If you share control, it becomes very, very difficult to change the organization, because everybody's got to agree.
I quoted Lil Wayne.
I said when I see another VC coming at me with the peace sign, all I see is the trigger and the middle finger.
And everybody hated me for that.
There would only be 15 technology companies that would ever get to $100 million in revenue.
And we really thought that was going to change because, look at that time we thought software was going to eat the world.
And every new company was going to be a technology company.
And therefore there were going to be more like 200 companies a year.
That would hit that bar, not 15.
If you have a network with a billion people on it, it's going to be very valuable.
But like how did Alexander Graham Bell sell the first telephone when there was nobody to talk to?
Like that part is actually really hard.
The rules of venture capital were built for a different era.
Recorded live at Stanford for CS153 Frontiers.
This conversation explores how Ben Horowitz helped rethink the structure of venture capital.
As software expanded, what startups could become.
From network effects and firm design to leadership and culture.
It traces how the system evolved and why it may be changing again.
Now AI is shifting the equation once more.
Code is less of a moat.
Capital matters more.
And the bottlenecks are moving toward compute, energy, and organizational design.
Anjani Midha, founder of AMP PPC, speaks with Ben Horowitz, founder of A16Z.
Please join me in welcoming Ben.
Ben Horwitz.
Thank you.
So how many of you heard the song that was playing right before?
Does anyone know the name of that song?
We Are the World.
Yes, that's correct.
We Are the World is a 1985 single by a super group of musicians that all came together to raise.
It was a charity single that was produced to help raise funds for the famine in Ethiopia.
I believe in 1985.
Yeah, Lionel Richie made a good documentary on it, if you're interested.
Correct.
The reason I'm bringing it up is because Ben is known for many things.
He's the co-founder of Andreessen Horowitz.
I'm very lucky to have called him my boss for a few years.
He's also been a founder or CEO.
He's built several technology companies.
He's behind one of the reasons venture capital still exists today, after many moments when it.
There were times when it got threatened, including the SVB financial crisis.
But the thing I've learned most about Ben is from a documentary that Ben told me to watch about a year and a half ago.
Yeah, yeah, yeah.
Triple OG.
It's called The Greatest Night in Pop.
And I would really recommend folks who haven't watched it to go watch it.
We're going to put it in the reading assignment for this class.
It's on netflix.
Anyone can go watch it, but it is the documentary about the making of that song.
You just heard we are the world and there's somebody in the documentary that you'll observe if you watch it by the name of quincy jones.
How many people have heard of quincy jones?
Okay, about 30.
So we need to school the kids a little bit on it.
Yeah, he was the greatest.
Great, great human being.
Great human being.
And more importantly, great leader.
Yeah, well, that was the thing he could do.
He was the best at, handling super talented, difficult to handle people of all times, no question.
And you can see it in the doc.
There's a moment in the documentary where the camera's following Quincy around and he's walking into the studio where the musicians all are and he points to the top of the door And he says read that.
And there's a sign above the door that he's scrawled on a piece of paper and he's stuck up there.
This is at like around midnight before the recording session is supposed to start.
And it says, check your ego at the door.
I think it says, leave your ego at the door.
Leave your ego at the door.
Sorry.
Yeah.
And if I had to summarize Ben Horowitz in sort of one line, I would say he's the Quincy Jones of technology.
That's a lot.
High bar.
That's hard to take that credit.
He is amazing.
Ben is known for many things, but I think the thing he will be most known for throughout history will be his leadership, the lessons he's left with a lot of people over the years.
Many leadership lessons which I think are still not legible to the world yet and will only become clear over time.
But today Ben, I think it would be helpful to take everybody here a little bit behind the scenes of what it took for you to become the Quincy Jones of tech.
You're not supposed to be blushing this hard, Ben.
I mean, Quincy.
Having known him, he's a very high bar.
That's a high bar.
Thank you for being here.
Why don't we start with, let's zoom back all the way to the founding of Andreessen Horowitz.
Let's start there.
This is a systems class and recent Horowitz ended up being one of the most important innovations in the systems design of venture capital, of how capital should be deployed.
Where we'd love to contextualize this is the students have heard that three or four of the largest bottlenecks to progress are data context feedback, compute capital and culture.
And we haven't talked that much about capital and culture.
So today I hope you can take us a little bit to the frontier.
What's going on in capital and culture, especially in labs, in startups, in teams that are pushing the frontier?
But I think, to get there, we should rewind a little bit and start with What was the system that you created to even allow capital to get to this point?
Yeah, so we started the firm back in 2009.
And at that time there were a couple of ideas about venture capital that I would say we thought were dated.
One was like it was mostly an investment idea.
The product for investors, LPs, was really good in that they had very high returns.
But the product for entrepreneurs I thought was like pretty bad in that they didn't do much for you other than give you money.
So that was kind of idea, one that we thought we could just build a better product for entrepreneurs.
And then the other idea that was very, very kind of prevalent in venture capital was this idea that in any given year and the historical data really supported this there would only be 15 technology companies that would ever get to 100 million in revenue.
The whole industry was just about getting invested in as many of those 15 as you could.
That just limited the size of the whole industry and the capital in the game.
We really thought that was going to change because, look at that time we thought software was going to eat the world.
And every company that was going to be interesting.
Every new company was going to be a technology company.
And therefore there were going to be more like 200 companies a year.
That would hit that bar, not 15.
And so we decided.
You know, one of the things that I did as kind of the CEO of the operation was to say OK, how do you scale this?
Because venture capital firms kind of notoriously didn't scale because they didn't have to.
It was.
I remember Dave Swenson, who is the most famous LP, said yeah, a good venture capital firm is like the size of a basketball team.
You know five guys and then a six man, or something like that.
And that was not going to be enough to have a great product for entrepreneurs and then Also invest in such a large number of companies.
And so to get to scale, there was a couple of ideas that we had that sound very, very simple but ended up being important.
The first was normally in venture capital.
It's a partnership and the partners share economics and control.
And the problem with that idea and you experienced this in your career at other venture capital firms is if you share control, then it becomes very, very difficult to change the organization because everybody's got to agree.
And if you know anything about running an organization.
The one thing about a reorg is some people are going to hate it because it's a redistribution of power.
And it's not necessarily the people who aren't good.
It's just like some people are just going to hate it because nobody likes to lose power.
And if people get a vote, then there's no way to like effectively reorg a business.
And so you, our idea was like, you can't share control.
We'll share economics, but we'll centralize control.
And that ended up enabling us to reorganize and enabling us to get into many more kind of categories, like American dynamism or crypto or bio or these kinds of things, because we could change the organization and scale it and so forth.
And that ended up being an important kind of systems idea.
And then because investing is always a conversation and you need a very, very high fidelity conversation to get to the truth.
You never want more people in the room than can have a conversation.
And so you can't have a conversation with 30 people.
It's not possible.
That's a presentation.
Over the years.
What do you think is the optimal construct of a truth-seeking conversation when you're trying to understand the future of a technology that's super complex?
Yeah, I think that if you have really good Chemistry and rapport, it can be like seven.
But if you don't, then even that gets problematic.
But yeah, you just can't do it with a large group.
And so what we ended up doing is we just kept kind of splitting the firm into smaller and smaller groups over time.
And each group would address a certain part of the market.
And that ended up being very effective.
And to contextualize for folks when you started the firm, The first fund was about 300 something million, 320.
300 million.
300 million.
And you had all these sort of institutional folks like David Swenson and so on, who had these sort of long-held, for whatever reason, priors and assumptions.
What did you find was the most effective way to realign them or get them to revisit those assumptions or update those priors in a way that was aligned with your mission?
Well, succeed.
I mean, like that's all it is.
Like I think one thing, you think another thing.
We're going to find out if I'm right.
So the first thing that that happened was we invested like a quarter of that 300 million fund into the Skype buyout, which everybody thought was insane.
But we knew, there was a bunch of things we knew that other people didn't know.
So the first thing that made it insane was the deal itself.
When it spun out of eBay, eBay didn't own the IP.
They own the company, but not the IP, which how they ended up there is like a crazy, dumb story.
But by the way, never do that.
Never buy the company without buying the IP.
So the founders kind of had this hold on them where they could have sued them and shut down the service.
And so everybody was like, oh, that's an unbuyable asset.
But like we knew the founders Yanis and Nicholas, and we knew like the one thing they had in life that defined them was Skype,
So they weren't going to shut that thing down.
It was just a matter of like how much money did they want?
Did they want to be on the board?
The IP at the time was basically the Skype client and the user base.
It wasn't the client, it was the underlying kind of library that controlled the protocol.
Oh, sure.
The communications protocol.
Yeah, which was, you know, very hard to replace and all that kind of thing.
So anyway, we bought it, and then 18 months later, we got like a 4x return on it.
And so, like, you got a 4x on a quarter of the fund in 18 months, and...
Everybody goes okay.
Well, even though we thought you were nuts like, maybe you're not completely insane.
There's so many interesting parallels to that era and now, but you know, one property of that era was the explosion of networks.
Yeah.
The idea of network effects became legible for the first time as a systems concept.
So can you talk a little, take us back?
I think it's hard for people now to just take these for granted.
But at the time, can you talk about why was it novel?
Why were people resistant to it?
And what were the insights that then led to the architecture of the firm being a network effect driven firm?
Yeah, I mean, I think people just didn't understand network effects as well.
So the big era of networking kind of started with the Internet.
And then people thought the Internet itself was just like a unique network.
And it was weird.
It was different because nobody – like people got value from things built on the Internet but the Internet was – not owned by anybody.
It was like the kind of first real decentralized network.
And so people didn't know what to make of kind of networks that like I mean Facebook.
Early on, had you know there weren't like a ton of people giving them money for the first round.
That's why Peter Thiel was able to do it at a really good price.
And then, you know, kind of the same thing with Twitter and so forth.
Like people just didn't know that, basically how invincible those things got when you kind of got them up to strength.
So the bigger, you know, it's basically like an N squared value.
So every node you add kind of increases the value by, you know, kind of N squared.
So like, If you have five people on the network, that's 25.
But if you have six, that's 36 and so forth.
And the value, if you get up to internet size, it's just invincible.
Nobody's going to ever build a rival to the internet or very unlikely.
And so at that point, us being involved in the internet and Twitter and Facebook and so forth, we had a really good understanding of that.
And so, you know, we always thought of the firm as a network.
And so, you know, from the very beginning we thought okay, the more relationships that we have, the stronger our network effect.
And so we ended up doing things that other firms didn't do.
Like we tried to build relationships with, like every engineer in Silicon Valley and you know every executive and everything.
And then every corporation that bought technology and so forth.
And we were in our minds creating kind of this network effect that would just make us – the best place to raise money from, because we were like an automatic.
You could tap into that network and become extremely powerful, like right off the rip.
And I think a lot of people didn't understand like how hard that was to do.
And then the bootstrapping of any network is always the most difficult thing.
So like, yes, if you have a network with a billion people on it, it's going to be very valuable.
But like, How did Alexander Graham Bell sell the first telephone when there was nobody to talk to?
That part is actually really hard.
And so figuring that out and how to bootstrap the network effect.
You know, kind of coming from behind in venture capital was the idea.
Well, I mean, could you say a little bit about how you bootstrapped it?
What were the things that may be now lost to the annals of history where there were individuals or asymmetries?
You know, one of the things we talked about in the first class is you know, often the students get excited about the speakers like you up here.
But we reminded them that one of the most valuable assets they have is the people sitting next to them.
It's the relationships they build.
When you were bootstrapping- That's getting more important, by the way.
Exactly.
If there's anything that's going up, it's that value, right?
But if you zoom back, when you were starting that bootstrapping and you didn't have the largest firm in the Valley, you didn't have the most capital, you had no track record as a venture capitalist other than your angel investments how did you boot?
What were the moments where that may not be legible to folks here that you used something that was asymmetric, that allowed you to bootstrap the network?
Well, the really simple idea was we knew like venture capitalists made a lot of money, right?
So they would take the fee money and then they'd pay themselves big salaries.
And so we were like, well, what if we didn't pay ourselves anything?
And we just took all the money And we basically spent it on building this network.
So we would hire people to like bring people in.
We, you know, with our kind of you know, how do you get relationships with every big corporation FedEx, and this and that and the other?
And the trick that we had there was we had sold the previous company to Hewlett Packard.
And so we knew the people in their enterprise briefing center.
And so we would call them every week and say, who's coming to the briefing center this week?
And can we get their numbers?
And we would call those companies and we would have them come to our briefing center and we'd just show them all the startups.
So it would be like you know, and we'd have everything they like all the donuts and all that stuff, you know.
So it was like very un-Venture Capital-like.
But, you know, the corporations loved it.
So all of a sudden, we knew more big companies than VCs, who had been around 50 years, because we had this hack through the HP Enterprise Briefing Center.
I think it's very poetic that we're sitting at Hewlett 200, by the way.
This is the name of the auditorium.
It all comes back full circle.
So you know when you started doing that.
Usually, when somebody new shows up on the block with an insight like that, from a systems perspective, what we've observed is often the antibodies come out right.
The immune response of the existing incumbent system comes out.
At the time I was across the street with Mike, actually a Kleiner, and I remember you know there was a A16Z was in the headlines all the time.
And, like our CMO at the time, great lady.
But I remember taking one of the headlines to her and saying like you know, we should do this too.
And she said, on this executive briefing, oh, that's just marketing.
And I said, yeah, that's your job.
This is working.
And I've been consistently shocked by the number of times A16Z has done something from a product insight deliver that to the entrepreneur and then everybody else just says oh, that's just marketing.
Is that, am I being overly facetious or is that true?
And what were the immune responses like that that you were experiencing and how did you deal with them?
Yeah well, it was funny, because every time we'd meet with our investors, our LPs, they would say every time we meet with another venture capital firm, all they want to do is talk about you and say mean things.
And I'm like, well, that's fantastic.
That's great.
That's good.
They used to call us AHO.
That was their nickname.
The other VCs, you know, they hated us.
Some of it was my fault though, because when we started I was coming from enterprise software, which is like a very competitive bare-knuckle kind of –.
There's no such thing as coopetition in enterprise software.
It's just like kill or be killed.
So I did a – I did it like –
I wrote this blog post called four things that VCs do.
That I don't like.
That, where I just like attack them all.
And then I, I did this big.
There was this Sarah Lacey had this big, big event and she interviewed me on it.
And she's like, well, you know, you seem like kind of, you don't like other VCs.
And I quoted Lil Wayne.
I said, when I see another VC coming at me with the peace sign, all I see is the trigger and the middle finger.
You know.
And everybody hated me for that.
So, you know.
But it kind of worked because, because they hated me so much, they weren't willing to copy what we were doing, even though what we were doing was working.
So it kind of backed.
I don't know if I would have been that antagonistic again, but, you know, it worked.
So you can't argue with it.
Well, OK, well, I think we should come back to that later on what you do differently.
But yeah, so great.
You bootstrap the network effect that allows capital deployment to start scaling into a bunch of startups.
Now, it really does feel like a back to the future moment a little bit.
Right.
Yeah.
Yeah.
What's going through your mind right now?
Yeah, I mean, I think so.
So the big thing that's changed is that, or the kind of most fundamental thing that's changed from a VC standpoint in my mind, is it used to be.
I mean, for my entire career the one thing that you knew about technology companies is you couldn't throw money at the problem.
So if somebody had a two-year lead on you you could not hire 1,000 engineers and catch them.
That was never going to work because nine women can't have a baby in a month.
There were just things you could not parallelize and then the communication overhead would kill you.
My favorite joke used to be, what's a man year?
It's like 700 IBMers before lunch.
You know it's nothing.
Uh, you can't.
You can't catch that that way.
With ai, that's really changed and that you can throw money at the problem, because if you have enough gpus and enough data, you can basically solve most problems.
Right now, like that, that just is what it is.
And so now um, you know, the capital race becomes a real thing and you have to think through okay, code is not really a moat the way it was in the past.
And like user interface isn't really a moat.
And so like what is like your barrier to entry?
Like what is the thing that differentiates you?
Over time, these have become like really, really different.
And it's happening at the same time that you know, demand for the technology is unlimited because the products work so much better than anything we've built before.
Like these.
I mean, many of you are too young to remember the products of old, but like none of them worked this well before.
Like this is like wild how well this stuff works.
You mean companies didn't always go from 9 to 30 billion in run rate in like six weeks?
Well, but the reason they go that fast is Like, you use them and you go, wow, this works perfectly.
You know, how can I do more with it?
Whereas in the old days, like if you bought Siebel Systems software, it took two years to deploy the thing and a million dollars at minimum.
And so that's going to limit demand.
There is no limit on demand when technology works as well.
So you would say Anj, that the technology is working in a way that collapses the gap that existing incumbents might have as a result of their human capital investments over the last whatever decade of software.
There's willingness to pay at levels that Yeah, I mean, the return is crazy, right?
So I mean, if you make an engineer 20 times as productive and you're paying that engineer – well, if you're Zuck, you're paying that engineer a billion dollars.
But you know like if you're paying whatever, it's going to be at least several hundred thousand dollars a year.
That's a hell of a return.
Right.
So that creates this –
The final project for the class, for the students, is the one-person frontier lab.
Because what we're trying to get everybody to realize is there's actually an extraordinary amount they can accomplish with the right tools.
Yeah.
Right?
But...
We have an entrepreneur like that right now building a global VPN by himself.
Yeah, and this started to become more common, I would say when we were seeing pitches.
I mean almost a year and a half, two years ago now, right?
Yeah.
What does that mean for folks here who don't have necessarily access to the most capital, may not have access to a ton of compute either?
What would you say is?
– but want to make a difference to the frontier right.
Well, I mean, I think saying – just be careful, a little careful with like people don't have access.
Okay.
Like, anybody with a great idea these days has – like, trust me, you have access in that –
And there's like unlimited money for good ideas currently.
You know, maybe that changes over time, but like it's definitely there.
And I would just say this you know, the world is changing and you can just think of it as like, the jobs changing we had before the industrial revolution are all gone.
And we've been kind of living with the post-industrial revolution and then the post-computer age jobs since then.
And we're going to get to like a whole nother class of jobs and a whole nother class of companies over the next 10 years.
That replaced most of what we have now.
If you're young, that's the best thing possible for your career and for your life, because in the opposite scenario, where it's all the same companies, then you got to start at the bottom and work 30 years to get yourself to be a mid-level manager.
You know and you've got a politic.
And then you know the old people who aren't as smart as you like get all the money and like that sucks.
But in this world it's the old people who have the challenge, because they know how to do the old thing.
They don't know how to do the new thing.
And you can walk in and learn anything.
And trust me, when you're old, it's harder to learn new things.
Like it just is something about your brain stops functioning as well.
It's all filled up with old stuff you don't need anymore and you can't learn enough new stuff.
And so I think that the main thing is just understand the future, and then the future is yours is the way I would think about it if I was 19 or 20 years old.
Well, you said something pretty important there, which is for the right ideas there's unlimited capital, right.
Could you talk a little bit about what do you think is the shape of good ideas today that's emerging in your mind?
Well look, I mean, I think that you know it always comes down to like can you build something, a product, an organization, a culture, an offering that people want?
And then if you don't build it, Is it getting built by somebody else or do they need you to do that?
Does the world need you to do that or it doesn't exist?
It's always the best entrepreneurial idea.
And so anything that needs to exist that doesn't otherwise exist is a good idea.
And that was the whole story with a venture capital firm now.
Did the world need another venture capital firm?
Generically, no.
Did it need a different kind of venture capital firm?
Absolutely, it did.
And so that's what we built.
Now, I think that's kind of true, for I mean, if you look at OpenAI companies, they weren't the only ones trying to do AI right.
Like Google, it was assumed like Google was just going to own AI.
It was panicking everybody, and that's why Elon, by the way, co-founded it with Sam.
And Elon's still mad about what Sam did with it, but that's a different, longer story.
But It's one of those things, well, we need an AI, we need an alternative.
The world needs this alternative to Google, and that becomes a really, really good idea.
So anything and look.
The world is changing so fast that the needs are going to, the new needs are going to multiply.
There's going to be many, many, many things that need to be done.
I mean, if you look at, I think you know kind of the old nobody.
The one thing that's interesting about the SaaSpocalypse is it's definitely true that like the barrier to entry on like building software and user interfaces is getting much smaller, but By the same token, like kind of the most boring thing in the world is to just like rebuild Salesforce.
Like you know, like Salesforce at a half the cost or a quarter of the cost isn't nearly as interesting as like What do you really want for your sales organization?
Because it's not that.
I mean, I don't think, you know, and then the question is, can you build it before they can?
But do you really want your salespeople like entering data into like a crap user interface?
And then you know most of the things that they work on aren't captured in the system, and this and that and the other like.
So
You know, going to the future, figuring out what like in a world of AI like.
What does that look like?
One of the traps that students often fall into is, I call it the dorm room problem, right?
Which is you've got sort of direct visibility into problems that are in your kind of cone of the light cone, so to speak, of your visibility, which is quite narrow when you're still a student, right.
Yeah, and sometimes, like when your friends are high in the dorm room and you have that conversation, that sounds really good.
It's not actually that good.
They should at least sleep for one night.
I've seen a lot of those over the years.
Yeah, make sure it's, It sinks in and you still think it's a good idea.
At least one night.
As you know, just because you're a student in a dorm doesn't mean you don't want to have an impact on big problems and work on things that have an impact at scale right.
And sometimes these things are mission-critical things healthcare, financial services, the economy, the selling to enterprises but these things are not directly in your sort of line of sight, right when you're very young.
And how would you advise folks to, in particular, to bring it back to these AI systems?
The context feedback loop we've talked about is quite critical.
But getting access to those context feedback loops when they can make a huge difference is challenging when you're young in your career and you don't have a big network, and so on.
So how would you go about bootstrapping that problem?
Yeah, I think the main thing is to just solve a problem.
And what tends to happen is when you go to solve, particularly if it's a hard problem, you find some other problem that's more important.
I mean, and this is well-known in scientific discovery, right?
Like penicillin was like an accident.
They weren't trying to solve that one.
It just kind of rolled off of the side.
And then, by the way, like meta was an accident.
He was building hot or not.
And he kind of stumbled into this much bigger idea.
And my friend Drew at Dropbox.
He was literally tired of having USB, where he'd have to move his presentation from one thing to another.
He was just solving a problem for himself.
So I think the best way to come on a good, a really important idea is to go try and solve something.
Not necessarily build a company, just try and solve a problem.
And then in that problem, if it's like a problem that you have, then that means it's probably real.
And then in solving it, you'll probably or you'll likely find something much bigger.
And then that may kind of force you to build a company.
And those are the things that work the best that we've seen are these big things.
I mean, it's really hard to...
And even like Elon Musk didn't start his career trying to build Tesla, right?
He was solving a much smaller problem.
And, you know, that's generally how you build up to that.
I think trying to swallow the earth from the beginning with no experience doesn't usually work.
It's good for your pitch deck, but it's not good for your company.
I think Elon's first attempt was like a class of Yellow Pages competitors.
Yeah, yeah, yeah, yeah, exactly.
A little bit more mundane than satellite.
Yeah, Yellow Pages and then PayPal and then, you know, Tesla and then SpaceX.
Well, so on that point, you know, the time horizon on which sometimes you find entrepreneurs sort of may have an impact on humanity is that it's quite long right.
They bootstrap sort of the impact.
I would say, or let me put this one of the old ways we've seen the generation of entrepreneurs that belong to Elon's generation is that they feel like they have to start, you know, somewhat with a narrow scope and then bootstrap like bigger and bigger scope with every successive project.
But just a few minutes earlier you said actually, you know, things are going through a lot of change.
Yeah.
You can have a lot of impact very quickly relative to incumbents who may have had to be a little bit more measured in their approaches, right?
Yeah.
How do you resolve these two?
I think it's.
I think thinking of it like how big a thing am I going to do is the wrong way to think about it.
You have to start with, like, what problem can I solve?
And then you solve, if you can solve that problem, that's where to start.
Like, you have to size it to you.
Not everybody is the same.
Like different people have different capabilities.
You become kind of your full like most effective self at a different age.
Like some people are really good when they're –, by the way, like Zuck is way different now than he was when he was 20 years old.
Like I know when he was 20 years old, like he was –
It's a miracle if he didn't have a network effect business like that when it worked at all.
He just wasn't very good.
But he developed that entirely over the year.
And because he had that kind of business that had a vertical takeoff, he could develop into that.
And look, so...
If he didn't have that, he might have been better off finishing Harvard or whatever.
That was just one of those things where he happened to solve a problem at that age that was important enough that it created a company.
So I want to take it in a slightly different direction, or analogous, which is when Zuck, when Facebook was getting started, It had a very unique culture.
Some good, some bad.
Yes.
And it's not always clear what is good and what's bad until much later.
I think my friend Sean got in trouble with the law with that culture, but yeah.
Wait, didn't he get in trouble for Napster?
Wasn't that one culture earlier?
No, he got in trouble at Facebook also.
At Facebook as well, okay.
That was a different problem with the law at Facebook.
I see.
Yeah, he generally tends to get into trouble a lot.
He's a genius, though.
Well, this is the thing, right?
With genius sort of, where you often find outlier technical and or any kind of outlier capability.
Often you find one of the problems I'm discovering today right in the field is that you often have really talented teams, try to start a new lab or a new company and sometimes they fall apart.
You just don't get very far.
From the outside, you'd be like, oh, this is totally going to succeed.
Star entrepreneur, lots of capital, you know, great problem.
And then, Like six months in to 12 months in, teams are just struggling a lot to make progress.
And sometimes people leave.
Why is that?
What do you think it is about?
The right cultural initialization that sets apart teams that can do this and hit that takeoff versus stumble along.
And how do you skip the painful parts?
Yeah, so I think there's a few things.
First of all, building a company is hard.
And no matter what era or whatever.
The press always makes it seem easy because they hate entrepreneurs.
But it's not easy.
It's always extremely hard, so. some are going to fail.
I just say that up front.
But in terms of the team and the dynamic and so forth yeah, it's a combination of leadership and culture.
And culture is a very kind of amorphous thing, but it ends up being very important.
So, And basically the way to think about it is, it's not like people think of culture as, like you know, corporate values or some bullshit.
But it's not that.
You know, it's not.
We have integrity.
We have each other's backs or like like some of these like whatever platitudes people say.
It's like. how do we behave exactly?
Like, what are the behaviors?
The samurai have a great kind of line which is a culture is not a set of beliefs, it's a set of actions.
And so, what do we mean by behaviors?
Well, like, do we come to the office or not?
Do we, like, do we go home at five or do we stay longer?
Do we, if somebody asked me a question, do I get back to them like instantly or in a week?
You know, like all those kinds of things end up mattering.
Like, do we believe, the best idea wins or does it matter who was the founder?
All that stuff you kind of have to agree on as a team And like very specifically, not like just like some highfalutin idea.
And then you have to live by it.
And then if you have that, if you have a standard, if you have a cultural standard, then if somebody's not living up to that standard, then it's a simple thing.
If you have no standard and people aren't living up to the way you want them to, then you're pissed.
But then that just starts infighting.
Then it gets political, right?
Because it's like, well, why the fuck is he going home?
Well, we never said he needed to be here.
We never agreed on that.
Like he, you know, has a date or whatever.
Or like, you know, he's got a family.
He's got to go home.
Like we never said what that was.
And then, you know, people stopped liking each other.
And then you hit the first hard issue.
And it's like, you know, F it, I'm out.
OpenAI is going to pay me a lot of money.
Screw you guys.
Screw you guys.
I'm going home, as Cartman would say.
But what happens if you started by standardizing on some set of beliefs, set of actions, and then the world changes?
And what you thought was going to be the right standard six months ago.
In a world where stuff changes so fast, needs to be updated.
Yeah, yeah.
Look, cultures can evolve.
But, you know, you kind of have to evolve together.
And you need a leader.
You need like having.
This is why I hate the idea of like co-CEOs, or like we're all equal or like we're going to run a communist organization.
It doesn't actually work in a company because you need somebody who's going to break the tie.
OK, yeah, you want it to be that way.
You want it to be that way.
We're going this way.
If you don't like it, get the fuck out.
Like that's that's how you have to run an organization in order for it to succeed.
And I think people are.
You know, we culturally got away from that idea in silicon valley a little bit um, you know, in the end of the fat happy network effect era, but like it's back now.
So could you say more?
What do you mean by that?
Well, you know every everybody wanted to like a vote on what the company's values were and this and that, and you know the.
And then, like CEOs, caved to that and that ended up not working well for any of us.
Companies are not democracies.
They are cultures.
Yeah well, I think a dictatorship always beats a democracy in a competitive battle because it takes a long time to decide things in a democracy.
Now, look, for a country, it's different.
There are things, when you have to last several hundred years, that no matter how good the monarch is, if they die and a worse monarch comes into play, that could be an issue.
Well, I'm going to push a little bit on this assumption that it's different for countries versus companies, because something I've learned from you is the way you approach.
You know, the most exciting, the businesses I look up to the most, especially the ones in the A16 portfolio, are often leaders who are thinking so long term.
The way they talk about their impact on humanity is not that different from the timescale sometimes, of political leaders.
In fact arguably, some of the entrepreneurs are thinking longer term than political leaders these days.
Well, it is longer term, but so like, if you have a king, let's say you had a king running the United States.
Right.
If it's a great king who was not interested in their own, like enrichment, or their family, or their friends and so forth.
Who cared about the public benefit, basically.
Who cares about the public benefit, I think, you know, that works better than our current system.
The problem with it is as soon as you get somebody who's not like that, that's just too much power.
So you're better off decentralizing power so that the system is resistant to bad leadership.
Like I think a country has to be resilient to bad leadership, in that like if a company goes away, like okay fine, whatever.
Right.
You know, the – well, Dave Packard and Bill Hewlett, you know, like, they're gone.
They passed away.
The new leaders weren't so good.
Like, that's the end of the company.
Fine.
Whatever.
It's a company.
They did their thing.
They did their job.
They fulfilled their mission.
A country has to persist beyond that.
And so I think we already see that here, be it on the nation level, on the state level, even on the city level, you can see, eventually you get politicians who just start giving stuff to their friends.
And then, like, everybody suffers.
At least you can vote them out.
At least you can do something.
Whereas, you know, I think, in a company you want to be as efficient as possible while the sun is shining.
I know I could keep going forever, but we probably have a bunch of questions piling up.
So I'm going to ask you one more question, then we're going to switch to students, yeah?
Which is, You know, you talked about David Swenson, right?
And he had some strong assumptions that then you felt these were leaders of the previous generation that you felt just didn't get it.
Well, I just think that you know, not that he Like.
By the way, Yale is still like an investor in us today.
So...
I just think, like you can't let your investor by the way, including us like run your company, because you're on the ground in real time seeing what's happening.
They have knowledge of the past and they have a light knowledge of what you're doing, but not full context.
So they can be like it's an interesting conversation but you know the investor can't run the company.
And that's just the way it is with him and us.
Well, and my question for you is what prior do you feel like you now have to update so that you know, Given that you felt like Yale at that time needed to update their price faster.
Today, what do you feel is the biggest assumption that you've changed about the venture capital industry?
That maybe was a strong belief you held 10 years ago.
Well, I mean, like I said, I think...
Well, one, I mean, there's so many things that are changing.
But, you know, I talked about, like, you can throw money at the problem.
That's a massive change.
I think that, you know, the bottlenecks have moved.
So, you know, we used to have a bottleneck on software engineers.
I think, like, you know, we've got bottlenecks on, like, things like electricity now.
Yeah.
I think that changes how we think about investment.
And then companies are so big in the private markets that they now require things that venture capital firms didn't previously provide.
So when you get up to, you know, a billion dollars in revenue, then you have to be like multi-country multi-channel, multi-product.
You know, these capabilities, most VCs just have never had.
But I think now we have to have them.
And then I think they you know the private capital markets aren't quite don't have all the functions of the public markets.
So, you know, that needs to be addressed.
So there's a lot of things that are changing.
This is definitely not a new question.
It's a follow-up to that, which is you said culture is a set of actions. right?
This is, by the way, this is on the wall at A16Z and I, every day, I would go to, you know, the office in San Francisco and I'd rent one of these.
We could all book our own offices, and the one that was my favorite was in the back corner near closest to the bathroom, because I could dash to the bathroom between meetings.
But in that corner it says you know from the Bushido, you know culture's set of actions, not just beliefs.
Yeah.
And look, I tell people when they come in, like, I don't care what you think.
I don't care how you feel.
I don't care what's in your heart.
I just care what you do.
And like what you do matters.
And that's the way you have to run an organization or like you get into this bullshit.
So I mean that's my follow-up is a culture is often also what you don't do, what you say no to right.
Yeah.
What are the things that You've had to say no to because you're like well, that's just not – that could be an interesting opportunity.
It might even help an entrepreneur out.
But that's just not in our mission.
That's not us.
Yeah, well, so I'll just give you one example.
So the biggest one that got proposed to me like 18 times was, well, with AI, AI is like –
It's very much like when the spreadsheet happened, that kind of launched private equity, right?
Because, all of a sudden, you could go in and make all these big companies much more efficient by having them adopt this new technology and AI even more.
So right.
You can go in and you can go into an old company and you can make it much more efficient with AI.
And there's like many VCs who are kind of going with that idea.
And for me, like there's I would say two big reasons I didn't want to do it.
One is it's culturally the opposite of venture capital.
So.
You don't like leverage buyouts, basically.
Yeah, LBOs.
So, like venture capital, is about investing in entrepreneurs with new ideas and focusing on how they can grow fast.
Leverage buyouts are about, you know, entry price, making it more efficient, firing people.
And I don't really want to grow it.
I just want to make more money out of what it is.
And so like, if you're in the venture capital mindset, you're looking for the great entrepreneur to go build something amazing.
If you're in the leveraged buyout market, you're caring about like okay, I'm going to bring in a professional.
I'm going to have them run this more efficiently and so forth.
So it's the opposite motion.
And so for me, I was like, well, I don't want to, split the culture that way.
Like I think that's a, you know, not going to be a good idea.
And then the other thing is like, I don't want to do that with my life.
Like I have the opportunity to fund, like the greatest new ideas that are going to push humanity forward.
I don't want to, like you know, leverage buyout, seize candy and fire all the old ladies who work there.
Like, I'm not doing that with my life.
I'm like, fuck that.
You know, like, go to another VC if you want to do that stupid shit.
Or like that.
Like, I mean, it's not stupid.
I think it's a good business, but it's not a business for me.
So sometimes you're saying it's okay to impose bottlenecks on your own growth because that's just Yeah.
You don't have to be in every business just because there's money there.
Look, I believe in like you build a company to kind of do something larger than yourself and make the world a better place.
And then if you do that, you will make money.
But if you are in business...
Just for making money.
Like, that's not for me.
Like, that's – there are a lot of people who think that way, and I'll let them do that.
But, like, I think that great companies don't think like that to me.
Like companies that you would want to be part of, that I would want to be part of.
Don't work that way.
Right.
I'm not going to build that thing just because like, oh, there's money over there.
Let's go run to the money.
We're going to switch to questions.
So the way it's going to work is they even bring their questions in Discord.
All right.
And they're all voting on each other's questions.
And the top ones that get voted by each other, we'll go through them one by one.
First question.
The question is if I was a college student, where would I put my energy and effort, and what do I think about encouraging people to drop out of college?
So, like I think that if I was in college now, I would put a tremendous amount of, I would view AI as like a very powerful tool set.
So almost think of it like, I think the best analog is electricity.
So like okay, if you knew electricity was coming and you wanted to do something interesting in life and you were in the pre-electricity world right,
Like, you know, where like, it's six o'clock.
We got to be at home because it's going to get dark.
We're not going anywhere like that world.
Sounds like San Francisco.
Yeah.
Well, yes.
You know, so, so then, okay, this whole new world is coming.
Let me really understand this technology.
And then like, what is interesting to me in the world?
And that could be biology, it could be material science, it could be, you know rocketry, it could be anything.
But like, you want to have those tools in your bag when you go do that.
Or it could be, you know, like, by the way, it could be in the creative field.
So, you know, people, I think, misunderstand what's about to happen in the creative world.
But like Somebody who used to be like, who in my era would have been like a pretty good guitar player, can now make a sci-fi motion picture, score it and everything by himself.
And like this is like the world is really, really different.
So I would definitely kind of figure out what I'm interested in and master this new tool set and kind of apply it together.
I think that's that.
That's probably the the you know the thing that's definitely going to work in terms of dropping out of school like i i, i think that this is very individual based.
So um, Look you mature at different points in life.
You know, like I think that I finished college myself and that was good for me.
Like I think you know, it was good for Zuck to drop out, given the idea he had and given the kind of company he was able to build.
And So I think that with career advice, let me just say this that nobody can give you good career advice.
They can give them good career advice.
So I can give you good advice for me.
I can't give you good advice for you.
And particularly your friends are going to give you good advice for them, not for you.
And so don't listen to your friends and figure out who you are and what the best path for you is.
I would just say on that
Yeah.
So, by the way, so just on political donations, I also donated 5 million to the Kamala Harris campaign.
Important fact.
Yeah.
Often not reported on.
Just say, well, it is reported on Twitter every time the MAGA people get mad at me.
Look on politics.
Let me kind of just tell you where that came from and how I'm thinking about it in general.
Tech had like very little voice in Washington DC and that had extremely severe negative consequences for tech.
And specifically, so I can go through a few things in the Biden administration.
One is they basically almost ended the crypto industry by enforcing things that weren't even in the law to shut down companies.
And then they were – like the same thing was happening with AI.
So the last Biden administration executive order was to – require, for all sales of GPUs worldwide that any time you sold one, you'd first need government approval.
US government approval.
So that would have basically taken us out of the AI race entirely.
And the issue behind that was... was basically that we had no voice.
Like, the whole industry had no voice in Washington.
So we kind of launched a very, very big effort to have a voice in Washington.
And I would say that it's worked very well.
So we have much better AI policy, much better energy policy and much better crypto policy now than we did before we got involved.
So I'd say I'm like very happy about that.
And then all the kind of money and conversations have been about that.
Look, I mean, the other thing is, like I said, I gave money to Kamala because I know her.
I've known her for a 15 years, she's been to my house 17 times.
My wife sat next to her in church the whole time.
So I knew her.
So I knew I could talk to her.
Biden, like we never could get a meeting with Biden for the whole time he was in office.
And if you speak to Tim Cook or Sundar Pichai, Or Dave Ricks, who runs Eli Lilly.
None of them got a meeting with him in four years.
Now, we all know why now.
But at the time, we didn't know.
And the result of that was like tech had no voice in Washington for those times.
So, you know, it was a correction that we had to make.
I'm not going to defend everything that...
Trump does, or everything that Kamala would have done because like, there's a lot wrong with both of them.
And like, I know them both.
But there's a lot like the things that we needed to influence to kind of both make the country stronger and make the tech sector stronger.
I think worked out well.
So I guess the answer is yes, I'm happy with that.
Here we go, man.
That's a good question.
So the question to repeat the question for the podcast is how do I think being in a rap group in college kind of affected me?
And then can I rap for us now?
So...
The story of that was, you know, I had a friend who who got shot in the face and became blind.
And so we started a and he was very, very depressed.
So I would send him rap music.
And in those days, rap had just kind of gotten started.
And that kind of cheered him up over time.
So we started a rap group called the Blind and Deaf Crew, D-E-F.
And we became a group and I wrote some rhymes.
So like one of the rhymes was, the blind deaf crew, you know where fly.
Three of us, but we got four eyes.
Plus he got his eyes.
All right.
Thank you, Beth.
There are so many very memorable and intriguing pitches.
One of the most memorable was actually Databricks because it was so bad.
So the pitch was Jan Stojka, who is a professor at Berkeley. presented the company.
And the slides he made.
It was like going to a computer science lecture that you couldn't understand in college.
That's what Dave Rick's pitch felt like.
So that was very memorable.
It was memorable because of that.
And then it was memorable because of what it turned into.
Well, why'd you invest?
If you couldn't make sense of it, why'd you invest?
Well, the whole reason I had him come into pitch is because Scott Shanker, who was another professor at Berkeley who I knew, had called me and said Ben, I have the best distributed systems guy that we've seen in the last 10 years in academia.
His name is Matej Zaharias.
You know, do you want to meet him?
And I knew as soon as he said that to me, I was going to invest in the company.
But that pitch kind of scared my partners.
Thank God they didn't talk you out of it.
Yeah, yeah, yeah.
Yes.
It's funny.
So the question is about Cluley, and you know what do I think about it now in terms of momentum and this and that and the other.
Look, I think that an easier way to think about it is we invest in founders and You know you want founders who are original thinkers and have kind of breakthrough thinking on whatever it is they're working on.
And I think those guys, you know, had a bunch of breakthrough ideas, including marketing.
Like I think you know, they are kind of marketing geniuses in a sense, in that you know about them.
They're not the biggest company in the world, but they're the ones that you know about.
There's something to that.
So, you know, what it becomes from here and where it goes, we'll see.
But like I always say, you know these things are early and there's only one unforgivable sin in business and that's running out of money.
And until you've run out of money, like I don't count any of these companies out, by the way.
Like I've seen like Slack was in dire straits before he figured it out.
You know, he had built a game on Flash called Glitch.
And Steve Jobs outlawed Flash on the iPad, and it was an iPad game.
And, like, that's how dead he was.
And he had, like, $6 million left, and he turned it into Slack.
But that's Stuart Butterfield.
He's a great entrepreneur.
So, like... companies go through changes and this and that.
If you've, you know, like if you're a special founder and you don't run out of cash, I'm still for that and would bet on that.
Question is you know, given the SaaS apocalypse And given that we have a long time horizon, how do you think about like?
How can you invest in anything?
Because Xanthropic's just going to one-shot it all.
This is the Wall Street view.
By the way, anytime Wall Street thinks one thing and Silicon Valley thinks another thing, that arbitrage is worth a lot of money, and Wall Street's always wrong.
So I think there's actually a lot of opportunity now in that, in that case, like i think um, you know, for some of these things are, you know, the whole moat is the, the code and the ui, and i think that's a difficult position to be in right now.
For sure um, but there's a lot of companies One, like most of the new companies, like nobody's coming in with, like new SaaS companies at this point.
Like people kind of know like, okay, that's not that defensible.
Like, you know, you can build it and so forth.
So that's not the new idea.
So then, if you go to the old ones and you go, well You know, are they all dead, like Wall Street thinks?
I think, you know, not really.
So, like, I'll just give you one example of a company that I'm on the board of.
So, I'm on the board of a company called Navon.
And Navon is like a software travel agency for businesses.
So...
You know, in a company, your biggest kind of variable expense is travel.
So you need to have like very tight policies around and so forth.
And then to build a travel company, you actually need to have supply chain relationships with Not every airline in the United States, but every airline in the world, every hotel in the world.
And like if you scrape their websites and do that kind of thing, they literally cut you off.
They send you a cease and desist and they sue you and like you're out of business instantly.
So it's not that hard to build all those global supply chain relationships.
And then you can't sell to any significant company that travels worldwide if you don't have all of them because, like I, need to be able to travel everywhere.
And then you've got to like, integrate with all their – whatever they're doing for their, you know – cruddy other systems in their company.
And then the channel to sell it.
You're actually selling to somebody called the travel manager which, by the way, like Anthropic, is Like the chance that Anthropic would build a channel to sell to the travel manager.
Like there's gold bricks everywhere.
They're not going to pick up a silver brick.
Like they're just not going to do it.
Like I can tell you, Ange can tell you, like that's the last fucking thing on their mind.
In fact they've got an open rec now to hire a travel manager at Anthropic to manage the Navon relationship.
Nonetheless, Novam lost two-thirds of its value in the SaaSpocalypse and it's accelerated revenue since then.
I mean, it's...
I got to be careful because it's a public company and so forth.
But like, I think they'll be fine for a very long time.
So you know, it's just one of those things where and there's a saying on Wall Street when the paddy wagon backs up to the house of ill repute which is, by the way, for those of you too young to know what that is that's a whorehouse.
Everybody goes to jail, you know, not just the people who are committing crimes.
And so in the SaaSpocalypse, everybody's in jail, whether or not they should be in jail.
So like, just be aware.
What do you think it's going to take for the markets to realize that Time.
So I think what's happened, so if you look at the Navant stock, it was at like $25.
It went to $8.
It's now at $15.
If they put up two more quarters in a row, it'd probably be at $30.
It's just like that kind of thing.
It's just time.
And education, I guess.
Yeah.
Yeah.
Well and you learn, Paul.
So the way Wall Street works is and Warren Buffett always says, you know, in the short term, it's a voting machine.
In the long term, it's a weighing machine.
Well, why is that?
Well, the reason is it's a narrative machine.
They buy the narrative.
They don't buy the facts.
They buy the narrative.
So if the story is this is a victim of the saspocalypse, barring any new results from that, that's going to be a winning story, because it's like such a good story.
And by the way, all the portfolio managers who own SaaS companies got fired.
So like nobody wants to jump into that, you know, kind of thing if you got the new job.
And so that story is going to hold for a while.
But eventually, when the quarters come in, The weighing machine will go well.
Maybe that narrative wasn't right for that company, because why are they making so much damn money if they're a victim of?
You know if Anthropix can one-shot them?
Like, that doesn't make any sense.
Don't the customers know the one-shot is coming?
And so then the narrative will change and a new narrative will win.
And then it becomes a weighing machine.
And that's true for, by the way, every company.
What startup advice is super overrated today?
I don't know what advice.
That's a good question.
I'm not sure.
Like, what kind of advice are you getting?
What did I get?
I mean, look, I think you have to pay much more attention.
I think the thing that is true is you can't ignore AI.
I remember kind of before the internet came, which I was also alive for.
You know, there were a lot of tech companies and anyone that ignored the internet was just gone.
Like you can't ignore a change that big.
Like there's no way that something that worked before AI can ignore AI and survive.
So like that part is true.
And so if you're starting a company and you're not dealing with not only AI today, but what's likely to happen, you know, as the models get bigger and so forth
Like, it's just not going to be a very interesting company.
So that part of advice is very correct.
I think the part of the advice that's wrong is there aren't going to be any employees and companies aren't going to hire people, and it's just going to be AI bots running everything.
Like, by the way, like all the data kind of is going in the opposite direction of that.
Like even like software engineering jobs are growing like very fast, despite what Dario says.
And by the way, they're growing very fast at Anthropic.
So it's like, you know, at what point do you call like bullshit? on that idea.
I think sometimes things get taken out of context.
With the political donation question.
What was missing context was that there are donations to both sides.
One of the things that gets taken out of context with Dario is he's often saying hey, during the transition, some types of jobs that are low skill, those will go away and those people will then have to, you know, take new jobs.
Yeah, so there will be a job.
So Dario is very right on that.
There will be a job change.
So not the advice Dario gives, but how he gets written up.
Exactly.
Yeah.
Tweets.
It's the tweets.
The tweets are the problem.
Yeah.
So those tweets turn out to be, I would just say, like very overblown and not kind of representative of what's likely going to happen.
So, you know, don't.
And in general, like the doom and gloom, I just think that's overstated, you know, a lot on AI.
By the way, the most dangerous thing I think on AI by far is that We kind of fail as a country.
We get too scared.
We overregulate.
We do what Bernie Sanders recommends.
And some of you are Bernie Sanders fans.
But like we put a moratorium on data centers and then China wins,
And, like I think, a world where, by the way, either China has like super intelligence and we don't, or we have it and they don't, is a much more dangerous world than having some kind of balance to the power.
You know, concentrations of power historically have been the worst thing for humanity.
And so I think that would be the thing to be scared of.
So I think the fear could cause actually a worse problem than what people fear.
Well, here at AI Coachella, we are rational optimists.
All right.
So thank you for coming to AI Coachella, Ben.
All right.
Thank you.
Thanks for listening to this episode of the A16Z Podcast.
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