing specialists to complement the four it had.

And most top firms made similar moves, even if they primarily believed that A16Z's services were simply a marketing tool.

Oh, so Doug, so Sequoia, like we're not going to be depositioned.

Like, yes, this is a good innovation.

We're going to adopt it.

Yeah, it's Bill Gates-ian in that way.

Yep, totally.

I can't wait until Power to talk about this one.

It's so interesting to me that this caused effectively, margin compression in the venture capital industry.

Ownership compression.

No, I literally mean margin compression and how profitable it is to be a general partner.

Oh, you mean the management fee side of the thing.

Yeah.

It's hard to run lean as a big firm because you kind of need all this stuff to be competitive.

And that stuff is really expensive.

It's a big team.

You can't just take home $10 million in fees every year.

Even if you're Sequoia, you need a big team.

Yeah.

Totally.

And so you end up with this fascinating dichotomy.

It's the same thing that's happening in the media ecosystem where there is no more middle.

If you are going to be one of the few who succeed and you're big you got to have a big ass cost structure.

Yeah.

Andreessen Horowitz is the New York Times of venture capital.

And simultaneously it will be true that there's this long tail of people that are like F, that big cost structure.

I'm going to start kindergarten ventures and take my small amount of capital and no team and I'm going to play a completely different super niche game.

And there is some room in the middle, but there's not the room that there used to be in the middle.

Yep.

And I think the industry has found that out painfully over the last 10 years.

Yeah.

But this really interesting thing of like, it took a long time.

It took 30 years or 40 years of venture capital as a profession for the arbitrage of profits to go away from general partners.

Yeah.

God, it just beats me over the head.

And maybe this will sound biased towards entries to Horowitz, but I'm not trying to be.

I'm really just doing this research, thinking about the last 10 years.

There is no bigger winner in all of this than entrepreneurs.

Oh, for sure.

Oh my God.

You used to be giving up 25 30 plus percent of your company at series A and getting 2 million for that and somebody sitting on your board doing something, maybe.

You're absolutely right.

I was talking about the margin compression in fees.

Now let's talk about the margin compression in returns.

Everyone's cost basis is higher because there's way more capital competing to go in.

So therefore, your ownership percentages are going to be less for the same amount of capital that you wanted to put to work.

Well, and even on the fees side, vis-a-vis entrepreneurs, they're just getting a lot more.

You can argue all you want and people do about how valuable these various services are and whatnot.

But I think it's pretty valuable that somebody and Jason Horowitz in the lead, but now the whole industry is out there just banging the drum about how great startups are and how great their portfolios are.

And if you're an entrepreneur, why would you not want somebody championing you?

And in a way that's going to be so hard for you as a founder of a small company to do.

You're not going to go get a profile in the New Yorker, but Andreessen is, and they're going to talk about how awesome you are.

Yeah, it makes the most sense for these things where it doesn't yet make sense for a startup to have that competency in-house.

So having access to a fractional resource of that competency, who's a specialist and one of the best in the world at it and really highly paid, who you couldn't afford for how tiny and pathetic your company is, which all startups are, it is an unbelievable boon to get that.

So not only are you facing less dilution and getting more capital than you ever used to before, but you are also actually getting a far superior product to what you used to get.

It sounds like our cap chase ad read from last season.

I love it.

One playbook theme I want to highlight here, and we'll talk about this again at the end.

But anytime your name is on your competitor's lips, you're winning.

You're winning.

It doesn't matter what they're saying.

If they are talking about you, good, bad, ugly, indifferent, you're winning.

You should just keep doing what you're doing.

Particularly when they're the most successful incumbent of all time with Sequoia.

So, okay, after that, later in 2015, they raise a $200 million bio fund.

June of 2016, they raise another $1.5 billion core fund.

2017, they raise a $450 million second bio fund.

2018 first 300 million crypto fund led by Chris Dixon and new GP Katie Hahn who interestingly, I didn't know this about Katie until doing the research.

Do you know what her background was before she joined Andreessen?

She was a federal prosecutor at the DOJ, and she led the Mt.

Gox case.

Whoa, awesome.

And then after that...

Coinbase recruited her to join the board of Coinbase after the Mt.

Gox debacle.

They're like, look, we're Coinbase.

We're doing this above board.

We're the right way to do this.

And so that's how Chris met Katie.

And then she came into Andreessen.

Super in demand.

Crypto is so different than the rest of the startup ecosystem.

Totally.

Let's see.

Also in 2018, they launched the Cultural Leadership Fund, which got a lot of blowback at the time and I think was pretty misunderstood.

I think it's actually a pretty good idea.

2019, they split the main fund finally into separate funds for early and growth.

$750 million for early, $2 billion for growth.

And then 2020, just one year later, they're back in the game with...

$1.3 billion main early fund seven.

$3.2 billion growth fund two.

$750 million bio fund three.

$515 million crypto fund two.

So that is $6 billion in total across a suite of funds raised in 2020.

Strength follows strength.

Dang.

And then this year, of course, in 2021, they added another...

$2.2 billion Crypto Fund 3 bringing total capital under management to just a hair under $19 billion.

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.

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

Yes.

So why do investors value StatSeg 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 20 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, other things that I pulled from PitchBook about the firm today.

So they made us this great tear sheet that we'll have to see if we can share this in the Slack because it's a great set of data on the firm.

They did a little under 1,000 investments in a little over 500 portfolio companies total.

They've produced 160 exits, 20 of which were companies going public.

There's now 22 GPs with the addition of a new New York-based GP.

The first time there's been someone outside of the Bay Area added as a GP.

Another friend of the show.

David Haber.

And David, as you mentioned, $19 billion hair under in assets under management, eight network teams.

220 people now work at the firm.

So, to give you a sense of like, they've got 22 GPs, but that means that 90 of the people who work at the firm are not GPs.

So they've got a big investment team, but obviously these network teams have grown meaningfully.

And I also was talking to some folks, they did a lot of hiring outside of the Bay Area during COVID.

So as much as they were sort of one of the champions of Bay Area for life.

And if you're serious, you invest here and the best companies are created here.

Blah blah, blah.

The last year has really changed that.

And not only are they investing in more places, but they actually have staff in more places and have adapted the culture and the processes internally to be hybrid.

Then also, we debated, including all this in the history and facts, I think for length, if nothing else, but also to do it right, we're going to do a different venue to talk all about this.

But they've also built a media company alongside all of this.

Yeah.

Yeah, absolutely.

Yeah, there's a whole sort of forward looking view of... A future looking view, one might say?

Yes, I was trying to avoid let's call it lowercase future looking view, not only of the media company but, like other things that they're doing, that transcend being a venture firm with value added services.

And I think, as Mark recently coined it and he had a great invest, like the best episode on this HP 20.

And there's definitely a lot more that we'll talk about there, probably in a future episode at some point.

Yeah, I think that's the right way to do it.

Yeah.

So, yeah, that's Andreessen Horowitz.

Oh, yeah.

Wait, there is one more piece to talk about.

So there's this great saying in venture that is also a Mike Moritz phrase.

He's just so he's so good, which is that the apples take longer to ripen than the lemons.

And, of course, apples being a double entendre, meaning like good companies, but also, you know, Apple in Sequoia's case.

So good. they start having some success.

So April 2017, success on the distribution front.

Okta IPO, March 2019, Lyft IPO, April 2019, PagerDuty, Pinterest.

June 2019 is the Slack DPO.

December 2020, Airbnb.

January 2021, Affirm.

March 2021, Roblox, which within a year, they turn around like a 15x on that.

Yeah, here, I actually calculated that.

So their initial investment into Roblox, which I think is out of their late stage fund, the growth fund, somewhere between 100 and 150 million.

It was a $150 million round at a $4 billion valuation.

Oh, so great.

Big shout out to Ho and our friends at Altos.

Totally.

It means they own probably about 25 of the company at IPO, which of course is a 45 billion market cap today.

So pretty quick turnaround for that $100 to $150 million into $1.2 billion.

Yep.

And then the big one, April 2021.

What's that?

Seven years after the initial investment?

In Coinbase.

Coinbase.

Damn.

$11 billion stake that Andreessen Horowitz has in Coinbase.

Which I think is an even better outcome, or it's about on par with what Sequoia had with Airbnb, if I'm remembering right from our episode there.

Yeah, it sounds about right.

Maybe a little less.

I want to say Sequoia had like a 15-ish percent stake in Airbnb, 13, 15, something like that.

But I seem to remember this like $10 to $12 billion absolute dollar return.

That could be.

But Airbnb traded up to around $100 billion.

I think it might be back down a little bit now.

Anyway, we're splitting hairs here.

These are pretty good.

In any case, one of the single greatest venture capital returns of all time.

Yeah.

Hard to argue.

Well, we're definitely going to get to grading.

I did a little bit of math.

It's napkin math, but I think it's interesting to sort of review this.

But let's do some analysis first.

Let's take our narrative section.

What's the bull case and what's the bear case on Andreessen Horowitz moving forward?

Let's start with the bull.

I think we just painted the bull case, right?

Well, okay, okay.

Bull case.

I got two bull cases.

One crypto.

I mean, if you believe crypto is the next...

I wrote two and you just got the first one.

Okay.

Next bull case I would have, I'm curious if you'd have this as well.

A16Z has been pretty adamant, like you said, about like Bay Area and, in particular, about Western technology companies that they invest in.

They haven't touched China, India, et cetera, rest of the world.

Hmm. no reason to think that their brand couldn't extend.

So that feels like a green shoot for them.

Those are the two off the top of my head.

I like that.

I didn't have that.

The second one I had is this sort of HP 20 notion of you know, in the old days before there existed a startup ecosystem where you could get funded by venture capitalists to go and pursue your idea.

You would try and rise up the ranks of an HP or one of these companies as an executive to go and invent the future.

And HP was the 100% owner of every division.

GE was the 100% owner of every division of their company.

Obviously, taking minority positions is different.

But can you sort of be more of the Hewlett Packard in their heyday?

If you aren't the majority shareholder of these businesses, can you still find a way and now we're drifting into Kleiner Perkins territory a little bit, but can you find a way to both provide the services, find synergies between portfolio companies and, really like, find leverage from your own scale such that you can find economies of scale across the different companies?

And by that, I mean, does everyone really need their own totally separate finance team?

At some scale, probably not.

The same kind of thing that you see in industry consolidation when one company buys another.

I'll be very curious if they transcend the we help you out with part-time resources thing in their networks to see if there's some way where actually some part of the fundamental operations of the company Interesting.

It's kind of like an maybe sort of like an actual fulfillment of the you know the CAA dream execution machine thing, because the caa package, like jurassic park, you know the packages that they were putting together, the talent you know they weren't doing any like part of the reason caa had to exist was like they're not going to pull together like i don't know, i don't know what goes into making a movie, but all i'm assuming there's a lot of stuff that the studios used to do and that caa was able to bring together into a package and then be like nope studios, you are just financers.

Now totally, I wonder if this is part of what's informing this HP 20 strategy.

Yeah.

I mean, the thing that I wrote down is that the biggest case is that the firm is actually unrecognizable in 10 years, that they're sort of the startup platform, like an idea platform.

And I'm not being specific about what that means because I don't really know, but maybe the right term is that they're like the startup dream machine, which actually lends itself more toward a studio.

It would seem like I mean just based on all the work we've done at PSL, starting 27 companies like I do wonder if they'll shift earlier and start being more of like a.

You literally are a person with an idea and we have an ability to sort of take that and plug it in.

And the cool thing about the studio is we have that machinery built for like the first 18 months.

And I'd be curious, a lot of people talk about seed to IPO as an investor.

It'll be interesting to see if Andreessen Horowitz can sort of become the startup dream machine all the way from idea to IPO.

Yeah, yeah, yeah.

Well, or you could just go raise a whole lot of money and you could be the next you know disruptor in the industry.

It's a great point.

It's really like that Mark and Ben kind of have no sacred cows and like whatever you know, they're very experimental.

They're very willing to change things.

And like it wouldn't surprise me if, some point in the near future, they stopped talking about it as a venture capital firm because they feel that it's a sort of broader set of activities.

Well, clearly they're already sort of going this direction with the media company and Yeah.

All that.

Yep.

Yeah.

We also totally skipped over crypto, which I think is okay.

But can you give like one or two sentences on how they're different than other firms with a lens toward crypto?

Well, in one respect, it was just simply that they were there first and early.

And so they've been part of like these big ones.

Other firms have too, you know, USV being primary among them, and then native crypto firms like Paradigm and Multicoin and all those great folks.

But you know.

To the extent that success breeds.

Success is going to apply in crypto, early stage crypto investing, as it always has in venture.

Andreessen has been there, right?

Like Coinbase.

Dang.

Solana.

Yep.

Bitclub.

Like everything interesting, they're there.

So I think that's a big part of it.

You know, the other piece of it is like...

It's different doing that.

And they've built the machinery to do it in a way that other traditional venture firms have not.

I think, if I understand the history right, I think part of the reason why they created a separate fund for crypto versus doing it out of the main fund was because of the same things that Trigger was secondaries needing to be an RIA.

I think if you do too much token investing...

In a core fund, you would need to register and you would lose your venture capital exemption.

So, while other firms were registering as RIAs to do secondaries which of course Andreessen also does they were like, oh well, we'll go do this first with crypto funds and then now for the whole firm to be able to buy tokens instead of equity.

So I think it's just going to take a lot of firms a long time to catch up to that.

And the operations of staying abreast of the things you can do in the US versus international takes overhead.

And they've invested in that overhead and they've figured out what the necessary infrastructure is from a regulatory perspective to do crypto investing with LP dollars.

Should we talk about the bear case?

Yeah.

Okay, so here's my biggest one.

We have been on an unprecedented, unbelievable bull run in tech that started the same year that Andreessen Horowitz was founded.

They've never operated in a down market.

I'm not saying it's not going to go well, but their strategy has aligned perfectly with the economic landscape while they've been operating in it.

So it is untested, unlike all these other firms that have needed to...

If you believe the A16Z haters who say they have no price discipline, will that come back to haunt them during the one or two funds from the vintage years of whatever downturn comes at some point in the future?

It could hit them a lot harder than it hits other folks.

Yep.

You don't have to debate that.

I'm just saying.

Yeah, totally.

Question mark.

That would be the knock.

The other bear case I was thinking of is they basically overextend themselves in trying to get too creative and imagining what this HP 20 could look like.

And they have a great, very profitable business on their hands, where they have really dominated an industry.

And them trying to turn that into something entirely new and different may actually not work.

Yeah.

I got to also say for a firm and people that are so good on branding and marketing and whatnot, calling this strategy HP 20.

You might want to rethink that one.

I don't know that HP is something you really want to associate with these days.

Well, and nobody I mean.

There's just not that many people alive and operating in the business world right now, or leading companies in an aspirational way, who are aware of the HP that Mark talks about.

Yep, exactly.

They're only aware of the defunct PC manufacturer.

You want to say Amazon 2.0?

Great.

Yeah.

But anyway.

I think a big one that I have no view one way or the other, whether this is happening or not, or at risk of happening, would just be that as you turn this into a big firm, it's already a big firm.

Politics are going to start to creep in, right.

Like it happens.

This happens in organizations.

And frankly, probably politics, have been the downfall of every venture firm that has risen and fallen to varying relative degrees.

You know, there are all sorts of reasons, right?

But you break it down at the end of the day.

It's people.

It's politics.

That's the problem.

And the bigger you get, the more opportunities there are.

The bigger you get and the more time that goes by, the more opportunities there are for that.

And so maybe some seams will start to get exposed and other firms can now come along, and you either die a hero or live long enough to be the villain.

I guess they've been the villain their whole lives to a certain extent, but...

At some point, they're going to be the villain to entrepreneurs.

In some way, they've been the underdog, too.

They've had this tailwind of feeling like, fight the man.

And you're right.

They're the man.

Yeah.

I guess one other thing I was thinking about is speaking of Tiger Global and what's going on in hedge funds coming into late-stage financing and now even early-stage financing.

Those folks are beating the drum of we're a financial investor and we're going to give you the cheapest available capital and you can use that capital to go and build your own relationships and hire people and do all the things you need to do.

VC is kind of a bundle of both advice and relationships and capital and we're just selling you pure capital.

There's some set of entrepreneurs who are going to do that because they're very experienced, they have their own relationships.

They don't need the services that a firm like A16Z brings to bear.

The question is will that belief spread where more and more people, even if they're inexperienced and could benefit from the set of services that A16Z offers if they're like actually the most capital at the cheapest price sounds great to me and I actually just want all these competencies in-house.

Which is hopefully we've painted along the way here, was a key component of the Andreessen Horowitz strategy.

Like there's all the stuff, there's all the services, everything about it.

But also they were offering the best terms at the highest prices for a very long time.

And if they're no longer doing that, you know.

I think it's a very valid argument that price is what matters.

It's sort of like Andreessen Horowitz had a different underwriting model on the future than the rest of the VCs did.

And so far, because we've been in this bull run this whole time, it has proven to be right.

So everyone else who is being too conservative in their valuation models and basically underwriting of what future markets could look like was wrong.

And that's why Andreessen Horowitz could both be the best product at the best price.

But it may prove to be the case at some point in the future that the gas in the tank runs out on software is eating the world or that we go through a little extended hiccup where people stop believing that for five years and the money coming after you dries up and lps are difficult to raise from like.

I'm just imagining a little bit more capital crunched environment where, like you, can't be both higher valuations with more money and a really expensive broad set of services Yep.

Now, I mean, in the long run, like, obviously, I think we all know what side we fall on.

Like everything, it depends on your time horizon.

And if your time horizon is infinite, then yes, you and I, being the optimist that we are, we're like looking at this bear case being like yeah, but as long as you can tough it out, you'll be fine.

The internet.

Never bet against the internet.

But you're so spot on about the underwriting thing that they were just underwriting differently than everyone else and more correctly.

You know, the vignette from the New Yorker article with the competing VC.

Right.

The point of that competing VC was like, this is crazy.

The math doesn't work.

Their underwriting is wrong.

Yeah.

And A16Z is like oh, that thing that you said was crazy.

Where you're like, the math doesn't work because the numbers are too big.

We think we can hit those numbers.

And they did.

Yep.

And they did.

And by we, like tech companies broadly that we invest in.

Yeah.

Well, I think this isn't exactly a narrative one way or the other.

Maybe it's a narrative about the industry as a whole.

We made this point on the first episode, but I want to double, triple, underline, underscore here.

We're telling this whole thing.

And there's so much drama and it's so fun.

It's like Andreessen's the underdog and the disruptor and there's all this feuding and whatnot.

Yeah.

This is all just great for everybody.

It's just freaking fantastic for everybody.

The fact that The New Yorker is writing about tech, it's great for other VCs.

It's great for startups.

It's great for entrepreneurs.

It's great for podcasts like you and me.

It's great for Andreessen.

It's great for Benchmark.

It's great for Sequoia.

Full stop.

Yep.

Which is a great lead-in to power.

So I think this is interesting.

I think that they had a source of power that worked really well for their first call it eight-ish years, and now they have a different power.

And remember for folks that are new to the show power is the thing that enables a business to achieve persistent differential returns.

How can they be sustainably more profitable than their nearest competitor?

Right.

The first one was clearly counter-positioning.

We've used it several times in this show to describe the way that they positioned themselves in the press versus other folks, versus incumbents.

And I'm going to use it a little bit more specifically in this case which is they literally did things that other people could not do because their business models did not allow for it.

If you were to go to GPs at big firms and say in order to bet on the future correctly, the way these other guys are, and we need to staff up like this.

Overnight, we all need to stop taking salaries for the next three years.

Oh, and we all make over a million dollars a year in salary and have personal lives and burn rates that have accommodated that.

And that's even before we start getting our carry.

The chances of that happening immediately, rather than over the next five to eight years being forced to, was like zero.

And so there was that moment in time much like how a CAA was able to do it in the agency world where they literally took a different business model and did a thing that the incumbents couldn't copy, which was genius.

Yep.

Totally.

Totally genius.

The other one was brand.

Yeah.

Totally.

And that's the one that will last for the future.

All this highfalutin stuff is great and all the value added services are great and all the networks are great and the executive briefing center is great.

Let's not forget the business that we're in here, which is deploying capital and getting a return on that capital.

Now, that is a commodity.

Capital is a commodity.

And the way that commodity industries look is that they're pretty much undifferentiated because the vast majority of the value is available from a near exact provider substitute.

And so what differentiates a commodity from another commodity?

Brands.

Coke and Pepsi, baby.

There was actually a great quote.

I forget where.

I almost put it in the script and I didn't of an entrepreneur talking about the entries and benchmark thing.

And they're just like, oh, it's so great.

It's like watching Coke and Pepsi do a price war.

Truly.

I'm just sitting here sipping.

Truly.

It's like watching a game of chess play out too, because it is simultaneously true that having a great board member can be game-changing for your company.

Having this set of services can be game-changing for your company.

Like, I just watch...

Not to toot our own horn but like some of the folks that were able to bring into portfolio companies through us at PSL, recruiting them, trajectory changing for companies.

And I'm sure like I've never worked at Andreessen Horowitz.

I'm sure that works in spades there.

And so like even forget all the other services.

Like if you have a great recruiting mechanism, game changing for companies.

And also it is true that the primary value that comes from raising capital is the capital.

The brand piece is also interesting too.

And you said about, like you know, and they're just riffing a little more on the Coke and Pepsi thing.

Back to the benchmark versus Andreessen benchmarks brand.

We are the craft venture capital firm.

Yeah.

Andreessen's brand.

We are the franchise.

It's just like Coke and Pepsi, right?

It's like you know, Coke is you know whatever you know, Coca-Cola classic with the polar bears and whatnot.

And Pepsi is like the taste of a new generation, you know, like it works.

Like there's different segments that they address.

Like it works.

Yeah.

It's funny, while we're talking about power, we should also talk about like.

When you talk about profits, you know like persistent differential returns, you should literally talk about like pricing power.

In Forbes, it was reported that Andreessen Horowitz takes 30% carry.

And so it's interesting to see that, like Their returns and their market perception has literally turned into them being able to price higher than their competitors.

This is LP facing when it's them versus other venture firms.

And they can say yeah yeah yeah, you're going to get a worse deal with us than you're going to get with other people, but it's worth it.

So you'll take it.

And they do.

This is the Hamilton-Hellmer definition of brand power, right?

It's like you can charge a higher price for the same product.

Yep.

That's why people pay more for a Tiffany's diamond than a no-name diamond.

Yep.

So the brand thing is multi-sided.

It's your brand entrepreneurs and it's your brand LPs.

Yep.

And the entrepreneur version of this is you get into the round.

You get into the round and you get a large ownership allocation in the round.

Yep.

All right, playbook.

I know we've done a lot of this already, but there's a few that I want to hit.

Go for it.

All right.

So just to review all the things that were unheard of or uncommon before A16Z started doing them GPs as former founders rather than investors.

Huge team of experts, which is now known as VC Platform, calling everyone at the firm a partner.

Blogging which, other than, like Brad Feld and Fred Wilson, doing transparency versus opacity and content marketing more broadly, like that didn't really exist in venture.

Paying huge prices to blow your competitors out of the water and just offer much higher valuations and bigger checks.

It's crazy.

Yeah, literally nobody did that.

Yeah, it existed at some extent in isolated ways, but no one just said like F it.

We're doing it over and, over and over again because we're underwriting the future differently than you are.

Yeah, and not really.

People would be like oh, I can't believe.

I mean because I entered the industry in 2010, so Andreessen was there, but it was still early days.

It would be like, oh, I can't believe the price that X firm paid for this.

We offered a six pre and they did an eight pre.

Nobody was just step change.

Nobody said like, what if you raised eight?

Yeah, exactly.

And then we'll figure out how to value that.

And then lastly, venture firms investing in crypto.

I think USV probably gets a little bit of credit, for I think they were earlier in some ways, but not nearly, investing as many dollars and for sort of as long a period and building a brand with the crypto community, the way that Andreessen has gone on to.

So you look at those, what is that, six things?

I would add seven too of like PR.

Yeah.

I guess I'd put that into the content marketing, brand building.

But you're right.

It's a different function of marketing.

So those seven things that you take at face value, that's part of the job.

That's what it is to be a venture capital firm, which just weren't things a decade and a half ago, before Andreessen Horowitz made that a part of what it takes to do this job.

Yeah, I can't argue with that.

It's literally.

Their playbook was to change the requirements of the job to be done for everyone else in the industry.

It was wild.

On that note, there's this interesting thing that I've been thinking about, which is, like everyone, the common knock was that they were overpaying to buy name brand for themselves, to sort of like buy their way into winners which, first of all, even if they did that, it actually is accretive to their LPs, since their LPs would benefit from being investors within this name brand fund in the future, assuming that they were going to continue investing in subsequent funds.

Like it actually was a good use of the capital, even if their prices were irrational.

Because great.

Now, in the first year when that fund was deployed yeah, we might have overpaid for some deals, but now we're in a top three franchise.

So awesome.

And the first funds ended up being good.

Right.

Would anybody argue today that they actually paid too high of a valuation for anything they did from 2009 to 2015?

Absolutely not.

Yeah.

What other corollary on this playbook theme I wanted to make?

We made this point on the last episode, but I don't think we've talked about it yet here.

This is just so silly.

And I didn't quite get this perspective until being outside of the institutional venture industry.

And now it's just obvious to me.

It's so silly.

Why would you ever publicly argue as a venture firm that valuations are too high?

Who's your customer?

Your customer is entrepreneurs.

That'd be like saying a politician running and being like, taxes are too low.

We need higher taxes.

That is my platform.

And not only that, but this specific other competitor of mine from the other party who's running.

The problem with their platform is they want lower taxes.

Right.

If you're an entrepreneur listening to this, you're like, I like lower taxes.

I like higher valuations.

Right.

Yeah, that's a great point.

Yeah, pick a different thing to argue about if that's your side.

You can feel that way all you want, but don't argue about it.

Right.

Speaking of things that are specific to institutional VC, like we discuss on our VC Fundamentals episodes in the LP show, there is an investment process that has to happen because there's a lot of partners.

So you need to figure out, we raised this fund, we got these 22 people.

Isn't that crazy?

It's 22 now.

But even imagine a smaller partnership earlier on, five, six, seven people.

How do we make decisions to invest this fund?

Right.

Well, an interesting thing that they do is they do not have a consensus based approach.

So I think and this is according to the information which is LinkedIn sources any GP can pull the trigger on any deal on their own.

So they can say like, I'm going to bat for this.

The way Mark describes it in some podcasts is that they assemble a red team to basically be there.

The way we've talked about this at PSL and I think I've talked about on LP episodes in the past is like to have a foil.

If you're advocating to turn a project into a spin out, someone should kind of be the bear case on it or your foil.

Mark calls it a red team and he's like we basically staff someone with the responsibility of going and trying to figure out why this is a bad investment.

Because if you don't have the consensus of the partnership and you're putting your name on the line, sure we can.

We should do that investment, maybe like it's a good non consensus bet, but also you should have to go argue with someone who's going to present the other side of the case.

And he's like, we figured this out because Ben is my red team.

I can come in and be super optimistic about something and Ben is naturally good at because they fight like dogs.

He's naturally good at presenting the other side of my arguments.

And we decided to institutionalize that in the firm, which I think is really an interesting approach that both forces you to be diligent but also allows for non-consensus bets.

Interesting.

Yeah, I like that in theory.

I wonder in practice how much it actually goes.

Because you and I know these deals happen in days, if not hours.

Lightning speed.

Interesting.

At least in theory.

And great to talk about on podcasts.

Yeah, great to talk about on podcasts.

It makes total sense, though, that they can't be a consensus-driven firm with that many people.

You're never going to agree on anything.

Yep.

Especially at the pace that they're doing deals now, because of the pace that the whole thing is working now.

Yep.

Last one that I had that I just thought was interesting that we didn't talk about on any of this.

But Mark talks about a lot, which is he doesn't really believe in pivots or the notion of failing fast or the lean startup.

I'm amenable to this argument, even though I do a ton of testing of ideas that the big innovations throughout history are made by true believers who just kept trying.

There's something like the filament of a light bulb was Edison's 200th attempt at creating filament.

It may not be the right decision for you as an individual to keep ramming your head against a wall, but it's good for all of us as a society that there are a lot of people who are willing to keep running at something different, almost illogically so, in a way that is potentially not in their best interest, because that is where the true breakthroughs come from.

And if everybody's always looking at data from the first sort of test and they're like eh, it's not really working, let's try something else, then you don't get the breakthrough innovations.

Yeah, that makes sense.

I mean, I think both of these things are true, but certainly we didn't test acquired.

Yeah.

And if we had tested acquired in the early years, we probably would have been like well, that's not working very well.

Totally.

But passion projects, passion leads you to do things that aren't necessarily economic.

And then at some point you sort of look around and you're like, whoa, value creation has happened.

I love that image.

Hopefully not said in that sterile of language, but yeah.

I like that.

I'm going to use that with startups coming forward.

I just feel like, guys, value creation has happened.

Well, I was talking actually with a portfolio CEO the other day about how I really believe from doing Acquired now that and we talked with Patrick O'Shaughnessy about this that brands just take time.

People don't love stuff quickly.

They're always skeptical of new stuff.

And so a brand is time times.

Absolute number of people who are familiar with the brand times the magnitude of how much they care about the brand.

Sure you can get the coefficient on those second two factors to be very high, but it sure helps to have a lot of time because it multiplies through.

So just looking back at Acquired, and A16Z now has this going for it too.

It is remarkable, even if the product doesn't get any better and certainly the product for us and for what they offer has gotten dramatically better that time existing in market, continuing to bang your head against the wall and keep doing your thing and being true to it.

Even if it's an irrational decision because it may not pay off, the passion can allow you to stick it out long enough, such that a brand can be built.

Well, there's also like, once you get a brand like that I mean I guess this is the point of seven powers like any of the powers, once you achieve them, you're just like a whole lot more robust than you used to be.

Like think about the first Andreessen fund and the Skype deal.

If they had lost money on that, Man, history would have been different.

Totally.

That could have torpedoed everything.

Yep.

Now, they write a couple hundred million dollar check into something and it blows up in their face.

Like, let's take Clubhouse.

Like, jury's still out on Clubhouse.

Like, will it work?

Will it not work?

You know, who knows?

But let's assume for a minute that just play out a scenario where it goes to zero and they lose a whole bunch of money on it.

Won't matter at all.

Literally no impact, right?

That's such a good point. or similarly like early days of acquired, right?

Like first couple episodes, like if we had just like something really bad had happened, we probably would have quit.

Not that I want to do this at all, but if we have a bad episode or something like that, we're probably going to be fine.

Yeah.

I don't know.

Man, this is my constant paranoia because it's such a big risk to dedicate.

It does feel a little tightropey.

Listening to a podcast is a risk, because we're totally off topic here, but this is something I'm super fired up about.

If an article is boring, it's fine, because you skim it real quick and then under a minute you're gone.

If an episode sucks, you're like wow, I just dedicated an hour, two hours, three hours of my life to this thing.

I'm not going to trust these people to produce things that are high quality anymore.

I'm gone and so i i don't know about you.

I constantly live in fear and like, have gotten i do aggressive on.

If this thing is not of the quality bar in which we set, every single episode we release is a risk.

Yeah, It's funny.

I think my level of... I'm curious what you think.

My level of nerves going into every episode has remained constant and steadily increasing for the six years we've been doing this.

Totally.

There's more on the line every time.

Every time.

Yep.

Huh.

Well, that was a digression.

Totally.

Now is a great time to thank good friend of the show, ServiceNow.

We have talked to listeners about ServiceNow'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 ServiceNow 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.

So great.

There's so many stories.

That was, you know, continuing to riff on the tangent of the podcast.

We were worried we were going to run out of stories after like 10 episodes.

Well, we did run out of good acquisitions.

That's true.

But my God, there's stories everywhere.

And in our community now, like it's just, it's the best.

Flywheel spinning.

All right.

Grading.

Dun, dun, dun.

So listeners, we are not LPs in Andreessen Horowitz.

And if we were, we wouldn't be able to disclose their returns.

That said, thanks to our great relationship with the folks at PitchBook Data, we are able to pull a ton of stats on when they invested, at what rounds, at what valuations.

We're able to scan S1s of all these companies to see if they owned more than 5 at IPO what they own.

We do know how much money they've raised.

And so we're able to do some napkin math.

And here's the napkin math that we've done.

So we looked at the proceeds from their top 10 liquid outcomes.

And that may not mean that they've actually liquidated their position, but that they could have.

So that is, and I'll just run through them real quick, because I think we said some of the numbers earlier, but it's worth highlighting again.

Okta was $1.5 billion to $2 billion, back to Andreessen Horowitz.

Coinbase, $11 billion, the granddaddy of them all.

Airbnb, we estimated around $3.5 billion based on an $85 billion market cap.

They have IPO'd in the last six months, so it's reasonable to think that they would start liquidating that position now.

We think that they own about 4%.

They're a sub-5% shareholder, but are, of course, on the board.

They led the Series B. I think they put $60 plus million into the Series B.

Yeah, a lot of capital there.

So probably 3%, 4%, somewhere in there.

Lyft, they generated about $1 billion out of.

PagerDuty, half a billion.

Slack.

We think about 3 billion, assuming they held all the way to the Salesforce deal 18 months later.

Pinterest, $1.5 billion.

They own 10% at IPO, which was, I think, like a $15 billion market cap, but has 3X since then.

So it depends how much they held.

It depends when they distributed, yeah.

Right.

It could have been higher.

Roblox, a quick $1.2 billion.

GitHub, $1 billion.

And Affirm, somewhere between half a billion and a billion.

Again, all these things are estimated.

But if you just look at those companies and think about distributing pretty early, assuming that they didn't hold Okta all the way until it is worth 33 billion that it is today these companies probably generated about 25 billion in returns.

Right.

So an interesting thing to do is to then look at that divided by the AUM of the funds that they come from, just to say what's like the worst case scenario for their multiple.

So that's assuming no more value from anything else.

Which is simply not true.

And we'll revisit some of the things that still could bear fruit after we just do some quick math.

So you look at their total assets under management, $18.8 billion.

But a lot of that doesn't contribute to any of those companies we've talked about.

So subtract out the early stage funds from 2019 onward, because none of those companies were from Those haven't matured yet.

So that's $2.2 billion off the 19th.

Then you got to take out their most recent late stage fund from six months ago, which is 32 billion.

Then you take out at least crypto funds two and three, and maybe you even take out crypto fund one, which is only another 350 million.

But then you're pulling out from all of that another $2.7 to $3 billion.

Then you take out all the biotech funds, which is $1.4 billion.

You have close to $10 billion to subtract out.

And you could maybe even argue that one or two of the more recent early stage funds to take out as well.

But to make this again all napkin math really easy, because we're just trying to figure out, did it work?

Is it going to work?

Is it showing signs of working?

Let's just say their first $8 billion, we have some data on.

And then the more recent $8 billion, jury's still out.

We don't know yet.

Time will tell.

Yeah.

And so if you look at that sort of first eight well, that created at least 25 billion, which is a cool 3x.

And you're not even counting, and this could be a monster Databricks, which that company's worth 28 billion.

And it wouldn't surprise me if A16Z owned like 25%.

They invested very early and they've been investing every round.

They could own like $7 billion of that company at the current valuation.

Again, I don't know, but this would be a reasonable estimate.

Instacart, it would seem reasonable to think they own like 2 billion in that.

Robinhood.

A small percentage because it was only a seed investor, and then, something more recent, in the growth round.

But you also have like Robinhood Oculus, Flatiron Health Stack Overflow Instagram, which is so funny.

They generated 78 million out of Instagram, which was a nice return at the time, but sort of doesn't matter in this overall analysis today.

So that 25 billion number that gross 3x is even before all these other companies that definitely contributed and before all the other ones that may have returned.

Capital may have done well, but not Coinbase well.

Well, and there's one more dark horse too, which is, I believe, in the crypto funds and maybe some of in the early core funds.

They're buying Bitcoin and Ether.

Yeah.

Oh, interesting.

I'm almost 100 sure at least Bitcoin, if not Bitcoin and Ether they were buying in a bunch of these funds.

Wow.

Depending on when they were buying, that's game-changing for this whole.

Depending on how much capital they put to work for this whole analysis.

Yep.

The reason that I wanted to sort of do this napkin math is to basically say okay, we know, with the first half of the capital that they raised in their life, at the very worst case they had as good a returns as anyone else in the top quartile of the industry.

So at the very worst case, it didn't not work.

Right.

Yeah, there's no, this is not an F.

Yeah.

They were able to do a hard thing, which is burst onto the scene and break into something where there is really persistent returns, year over year, decade over decade, and compete with the very best of the best.

And do we actually have the data to tell you if they're the best in the industry or to compare them to Sequoia?

It's too hard to do.

But it also doesn't really matter, right?

Right.

It would be fascinating to know if they're better than Sequoia or better than Benchmark or not.

But they're in the ballgame, you know?

Yeah.

And this also, I think we can finally put to bed that leaked data in 2016.

It's not that the data was wrong at all, but the conclusion of a lot of people's analysis is for the brand that they have, Andreessen Horowitz is way underperforming.

Gosh, they're only at a 2x or a 2 point something.

And you're like, okay, we don't know yet.

If you had analyzed Coinbase in 2016, would you have been able to determine that it's going to whatever gigantic multiple it was on that fund, just from that one company?

No, there's no way you would have been able to.

The apples take longer than lemons to ripen.

I skipped over that in the script for a time but it was a Wall Street Journal article that was so clearly a hit piece planted by rival venture firms where they had a bunch of quotes from LPs and stuff that the entries and returns were.

I think the headline of the article was something like despite bluster or whatever, entries and returns are average.

Yeah.

Well, I don't have much more to add.

And frankly, I guess I would throw an A on it, with the plus sort of being if we ever got cleaner data.

But for what a challenge it was to break in and challenge the incumbents in such a short timeframe.

It's remarkable how well they've done.

That's spot on.

It's an A. Yeah.

Only reason it's not an A-plus is Facebook buying Instagram and getting 500 billion of value for one.

We just don't know enough yet that maybe it could end up being that in the future, but it's not that today.

But no way, this is less than an A. Who else did this?

Nobody's done this.

And just to put some numbers, I'm going to guess that the first 8 billion of capital in these funds that we're sort of calling inbounds for this analysis returned somewhere between 25 and probably 40-ish billion.

It's so good.

And it's funny, the other navel-gazing aspect to venture and investment returns that people talk about all the time is the multiple and the IRRs and efficiency of capital and only having the best companies and blah, blah, blah, blah, blah.

Just the magnitude is like, at the end of the day, what really matters is the magnitude here.

Yeah, the absolute dollars.

The absolute dollars.

Let's make it easy.

Let's say $30 billion that they've returned on $8 billion invested.

That's $22 billion that they've generated.

Name me other firms who have done that.

There are a few, but there are very, very few who have done that.

Yeah, it's interesting.

Like a good multiple means you are right.

But a great amount of absolute cash returned means you were three things.

You were right with conviction.

You had access.

You had winning access to be a meaningful participant on that cap table.

And you effectively did the work to obtain the capital in the first place to be able to deploy a large enough amount of it to generate a large dollar return.

You got to be good at a lot of things and you got to be convicted and right in them.

Yep.

And I think large institutional LPs, I think that's how they think about it.

Right.

It's like, they're like, yeah, great.

Yeah.

10 X fund.

Fine.

If it's a 50 million fund and you 10 X and you return 500 million like clap, I'm proud for you, you know, but like I'm not jumping out of my seat, but you, you know, you returned me 22 billion.

Like now I'm jumping out of my seat.

I don't care what the multiple is.

All right.

Well, gosh, it feels good to come to the end of this two-parter.

You want to do carve-outs?

Yeah.

Let's do some carve-outs.

I got two.

First, they're both sort of quasi-carve-outs.

The first one is a quasi-carve-out, because I've already had this author as a recent previous carve-out Arthur C Clarke.

So good.

I wasn't on the Ethereum episode.

Maybe I had him as my carve out OG, super OG science fiction author.

I have since continued to read his stuff and I read childhood's end.

Have you read childhood's end?

No.

Oh my gosh.

This is so good.

You got to go read this book.

You know, the movie independence day.

Yeah.

The Will Smith movie.

Absolutely.

Oh, so great.

So Independence Day is based on Childhood's End, but it's only based on the very beginning.

Like the beginning of Childhood's End is what Independence Day was based on.

But then the rest of the book takes a very, very different turn.

And it's super mind bending and really cool.

Can't recommend it enough.

That's number one.

Number two is specifically for you, Ben.

I have a carve out for you.

We are both huge MKBHD Marques Brownlee fans.

Yeah.

And, I think, his most recent video.

He just launched a new channel on YouTube called the Studio Channel.

With the video.

You are going to love this because you are such a gear geek.

Studio tour, MKBHD studio tour.

And like, oh my God, it's so cool.

And he's got great gear.

I gotta go check that out.

I was watching and I was both like jaw on the floor and I was like wow, we are such amateurs at Acquired.

He is a litany of red cameras.

Litany.

And like, wow, video is, I have so much more respect for what YouTubers do.

Like audio is easy.

We're playing on easy mode here.

Oh, it's so much harder for sure.

Okay, cool.

I'm legitimately adding that to my to-do list right now to go watch that after.

All right, mine is continuing my recommendation of The Sopranos and Goodfellas, The Godfather.

Somehow, I have never seen the Godfather trilogy.

It just escaped me.

I know.

I'm going back and actually watching all these- Wait, so you started with The Sopranos and Goodfellas without having seen- Correct.

The Godfather.

Correct.

Whatever path leads you to greatness, the point is you get to greatness.

Yes.

And greatness it is.

God, it is so good.

And like one is so like good and raw, and two is so artistic and well thought through and the method of storytelling flashing back and forth between the two stories.

I think some people complain about it.

I loved it.

I think it's De Niro's best performance ever.

It's definitely Al Pacino's best performance ever.

And three exists.

Yeah, three.

I turned off.

Actually i didn't watch three.

I watched coda.

People think it's better than three.

It's like a reshot.

There's some stuff that's reshot and re-edited and like maybe if i had 14 years between two and three then it'd be okay.

But because i tried to watch them back to back, i was like allergic to the 90s-isms of Coda, where I was just like this is unwatchable.

I mean, the haircuts alone.

I think Michael Corleone says more words in the first 10 minutes of that movie than in the entirety of two.

I believe it.

Just no subtlety.

So that's an anti-Cardinal.

I don't know that I've ever watched three.

This is what I hear from everybody.

One and two are so good.

Oh, they're so good.

The horse head.

Oh, it's beautiful.

Just great.

All right.

Well, with that, listeners, come join us in the Slack.

Become an LP.

All those links are in the show notes.

If you liked this episode, share it with a friend.

You could share it on social media.

That'd be nice.

But I actually like the one-to-one stuff better.

We're all about slow, methodical, high-touch growth here at Acquired.

And so if you can put your personal, someone that you think would really appreciate it, then that's who you should share it with.

We love social media shares, of course, but it's kind of hard to just post on social media and be like.

You should listen to this three and a half hour podcast that is part two of Andreessen Horowitz.

You kind of got to really convince someone.

So if you love this, tell your friends.

It's like when I get an Eventbrite invitation to go to something, versus when a friend texts me and like hey, you should come over for this, you know.

Yeah, exactly.

It's a totally different thing.

All right, listeners, we'll see you next time.

We'll see you next time.

And wait, we got one more piece of news.

Who got the truth?

Live on Spotify.

Go check it out.

You can listen to it here for the next two minutes and then go listen on Spotify.

Yang spielberg, mike taylor.

Take us out.

Who got the truth?

Is it you, is it you?

Is it you who got the truth now?

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?

Take me home, because I don't know what's going on in the world I'm living in.

Through all this smoke I need to know Who got the truth?

Is it you, is it you, is it you?

Who got the truth now?

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?

We'll be right back.

Through all this smoke, I need to know 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.

[The Rise of Andreessen Horowitz: From Contrarian Outsiders to the Dream Execution Machine]-[Andreessen Horowitz Part II]

📋 Summary

The Birth of a Contrarian Titan

Counter-Positioning Against the Incumbents

The Power of Marketing and PR

Strength Follows Strength: The Flywheel

The Big Bets and the Lessons Learned

Conclusion: A New Paradigm

🎯Key Sentences

📝Key Phrases

📖 Transcript

[The Rise of Andreessen Horowitz: From Contrarian Outsiders to the Dream Execution Machine]-[Andreessen Horowitz Part II]

📋 Summary

The Birth of a Contrarian Titan

Counter-Positioning Against the Incumbents

The Power of Marketing and PR

Strength Follows Strength: The Flywheel

The Big Bets and the Lessons Learned

Conclusion: A New Paradigm

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🎯Key Sentences

📝Key Phrases

📖 Transcript

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