Andreessen Horowitz Part II

[0] 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.

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

[2] I can't wait.

[3] September.

[4] Who got the truth?

[5] Is it you?

[6] Is it you?

[7] Is it you?

[8] Is it you?

[9] Is it you?

[10] Is it you?

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

[12] 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.

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

[14] And we are your hosts.

[15] Well, listeners, welcome to Andresen Horowitz part two.

[16] 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.

[17] Yeah.

[18] I think that conversation was actually, it was actually 2008.

[19] That makes more sense.

[20] Launched in 2009.

[21] It takes a little while.

[22] We'll get into it.

[23] We'll get into it.

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

[25] Right.

[26] You don't just like snap your fingers and have 300 million dollars?

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

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

[29] 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.

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

[31] Wow.

[32] Yeah, they became a big dominant force so quickly.

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

[34] Oh, that's right.

[35] That's right.

[36] Pretty good time to start a venture capital firm.

[37] Perfect timing.

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

[39] One is our Slack.

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

[41] Do you mean tiny spec?

[42] Oh, sorry, I do mean tiny spec.

[43] You're right.

[44] We've got great discussion of these episodes, crypto, investment ideas, all a good stuff, with a community of 8 ,000 super smart people like yourself, join at Acquired .fm slash Slack, and the limited partner program.

[45] This is our members -only community where we drop special for subscribers' content.

[46] The most recent one was with Kyle Samani, who is the co -founder and managing director of multi -coin capital.

[47] 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.

[48] What was his line that 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.

[49] Oh, wow.

[50] Yeah, a whole completely different universe.

[51] 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 Acquired .fm slash LP.

[52] Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow.

[53] Yes, Service Now is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

[54] 85 % of the Fortune 500 runs on them, and they have quickly joined the Microsofts at the NVIDias as one of the most important enterprise technology vendors in the world.

[55] And just like them, ServiceNow has AI baked in everywhere in their platform.

[56] They are also a major partner of both Microsoft and NVIDIA.

[57] I was at NVIDIA's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[58] So why is ServiceNow so important to both Nvidia and Microsoft?

[59] companies we've explored deeply in the last year on the show.

[60] Well, AI in the real world is only as good as the bedrock platform it's built into.

[61] So whether you're looking for AI to supercharge developers and IT, empower and streamline customer service, or enable HR to deliver better employee experiences, service now is the platform that can make it possible.

[62] Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately.

[63] For example, smarter self -service for changing 401K contributions directly through AI -powered chat, or developers building apps faster with AI -powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

[64] With ServiceNow's platform, your business can put AI to work today.

[65] It's pretty incredible that ServiceNow built AI directly into their platform.

[66] So all the integration work to prepare for it that otherwise would have taken you years is already done.

[67] So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to ServiceNow .com slash acquired.

[68] And when you get in touch, just tell them Ben and David sent you.

[69] Thanks, Service Now.

[70] All right, well, listeners, as usual, the show is not investment advice.

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

[72] So please do your own independent research.

[73] None of this is investment advice is for informational and entertainment purposes only.

[74] And one other disclaimer, disclosure, I do have a new investing vehicle that I am super excited about.

[75] It is called Kindergarten Ventures.

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

[77] So, as I said last time, a few of the Andresen Horowitz GPs are small LPs in the fund.

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

[79] I've been keeping you honest.

[80] Yeah.

[81] I mean, Ben, you keep me honest here.

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

[83] But you can keep me honest here.

[84] Well, David, congratulations.

[85] exciting.

[86] You are moving from Angel to Super Angel in the 2008 parlance.

[87] That's right.

[88] Pretty cool.

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

[90] Really, it's about, in a large part, all the great folks unacquired.

[91] We invest at any stage, any sector.

[92] We are super angels.

[93] All right.

[94] You're starting to spoil stuff.

[95] Take us in.

[96] You're sounding exactly like one of the tent pole theses of the start of Andrews and Horowitz.

[97] Indeed.

[98] Indeed.

[99] Well, we'll see where kindergarten.

[100] and goes over time.

[101] Okay.

[102] 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.

[103] He hangs up and he IMs Mark.

[104] I am.

[105] I love it.

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

[107] Why are they starting a venture firm?

[108] 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 the wonderful writer Tad friend in the great New Yorker piece that we are going to keep referencing today, he says to him about venture capital, quote, I always thought the entire venture thing was incredibly cool.

[109] Going to Kleiner Perkins with the high ceilings, the markers on the wall of all the great companies they IPOed, Larry Ellison walking through, and at 11 a .m., 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.

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

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

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

[113] 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.

[114] 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.

[115] They're pretty much not leading rounds.

[116] So they already don't have the dynamic of, you know, needing to be the one to set the terms and come in.

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

[118] 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.

[119] But that's a whole other story.

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

[121] Here we are in, you know, late 2008, early 2009.

[122] of course, what's going on, the financial crisis.

[123] And so, you know, most other VCs, and if not VCs, certainly the LPs, they're all like tucking their tails and triaging their portfolios right now.

[124] You know, this is not about deploying more money or starting a new firm.

[125] Like, Sequoia has literally just done the RIP Good Times presentation.

[126] You know, it's kind of crazy to like think that, oh, we're going to go start a new firm right now.

[127] Yeah, it's wild.

[128] So here they are.

[129] And, you know, obviously we've talked about the last time the big thesis that they have that there is no bubble.

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

[131] This is not like the dot -com crash.

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

[133] And of course, they are right about all this.

[134] But pretty much nobody else is saying this.

[135] and Tad would write in the New York a piece later that A16Z was designed from the beginning to be a full -throated argument about the future.

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

[137] So they've got this insight.

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

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

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

[141] So they go to see who else, but their old friend, Andy Rackcliffe.

[142] And Andy by this point, of course, had stepped back from Benchmark, and he's teaching at Stanford GSP, and he has just made the jump to become an entrepreneur himself.

[143] He has founded Wealthfront.

[144] 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 Bet and Mark are trying to do here.

[145] So Andy tells them this is great.

[146] I love you guys and I love this contrarian bet that you're making.

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

[148] 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 a benchmark was we counter positioned against one of the two major incumbents at the time, which was Kleiner Perkins.

[149] Kleiner, as we've talked about, there was the Koretsu approach to venture capital.

[150] All of our companies work together in different ways.

[151] It's sort of like, you know, they're like a mesh network.

[152] And we sort of sit in the network as the capital provider, but they work with each other in all these different ways.

[153] Yep.

[154] And like, on the one hand, that was great.

[155] But 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 Kleiner portfolio companies that didn't really make sense for them.

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

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

[158] So that was one.

[159] The second piece of the benchmark counter positioning against Kleiner, maybe this is the most important.

[160] the thing about Kleiner during its heyday was, it really was John Doer.

[161] And we got to do a whole episode on Kleiner itself.

[162] And storied history even before John Doer, but like the glory days, it was all John, you know, all their big wins from Netscape to Amazon and beyond.

[163] It was John that sourced them.

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

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

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

[167] But they'd farm out the board seats to other partners and even associates.

[168] So how do you counter position against that?

[169] Benchmark is like, well, this is great.

[170] We're going to be a small equal partnership.

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

[172] 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 Dora.

[173] And.

[174] your partner is actually going to sit on your board.

[175] So then if you're bench park, you need to start talking about how important it is who your board member is.

[176] Right.

[177] And it's sort of this like all about the individual.

[178] You form one trusted relationship.

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

[180] We're not going to help you with PR.

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

[182] 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.

[183] Totally.

[184] And I think it's worth doubly underlining this because obviously it is super important who your board member is.

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

[186] Today, we just take this for granted.

[187] It's like, you know, fish and water.

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

[189] That wasn't the case.

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

[191] Period.

[192] Totally.

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

[194] This was the one that benchmark introduced into common startup wisdom.

[195] Yep.

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

[197] It was a strategy credit.

[198] It worked really well for them.

[199] Exactly.

[200] Exactly.

[201] So then, of course, the last piece of the bench, Mark counter positioning related to all of this and all working in concert together was Kleiner is this huge firm.

[202] 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.

[203] So benchmark, they said, we're going to do the opposite.

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

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

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

[207] probably the most important thing for benchmark was that they made that early investment in eBay and like all of this strategy and all this counter positioning.

[208] Sure, that helped, but like they got eBay.

[209] You know, nothing else kind of mattered after that.

[210] And that helped them ascend to the top of the venture capital heap.

[211] So now, okay, Mark and Ben, like they started knew all this and they're hearing this from Andy and they're like, huh, okay.

[212] Well, what are we going to do?

[213] And, you know, remember, of course, they love Andy, but they hate Benchmark.

[214] Yeah, and we should say, like, the way that Benchmark established these tenets that they hold true, the way that Andresen Horowitz is about to, it's not pure marketing, at least from what I can tell in all the research.

[215] It is a self -examination of what are the things we hold to be true, 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.

[216] to a massive advantage for us.

[217] Yep.

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

[219] Who are we going to counter position against?

[220] Not Kleiner.

[221] And probably not Sequoia, like we talked about on the last episode.

[222] Like, you're going to come at the king.

[223] You'd best not miss. And that just seems like really hard.

[224] Maybe we should counterposition against benchmark.

[225] Our buddy, Andy's not there.

[226] No, it's like the old saying.

[227] you either die a hero or you live long enough to see yourself become the villain, right?

[228] 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.

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

[230] So that's the perfect, perfect.

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

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

[233] Our design was not to do what they did.

[234] 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.

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

[236] They're going to counter positioning against benchmark.

[237] How do they do that?

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

[239] And we support young technical founders, help them become the best CEOs.

[240] that they can be, and we're not going to do what David Byrne tried to do to us.

[241] 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.

[242] 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.

[243] 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.

[244] So the thesis behind developing what would later become platform at the entire VC ecosystem platform teams 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.

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

[246] Totally.

[247] Well, now think about how this all fits back into these various VC firms strategies.

[248] So what was Kleiner's strategy for overcoming this?

[249] It was the Kuretsu, You know, great.

[250] 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.

[251] We're going to have them all work together.

[252] And we have the best companies.

[253] And so that's great.

[254] Now think about the benchmark strategy, right?

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

[256] What do you need if you're the benchmark strategy?

[257] 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.

[258] that front from benchmark because it's just the partners.

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

[260] You show me the incentives.

[261] I'll show you the behavior.

[262] Exactly.

[263] Exactly.

[264] Okay.

[265] So they start thinking about this.

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

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

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

[269] And we, Mark and Ben, you know, we don't really need the management fee income streams.

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

[271] Lumpy cash flows.

[272] Exactly, exactly.

[273] So what if we take all these management fees and we staff up?

[274] We build a platform at Andrews and Horowitz.

[275] So two and a half percent of $300 million is $7 .5 million a year.

[276] That's a lot of money.

[277] Right.

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

[279] 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.

[280] So we'll take one and a half at the front end.

[281] We want to take two and a half to balance it out.

[282] But yeah, David, you're right.

[283] 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.

[284] Yeah, on people and resources.

[285] 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.

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

[287] Well, it's kind of weird then that these VCs are telling entrepreneurs, oh, you know, you should take like $50 ,000 annual salaries, which is what.

[288] was the norm back in these days, $50 ,000, $60 ,000 as your annual salary.

[289] And you should give us this big ownership, but we're going to make a few mill a year each rain or shine out of these management fees.

[290] Hmm, interesting.

[291] So the next piece that they start thinking about is of how they can counterposition.

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

[293] But lots of venture firms felt the same way.

[294] They had this.

[295] series A purist approach.

[296] And really this idea that still permeates venture to this day, that the series A, that's the real craft of venture.

[297] That's the like, you know, 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.

[298] And to say why?

[299] 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.

[300] There were no seed firms.

[301] 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.

[302] And before that, you have whatever cowboy would help you as an angel investor get to something that looked venture capital fundable.

[303] If that even happened at all, I mean, in many cases, the Series A, that was at the very beginning because you needed a few million dollars to go buy servers and do all that.

[304] 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 capitalist because they can outsource all the real early stage risk to the seed stage with way less capital, you know, have these companies get going.

[305] 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 around, 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.

[306] So, Mark and Ben are like, hmm, well, what if we say that Andrews and Horrible, We'll do any round at any time.

[307] We'll do seed.

[308] We'll do lots of seeds.

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

[310] And you don't need that much capital.

[311] We won't give you that much capital.

[312] And we won't take that much ownership.

[313] And then we'll do series A's, sure, but we'll also do series B's.

[314] And we'll also do growth rounds.

[315] So listeners who are not professional venture capitalists listening to this, it kind of sounds like, okay, cool, yeah, like they'd have a different strategy.

[316] They don't focus on a stage.

[317] They just focus on lots of stages.

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

[319] Like what venture capitalists classically pitched to LPs is our sweet spot investment is this.

[320] It is a company that looks like this.

[321] It is a stage that looks like this.

[322] It is an ownership percentage that looks like this.

[323] It is a check size that looks like this.

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

[325] And we intend to do that 20 to 40 times.

[326] And that is how we will construct our portfolio.

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

[328] There'll be winners.

[329] There'll be losers.

[330] But they'll all kind of start out like this.

[331] So that's what you're buying.

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

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

[334] Totally.

[335] It seems crazy.

[336] But, you know, 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.

[337] We're doing great.

[338] We're cleaning up on Twitter and Facebook and LinkedIn and Zinga, I think.

[339] Groupon, like all of these companies.

[340] We're in them.

[341] We're doing great at seed.

[342] Why on earth would we stop that?

[343] 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 co -tank.

[344] of Sequoia and benchmark and Kleiner.

[345] And they say, what series A's did they do?

[346] Great.

[347] We're going to come in.

[348] We'll mark it up like 2X at the series B. We'll ride along.

[349] And they're doing great.

[350] And so Andreessen's like, you know, Andrews and Orwoods, they're like, we can blow these guys out of the water.

[351] Then they look across even further and they're like, whoa, there's this whole other asset class out there.

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

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

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

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

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

[357] Totally.

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

[359] So like, huh.

[360] Okay.

[361] Great.

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

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

[364] And they would later call these networks, like each individual function, you know, recruiting or finance, we're acquiring enterprise customers.

[365] They call these networks at the firm.

[366] Yep.

[367] So we're going to do that.

[368] We're going to not necessarily, focus solely on series A's.

[369] Like, we'll do series A. Series A's are great.

[370] But we'll also do seeds.

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

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

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

[374] And maybe that'll help us scale.

[375] I would say all of that collectively becomes the counter positioning against benchmark.

[376] You know, and it works to varying degrees.

[377] Like, on the whole, it works great.

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

[379] So, like, the seed and the governance in particular, I think these are good ideas and they work now.

[380] But at the time, they sort of inadvertently leave a pretty big flank exposed to old school VCs here, which becomes this signaling effect.

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

[382] Oh, my God.

[383] People were still talking about this like three, four years ago, which is insane.

[384] All right.

[385] So what is it, David?

[386] 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, and Jason Horowitz had the inside information on this company because they did the seed and now they're doing the A in a competitor.

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

[388] Other VCs in private and in public vehemently attack Andresen Horowitz on this front.

[389] The reality is the most exemplary, cautionary tale about this is completely the opposite.

[390] And that is, of course, Instagram.

[391] Instagram, yep.

[392] Which is so great.

[393] 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.

[394] Well, right, because they ended up both being in their portfolio because Instagram started as Bourbon, pivoted into Instagram.

[395] Suddenly, Andres and Horowitz has a problem because they have two competing things in their portfolio.

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

[397] Totally.

[398] So now what actually happens here?

[399] Like, oh, what you would think, you know, if you buy the narrative of the attack against Andrews and Horowitz.

[400] Oh, signaling effect, Instagram, they're toast.

[401] far from it, they go raise a series A from Benchmark, from Matt Kohler of Benchmark.

[402] And of course, we know what happens there and what happens to Pick, please, which is nothing exciting.

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

[404] But, you know, hey.

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

[406] Andresen Horowitz is going to have all these networks that are going to augment that innovator and give them a CEO -like, you know, resources at their disposal so they can really be the professional CEO and the technologist who brought it into the world.

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

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

[409] They're doing wacky stuff with portfolio construction.

[410] Okay.

[411] So all this is great, right?

[412] They've got this great theory that, you know, grand unified theory of counter positioning and, you know, market entry strategy into the venture industry, blah, blah, blah, all good.

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

[414] I've done a bunch of research here, you know, since I joined the faculty at GSP, and I've concluded, you know, with data, approved 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.

[415] and it is a blood sport to win the lead position as an investor in those companies.

[416] And you're fighting against Benchmark and Sequoia and Kleiner and you can counter position all you want, but like you're going to go fight against John Doer and you're going to go fight against Bill Gurley and you're going to fight against Moritz and Leone and all these guys and how are you going to win?

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

[418] 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.

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

[420] Well, they're going to say things like, you know, yeah, Mark and Ben, like Mark I'm interested the browser and that's great and whatnot.

[421] But, you know, they haven't been VCs.

[422] They haven't been board members.

[423] They haven't been professionals here.

[424] 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.

[425] You know, as Don Valentine would have said back in the day, obviously not about Mark and Ben, but you would have said, where are the monuments?

[426] What's Netscape?

[427] What's ops where?

[428] You know, you guys have built these good stories, good companies.

[429] They're not.

[430] not around anymore.

[431] Who's using Netscape?

[432] Nobody.

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

[434] Where's your Cisco?

[435] Where's your Oracle?

[436] Where's your Google?

[437] They aren't there.

[438] You want to work with us.

[439] We've got those monuments.

[440] So there's this great quote from the fortune cover story when they launched the firm.

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

[442] He seemed more Paul Allen than Bill Gates.

[443] Then, in the same piece, this is from the launch of Andresen Horowitz.

[444] Like, think about, you know, who was placing these quotes.

[445] There's a quote from Steve Case.

[446] Somebody jinned up Steve Case to, like, give a quote here.

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

[448] Whoa.

[449] Brutal, right?

[450] Like, they're getting punched in the mouth.

[451] hard.

[452] Wow, those are brutal.

[453] 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.

[454] Yeah, like, 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.

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

[456] Totally.

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

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

[459] But the point, like, the damage is done here.

[460] Yep.

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

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

[463] And that is their other old board member from the Loud Cloud OpsWare days, the original OG Hollywood Super Agent Michael Ovitz.

[464] Yeah.

[465] So great.

[466] We've talked a lot about Ovitz on this show.

[467] CAA and the whole Disney debacle where he goes and becomes president of Disney.

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

[469] But I think if Andy was the, you know, the inspiration for the sort of highfaluton strategy of Andrews, Michael was the inspiration for the like, okay, how are we going to get this done?

[470] So the quick story, you know, on Ovitz is he started in the late 60s in the mailroom of William Morris, you know, the storied long -term Hollywood talent agency and everybody started in the mail room back in the days.

[471] And the dynamic in Hollywood was totally broken.

[472] Like, we're talking here about how the venture and startup dynamics were a little broken at this time.

[473] Like Hollywood was bad.

[474] The studios controlled everything.

[475] They held all the power.

[476] They held all the creative decisions.

[477] You know, the talent and the artists, the actors, the directors, the writers, etc. They were more, but little more than indentured servants.

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

[479] 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.

[480] But I love this equivalence between the Hollywood and tech, where especially in the old school days, you sort of have the VCs, which are a lot like the studios.

[481] And there were three to five major VC firms with money.

[482] And there were three to five major VC firms with money.

[483] major studios with money that could greenlight a movie.

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

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

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

[487] Totally.

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

[489] There's got to be a better way.

[490] They leave.

[491] And they go start their firm.

[492] It's exactly like Jerry McGuire.

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

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

[495] They're going to figure out how to deliver the power to the artists and the talent and take it away from the studios.

[496] So how do they do that?

[497] One, they package projects and talent together and then they sell whole packages to studios and say, we'll sell the rights to you.

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

[499] It's more like, no, no, no, we got the project.

[500] And the artists own the project.

[501] And we've packaged it.

[502] We're going to bid these studios off against one another to finance it at the highest price.

[503] So how do they do that?

[504] Well, they got to connect up the talent.

[505] They got to take the talent from being like each individual person from their own to like working together against the studios.

[506] How did they do that?

[507] Well, they transform what the firm from being, you know, each individual agent is a silo to we are a network.

[508] We're like a web network.

[509] They call it the franchise.

[510] And so anybody who's part of CIA, you know, 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.

[511] A shared Rolodex.

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

[513] No mailroom, no blah, blah, blah.

[514] Like, we're all here.

[515] We're all together.

[516] This is about the franchise.

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

[518] And this is a common discussion point on Stratectory of like, what is the point of integration within a value chain.

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

[520] And then they would get to aggregate.

[521] 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.

[522] And when you start having CAA, say, actually, we're going to package all this together.

[523] The point of integration shifted down the value chain one click to where now it was happening with CAA.

[524] Exactly.

[525] And the important thing here is wherever the point of integration is, that's where you get.

[526] gain power.

[527] 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.

[528] So what does CAA do?

[529] They create the project.

[530] So like Jurassic Park, lethal weapon, Schindler's List.

[531] These are CAA projects.

[532] These are not studio projects.

[533] They pull them together, and then they bid them out to the studio, since now all of a sudden all these studios, bidden against one another, the price goes way up, the dollars flowing into the space goes way up, and the artists all do way better.

[534] So Tom Cruise, Kevin Costner, Barbara Streisand, Steven Spielberg, you know, within a couple years, CIA is just vacuuming up everybody.

[535] And so literally, the term that they use, that I think Ovitz coins are become said about CIA in Hollywood about all this is they become quote the dream execution machine you're an artist you have a dream CIA is your dream execution machine it's great marketing oh my god so man and mark they're like oh holy crap this is so great what better what better analogy to use then 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.

[536] Exactly.

[537] 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.

[538] But like, you can't do all the other stuff.

[539] We are the dream execution machine.

[540] You should come to us.

[541] Yep.

[542] Yep.

[543] They're just like a director or a great actor or a great writer, et cetera.

[544] So this sort of last unwritten, but it didn't need to be a written principle at CIA.

[545] was take no prisoners and we're going to burn the old system to the ground.

[546] Like, F all of those people.

[547] And of course, Ben and Mark have that same ethos about the venture ecosystem.

[548] And whether theirs was written or not internally, it certainly became written externally in all of their communications.

[549] 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.

[550] Totally.

[551] So this is the punch back in the mouth.

[552] Like, great, you're going to punch us in the mouth?

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

[554] Like, we're coming at you twice as hard.

[555] So that's what they do.

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

[557] So, you know, as you said, the platform and the networks that they build up, they hire a whole bunch of people.

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

[559] They've got an executive recruiting network.

[560] They've got an engineer recruiting network.

[561] They've got a future financing, like a other venture firms network and an M &A network associated with that too.

[562] You need an acquire.

[563] We'll hook you up with the choirs.

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

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

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

[567] But in reality, yes, they are masterful at PR.

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

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

[570] And it's true.

[571] Nobody, you know, no venture firms were doing this for themselves or helping their companies with PR and marketing before injuries in Horowitz.

[572] 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.

[573] I think most people didn't actually think through it.

[574] 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 count.

[575] position publicly.

[576] And Andreessen Horowitz not only saw that as a thing they could exploit, but I can't remember if it was Mark or Ben.

[577] 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 like the 40s and 50s who were opaque because they were financing wars.

[578] 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.

[579] 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.

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

[581] Yeah.

[582] Well, two things.

[583] One, I think the version of hiding the war financing of investment bankers that VCs were doing here was they're hiding the management fees.

[584] Like, come on, you've got a 10 -person organization, half of which are assistants and you're making 20 mil across your funds and management fees a year.

[585] Like, I don't want to shout that from the rooftops if I'm a VC firm.

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

[587] Yeah, exactly.

[588] 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.

[589] God, now you've got a champion.

[590] This is great.

[591] Yep.

[592] 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.

[593] Margut Wenmockers at the Outcast PR agency.

[594] So Margaret had co -founded Outcast 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 nobody's still up through, you know, being huge companies.

[595] Amazon, they did the Kindle launch and still worked, made to this day still work with the Kindle team.

[596] So the story of how they get connected is Margaret tells this on an A16C podcast episode.

[597] She says that one of the companies that Mark and Ben had been angels in wanted to work without cast, but Facebook blocked it and said it was.

[598] a conflict and when let outcast work with them.

[599] So Market just joined the board of Facebook and he gets involved in trying to smooth this all over and he's like, wow, Margaret is really amazing and I see a Facebook like what she's doing there.

[600] So he jins up an excuse to get her contact info, calls her up 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.

[601] I've got another project for you, which is Great.

[602] So market is like, okay, you know, like we work with venture capital firms.

[603] I can do this.

[604] What are you going to call the firm?

[605] And they're like, we're going to name it Andrews and Horowitz.

[606] She's like, that is a terrible idea.

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

[608] You're not going to be about the partners.

[609] It's all about the entrepreneurs and network.

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

[611] Like, are you serious?

[612] And they're like, no, no, no, no, no. It's not what you think.

[613] We did a whole big branding exercise about this.

[614] We heard a big branding firm.

[615] We did all this work.

[616] And we decided.

[617] decided, we need to do this for two reasons.

[618] One, Andrew, you know, Mark Andreessen is a known quantity.

[619] He invented the browser.

[620] It's already a brand.

[621] It's already a brand.

[622] So we can draft off of that to get going.

[623] And then once we get going, we transition from Andresen Horowitz to A16 Z, which is A to Z. So, you know, supposedly the story is, I guess it's, you know, People used to abbreviate internationalization to...

[624] Oh, I actually, no, it's definitely true.

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

[626] Ah.

[627] And I did not know that.

[628] That's awesome.

[629] We're learning some Ben Gilbert history.

[630] Yeah.

[631] 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.

[632] And that is abbreviated I -18N.

[633] Uh -huh.

[634] So people really do do this.

[635] Absolutely.

[636] And there's another one.

[637] I think it's localization might be L something N, L16N, or L11N, something.

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

[639] Interesting.

[640] So they're like, well, it's perfect.

[641] You know, it's kind of a geeky reference.

[642] Super esoteric.

[643] Super esoteric.

[644] But it's A to Z. And we're going to do A to Z at Andrews and Oritz.

[645] We'll do any round A to Z. This is great.

[646] 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 changed the name to A16Z.

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

[648] I'm like, oh, is it time?

[649] Are they actually flipping it to A16Z?

[650] But nope, nope.

[651] The official logo, as you'll see on the art for this episode, is still Andries and Horowitz.

[652] Still, Andrews and Horowitz.

[653] It's got to be coming.

[654] I mean, all across the website everywhere, and all the media they do, it's A16C.

[655] It's not Andreson Horowitz.

[656] Yeah.

[657] But, you know, it's still the unofficial moniker.

[658] Still there, baby.

[659] 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.

[660] Yeah.

[661] Huge advantage.

[662] I mean, it literally is a huge advantage.

[663] 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.

[664] And who's going to come first?

[665] Andries Norowitz is going to come first.

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

[667] And so whenever you subscribe to a show, it just displays them an alphabetical order.

[668] Totally.

[669] So, Mark, it's like, yeah, all right, whatever, fine.

[670] All right, you guys have done a lot of justification to put your names on the door.

[671] I won't argue with you.

[672] Rationalize, rationalize, rationalize, great.

[673] Yep.

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

[675] So what do you want to do?

[676] What outlets do you want to go on?

[677] Where's your cover story?

[678] I can get you whatever you want.

[679] What do you want to do?

[680] So February of 2009, Mark goes on Charlie Rose.

[681] Even 15 years later, it holds up really well.

[682] Yeah, it was really good.

[683] 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...

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

[685] There's some point where it brings up the little title tag underneath.

[686] And it says, Mark Andresen, I think it's founder.

[687] Yeah, founder, Ning.

[688] And you're like, founder of Ning.

[689] Like, it was true at the time, but like, did anyone care about Ning?

[690] Not really.

[691] That's the best you can come up with.

[692] Yeah.

[693] We should be clear.

[694] Like, he is on the board of Facebook.

[695] Like, he's, like, involved in some, like, stuff that's going crazy.

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

[697] he's not just the Netscape guy.

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

[699] Totally.

[700] Still, it was a pretty big win for Outcast to get him on the show.

[701] 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?

[702] What's the next big idea?

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

[704] he's great at redirecting.

[705] He's obviously had some training.

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

[707] Remember, this is February 2009.

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

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

[710] Only we can save you.

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

[712] It's like rumors he's been hearing.

[713] This is why he's on the show.

[714] Totally.

[715] Generous of you to give him.

[716] Rumors he's been hearing from Margaret that you are starting a eventual capital firm.

[717] And you have to realize, before you finish, like, I think it is worth planting this seed.

[718] 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.

[719] Like, I should go watch the Charlie Rose interview where he announces it.

[720] And I start watching it.

[721] And like, I get 20 minutes in.

[722] And I'm like, this isn't about injuries in Horowitz.

[723] And then I remember like exactly what you opened with.

[724] obviously it wasn't a brand yet.

[725] He wasn't known for being an investor yet.

[726] 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.

[727] And so of course it only occupies three minutes of a 50 minute interview.

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

[729] But then he says, So I'm creating a fund.

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

[731] We're by entrepreneurs for entrepreneurs.

[732] We've done it.

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

[734] We know what it's like.

[735] Yet another way they're counter positioning.

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

[737] You want to work with us because we've been in your shoes, which is now like the dominant dogma that VCs feed to founders, and then just kind of uncommon.

[738] Like, they were the first...

[739] You heard it here first on Charlie Rose.

[740] Yeah.

[741] Yeah.

[742] It's actually really funny.

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

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

[745] Yes.

[746] He describes, like, what we do at PSL.

[747] a validation process of like driving traffic and having a brand and testing conversions.

[748] He just built a landing page.

[749] There's no product.

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

[751] Yes.

[752] It's Andrew Chen.

[753] Who would become his partner 10 years later.

[754] So great.

[755] So great.

[756] And he's like trying to remember, oh, what was that guy's name?

[757] Right.

[758] He pitched me on this thing.

[759] I think he's getting close to have it around that's coming together.

[760] Good for him.

[761] And of course, like this is pre -Uber.

[762] Like Andrew hadn't even done the growth thing at Uber yet.

[763] Oh, so great.

[764] These artifacts of history.

[765] I just love them.

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

[767] It's like that kind of reference.

[768] It's one of those moments, totally.

[769] 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.

[770] I actually didn't see what the image was.

[771] I'll be very curious.

[772] I'll look at up while you talk.

[773] Great.

[774] They announce, And Jason 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 about, uh, 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.

[775] Yeah.

[776] 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.

[777] Oh, yes, we're starting a venture capital firm because I shouldn't run another company.

[778] Ha, ha, ha.

[779] Perfect.

[780] 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.

[781] David, I'll hold it up so you can see it here in the camera.

[782] Oh, my God.

[783] That's so great.

[784] I want you to get the future.

[785] So present, given that future would be the future for them.

[786] That's awesome.

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

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

[789] One blog post that Mark has written titled, The Truth About Venture Capitalists, raised the question, VCs, question mark, soulless and rapacious capitalists, or surprisingly generous philanthropist.

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

[791] Talk about punching back in the mouth.

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

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

[794] Yeah.

[795] Has anyone in John Doar's life or Don Valentine's life ever accused them of being merely a philanthropist?

[796] Like, no, come on.

[797] It's the readers of fortune, too.

[798] They do some great philanthropy, but...

[799] For sure.

[800] But not three.

[801] Sequoia and Kleiner Perkins.

[802] No, definitely not.

[803] I mean, it's a value creative for the world.

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

[805] But, like, it's not philanthropy.

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

[807] But the punches are flying in this article.

[808] We've already alluded to this a little bit.

[809] So later in the piece, another quote, the Andresen Horowitz strategy of investing in a menagerie of startups could pose.

[810] hazards.

[811] And here's a direct quote in the article.

[812] 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?

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

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

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

[816] Bad idea to go on the record.

[817] here, Paul.

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

[819] It's like whatever my strategy is is superior because X, Y, Z. Whatever they're doing is stupid because of X, Y, Z. Yep, totally, totally.

[820] So it lands with a big splash.

[821] They're in business.

[822] They got this $300 million fund.

[823] It's summer 2009.

[824] I think, according to Pitchbook, the very first check they rate is actually a small, very small check early.

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

[826] Is it Seattle -based?

[827] It's not a Seattle -based company.

[828] This is a very small check that they're right.

[829] No. Into a larger round, a series C that is led by somebody else of a then.

[830] This is like at the end of 2008.

[831] So it must have been just like a first close on the fund.

[832] Huh.

[833] Like a warehouse investment or something like that.

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

[835] Not Facebook, not Twitter, another social media company.

[836] LinkedIn?

[837] Nope.

[838] Dig.

[839] Dig .com.

[840] Dig.

[841] I knew he was.

[842] I thought that was a personal investment.

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

[844] Fascinating.

[845] I was obsessed with Dig.

[846] Oh, so great.

[847] Kevin Rose, amazing.

[848] In the Reddit versus Dig war, I was so Team Dig as like better designed.

[849] It makes more sense.

[850] I watched Dig Nation.

[851] I think every episode of Dig Nation, I was all in.

[852] So great.

[853] So great.

[854] Me too.

[855] Oh, it was the best.

[856] So that was the first.

[857] Then the first, like, real, actual, like, large check round that they lead is a Seattle company.

[858] APDO.

[859] APDO.

[860] Well, doing research for this episode.

[861] I was on a bike ride, and I rode past the APDio building.

[862] And I was, like, listening to some podcast interviews with Mark and Ben.

[863] And I took a selfie and sent it to David.

[864] And I was, like, doing research.

[865] And the irony is I was going to a Giants game in San Francisco right at the same time.

[866] and when I get out of the Uber, like a block away from the Giants Stadium, I get out right in front of Indriessen Horowitz's new San Francisco office building with the big sign up front.

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

[868] I think it was Andreessen Horowitz.

[869] It's Andresen Horowitz.

[870] Yeah.

[871] Yeah.

[872] 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.

[873] At least a few more years.

[874] But yeah, the Aptio investment.

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

[876] Yep.

[877] And Greylock, I think, too.

[878] Yeah.

[879] And I think they had worked with Sunny in the past, the founder at, was it at LoudCloud?

[880] So I think Sunny's previous company had been acquired into Loud Cloud.

[881] 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.

[882] We're going to be a network -driven firm.

[883] and they didn't have the firepower yet to be a thesis -driven firm.

[884] Like now they're extremely thesis -driven.

[885] 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.

[886] Like, absolutely we should invest in.

[887] We know him very well.

[888] He's a great employee.

[889] Totally.

[890] Well, so one of their other first checks.

[891] Speaking of stage agnostic.

[892] Oh, speaking of that same, you know, we're going to invest in the Opsware, a loud cloud diaspora.

[893] Great, great indeed.

[894] truly great people.

[895] I think this is one of their first, like, five or ten investments.

[896] Rock melt.

[897] Rock melt.

[898] Our boy, great friend of the show.

[899] Eric Vishria.

[900] Former Opsware VP of marketing.

[901] Future benchmark capital, general partner, Eric Vishria.

[902] Pretty cool.

[903] So funny that they led his round.

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

[905] Well, the other funny thing about that is that it was supposed to be a next generation web browse.

[906] 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?

[907] 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.

[908] Yep.

[909] Totally.

[910] It was.

[911] It was a great idea.

[912] I remember using it.

[913] I thought the browser was great.

[914] It was built on chromium.

[915] You know, it was in many ways it was brave before.

[916] it was brave too early and before crypto was a thing.

[917] Yeah.

[918] Okay, do you know what I was referring to speaking of stage agnostic?

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

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

[921] They're just going to put $1 .50 million into one company that ended up looking genius, but boy did this cause a lot of kerfuffle and criticism when they did it.

[922] Boy did it ever.

[923] September 2009, $50 million deployed alongside Silver Lake.

[924] The 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.

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

[926] We haven't talked about the headquarters on literally in the Rosewood complex.

[927] on Sand Hill.

[928] I can't get any better than that.

[929] Nope.

[930] So yeah, $50 billion into the spin out of Skype from eBay.

[931] So the whole transaction, a $2 billion purchase of 65 % of Skype from eBay.

[932] Worked out pretty well, but they probably should have spun out PayPal instead of Skype.

[933] That would have been a lot better.

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

[935] both of them created a lot more value independently.

[936] Oh, I did, but yeah, and Jason Horowitz wasn't part of the PayPal split out.

[937] 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.

[938] But this is a case where they used $50 million to buy 1 .8 % of Skype.

[939] So on the one hand, you're like, oh, man, that 1 .8%, like, gosh, we need to own a lot more for this to be meaningful for our fund.

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

[941] And they ended up getting, what, like a 4x on it?

[942] A 3x, yeah.

[943] And it was quickly.

[944] It was just a year and a half.

[945] it ended up turning into 153 million for them.

[946] Yeah.

[947] So a couple things on this.

[948] One, Mark, back to like, okay, what are we going to do here at Andrews?

[949] No, this is going to become a case study.

[950] So he helps broker a Facebook partnership for Skype, which I remember this.

[951] Remember when Facebook integrated Skype?

[952] Yes.

[953] He was in Messenger.

[954] Yeah.

[955] Man, huge.

[956] Could you imagine something like that happening today?

[957] No effing way.

[958] No. That was all Mark.

[959] and then he helps recruit Tony Bates to come in as the CEO.

[960] Tony from Cisco was a rising star there.

[961] And then in a later fortune piece that Margaret would place another great one, talking about the deal.

[962] Quote, the clincher was Bates' meeting with Andresen.

[963] Quote, I'd always been a big admirer, but never met him, Bates says, of Andresen.

[964] Going into the Andresen Horowitz office was an experience.

[965] 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.

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

[967] Ah, and I think it's Mark's personal library as the library in the lobby.

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

[969] Yep.

[970] And it's happening in public, in Fortune magazine.

[971] In the press.

[972] Oh, so great.

[973] Yeah.

[974] There's another great little end of 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.

[975] That controversy ended this morning.

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

[977] What was it, $9 .5 billion that Microsoft acquired it for?

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

[979] Oh, eight and a half.

[980] That's right.

[981] Still, pretty nice quick return.

[982] Unfortunately, shortly, I hope.

[983] this right around this time.

[984] I don't know.

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

[986] Like, there were two mistakes.

[987] One, Henderson screws up, not continuing to invest in Instagram.

[988] Two, Instagram sells to Facebook for a billion dollars.

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

[990] Oh, totally.

[991] So sad.

[992] So that was March 2010.

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

[994] Wait, David, I just have to pause for one quick second and say, Instagram was definitely not their biggest miss ever.

[995] Their biggest miss ever is definitely Uber, right?

[996] That's coming.

[997] Don't worry.

[998] Don't worry.

[999] Okay.

[1000] Yeah, no, you're right.

[1001] Not the biggest miss for Andreessen, but Silicon Valley's biggest miss of the past 15 years was Instagram being sold to Facebook.

[1002] Accrued to Facebook shareholders, but not the, not the rest of the rest of the venture ecosystem.

[1003] Totally.

[1004] That's a whole other rabbit hole that we've been down many times.

[1005] So a great decision that they make in early 2010 is they lead the Series A of Octa, the identity company, which they would then own, what, 18 % at IPO, I think?

[1006] Yep, they owned just a hair under 20 % pre -money at the IPO before the new IPO cash came in.

[1007] So that and what was IPO valuation was $6 billion.

[1008] Is that right?

[1009] Six billion.

[1010] And today it's, what is it, $33 billion.

[1011] That company has continued to just be a monster.

[1012] Yeah.

[1013] So, and this is out of a $300 million fund.

[1014] So at IPO, their stake was worth.

[1015] Call it $1 .5 to $2 billion.

[1016] Yeah.

[1017] At IPO.

[1018] At IPO and this one company.

[1019] And if they've held to today.

[1020] Which it's unlikely, given it was a fund one for them.

[1021] Totally.

[1022] And I'm sure, you know, they distributed it over time.

[1023] So they probably captured some of this upside.

[1024] But just as a thought exercise, what, 20 % of or 15 % of that's, what, $5 billion -ish?

[1025] Ish.

[1026] Yeah.

[1027] Not bad.

[1028] Not bad.

[1029] And Octa, this is another one that Mark talks about publicly as we were totally laughed at.

[1030] Identity providers were a thing already.

[1031] And like Microsoft with Active Directory, like it was owned.

[1032] But the CEO of Octa, Todd McKinnon, had this like big thesis around the shift to the cloud means that there's time for a new identity provider.

[1033] There's room for a new person to come in and none of the incumbents are going to be able to react to it.

[1034] 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.

[1035] And right now it's just by a small select set of people.

[1036] But over time, everyone will shift to the cloud.

[1037] But yeah, he said they were totally laughed at for doing the Octa deal because it was very against collective wisdom that that would be successful.

[1038] Well, two things.

[1039] One, it even goes deeper than that because Tim Howes, who was early Nutskeep guy and then co -founder of LoudCloud with Ben and Mark and Sikri and everybody, he invented LDAP, the directory access protocol.

[1040] So they knew a lot about this.

[1041] And then the other thing, you know, just everything you said reminds me of the classic Sequoia question, the why now?

[1042] Well, it was a great why now for Octa.

[1043] The cloud was changing everything.

[1044] There were like a lot of companies around this time.

[1045] And even for the next five years where just saying, hey, we're going to do a thing that's already sort of 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, like, we're not even compatible with the on -premise world.

[1046] If they mistimed the enterprise shift to cloud, the whole thing would have gone under because there would have been no way to be.

[1047] I'm thinking specifically of like a snowflake, the cloud -based data warehouse.

[1048] You had to be binary in your bet and say, like, we believe in this thesis at this timing.

[1049] And obviously with Octa and Snowflake, it paid off.

[1050] But you know, with other cloud bets like LoudCloud, it did not.

[1051] The timing was not really.

[1052] The Y now was not great.

[1053] Well, actually, it was great.

[1054] It was a good story.

[1055] It just didn't play out well.

[1056] 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.

[1057] You know, we're still, we're in like the early parts of 2010.

[1058] They've done 50 mil into Skype.

[1059] They've done all of these deals.

[1060] They're doing tons of seed deals on top of it.

[1061] It's a lot.

[1062] They're almost out of cash.

[1063] And they're reserving half the fund for follow -ons.

[1064] So they only have 150 mil of new money to deploy.

[1065] So they're like, we got to go raise another fund.

[1066] And so this actually just came out recently.

[1067] 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 when the duo were raising their first investment fund of $300 million, a big sum for a VC firm at the time, indeed, Andresen told him they needed to raise a second, much bigger fund right away.

[1068] And here's a quote, in fundraising and in venture capital, strength leads to strength.

[1069] Andresen said, according to Horowitz.

[1070] It's so true.

[1071] Oh, boy, strength leads to strength.

[1072] strength.

[1073] It's so true.

[1074] It's so funny and it's so true.

[1075] Have you read the Michael Mobbison paper on persistent differential returns by asset class?

[1076] I have.

[1077] 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 like you look on one side of the spectrum at like hedge fund managers.

[1078] 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.

[1079] 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.

[1080] You know, 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.

[1081] And the sort of postulate is that, well, strength follows strength.

[1082] That when you do the best deals, you then start to realize the flywheel of getting the best entrepreneurs that are referred to you.

[1083] Totally.

[1084] I mean, this is everything that we talked to.

[1085] We spent the last, you know, hour and a half talking about of like, how are Mark and Ben going to break in to this dynamic?

[1086] 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 VC at Madrona, I got a chance to get drinks with Bill Gurley once, and I was like so eager.

[1087] I had like all my questions prepared, 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?

[1088] 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.

[1089] It's so true.

[1090] You have success and that gets you more success.

[1091] You don't have success.

[1092] Good luck.

[1093] And to Mark's point here, it also is true in startups.

[1094] Like if you are massively outraising everyone else in.

[1095] your category, like you're going to be able to kind of keep that mind share of the category leader.

[1096] You're going to be able to recruit the best executives.

[1097] You're going to be able to land those customers.

[1098] So there is this, on the one hand, it's hype.

[1099] And on the other hand, hype is a self -fulfilling prophecy in a lot of ways.

[1100] Totally true.

[1101] I mean, God, what a great encapsulation of startups and venture and everything.

[1102] It is hype, but it's also real.

[1103] Anyway, so they go out summer 2010 and they raise a second fund.

[1104] One year after deploying an already large $300 million fund, they raise a $650 million second fund in 2010.

[1105] This was nuts.

[1106] This was like an atom bomb going off in the industry.

[1107] Two reasons.

[1108] A, that is so much money.

[1109] I mean, when I was at Madron at the time, we were investing out of a $250 million fund and we were a 20 -year -old firm.

[1110] It's still pretty closely after the financial crisis.

[1111] Yeah.

[1112] 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.

[1113] This was crazy.

[1114] You know, the established VC firms, they were still coming off the hangover from the dot -com bust where they've stretched their 99 funds for like four or five, six years.

[1115] And we did that special with Ho at Alto's talking about how they had to stretch a fund.

[1116] God, how long was it like six, seven, eight years before they could raise their next one?

[1117] So this is just like wild what's happening here.

[1118] And the press eats it all up.

[1119] 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.

[1120] So this is when they go back to Marget, who's been just doing a bang -up job for them on PR.

[1121] 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.

[1122] So like, you got a budget.

[1123] Wow.

[1124] You got a budget.

[1125] How about you leave Outcast and join Andrews Norowitz full -time?

[1126] Now, this wasn't totally crazy because she had already sold Outcast to a holding company.

[1127] So she had found it, co -founded it, but it had been sold.

[1128] and they just brought in a separate CEO.

[1129] So she comes and, you know, full -time joins as a head of marketing for Andres.

[1130] And no venture firm had a head of marketing before this.

[1131] They also bring on Jeff Stump to run talent.

[1132] They bring on John O 'Farrell, who was head of Bizdev, I think, at Opsware as a GP.

[1133] Now, interestingly, he had not obviously been a CEO, despite the mantra of, you know, we only have CEOs as GPs here.

[1134] but anyway, it works out well.

[1135] So what do they do?

[1136] You know, they've had the strength.

[1137] They now have more strength.

[1138] They keep the foot on the gas.

[1139] They keep deploying the money quickly.

[1140] So early 2011, this is crazy and like totally works out great for them, but gets pilloried in the industry at the time.

[1141] They take all this money.

[1142] They start going and buying private secondary shares in pre -IPO companies like Facebook and Twitter and Groupon.

[1143] I don't know how well Groupon worked out for them.

[1144] but they deploy what was, I think, like over $80 million into buying pre -IPO secondaries in these companies.

[1145] Wild.

[1146] Which they probably were investing, like, exactly the upper limit of each fund in secondaries because they weren't a registered investment advisory yet.

[1147] They were just a regular venture firm.

[1148] Yep, that makes sense.

[1149] Which is what, 20 % per firm is what you can do into?

[1150] Yep, 20 % per fund.

[1151] So 20 % of 650 would have been like, I don't know, 100.

[1152] 20, 130 million.

[1153] So I bet they did.

[1154] It's like up to that, give themselves a little breathing room.

[1155] That's how you come up with the 80.

[1156] Yep.

[1157] It may have been more than 80, too.

[1158] That may have been just Facebook.

[1159] Anyway, so then in April of 2011, they lead a hotly contested series B for a little gaming company making a game called Glitch.

[1160] Tiny Speck.

[1161] The name of Tiny Speck.

[1162] Mark had invested in the seed for Tiny Speck personally, and then in the previous fund, Andrewson Horowitz had put a little bit in in the A that Excel had led.

[1163] And of course, the head, the CEO of Tiny Speck is Stort.

[1164] Butterfield.

[1165] Stuart Butterfield.

[1166] I know that name.

[1167] So shortly after, like very shortly after, I believe, Andreessen Invest leads this round, this series B. Stewart sends an email to the board.

[1168] Quote, we've had this quote unacquired before.

[1169] I did not feel that we are pouring gas on a fire here.

[1170] More like pouring good whiskey on a drugstore heating pad.

[1171] It is unlikely to burst into flames.

[1172] And he means that in a bursting into flames being good for the company, not bursting into flames being quite bad for this new Andreson Horowitz investment.

[1173] I love his honesty.

[1174] I mean, it's great.

[1175] Yeah, just keeping it real.

[1176] So he recommends, you know, they sort of all figured out as bored.

[1177] And I think, you know, Mark's involved in all this.

[1178] And all right, well, what else are we going to do?

[1179] We don't necessarily want the money back.

[1180] And, you know, they pivot into.

[1181] By the way, this is why repeat entrepreneurs.

[1182] Like, there's a lot of negative things about sort of like serial or repeat entrepreneurs that get a lot of criticism.

[1183] Like, it's not their life's work.

[1184] They've already made their money.

[1185] There's a lot of, like, reasons to be a little bit careful.

[1186] But this is one way where it massively plays to the company's advantage that Stewart from Flickr, knew what bursting into flames felt like.

[1187] You could call it escape velocity.

[1188] You could call it getting real traction or product market fit or starting the flight, whatever it is.

[1189] Stuart knew what that felt like, much like Mark did from his Netscape experience.

[1190] And this wasn't it.

[1191] It was not it.

[1192] No, it was not.

[1193] So, of course, they pivot into this little front end that they'd built on it was on IRC, I think.

[1194] IRC.

[1195] Yeah, it was like extensions on top of IRC.

[1196] Yeah, extensions on IRC for workplace communication that they were using internally.

[1197] Decide to call it Slack.

[1198] They call up our friends, Andrew and the crew at Metal Lab.

[1199] Andrew now, of course, have a tiny capital.

[1200] Get Metal Lab to design the UI, take it to market as a product called Slack.

[1201] Yeah, it works out pretty well for everybody involved.

[1202] That it did.

[1203] And I threw out that $3 billion number earlier.

[1204] A lot of these exit numbers are estimated, since it's not like we actually know Andrews and Horowitz's returns.

[1205] 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.

[1206] 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.

[1207] So a very good decision for Andresen Horowitz to let Stewart keep running with the money, even though the game was not bursting into flames.

[1208] Yeah, that's a couple multiples on that.

[1209] huge $650 million fund, too.

[1210] How would they ever return that?

[1211] Oh, boy.

[1212] And when you say, how would they ever return that?

[1213] That's because that was the, like, knock on Andreessen Horowitz at the time.

[1214] That was the, like, bare narrative was like, these guys rate this huge fund.

[1215] There's no way.

[1216] $650 million venture fund.

[1217] Can anybody return that amount of capital, let alone these new guys?

[1218] So 2011, oh boy, what a schizophrenic year.

[1219] Here are some of the investments that they made in 2011.

[1220] Do you remember shoe dazzle?

[1221] I do.

[1222] Yep, shoedazel.

[1223] Jawbone.

[1224] How about that one?

[1225] Oh, yeah.

[1226] Boy, everyone lost money on that.

[1227] Oh, boy.

[1228] It was a great quote from Mark.

[1229] I forget where.

[1230] Maybe it was in the New York piece saying that jawbone is the new Sony.

[1231] Ooh, not quite.

[1232] I mean, such a unbelievable cool technology innovation that just.

[1233] Yeah.

[1234] Yeah.

[1235] Yeah.

[1236] Lightro camera.

[1237] Remember that one?

[1238] Oh, yeah.

[1239] Yeah.

[1240] How about this one?

[1241] Fab .com.

[1242] Jason Goldberg.

[1243] Yeah.

[1244] Oh, boy.

[1245] That was a flameout, unfortunately.

[1246] And there was a lot of other big name folks.

[1247] Speaking of Dig, Kevin Rose was involved in that one, too.

[1248] Oh, in Fab?

[1249] Was he?

[1250] Yeah, I bought some stuff on Fab.

[1251] They had really unique merchandise.

[1252] Yeah, I did too.

[1253] It was cool.

[1254] But, man, burned through a lot of money.

[1255] But it doesn't matter.

[1256] Because also in 2011, they bring on a new general partner.

[1257] They bring on a few new general partners, I think.

[1258] But one in particular, Jeff Jordan.

[1259] boom wow so jeff i believe started his career in the disney the famous disney strat planning group i think he worked for meg whitman there hmm 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.

[1260] Pretty good.

[1261] Then, after that, remember, he left and became CEO of OpenTable, who was OpenTable's main venture capitalist and board member, Bill Gurley.

[1262] Ah, wow.

[1263] The Bet Noir of Andrews and Horowitz.

[1264] But Jeff becomes one of the best consumer investors of the last decade at Andrews and Horowitz.

[1265] He would go on to do the Airbnb investment.

[1266] right?

[1267] Oh, yeah.

[1268] In 2011, right after joining.

[1269] So I believe the first right after joining, Pinterest.

[1270] Wow.

[1271] Pretty good.

[1272] Then Airbnb, then Instacart, then a firm, a couple years later, many others.

[1273] He's done so well that in 2019, he actually became a managing partner.

[1274] They made him a managing partner of Andresen Horowitz, the firm alongside Mark and Ben and Scott Cooper, who's also a managing partner, but more like the CEO of Andreessen.

[1275] 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.

[1276] Oh, that's a good word.

[1277] That's a, you know, that's what Sequoia calls the Sequoia stewards.

[1278] They're the four stewards of Andreson Horowitz.

[1279] So quick recap, and this is just a small sampling of the 2011 deals at Andrews and Horowitz, according to pitchbook.

[1280] Shoe dazzle, jawbone, bump, lightro, fab, Airbnb, Pinterest, Stripe, Nicerra, TinySpeck, Facebook, Twitter, Groupon.

[1281] What a collection.

[1282] Whoa.

[1283] Also, they did stripe?

[1284] They did, the seed.

[1285] They didn't lead it, but they were part of the seed.

[1286] Fascinating.

[1287] Yeah, man, slugging percentage, not batting average.

[1288] But, Ben, you've already alluded to it.

[1289] You've already spoiled the biggest mistake in the history of Andreessen Horowitz that they make in 2011.

[1290] I was going to ask if you knew what it was, but obviously you know what it is.

[1291] Which would lead to a subsequent success, like a multi -billion dollar success, but.

[1292] Yeah.

[1293] Uber.

[1294] Fall of 2011.

[1295] Oh, this is brutal.

[1296] Bradstone does great reporting on this in the upstarts.

[1297] Andres Norowitz is in line, specifically Jeff Jordan.

[1298] Man, could you imagine what a monster year.

[1299] It already was for Jeff.

[1300] Pinterest, Airbnb, all in the same year.

[1301] He's in line handshake on a deal to lead Uber's Series B. And of course, who was Uber's Series A investor?

[1302] Benchmark.

[1303] Benchmark and Bell Gurley.

[1304] And, you know, we got this huge fuse.

[1305] between the firms, but like, hey, you know, Bill Gurley was on Jeff's board.

[1306] Like, they're great.

[1307] They know each other.

[1308] We're going to make the piece here.

[1309] Handshake deal.

[1310] It's all done.

[1311] Jeff is going to lead it.

[1312] Hot streak is going to continue.

[1313] Mark's involved.

[1314] 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.

[1315] Oh, I know.

[1316] It's brutal.

[1317] God, it's so brutal.

[1318] So somebody, and Brad kind of implies in the upstarts that it was Mark himself, starts to get cold feet about the deal.

[1319] 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 post, not 305 or 310 or whatever it was supposed to be.

[1320] That's a pretty big haircut.

[1321] It gets worse.

[1322] supposedly Travis was still going to take the deal.

[1323] He really wanted Andresen Horowitz to be the lead.

[1324] All the marketing had worked.

[1325] He was going to do it.

[1326] But then the actual term sheet arrives and in the actual term sheet, they must have really had cold feet.

[1327] They didn't want to do this deal.

[1328] This is half -assing your way into a term sheet right here.

[1329] This is limping across the finish line if I've ever seen it.

[1330] They put a huge new option pool refresh in there.

[1331] which, of course, would dilute its existing shareholders and particularly the entrepreneurs, even more.

[1332] And that's the straw that breaks the camel's back.

[1333] Travis is like, he very politely tells them he's not going to take the term.

[1334] Yeah, right.

[1335] Typical Travis fashion.

[1336] Nope, scorched earth.

[1337] Big mistake.

[1338] Big mistake.

[1339] Is it Menlo that ends up doing the deal?

[1340] Menlo, who was, according to Brad, the stalking horse for the deal on valuation.

[1341] They come in, they're like, oh, yeah, we'll do.

[1342] We'll do.

[1343] You want over a third.

[1344] 300 posts.

[1345] No problem.

[1346] We got that.

[1347] Which ironically is the Andresen Horowitz playbook that everybody's bashing them on.

[1348] Right.

[1349] Adreason Horowitz has conditioned us all that we can pay 50 to 100 percent more than we thought for deals.

[1350] And, you know, not only will we win them, but that may actually work out for us well in the future.

[1351] And it worked out real well for Menlo.

[1352] Not Andreessen Horowitz.

[1353] So sad.

[1354] For Andreessen, great for Menlo.

[1355] Of course, they would go on to invest in Lyft and own, let me go look at my best guest data here.

[1356] I think they owned about 6 % at IPO.

[1357] And so if you think about when the lockup would have ended, it'd be about a $16 billion market cap at that point.

[1358] Like, they ended up with a billion dollar stake of Lyft at the time that they could liquidate.

[1359] And, you know, if you want to get really nerdy about this, we covered this, of course, on our Lyft in Uber episodes back in the day.

[1360] You know, at this time, while this.

[1361] Series B is happening.

[1362] Uber's a black car company.

[1363] Like, nobody's doing peer -to -peer ride -sharing yet.

[1364] Nobody.

[1365] And it wasn't until 2013 when Lyft would be the one that would pioneer, take the homobiles playbook and do true peer -to -peer ride -sharing.

[1366] And that's when Andreessen invested in Lyft.

[1367] They saw, you know, the future.

[1368] And then Uber launches Uber X and the war is on.

[1369] Exactly.

[1370] Don't really want to cross Travis Kalanick.

[1371] But just to be like super crisp about this, it's a huge, huge loss.

[1372] Like, sure, Lyft ended up being worth $16 billion.

[1373] Uber at that point was worth $80 billion.

[1374] I mean, it would have been a completely different fun dynamic if they were an Uber instead of Lyft.

[1375] Totally.

[1376] Huge loss.

[1377] Man, 2011, what a freaking year for tech period, but also for Andrews and Horowitz.

[1378] Do you know what else happens in 2011?

[1379] Oh.

[1380] Literally right before the Uber deal goes down, which just makes it all the more mind.

[1381] bending that Mark would get cold feet here.

[1382] No. Software is eating the world.

[1383] Oh my gosh.

[1384] That's when he published the op -ed?

[1385] August 2011, right before the Uber deal goes down.

[1386] Yeah, op -ed in the Wall Street Journal.

[1387] Crazy.

[1388] I mean, the piece itself, like, it's kind of a masterwork of arguing this, there is no bubble thesis.

[1389] I mean, at this point in time, people still think, like, you know, tech is overvalued.

[1390] You know, we're still in the shadow of the financial crisis.

[1391] you know, 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.

[1392] Apple, for example, has a PE ratio of around 15 .2, the same as the broader stock market, despite Apple's immense profitability and dominant market position.

[1393] Yeah, I mean, crazy.

[1394] Today, Apple's PE ratio is 32 and a half.

[1395] Microsoft is 39, Amazon is 69.

[1396] The market did hate tech or just didn't recognize tech at this point in time.

[1397] Which is fascinating because those companies did have unbelievable gross margin profiles and continually high growth rates for public companies.

[1398] So it is, I mean, not as high as they have now.

[1399] Like, 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.

[1400] But yeah, at that point, he's totally right, that investors in public markets hadn't really realized this about tech companies yet.

[1401] 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 as eating the world thesis, but he now argues, look, compute costs are just going to zero.

[1402] Like, truly, it's going to asymptotically approach zero.

[1403] 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.

[1404] But, hey, more's law.

[1405] Let's make the assumption that compute asymptotically approaches a cost of zero dollars.

[1406] 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 wanted to do?

[1407] Well, the thing is so cool that I didn't put together until doing the research for this episode.

[1408] Remember last time we talked about the Mike Moritz line that I don't think is public?

[1409] I think it's kind of more like an internal sort of Sequoia saying that every successive generation of technology companies should be an order of magnitude bigger because of Moore's law, because the cost of compute declines.

[1410] 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.

[1411] performance should surpass the last.

[1412] It's the same argument as software is eating the world.

[1413] It's exactly the same argument.

[1414] Compute, cost, declines.

[1415] 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.

[1416] 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.

[1417] That's exactly what happens.

[1418] 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.

[1419] 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.

[1420] Look at you making the anti -Andreason Horowitz argument.

[1421] Someone's got to make it here on this.

[1422] I love it.

[1423] I love it.

[1424] Optimistic program.

[1425] So great.

[1426] So great.

[1427] And also then there is this question of like, will that always be true?

[1428] Like there's 3 billion people on Facebook now.

[1429] 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, like 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.

[1430] But we're probably very far from that horizon, or an order of magnitude more than the previous decade.

[1431] Well, and I think it looks like now that crypto is going to be the next answer to that, right?

[1432] Like, what is the next value of Moore's law accelerating and decreasing?

[1433] You know, you said, a lot of energy.

[1434] Ooh, David Rosenthal calling it here on air.

[1435] Well, I think Andrews and Horowitz has been calling it for a while.

[1436] 2013.

[1437] Okay.

[1438] So back to that.

[1439] So after Software is eating the world at the end of 2011, in January 2012, they go out and they raise fund three, one and a half billion dollars.

[1440] Oh my gosh.

[1441] Get at me. You thought we were big before.

[1442] Watch this.

[1443] Watch this.

[1444] So that one and a half billion dollar fund, get this, was seven and a half percent of all of the venture money raised globally in 2012.

[1445] Whoa.

[1446] One fund, one firm.

[1447] Wow.

[1448] That's wild.

[1449] Isn't that crazy?

[1450] It's interesting because it's basically like, in a lot of ways, Andresen Horowitz was just slightly out of step with the growth of the rest of the venture ecosystem.

[1451] 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.

[1452] 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.

[1453] Or more appropriately, other people are getting paid too much in equity for the risk that they're taking so we can price higher.

[1454] 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.

[1455] So they can kind of play that to their advantage too.

[1456] Yep.

[1457] And what's the other piece of the arbitrage here?

[1458] It's the summits.

[1459] It's the TAs.

[1460] It's the Silver Lakes.

[1461] So, you know, they raise a $1 .5 billion venture fund, seven and a half percent of all venture, you know, money raised in 2012.

[1462] But a big portion of that isn't going to venture in the same way.

[1463] So pretty quickly after they raise the fund, they do at the time.

[1464] You're like, this was nuts.

[1465] $100 million Series A in GitHub.

[1466] GitHub.

[1467] That's right.

[1468] GitHub, yep.

[1469] And that was like the first real capital that GitHub.

[1470] it had raised, right?

[1471] It had been bootstrapped all the way.

[1472] Yeah, yeah, it was the first real cap.

[1473] 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 Silverlaker, whoever would be doing.

[1474] And this was like the largest quote -unquote series A ever.

[1475] Oh, masterful PR and branding of this as a series A. There's no way in hell this was a series A. But anyway.

[1476] I think they bought 10 % of the company or something.

[1477] Yeah.

[1478] I think even more.

[1479] I think it was a 750 post -money valuation.

[1480] That sounds familiar.

[1481] Yeah, whatever, you know, slightly more than 10%.

[1482] I do know that they would end up making a billion dollars on this, in the ultimate sale to Microsoft in 2018.

[1483] Yep.

[1484] So that almost returns the whole fund, right?

[1485] I mean, this is how that type of investing works is like very low downside, you know, still pretty high ups.

[1486] I mean, they 10x that money, right?

[1487] Yeah.

[1488] Again, going back to before, a 10x actually not interesting to an early stage investor.

[1489] You kind of need to be in that 50 to 100x territory.

[1490] to make the portfolio math work for that to be the big winner in the portfolio.

[1491] However, if you're investing $100 million out of your $1 .6 billion fund, then like that $100 ,000, 10xing, very impactful for the fund.

[1492] Very impactful.

[1493] Yep, totally.

[1494] So later in 2012, Chris Dixon joins the firm.

[1495] And Chris, of course, was very, very well -known New York entrepreneur.

[1496] venture capitalist.

[1497] He started site advisor and then hunch, which was acquired by eBay.

[1498] He'd started founder collective, the seed VC firm.

[1499] He'd been part of Bessemer earlier in his career.

[1500] People, I remember because I used to live in New York.

[1501] People really identified him with like New York venture capital.

[1502] He's like going to Silicon Valley, joining Andreessen Horowitz.

[1503] This was big news.

[1504] And shortly after he gets there in 2013, he leads a series B. Coinbase.

[1505] $25 million in Coinbase at a 150 post.

[1506] Wow.

[1507] Oh, man, really overpaying for that one.

[1508] 150 posts.

[1509] What does this thing even do?

[1510] Crypto.

[1511] Here's the kicker.

[1512] Over the years, Andresen Horowitz would keep buying shares from other investors.

[1513] So other early investors were selling shares, including USB and others.

[1514] And Andreessen was just buying, buying, buying, buy and buying.

[1515] Man, I mean, this is like Ventures of Power Law.

[1516] We're talking about so many great outcomes.

[1517] here.

[1518] Like, this one dwarfs everything, everything else.

[1519] At the DPO, Andrews and Horowitz's stake earlier this year in Coinbase is worth $11 billion.

[1520] Oh, my God.

[1521] That's 7X, that entire $1 .5 billion fund.

[1522] Like, oh, my God.

[1523] Thank God for the investors in that $1 .6 billion fund that that Coinbase investment was out of this fund instead of one of the smaller funds, because returning a $1 .6 billion fund, no easy feat.

[1524] But if you have one $11 billion return in there, okay.

[1525] Yeah.

[1526] And this is the whole thesis, right?

[1527] It's like these outcomes are bigger than you think there is no bubble.

[1528] These valuations are not just justified, but like the crazy prices we're paying now, we're getting the deal.

[1529] It's wild.

[1530] It's wild.

[1531] They invest all told in 76 new companies in 2012.

[1532] In 2013, they add another 97 new companies, including Lyft and Pager Duty, which is going to be another great win for them.

[1533] Robin Hood, they only do the seed in Robin Hood.

[1534] I think it don't continue until later.

[1535] I think that's right.

[1536] I think until like 2020 or something, and they did it with the growth fund.

[1537] Yeah.

[1538] Yeah.

[1539] Oculus.

[1540] 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 participates.

[1541] in what round?

[1542] Totally.

[1543] Oh, so great for this episode.

[1544] Databricks is in 2013, which is still private, but that's going to be a monster for them.

[1545] Most recently valued at $28 billion.

[1546] They led the seed round and have participated in, I think, every round since.

[1547] I bet they own a ton of that company.

[1548] I bet.

[1549] Yeah, can't wait to see that S -1.

[1550] I just love this episode.

[1551] We've got so much great stuff, and we've got to so much funny stuff, too.

[1552] Zenefits.

[1553] That was 2013.

[1554] Oh, I forgot.

[1555] they were in Xenophis.

[1556] Oh, they were the big ones in Xennavitz.

[1557] They were holding that bag for sure.

[1558] Klingle, remember Klingle?

[1559] Oh, yeah.

[1560] Oh, boy.

[1561] One of my GSP classmates spent his summer at Klingle.

[1562] He didn't go back full time.

[1563] That was a good choice.

[1564] And then the kicker.

[1565] This may be my favorite part of the whole episode.

[1566] In 2013, they banned together.

[1567] Band of Brothers, three musketeers, it ends up being called, with Google Ventures and Kleiner Park.

[1568] to create the Google Glass Collective.

[1569] This is the most ridiculous thing ever.

[1570] It wasn't a fund.

[1571] It wasn't like their crypto fund or their bio fund that we're going to talk about in a minute here.

[1572] 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.

[1573] Oh, my God.

[1574] What?

[1575] That's an incredible PR.

[1576] Like, to be able to plant that story is impressive work.

[1577] Because, like, that's a non -story.

[1578] It's a total non -story.

[1579] Like, I agree to share deals with other investors all the time.

[1580] That's a non -story.

[1581] So there's, you know, huge press release.

[1582] There's an event, a big tech crunch piece.

[1583] Money quote from Mark Andreessen in the tech crunch piece.

[1584] You put on glass and you say, yep, that's the future.

[1585] Yep, that's the future, Mark.

[1586] Can't win them all.

[1587] Can't win them all.

[1588] I do legitimately think augmented reality, both, visually and audio is the next big compute platform.

[1589] Oh, totally, yeah.

[1590] But was Google Glass?

[1591] No. They're so great.

[1592] We tweeted the photo of Bill Maris from Google Ventures and John Doer from Kleiner and Mark Andreessen wearing the Google Glasses and posing on Sand Hill.

[1593] Oh, my God.

[1594] What a classic photo.

[1595] It's just great.

[1596] Despite all that, things continue to go pretty well in, 2014, Mark gets really into Twitter.

[1597] He tweets something like...

[1598] It was over 100 times a day.

[1599] Despite being an angel investor in Twitter, he had only tweeted twice before 2014.

[1600] 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.

[1601] I think Fred Wilson was the only one who like actually was active on the platform.

[1602] But then for whatever reason in 2014, Mark decides, oh, yeah, I'm going to get really into this.

[1603] He tweets like 20 ,000 times in six months.

[1604] It's wild.

[1605] And he was like the best person to follow because like if you were interested in mental models and exploring wacky futuristic ideas, like it was a buffet table of that.

[1606] Yeah.

[1607] He actually people, you know, of course, also creates press and everybody wants to know, why is he tweeting so much?

[1608] And like, it's so great.

[1609] And he says in some interview he says he loves Twitter because, quote, reporters are obsessed with it.

[1610] It's like a tube and I have loud speakers.

[1611] installed in every reporting cubicle around the world.

[1612] So great.

[1613] 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.

[1614] So assets under management here are about $4 billion.

[1615] Yep.

[1616] They do Instacart.

[1617] They do Reddit.

[1618] They do Magic Leap.

[1619] They do all sorts of stuff.

[1620] Interestingly, though, the pace actually steps down a little bit.

[1621] they stopped doing quite as many seeds during this time period.

[1622] 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.

[1623] It was resonating with people.

[1624] I mean, David, like to recall a conversation we had when you were starting your venture firm in, when was that, 17, 2018, yeah.

[1625] This was part of the thesis.

[1626] You were like, well, no one wants to raise seed rounds.

[1627] from the series A firms because of the signaling risk.

[1628] So we're a pure play seed firm, and I think that makes a lot of sense.

[1629] And that was the professionalization of the asset class of seed happened because of that.

[1630] Of the signaling effect.

[1631] Yeah.

[1632] Yeah.

[1633] Totally.

[1634] It's just so funny.

[1635] It's completely disappeared now.

[1636] Yeah.

[1637] Well, in so many ways, everyone has followed Andrews and Horowitz's lead in truly every way.

[1638] 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 you know 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 uh tad friend is such a good writer and this is like you know once every year couple years the new yorker is like we're going to do a profile on an industry and they talk about this on the on the 16c podcast and like I think it's the episode with market like the opportunity to have the profile on venture capital in the New Yorker and to have Mark Andreessen be like the mouthpiece for it.

[1639] Oh, it's so great.

[1640] So I'm just going to, it's okay.

[1641] Can I read a couple lines?

[1642] Please do.

[1643] Yeah.

[1644] These are so good.

[1645] Okay.

[1646] So first off, the piece starts off with a little vignette of mixed panel, which of course was a big Andreessen investment and talking to the founder, Suhail Doshi, you know, about his experience, raising venture capital and whatnot.

[1647] And he says, oh, this quote is so good.

[1648] Mediocre VCs want to see that your company has traction.

[1649] The top VCs want you to show them that you can invent the future.

[1650] It's so funny and it's so true.

[1651] It's just great.

[1652] Let's see.

[1653] Andresen 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.

[1654] 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.

[1655] In the early days, it was within two minutes, he says.

[1656] Here we go, this might be my favorite part.

[1657] One morning, as I sat down to breakfast with Andresen, a rival VC sent me a long email about A16 Z's holdings.

[1658] The VC estimated that because Andresen's firm had taken so many growth positions, its average ownership stake was roughly 7 .5%.

[1659] 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.

[1660] How could that possibly be?

[1661] I started to check the math with Andresen.

[1662] He made a jerking off motion and said, blah, blah, blah, we have all the models.

[1663] We're elephant hunting, going after big game.

[1664] Oh, my God.

[1665] A, that Arrival VC would take the time to type out a long email.

[1666] And would take the time to have themselves or an analyst go model out a different firm's average ownership.

[1667] Are you kidding me?

[1668] So great.

[1669] So great.

[1670] And model out, close to be within half a percent of the actual number.

[1671] And wait a minute.

[1672] So it's actually an interesting question.

[1673] So they would need, what were the numbers of how much market cap in aggregate would need to be created?

[1674] 240 to 480 billion dollars of market cap.

[1675] So you got Coinbase at, what is it, 100?

[1676] Right around a cool 100.

[1677] You got Roblox at 45.

[1678] So that's 145.

[1679] you got Octa at 33, so that's around 170.

[1680] Yep.

[1681] You got Slack at 24.

[1682] No. Something like that.

[1683] Let's take it to 200.

[1684] Okay.

[1685] Around to 200.

[1686] You got Airbnb.

[1687] That's another Hyundai right there.

[1688] Yep.

[1689] You got Pinterest, which is another 45, 50.

[1690] Yep.

[1691] All right.

[1692] So, like, you can see sending that email being like, a good effing luck.

[1693] And, like, you do look at the companies they invested in.

[1694] You're like, yep, they far surpassed that.

[1695] And, like, we haven't talked about Instacart or Data Bricks or Robin Hood or, and of course, these are smaller positions, but yeah.

[1696] Yep.

[1697] It's so, so good.

[1698] And then Mark's response makes a jerking off motion with his hand.

[1699] It says we're elephant hunting.

[1700] We're going after big game.

[1701] That has to be the first time that was printed in the New Yorker.

[1702] In the New Yorker?

[1703] It must be.

[1704] Oh, so great.

[1705] 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.

[1706] And the first reaction is, oh my God, complain about them.

[1707] See Tiger today?

[1708] Exactly.

[1709] It was Andreessen Horowitz, and then it was SoftBank and then it was Tiger.

[1710] And like, at least with Andreessen Horowitz, and it seems like, I don't mean information that's not public, but like, it seems like with SoftBank Vision Fund 1, like strategy worked a heck of a lot better than people thought it was, and at least a lot better in the media was reporting.

[1711] So I don't know.

[1712] I suppose the next time my need -jerk reaction is to be like, oh, these new guys are, they don't know what they're doing and they're like being irresponsible and they're blowing us out of the water.

[1713] Like maybe think twice about just complaining and figure out, okay, how do I actually need to adjust my strategy because maybe this is going to work.

[1714] Oh, you couldn't have teed me up any better here.

[1715] Back to the New Yorker article.

[1716] His quote, A16Z's services model made a strong impression on Sandhill Road.

[1717] Quote, Andresen caused us to up our game.

[1718] on the marketing side, said Sequoia Capital is Doug Leone.

[1719] Younger founders pay attention to media and we don't want to be depositioned.

[1720] 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.

[1721] Oh, so Doug, so Sequoia.

[1722] Like, we're not going to be depositioned.

[1723] Like, yes, this is a good innovation.

[1724] We're going to adopt it.

[1725] Yeah, it's Bill Gatesian in that way.

[1726] Yep, totally.

[1727] I can't wait until power to talk about this one.

[1728] It's so interesting to me that this caused effectively margin compression in the venture capital industry.

[1729] Ownership compression.

[1730] No, I literally mean margin compression in how profitable it is to be a general partner.

[1731] Oh, you mean the management fee side of the thing.

[1732] Yeah.

[1733] Like, it's hard to run lean as, you know, a big firm because you kind of need all this stuff to be competitive and that stuff is really expensive.

[1734] It's a big team.

[1735] You can't just take home $10 million in fees every year.

[1736] Even if you're Sequoia, you need a big team.

[1737] Yeah.

[1738] Totally.

[1739] And so you end up with this fascinating dichotomy.

[1740] It's the same thing that's happening in the media ecosystem where like there is no more middle.

[1741] 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.

[1742] Yeah.

[1743] Andresen Horowitz is the New York Times.

[1744] of venture capital.

[1745] 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 like no team, and I'm going to play a completely different super niche game.

[1746] And there is some room in the middle, but there's not the room that there used to be in the middle.

[1747] Yep.

[1748] And, you know, I think the industry has found that out painfully over the last 10 years.

[1749] Yeah, but this really interesting thing of like, it took a long time.

[1750] It took 30 years or 40 years of venture capital as a profession for the arbitrage of profits to go away from general partners.

[1751] Yep.

[1752] So flip side of this coin, both on the staffing and the services side of things, but also on the deals and the valuations front and just like the support.

[1753] Yeah, it just like beats me over the head.

[1754] And, you know, maybe this will sound biased towards injuries to Horowitz, but I'm not trying to be.

[1755] I'm really just like doing this research, thinking about the last 10 years.

[1756] There is no bigger winner in all of this than entrepreneurs.

[1757] Oh, for sure.

[1758] Oh, my God.

[1759] Like, you used to be giving up 25, 30 plus percent of your company at Series A and getting like two million dollars for that.

[1760] And like somebody sitting on your board doing something maybe.

[1761] You're absolutely right.

[1762] I was talking about the margin compression in fees.

[1763] Now let's talk about the margin compression in returns.

[1764] Everyone's cost basis is higher because there's way more capital competing to go in.

[1765] So therefore, your ownership percentages are going to be less for the same amount of capital that you wanted to put to work.

[1766] Well, and even on the fees side, vis -a -vis entrepreneurs, they're just getting a lot more.

[1767] You can argue all you want and people do about how valuable these various services are and whatnot.

[1768] But, like, I think it's pretty valuable that somebody, and Jason Horowitz...

[1769] in the lead, but now the whole industry is out there just, like, banging the drum about how great startups are and, like, how great their portfolios are.

[1770] And like, if you're an entrepreneur, why would you not want somebody championing you?

[1771] 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.

[1772] But Andreessen is.

[1773] And they're going to talk about how awesome you are.

[1774] 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.

[1775] 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 sort of tiny empathetic your company is, which all startups are.

[1776] It is an unbelievable boon to get that.

[1777] 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.

[1778] That sounds like our cap chase ad read from last season.

[1779] I love it.

[1780] I love it.

[1781] One playbook theme I want to highlight here, and we'll talk about this again at the end.

[1782] But anytime your name is on your competitor's lips, you're winning.

[1783] Like, you're winning.

[1784] Like, it doesn't matter what they're saying.

[1785] If they are talking about you, good, bad, ugly, and different, you're winning.

[1786] You should just keep doing what you're doing.

[1787] Particularly when they're the most successful incumbent of all time with Sequoia.

[1788] So, okay, after that, later in 2015, they raise a $200 million bio fund, June of 2016.

[1789] They raise another $1 .5 billion core fund.

[1790] 2017, they raise a $450 million second bio fund, 2018, first $300 million crypto fund, led by Chris Dickson and new GP Katie Hahn, who, interestingly, I didn't know this about Katie until doing the research.

[1791] Do you know what her background was before she joined Andrewson?

[1792] She was a federal prosecutor at the DOJ, and she led the Mount Gogh's case.

[1793] Whoa.

[1794] Awesome.

[1795] And then after that, Coinbase recruited her to join the board of Coinbase after the Mount Gokkis.

[1796] They're like, look, we're Coinbase.

[1797] We're like doing this above board.

[1798] We're the right way to do this.

[1799] And so that's how Chris met Katie.

[1800] And then she came into Andreessen.

[1801] Super in demand.

[1802] Crypto is so different than the rest of the startup ecosystem.

[1803] Totally.

[1804] Let's see.

[1805] Also in 2018, they launched the cultural leadership fund, which got a lot of like blowback at the time.

[1806] And I, I think was pretty misunderstood.

[1807] I think it's actually a pretty good idea.

[1808] 2019, they split the main fund finally into separate funds for early and growth, $750 million for early, $2 billion for growth.

[1809] And then 2020, just one year later, they are back in the game with $1 .3 billion main early fund seven, $3 .2 billion growth fund two, $750 million, biofund three, $515 million.

[1810] million dollar crypto fund two.

[1811] So that is six billion dollars in total across a suite of funds raised in 2020.

[1812] Strength follows strength.

[1813] Dang.

[1814] And then this year, of course, in 2021, they added another $2 .2 billion crypto fund three bringing total capital under management to just a hair under $19 billion.

[1815] All right, listeners.

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[1834] All right, other things that I pulled from Pitchbook about the firm today.

[1835] So they made us this great tear sheet that we'll have to see if we can share this in the Slack.

[1836] It's a great set of data on the firm.

[1837] they did a little under 1 ,000 investments in a little over 500 portfolio companies total.

[1838] They've produced 160 exits, 20 of which were companies going public.

[1839] There's now 22 GPs with the addition of a new New York -based GP.

[1840] The first time there's been someone outside of the Bay Area added as a GP.

[1841] Another friend of the show.

[1842] David Haber.

[1843] And David, as you mentioned, 19 billion hair under in assets under management.

[1844] eight network teams.

[1845] Two hundred and twenty people now work at the firm.

[1846] 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.

[1847] So they've got a big investment team, but obviously these these network teams have grown meaningfully.

[1848] And I also was talking to some folks.

[1849] They did a lot of hiring outside of the Bay Area during COVID.

[1850] So as much as they were sort of one of the champions of Bay Area for life.

[1851] And if you're serious, you invest here and the best companies are created here, blah, blah, blah.

[1852] The last year has, like, really changed that.

[1853] 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.

[1854] 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.

[1855] Yeah, absolutely.

[1856] Yeah, there's a whole sort of forward -looking view of...

[1857] A future -looking view, one might say?

[1858] Yes, I was trying to avoid, let's call it lowercase future -looking view.

[1859] Not only of the media company, but like other things that they're doing that transcend being a venture firm with value -added services.

[1860] And I think as Mark recently coined it, and he had a great invest like the best episode on this HP 2 .0, and there's definitely a lot more that we'll talk about there, probably in a future episode at some point.

[1861] Yeah, I think that's a right way to do it.

[1862] So, yeah, that's And Jason Horowitz.

[1863] Oh, yeah, wait, there is one more piece to talk about.

[1864] So there's this great saying in venture that is also a Mike Moritz phrase.

[1865] He's just so, he's so good, which is that the apples take longer to ripen than the lemons.

[1866] Of course, apples being a double entendre, meaning like good companies, but also, you know, Apple.

[1867] Again, Sequoia's case, so good.

[1868] They start having some success.

[1869] So April 2017, success on the like distribution front.

[1870] Octa IPO, March 2019, Lyft IPO, April 2019, Page of Duty, Pinterest.

[1871] June 2019 is the Slack DPO, December, 2020, Airbnb, January, 2021, Affirm, March 2021, Roblox, which within a year, year, they turn around like a 15x on that.

[1872] Yeah, here, I actually calculated that.

[1873] 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 dollar valuation.

[1874] Oh, so great.

[1875] Big shout out to Ho and our friends at Altos.

[1876] Totally.

[1877] It means they own probably about two and a half percent of the company at IPO, which of course is a $40 ,000.

[1878] billion market cap today.

[1879] So pretty quick turnaround for that 100 to 150 million into $1 .2 billion.

[1880] Yeah.

[1881] And then the big one, April 2021.

[1882] What's that seven years after the initial investment?

[1883] In Coinbase.

[1884] Coinbase.

[1885] Damn.

[1886] $11 billion stake that Andrewson Horowitz has in Coinbase.

[1887] 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.

[1888] Yeah, that sounds about right.

[1889] Maybe a little less.

[1890] I want to see Sequoia had like a 15 -ish percent stake in Airbnb, 13, 15, something like that.

[1891] But I seem to remember this like 10 to 12 billion absolute dollar return.

[1892] That could be, but Airbnb would be treated up to around 100 billion.

[1893] I think it might be back down a little bit now.

[1894] Anyway, we're splitting hairs here.

[1895] These are pretty good.

[1896] any case, one of the single greatest venture capital returns of all time.

[1897] Yeah.

[1898] Hard to argue.

[1899] Well, we're definitely going to get to grading.

[1900] A little bit of math.

[1901] It's napkin math, but I think it's interesting to sort of review this.

[1902] But let's do some analysis first.

[1903] Let's take our narrative section.

[1904] What's the bull case and what's the bear case on Andreessen Horowitz moving forward?

[1905] Let's start with the bull.

[1906] I think we just painted the bull case, right?

[1907] Well, okay, okay.

[1908] Bull case.

[1909] I got two bulk cases.

[1910] One crypto.

[1911] I mean, if you believe crypto is the next...

[1912] I wrote two and you just got the first one.

[1913] Okay.

[1914] Next bulk case I would have.

[1915] I'm curious if you'd have this as well.

[1916] A16Z has been pretty adamant, like you said, about like Bay Area and in particular about Western technology companies they invest in.

[1917] They haven't touched China, India, et cetera, rest of the world.

[1918] No reason to think that their brand couldn't.

[1919] extend.

[1920] So that feels like a green shoot for them.

[1921] Those are the two off the top of my head.

[1922] I like that.

[1923] I didn't have that.

[1924] The second one I had is this sort of HP2 .0 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.

[1925] And HP was the 100 % owner of every division.

[1926] GE was the 100 % owner of every division of their company.

[1927] Obviously, taking minority positions is different, but can you sort of be more of the Hewitt Packard in their heyday if you aren't the majority shareholder of these businesses?

[1928] Can you still find a way?

[1929] 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.

[1930] And by that, I mean, does everyone really need their own totally separate finance team?

[1931] Like, at some scale, probably not.

[1932] The same kind of thing that you see in industry consolidation when one company buys another.

[1933] I'll be very curious if they sort of 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 that the company are happening at the venture level.

[1934] Interesting.

[1935] It's kind of like maybe sort of like an actual fulfillment of the, you know, the CIA dream execution machine thing.

[1936] Because the CIA package, like Jurassic Park, you know, the packages that they were putting together, the talent, you know, they weren't doing it.

[1937] Like part of the reasons.

[1938] CIA had to exist was like, they're not going to pull together.

[1939] Like, I don't know.

[1940] I don't know what goes into making a movie, but I'm going to assume there's a lot of stuff that the studios used to do and that CIA was able to bring together into a package and then be like, nope, studios, you are just financiers now.

[1941] Totally.

[1942] I wonder if this is part of what's informing this HP2 .0 strategy.

[1943] Yeah.

[1944] 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.

[1945] 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, have an ability to sort of take that and plug it in.

[1946] And the cool thing about the studio is we have that machinery built for like the first 18 months.

[1947] And I'd be curious, a lot of people talk about seed to IPO as an investor.

[1948] It'll be interesting to see if Andrews and Horowitz can sort of become the startup dream machine all the way from idea to IPO.

[1949] Yeah, yeah, yeah.

[1950] Well, or you could just go raise a whole lot of money and you could be the next, you know, disruptor in the industry.

[1951] That's a great point.

[1952] It's really like that Mark and Ben kind of have no sacred cows.

[1953] And like whatever, you know, they're very experimental.

[1954] They're very willing to change things.

[1955] And like, it wouldn't surprise me that if some point in the near future, they stop talking about it as a venture capital firm because they feel that it's a sort of broader set of activities.

[1956] Well, clearly they're already sort of going this direction with the media.

[1957] a company and all that.

[1958] Yep.

[1959] We also totally skipped over crypto, which I think is okay.

[1960] But can you give like one or two sentences on how they're different than other firms with a lens toward crypto?

[1961] Well, in one respect, it was just simply that they were there first and early.

[1962] And so they've been part of like these big ones.

[1963] Other firms have two, you know, USV being primary among them and then native crypto firms like paradigm and multi -coin and all those great folks.

[1964] 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.

[1965] Andresen has been there, right?

[1966] Like, Coinbase.

[1967] Dang.

[1968] Salana.

[1969] Yep.

[1970] Bickla.

[1971] Like everything interesting, they're there.

[1972] So I think that's a big part of it.

[1973] You know, the other piece of it is like, it's different doing that.

[1974] And they've built the machinery to do it in a way that other traditional venture firms have not.

[1975] 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 this, the same things that trigger needing with secondaries needing to be an RIA.

[1976] I think if you do too much token investing in a core fund, you would need to register and be, you would lose your venture capital exemption.

[1977] So while other firms were registering as RIAs to do secondaries, which of course, injuries and also does, they were like, oh, well, we'll go do this first with the crypto funds and then now for the whole firm to be able to buy tokens instead of equity.

[1978] So I think it's just going to take a lot of firms a long time to catch up to that.

[1979] And the operations of staying abreast of the things you can do in the U .S. versus international, like takes overhead.

[1980] 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.

[1981] So we talk about the bear case?

[1982] Yeah.

[1983] Okay.

[1984] So here's my biggest one.

[1985] We have been on an unprecedented, unbelievable bull run in tech that started the same year that Andrews and Horowitz was founded.

[1986] They've never operated in a down market.

[1987] I'm not saying it's not going to go well, but like their strategy, has aligned perfectly with the economic landscape while they've been operating in it.

[1988] So it is untested, unlike all these other firms that have needed to...

[1989] If you believe the A16Z haters who say, they have no price discipline, will that come back to haunt them during the, you know, 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.

[1990] Yep.

[1991] You don't have to debate that.

[1992] saying.

[1993] Yeah, totally.

[1994] Question mark.

[1995] That would be the knock.

[1996] The other bear case I was thinking of is like they basically overextend themselves in trying to get too creative and imagining what this HP2 .0 could look like.

[1997] And they have like a great, very profitable business on their hands where they have really dominated an industry and like them trying to turn that into something entirely new and different may actually not work.

[1998] I got to also say for a firm and people that are so good on branding and marketing and whatnot, calling this strategy HP2 .0, you might want to rethink that one.

[1999] It's like, I don't know that HP is something you really want to associate with these days.

[2000] 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.

[2001] Yep, exactly.

[2002] They're only aware of the defunct PC manufacturer.

[2003] You want to say Amazon 2 .0?

[2004] great.

[2005] But anyway, I think a big one that I have no view one way or the other way this is, 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?

[2006] Like, it happens.

[2007] This happens in organizations.

[2008] And frankly, probably politics have been the downfall of every venture firm that has risen and fallen.

[2009] To varying relative degrees, you know, there are all sorts of reasons, right, but you break it down at the end of the day.

[2010] It's people.

[2011] It's politics.

[2012] That's the problem.

[2013] And the bigger you get, the more opportunities there are.

[2014] The bigger you get, the more time that goes by, the more opportunities there are for that.

[2015] 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.

[2016] I guess they've been the villain their whole lives to a certain extent.

[2017] But at some point, they're going to be.

[2018] the villain to entrepreneurs.

[2019] In some way, they've been the underdog, too.

[2020] They've had this tailwind of feeling like, you know, fight the man. And you're right.

[2021] Like, they're the man. So they're the man. Yeah.

[2022] Yeah.

[2023] 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.

[2024] Those folks are beating the drum of we're a financial investor.

[2025] And we're 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 that, like, VC is kind of a bundle of both advice and relationships and capital, and we're just selling you pure capital.

[2026] 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.

[2027] The question is, will that belief spread?

[2028] where more and more people, even if they're inexperienced and could benefit from the set of services that A16S 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.

[2029] Which, as hopefully we've painted along the way here, was a key component of the Andreson -Horowitz strategy.

[2030] Like, there's all the stuff, there's all the services, everything about it.

[2031] But also, they were offering the best terms of the highest prices for a very long time.

[2032] And if they're no longer doing that, you know, I think it's a very valid argument that price is what matters.

[2033] It's sort of like Andres and Horowitz had a different underwriting model on the future than the rest of the VCs did.

[2034] And so far, because we've been in this bull run this whole time, it has proven to be right.

[2035] So everyone else who is being too conservative in their sort of valuation models and basically underwriting of what future markets could look like was wrong.

[2036] and that's why Andries and Horowitz could both be the best product at the best price.

[2037] 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.

[2038] 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.

[2039] Yep.

[2040] Now, I mean, in the long run, like, obviously, I think we all know what side we fall on here.

[2041] Like everything, it depends on your time horizon.

[2042] And if your time horizon is infinite, then, yes, you and I being the optimist that we are.

[2043] We're like looking at this bare case being like, yeah, but as long as you can tough it out, it'll be fine.

[2044] internet.

[2045] Never bet against the internet.

[2046] Never bet against the internet.

[2047] But you're so spot on about the underwriting thing that they were just underwriting differently than everyone else and more correctly.

[2048] You know, the vignette from the New Yorker article with the competing VC.

[2049] Right.

[2050] The point of that competing VC was like, this is crazy.

[2051] The math doesn't work.

[2052] Their underwriting is wrong.

[2053] Yeah.

[2054] 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.

[2055] We think we can hit those numbers.

[2056] And they did.

[2057] Yep, and they did.

[2058] And by we, like tech companies broadly that we invest in.

[2059] Yeah.

[2060] Well, I think that's the, this isn't exactly a narrative one way or the other.

[2061] Maybe it's a narrative about the industry.

[2062] This is a whole.

[2063] We made this point on the first episode, but I want to double, triple underline underscore here.

[2064] We're telling this whole thing.

[2065] And there's so much drama and it's so fun.

[2066] It's like, you know, Andreson's, you know, the underdog and the disruptor and there's all this, you know, feuding and whatnot.

[2067] This is all just great for everybody.

[2068] It's just freaking fantastic.

[2069] for everybody.

[2070] Like, 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 benchmarks, great for Sequoia.

[2071] Full stop.

[2072] Yep.

[2073] Which is a great lead -in to power.

[2074] So I think, this is interesting, so 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.

[2075] And remember, for folks that are new to the show, power is the thing that enables a business to achieve persistent differential returns.

[2076] Like, how can they be sustainably more profitable than their nearest competitor?

[2077] The first one was clearly counter positioning.

[2078] 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.

[2079] And I'm going to use it a little bit more specific.

[2080] in this case, which is they literally did things that other people could not do because their business models did not allow for it.

[2081] 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.

[2082] Oh, and we all make over a million dollars a year in salary and have personal lives and burn rates that have accommodated that.

[2083] And, you know, that's even before we start getting our carry.

[2084] The chances of that happening immediately, rather than over the next five to eight years being, you know, forced to was like zero.

[2085] And so there was that moment in time, much like how a CIA 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.

[2086] Yep.

[2087] Totally.

[2088] It was totally genius.

[2089] The other one was brand.

[2090] Totally.

[2091] And that's the one that will last for the future.

[2092] 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.

[2093] Let's not forget the business that we're in here, which is deploying capital and getting a return on that capital.

[2094] Now, that is a commodity.

[2095] Capital is a commodity.

[2096] And the way that commodity industries look is that they're pretty much undifferentiated.

[2097] Because the vast majority of the value is available from a near -exact provider substitute.

[2098] And so what differentiates a commodity from another commodity?

[2099] Brand.

[2100] Coke and Pepsi, baby.

[2101] There was actually a great quote.

[2102] I forget where I almost put it in the script and I didn't of an entrepreneur talking about the entries and benchmark thing.

[2103] And they're just like, oh, it's so great.

[2104] It's like watching Coke and Pepsi, you know, do a price war.

[2105] I'm just sitting here sipping.

[2106] Truly.

[2107] 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.

[2108] Having this set of services can be game changing for your company.

[2109] Like, I just watch, not to tutor on 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.

[2110] And I'm sure, like, I've never worked at Andrews in Horowitz.

[2111] I'm sure that works in spades there.

[2112] And so, like, even forget all the other services.

[2113] Like, if you have a great recruiting mechanism, game changing for companies.

[2114] And also, it is true that the primary value that comes from raising capital is the capital.

[2115] The brand piece is also interesting, too.

[2116] And you said about, like, you know, and just riffing a little more on the Coke and Pepsi thing, back to the benchmark versus Andreessen.

[2117] Benchmark's brand, we are the.

[2118] craft venture capital firm.

[2119] And Dresen's brand, we are the franchise.

[2120] It's just like Coke and Pepsi, right?

[2121] 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.

[2122] Like, there's just different segments that they address.

[2123] Like, it works.

[2124] Yeah.

[2125] It's funny.

[2126] 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.

[2127] In Forbes, it was reported that Andrews -Nhorowitz takes 30 % carry.

[2128] 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.

[2129] This is LP -facing, you know, when it's them versus other venture firms.

[2130] 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.

[2131] But it's worth it.

[2132] So you'll take it.

[2133] And they do.

[2134] this is the Hamilton -Helmer definition of brand power, right?

[2135] It's like you can charge a higher price for the same product.

[2136] Yep.

[2137] That's why people pay more for a Tiffany's diamond than a no -name diamond.

[2138] Yep.

[2139] So the brand thing is multi -sided.

[2140] It's your brand entrepreneurs and it's your brand LPs.

[2141] Yep.

[2142] And the entrepreneur version of this is you get into the round.

[2143] You get into the round and you get a large ownership allocation in the round.

[2144] Yep.

[2145] All right.

[2146] Playbook.

[2147] I know we've done a lot of this already, but there's a few that I want to to hit.

[2148] Go for it.

[2149] All right.

[2150] So just to review all the things that were like unheard of or uncommon before A16 Z started doing them.

[2151] GPs as former founders rather than investors.

[2152] Huge team of experts, which is now known as VC platform, calling everyone at the firm a partner, blogging, which other than like Bradfeld and Fred Wilson, doing transparency versus opacity and content marketing more broadly.

[2153] Like, that didn't really exist in venture.

[2154] Paying huge prices to blow your competitors out of the water and just offer much higher valuations and bigger checks.

[2155] It's crazy.

[2156] Yeah, literally nobody did that.

[2157] Yeah, it existed at some extent in isolated ways, but like no one just said, like, eff it.

[2158] We're doing it over and over and over again because we're underwriting the future differently than you are.

[2159] Yeah.

[2160] And not really.

[2161] Like, people would be like, oh, I can't believe.

[2162] I mean, because I entered the industry in 2010.

[2163] So Andreessen was there, but it was still early days.

[2164] It would be like, oh, I can't believe the price that X, firm paid for this, you know, we offered a six pre and they did an eight pre.

[2165] You know, like nobody was just step change.

[2166] Nobody said like, what if you raised eight?

[2167] Yeah, and then we'll figure out how to value that.

[2168] And then lastly, venture firms investing in crypto.

[2169] 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.

[2170] So you look at those, what is that, six things.

[2171] I would add seven, too, of, like, PR as well.

[2172] Yeah, I guess I'd put that into, like, the content marketing, brand building.

[2173] But you're right.

[2174] It's a different function of marketing.

[2175] So those seven things that, like, you kind of take at face value, like, that's part of the job.

[2176] That's what it is to be a venture capital firm, which, like, 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.

[2177] Yeah, I can't argue with that.

[2178] It's literally their playbook was to change the requirements of the job to be done for everyone else in the industry.

[2179] It's wild.

[2180] On that note, there was 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.

[2181] 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.

[2182] 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.

[2183] So awesome.

[2184] And the first funds ended up being good.

[2185] Right.

[2186] Would anybody argue today that they actually paid too high?

[2187] evaluation for anything they did from 2009 to 2015?

[2188] Absolutely not.

[2189] Yeah.

[2190] What other corollary on this playbook theme I wanted to make?

[2191] We made this point on the last episode, but I don't think we've talked about it yet here.

[2192] This is just so silly.

[2193] 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.

[2194] Why would you ever argue, publicly argue as a venture firm that valuations are too high?

[2195] Like, who's your customer?

[2196] Your customer is entrepreneurs.

[2197] That'd be like saying like a politician running and being like, taxes are too low.

[2198] We need higher taxes.

[2199] That is my platform.

[2200] And not only that, but this specific other competitor of mine, you know, from the other party who's running, the problem with their platform is they want lower taxes.

[2201] If you're an entrepreneur listening to this, you're like, I like, I like.

[2202] I like lower taxes.

[2203] I like higher valuations.

[2204] Right.

[2205] Yeah, that's a great point.

[2206] Yeah, pick a different thing to argue about if that's your side.

[2207] You can feel that way all you want, but like, don't argue about it.

[2208] Right.

[2209] Hmm.

[2210] Yeah, speaking of like 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.

[2211] So you need to figure out, like we raise this fund, like we got these 22.

[2212] people.

[2213] Isn't that crazy?

[2214] It's 22 now.

[2215] But even imagine a smaller partnership earlier on, five, six, seven people like, how do we make decisions to invest this fund?

[2216] Well, an interesting thing that they do is they do not have a consensus -based approach.

[2217] 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.

[2218] So they can say, like, I'm going to bat for this.

[2219] The way Mark describes it in some podcast is that they assemble a red team to basically be there.

[2220] 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.

[2221] 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.

[2222] Mark calls it a red team.

[2223] And he's like, we basically staff someone with the responsibility of going and trying to figure out why this is a bad investment.

[2224] 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.

[2225] And he's like, we figured this out because Ben is my red team.

[2226] Like I can come in and be super optimistic about something and Ben is naturally good at, because, you know, they fight like dogs.

[2227] Like, he's naturally good at presenting the other side of my arguments.

[2228] 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.

[2229] Yeah, I like that in theory.

[2230] I wonder in practice how much it actually goes.

[2231] Because you and I know, these deals happen in, like, days, if not hours.

[2232] Like, you're not, you know.

[2233] Lightning speed.

[2234] Interesting.

[2235] It's a interesting.

[2236] At least in theory, and like, great to talk about on podcasts.

[2237] Yeah, great to talk about on podcasts.

[2238] It makes total sense, though, that they can't be a consensus -driven firm with that many people.

[2239] Like, you're never going to agree on it.

[2240] Anything.

[2241] Yep.

[2242] especially at the pace that they're doing deals now because of the pace that the whole thing is working now.

[2243] The 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.

[2244] I'm amenable to this argument, even though I do a ton of testing of ideas, that like the big innovations throughout history are made by true believers who just kept trying.

[2245] Like, there's something like the filament of a light bulb was like Edison's 200th attempt at creating filament.

[2246] And it's like, 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 almost illogically so in a way that is potentially not in their best interest because that is where the true breakthroughs come from.

[2247] And if everybody's always, like, looking at data from the first sort of test, and they're like, eh, it's not really working.

[2248] Let's try something else.

[2249] Then, like, you don't get the breakthrough innovations.

[2250] Yeah.

[2251] That makes sense.

[2252] I mean, I think, like, both of these things are true.

[2253] But certainly, like, we didn't, like, test acquired.

[2254] And if we had tested acquired in the early years, we probably would have been like, well, that's not working very well.

[2255] Totally.

[2256] But passion projects, passion leads you to do things that.

[2257] that aren't necessarily economic.

[2258] And that at some point, you sort of look around and you're like, whoa, value creation has happened.

[2259] I love that image.

[2260] Hopefully not said in that sterile of language, but yeah.

[2261] I like that.

[2262] I'm going to use that with startups going for you.

[2263] I just feel like, guys, value creation has happened.

[2264] Well, I was talking actually with 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 like, brands just take time.

[2265] People don't love stuff quickly.

[2266] They're always skeptical of new stuff.

[2267] And so brand is like, it's time times absolute number of people who are familiar with the brand times the magnitude of how much they care about the brand.

[2268] 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, you know, multiplies through.

[2269] So just looking back at Acquired and A16 Z now has this going for it too.

[2270] 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.

[2271] 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.

[2272] Like, think about the first Andreessen Fund and the Skype deal.

[2273] If they had lost money on that, man, history would have been different.

[2274] Totally.

[2275] That could have torpedoed everything.

[2276] Yep.

[2277] Now, they write a couple hundred million dollar check into something, and it blows up in their face.

[2278] Like, like, let's take Clubhouse.

[2279] jury's still out on clubhouse like will it work well no way you know who know 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 acquired right like first couple episodes like if we had just like something really bad had happened we probably would have quit but not that i want to do this at all but like if we have a bad episode or something like that like we're probably going to be fine yeah i don't know man, this is like my constant paranoia, because it's such a big risk to dedicate...

[2280] It does feel a little tightropey.

[2281] Listening to a podcast is a risk because we're like totally off topic here, but this is something I'm like super fired up about.

[2282] If an article's boring, it's fine because you skim it real quick and then under a minute, you're gone.

[2283] If an episode sucks, you're like, wow, I just dedicated an hour, two hours, three hours of my life to this thing.

[2284] I'm not going to trust these people to produce things that are high quality anymore.

[2285] I'm gone.

[2286] And so I don't know about you.

[2287] I constantly live in fear and have gotten aggressive on if this thing is not of the quality bar in which we set, every single episode we release is a risk.

[2288] It's funny.

[2289] I think my level of, I'm curious what you think.

[2290] My level of nerves going into every episode has remained constant and steadily increasing for the six years we've been doing this.

[2291] totally there's more on the line every time every time yep huh well that was a digression totally our sponsor for this episode is a brand new one for us stat sig so many of you reached out to them after hearing their CEO vj on acq2 that we are partnering with them as a sponsor of acquired yeah for those of you who haven't listened vj's story is amazing before founding stat sig VJ spent 10 years at Facebook where he led the development of their mobile app ad product, which, as you all know, went on to become a huge part of their business.

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[2302] There are, like, so many more that we could name.

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[2314] And when you do, just tell them that you heard about them from Ben and David here on Acquired.

[2315] So great.

[2316] There's so many stories.

[2317] That was a, you know, continuing to riff on their tangent of the podcast.

[2318] We were worried we were going to run out of stories after like 10 episodes.

[2319] Well, we did run out of good acquisitions.

[2320] That's true.

[2321] That's true.

[2322] But my God, there's stories everywhere.

[2323] And in our community now, like, it's just, it's the best.

[2324] Flywheel spinning.

[2325] All right, grading.

[2326] So, listeners, you know, we are not LPs in Andreessen Horowitz.

[2327] And if we were, we wouldn't be able to disclose their returns.

[2328] That said, thanks to our great relationship with the folks at pitchbook data.

[2329] We are able to pull a ton of stats on when they invested at what rounds, at what valuations.

[2330] We're able to scan S -1s of all these companies to see if they owned more than 5 % at IPO, what they own.

[2331] We do know how much money they've raised.

[2332] And so we're able to do some napkin math.

[2333] And here's the napkin math that we've done.

[2334] So we looked at the proceeds from their top 10 liquid outcomes.

[2335] And that may not mean that they've actually liquidated to their position, but that they could have.

[2336] 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.

[2337] Octa was a billion and a half to two billion, back to Andreessen Horowitz.

[2338] Coinbase, 11 billion, the granddaddy of them all.

[2339] Airbnb, we estimated around $3 .5 billion, based on an $85 billion market cap.

[2340] They have IPOed in the last six months, so it's reasonable to think that they would start liquidating that position now.

[2341] We think that they own about.

[2342] 4%.

[2343] They're a sub 5 % shareholder, but are of course on the board.

[2344] They led the series B. I think they put 60 plus million into the series B. Yeah, a lot of capital there.

[2345] So probably 3, 4%, somewhere in their Lyft.

[2346] They generated about a billion dollars out of PagerDuty, half a billion.

[2347] Slack, we think about 3 billion, assuming they held all the way to the Salesforce deal 18 months later.

[2348] Pinterest, a billion and a half.

[2349] They own 10 % at IPO, which was, I think, think like a $15 billion market cap, but has three X since then.

[2350] So it depends how much they held.

[2351] Depends when they distributed.

[2352] Yeah.

[2353] Right.

[2354] It could have been higher.

[2355] Roblox, a quick $1 .2 billion.

[2356] GitHub a billion and a firm, somewhere between half a billion and a billion.

[2357] Again, all these things are estimated.

[2358] But if you just look at those companies and think about distributing pretty early, like assuming that they didn't hold octa all the way until it is worth $33 billion that it is today.

[2359] These companies probably generated about $25 billion in returns.

[2360] 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.

[2361] So that's assuming no more value from anything else.

[2362] Which is simply not true.

[2363] And we'll revisit some of the things that still could bear fruit after we just do some quick math.

[2364] So you look at their total asset center management, $18 .8 billion.

[2365] But like, a lot of that doesn't contribute to any of those companies we've talked about.

[2366] So subtract out the early stage funds from 2019 onward, because none of those companies were from, you know, those haven't matured yet.

[2367] So that's $2 .2 billion off the 19.

[2368] Then you've got to take out their most recent late stage fund from six months ago, which is $3 .2 billion.

[2369] 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.

[2370] Then you take out all the biotech funds, which is $1 .4 billion.

[2371] You have like close to $10 billion to subtract out.

[2372] And you could maybe even argue that one or two of the more recent early stage funds to take out as well.

[2373] But to make this like, again, all napkin math really easy, because we're just trying to figure out like, did it work?

[2374] Is it going to work?

[2375] Is it showing signs of working?

[2376] Let's just say their first $8 billion we have some data on.

[2377] And then the more recent $8 billion, jury's still out.

[2378] We don't know yet.

[2379] Time will tell.

[2380] And so if you look at that sort of first eight, well, that created at least $25 billion, which is a cool 3x.

[2381] And you're not even counting, and this could be a monster, data bricks, which that company is worth $28 billion.

[2382] And it wouldn't surprise me. me if A16Z owned like 25%.

[2383] They invested very early and they've been investing every round.

[2384] They could own like $7 billion of that company at the current valuation.

[2385] Again, I don't know, but this would be a reasonable estimate.

[2386] Instacart, it would seem reasonable to think they own like $2 billion in that.

[2387] Robin Hood, small percentage because it was only a seed investor and then something more recent in the growth round.

[2388] But like, you also have like Robin Hood, Oculus, Flatiron Health, Stack Overflow, Instagram, which is so funny.

[2389] They generated seven 78 million out of Instagram, which was a nice return at the time, but sort of doesn't matter in this overall analysis today.

[2390] 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.

[2391] 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 were buying Bitcoin in and ether.

[2392] Oh, interesting.

[2393] I'm almost 100 % sure at least Bitcoin, if not Bitcoin and ether.

[2394] They were buying in a bunch of these funds.

[2395] Well, depending on when they were buying, that's game changing for this whole, depending how much capital they put to work for this whole analysis.

[2396] 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.

[2397] So at the very worst case, it didn't not work.

[2398] Yeah, there's no, this is not an F. Yeah, they were able to do a hard thing, which has 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.

[2399] And do we actually have the data to tell you if they're, you know, the best in the industry or to compare them to Sequoia?

[2400] It's too hard to do.

[2401] But it also doesn't really matter, right?

[2402] Like, it would be fascinating to know if they're better than Sequoia or better than benchmark or not.

[2403] But like, they're in the ballgame, you know.

[2404] Yeah.

[2405] And this also, I think we can finally put to bed that leaked data in 2016.

[2406] It's not that the data was wrong at all, but like the conclusion of all the people's analysis is, you know, for the brand that they have, Andrews and Horowitz is way underperforming.

[2407] Gosh, they're only at a 2x or a 2.

[2408] Something.

[2409] And you're like, okay, we don't know yet.

[2410] Coinbase, 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?

[2411] No, there's no way you would have been able to.

[2412] The apples take longer than lemons to ripen.

[2413] That was, 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 like LPs and stuff that like they're you know 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 it 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 I a challenge it was to break in and challenge the incumbents in such a short time frame, it's remarkable how well they've done.

[2414] That's spot on.

[2415] It's an A. Only reason it's not an A plus is like, A plus is Facebook buying Instagram and getting $500 billion of value for one.

[2416] 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?

[2417] Nobody's done this.

[2418] And just to put some numbers, like, I'm going to guess that the first eight billion of capital in these funds that we're sort of calling in bounds for this analysis returned somewhere between 25 and probably 40 -ish billion.

[2419] It's so good.

[2420] You know, and it's funny, like the other naval gazing aspect to venture and investment returns that people talk about all the time is like, the multiple and like the IRA is an efficiency of capital and like only having the best companies and blah, blah, blah, blah, blah, blah.

[2421] Just the magnitude is like, at the end of the day, what really matters is the magnitude here.

[2422] Yeah, the absolute dollars.

[2423] The absolute dollars.

[2424] Like, they generated, what, let's make it easy.

[2425] Let's say 30 billion that they've returned on $8 billion invested.

[2426] That's $22 billion that they've generated.

[2427] Name me other firms who have done that.

[2428] There are a few, but there are a very, very few who have done that.

[2429] Yeah, it's interesting.

[2430] Like a good multiple means you were right, but a great amount of absolute cash returned means you were worth three things.

[2431] You were right with conviction.

[2432] You had access.

[2433] You had winning access to be a meaningful participant on that cap table.

[2434] 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.

[2435] You've got to be good at a lot of things and you've got to be convicted and in them.

[2436] Yep.

[2437] And I think large institutional LPs, I think that's how they think about it, right?

[2438] It's like, they're like, yeah, great.

[2439] You know, 10x fund.

[2440] Fine.

[2441] If it's a 50 million dollar fund and you 10x and you return 500 million, like, clap, I'm proud for you, you know, but like I'm not jumping out of my seat.

[2442] But you, you know, you return me 22 billion.

[2443] Like, now I'm jumping out of my seat.

[2444] I don't care what the multiple is.

[2445] All right.

[2446] Well, gosh, it feels good to come to the of this two -parter.

[2447] You want to do carve -outs?

[2448] Yeah, let's do some carve -outs.

[2449] I got two.

[2450] First, they're both sort of quasi -carvouts.

[2451] The first one is a quasi -carvout because I've already had this author as a recent previous carve -out.

[2452] Arthur C. Clark, so good.

[2453] I wasn't on the Ethereum episode, maybe?

[2454] I had him as my carve -out.

[2455] O .G. Super O .G. Science fiction, author.

[2456] I have since continued to read this stuff and I read Childhood's End.

[2457] Have you read Childhood's End?

[2458] No. Oh my gosh.

[2459] This is so good.

[2460] You got to go read this book.

[2461] You know the movie Independence Day?

[2462] Yeah.

[2463] The Will Smith movie.

[2464] Absolutely.

[2465] Oh, so great.

[2466] So, independent stay is based on childhood's end, but it's only based on the very beginning.

[2467] Like, the beginning of Childhood's End is what Independence Day was based on.

[2468] But then the rest of the book takes a very, very different turn.

[2469] And it's super mind -bending and really cool.

[2470] 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 marquez brownlee fans yeah and i think his most recent video he just launched new channel on youtube called the studio channel with the video you're going to love this because you're such a gear geek studio tour mkbhcd studio tour and like oh my god it's so cool And he's got great gear.

[2471] I got to go check that out.

[2472] I was watching it.

[2473] I was both like jaw on the floor and I was like, wow, we are such amateurs at Acquired.

[2474] He is a litany of red cameras.

[2475] Litany.

[2476] And like, wow, video is, I have so much more respect for what YouTubers do.

[2477] Like audio is easy.

[2478] We're playing on easy mode here.

[2479] Oh, it's so much harder for sure.

[2480] Okay, cool.

[2481] I'm legitimately adding that to my to do list right now to go watch that after.

[2482] All right, mine is continuing my recommendation.

[2483] of the Sopranos and Goodfellas, the Godfather.

[2484] Somehow, I have never seen the Godfather trilogy.

[2485] Like, it just escaped me. I know.

[2486] I'm, like, going back and, like, actually watching all these...

[2487] Wait, so you started with the Sopranos and Goodfellas without having seen...

[2488] Correct.

[2489] The Godfather.

[2490] Correct.

[2491] You know, whatever path leads you to greatness, the point is you get to greatness.

[2492] Yes.

[2493] And greatness it is.

[2494] God, it is so good.

[2495] And, like, one is so...

[2496] 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.

[2497] I think some people complain about it.

[2498] I loved it.

[2499] I think it's De Niro's best performance ever.

[2500] It's definitely Al Pacino's best performance ever.

[2501] And three exists.

[2502] Three I turned off.

[2503] Actually, I didn't watch three.

[2504] I watched Coda.

[2505] People think it's better than three.

[2506] It's like a reshot.

[2507] There's some stuff that's reshot and re -edited.

[2508] And, like, maybe if I had 14 years between two and three, then it'd be okay.

[2509] But because I tried to watch them back to back, I was, like, allergic to the 90sisms of Koda, where I was just like, this is unwatchable.

[2510] I mean, the haircuts alone.

[2511] I think Michael Corleone says more words in the first 10 minutes of that movie than in the entirety of two.

[2512] I believe it.

[2513] I believe it.

[2514] Just no subtlety.

[2515] So that's an anti -carbough.

[2516] I don't know that I've ever watched three.

[2517] I was just.

[2518] This is what I hear from everybody.

[2519] One and two are so good.

[2520] Oh, they're so good.

[2521] The horse head.

[2522] Oh, it's beautiful.

[2523] Just great.

[2524] All right.

[2525] Well, with that listeners, come join us in the Slack, become an LP.

[2526] All those links are in the show notes.

[2527] If you liked this episode, share it with a friend.

[2528] You could share it on social media.

[2529] That'd be nice.

[2530] But I actually like the one -to -one stuff better.

[2531] We're all about slow, methodical, high -touch growth here at Acquired.

[2532] 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.

[2533] 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 Andresen Horowitz.

[2534] Like, you kind of got to like really convince someone.

[2535] So if you love this, tell your friends.

[2536] It's like when I get an event bright invitation to go to something versus when a friend texts me and like, hey, you should come over for this, you know?

[2537] Yeah, exactly.

[2538] It's a totally different thing.

[2539] All right, listeners, we'll see you next time.

[2540] We'll see you next time.

[2541] And wait, we got one more piece of news.

[2542] Who Got the Truth?

[2543] Live on Spotify.

[2544] Go check it out.

[2545] You can listen to it here for the next two minutes, and then go listen on Spotify.

[2546] Young Spielberg.

[2547] Mike Taylor, take us out.

[2548] Who got the truth?

[2549] Is it you?

[2550] Is it you?

[2551] Is it you?

[2552] Got the truth now.

[2553] Is it you?

[2554] Is it you?

[2555] Sitting down.

[2556] Say it straight.

[2557] Another story.

[2558] Everybody's talking.

[2559] I feel lost made.

[2560] In opinion.

[2561] Everybody's fighting.

[2562] Brick, brick, breaking up the dinner.

[2563] Break, break, breaking up the dinner.

[2564] I hope I need to know who got.

[2565] Is it you?

[2566] Is it you?

[2567] Is it you?

[2568] Is it you?

[2569] So much to lose now.

[2570] Is it you?

[2571] Is it you?

[2572] Is it you?

[2573] You.