ABOUT THIS EPISODE

Bloomberg View columnist Barry Ritholtz interviews Marc Andreessen, co-founder and general partner of the venture capital firm Andreessen Horowitz. He serves on the boards of the following Andreessen Horowitz portfolio companies: Anki, Honor, Lytro, Mori, OpenGov, Samsara and TinyCo. He is also on the boards of Facebook, Hewlett-Packard and MODE Media. This interview aired on Bloomberg Radio.
English
United States

TRANSCRIPT

00:00:00The future may not be clear but our commitment is so when you sit with an adviser of merrill lynch will put your interests first visit ml dot com and learn more about merrill lynch on affiliated bank of america Merrill lynch makes available products and services offered by merrill
00:00:12lynch Pierce fenner and smith incorporated a register broker deal remember pc this is master's in business with very results on bloomberg radio this week on the podcast this was so much fun i cannot begin to tell you what a delightful time i had mark andriessen of injuries and
00:00:32horowitz on absolute tour de force conversation about everything from valuation to psychological impact of market crashes to are we or are we not in a bubble the significance of of founders and how are you better off with somebody who has people skills but isn't a technologist or a
00:00:57technologist who doesn't necessarily have the social skills on and on We covered so much ground so quickly absolutely fascinating It was an incredible incredible conversation it's one of those things where you just say how privileged i am i to sit in a conference room Indeed the conference room
00:01:18where injuries and horowitz gets pitched from various startups and have a ninety minute chat with someone with his just amazing understanding of where tech came from where it is today and where it's going I could babble about this endlessly but rather than gush why don't we just listen
00:01:41to the conversation with no further ado my podcast conversation with mark andriessen of injuries and horowitz this is master's in business with very results on bloomberg radio My special guest today is mark andriessen He is the co founder and general partner of venture capital firm and grease and
00:02:04horowitz He comes with a story background he co created the mosaic internet browser cofounded netscape sold to a well for a few billion dollars cofounded loudcloud also sold to hp for a few billion dollars crunch Bass notes that andris and horowitz has over five hundred investments in three
00:02:26hundred twenty one cos a number of exits via i pose and acquisitions i could go on and on about his curricular vitae But really he speaks for himself so let's jump right into this mark andriessen welcome to bloomberg radio and thank you for hosting us here in andries
00:02:47and horowitz I'm thrilled to be on and it's great to have you here The i love your facilities we level the artwork and everything here it seems to be like a very civilized place to to work It's like i said being a venture capitalist is like being an
00:03:00airline pilot long stretches of boredom followed by moments of sheer terror Okay we're trying to have a calm atmosphere that that makes a lot of sense Let let's go back to the beginning your your big idea in nineteen ninety two was that people would want internet access in
00:03:16their homes now that's a given today we want internet access wherever we are twenty four seven but twenty five plus years ago that wasn't very obvious What led you to say in nineteen ninety two I have an idea on internet browser Yes i would say it was even
00:03:35beyond not obvious It was considered ridiculous s o the idea that basically it was well known in nineteen eighty to that the internet was for academics and nerds on that there was there was no use case for ordinary people like it was just incomprehensible like why would anybody
00:03:48How would anybody even had the technical capability to even consider right getting online much less have anything that they could do productively once they're online I've sense actually your sense that actually learned a principle that i have generalized out that explains what happened which is what william gibson
00:04:02the science famous science fiction author wrote neuromancer their influential book in our industry he says his linus the the future is already here it's just not evenly distributed yet andi there are many applications to that line that says it's so it's such a fabulous insight and so the
00:04:18new ideas this is something i've really come to believe is the new ideas already existed ah there are a few ideas that actually materialized out of thin air that general already exist somewhere and they exist somewhere in a lab right They exist somewhere in a fringe group or
00:04:29in an underground movement or something like that And so what happened here was this is the part that's just i think probably pure luck is i went to college at university of illinois which at that time was one of four universities in the country that had been funded
00:04:41by the government to be the hubs for what the time was called the nsf net which was what became the internet and so there's a whole program developed in the eighties around supercomputers And this is what hogarth whenever claimed credit for creating the internet this is what he
00:04:54was talking about was the funding for this program toe wire these universities and so we had on campus in nineteen ninety three the level of broadband that people have in their homes today on and we had that uschi we saw that use cases you saw everybody using all
00:05:07this stuff now it wasn't at the level of sophistication is today but you could you could see that you could see all these cases you can see what people liked it but the expectation was you had in college then you would graduate and you would go off into
00:05:17life and you would just give it up right and that was the part goes like an s f net was after dr net but before full on internet for the public is that is that a fair explanation Yeah that's right so are our darpa arpa was known as
00:05:32are put down on a star but funded a military network which was originally conceived as a way to do nuclear command in control in the event of you know bad things happening in the world Therefore the importance of packet switching had to be ableto respond even after you've
00:05:45been attacked by nuclear you've got a network with you know one hundred notes and then twenty of them get wiped out by attack you still have to have the network has to still keep running in traditional networks don't keep running and at least in theory packets which networks
00:05:55can keep running so so that was the that this is like fifty years ago they they'll figure this stuff out and then in the eighties that good idea got generalized out to the idea that civilian researchers should be able to use this technology in particular actually the government
00:06:07was funding these national super computer centers they were buying a super expensive supercomputers to put on four five college campuses and then they wanted to provide access to scientists from all over the country to be able to access those and so they transfer basically took the template of
00:06:20our pinette turned it into an sf net and allowed anybody to love with permission toe log into those computers have temporary time you would have a few minutes or hours whatever it was and that's eventually where led to ah the full on internet let let's talk about the
00:06:36other name and injuries and horowitz been horowitz you guys have been working together for a long time have you made that partnership work and and how did really begin cause if if what i've read is to be believed some of it started out a little little rocky ben
00:06:52ben took great delight in his book in describing the origins of relationship so s so at this point we're an old married couple on so you know great i guess the good news is we can finish each other's sentences using bad news this we usually try to finish
00:07:06each other each other senses so so so you know we've been we've had a long running partnership in friendship for you know for a very long time now twenty two years like it's the origin of it actually so he was he was an early he was one of
00:07:18the early guys actually to jump in and escape early on when it was an escapist l a radical idea using came over from lotus which at the time was this big important you know dominant software company eventually built by ibm Especially so actually fun story by ibm ibm
00:07:30after he left i bm bought lotus for i think three and a half billion dollars at the time which was a blockbuster deal In retrospect that ibm spent three and a half billion dollars they could have bought the entire internet that something is instead of lotus they could
00:07:40about every internet company and every i speed and it could have on the whole i think so and what he saw the future not the first time i be a mr boat What is it probably won't be the last big companies Yeah well we all at some point
00:07:52i'm going to do that but he saw you know he think to his great he saw the future he saw he saw what was gonna happen I mean even more clearly with a lot of other people who are involved back then and so he jumped over on dh
00:08:03then you know netscape was was a very short right but was very intense It was a pressure cooker and so it was very easy to see internally who was high potential who wasn't on so we had him on a very fast promotion path basically from the day he
00:08:15joined And i think that we have potential Is that that's the phrase Yes i potential like you know young you know basically you're always afraid of these organizations to find the young manager so you think you're going to be able to scale and grow and eventually become the
00:08:25leaders of the right And so i i think that i think had had netscape state and we sold the company in nineteen ninety eight but had had we stayed independent i think he would have ended up is the ceo at some point he was just still very young
00:08:35at that point but it's just very clear how much how smart he was and how good of a leader he was and how good his judgment was on dh so when we then free sold the company we don't have the opportunity to start a new company and we
00:08:46just became clear that we want to work together So let's talk about jim clark I became i've always kind of knew who jim clark was but then michael lewis is the new new thing is what really teed up jim clark for me um what was that like Meaning
00:09:04Jim clark How did you guys start to work together Yes So jim that was that again Probably struck of luck in my career Jim called me one day out of the blue just at eleven It well so a friend of hiss an associate of his who he had
00:09:15worked with So he had been the founder of this company called silicon graphics which in the time had a reputation similar to google's reputation Today it was considered the sort of the gold standard silicon valley company that all the great engineers wanted work for It was very much
00:09:26this is when after the movie terminator two came out and they were redefining this whole idea of three d special effects and they were reading it was just this kind of amazing moment for this company But he he left for a variety of reasons on decided he wanted
00:09:38to start a second company s so this is a little bit little bit like larry page leaving google or mark zuckerberg leaving facebook saying i need to start a new company on dh then but he had hired everybody he knew who was smart who he had ever worked
00:09:49with into Silicon graphics and so they weren't available to start a new company with him and so he literally needed fresh people s o he got together with a group of france and basically made a list of people who were in the industry who he had not yet
00:10:02worked with on dh he actually culminated at list of about a dozen people who he approached a darius stages and said do what you want to consider doing something together which culminated in a big dinner in palo alto with like the full doesn't have us and then at
00:10:15the end of that thing to the whole process i was the only one left standing really that's fascinating i'm by the way it wasn't cause necessarily think he knocked some of the others out of the process but also a lot of people they were just like they have
00:10:24jobs they will committed they weren't willing to take yet another leap and this was a pretty also people forget ninety three ninety four we started asking for money for it was very similar mood in the valley event What happened ten years later after the dot com crash it
00:10:36was a very dark time in the valley the valley had had a severe economic crash in eighty nine ninety ninety one and was still kind of in the doldrums of ninety two ninety three Ninety four So the idea of a startup was considered kind of a radical thing
00:10:48and potentially dangerous thing from a career standpoint And so it was in the most obvious thing in the world for people to leap into the you know the new thing So any contrast i had just arrived out of college I had nothing I have nothing to lose you
00:10:58know baggage will ready to go So i always have this vision of of the reason netscape led to this explosion of new technologies at the time Microsoft pretty much was the only game in town and very often i just envisioned young guys with great ideas going to venture
00:11:18capitalist and every pitch meeting someone ends up saying what prevents microsoft from building this into into their operating system And if you didn't have an answer to that thanks for coming Bye See you later And netscape allowed everybody to say hey we could bypass the operating system and
00:11:37do this online is am i remotely close to that early nineties Understanding of what Who was then the dominant software player Yes so strategically i think that's right And that that was a big effect But i would say there was an equal kind of effect at the same
00:11:52time that was at least is important which was unlocking the potential of the people in the valley so that the most astonishing thing to me was i mean because like i said internet stuff was not we started escape like this was not considered like oh yeah this is
00:12:04a great idea must go like okay this is nutty like everybody knows it was common Everybody knows you can't make money on the internet do it Commercial activity of internet was actually illegal until nineteen ninety three right Actually was not permitted but because it was federally oh so
00:12:16isn't it that this is before the days of dot com It was just not a jew and a string Yeah but you could've dot com but you couldn't bring the committee couldn't transactions it was there was these called acceptable use limits because it was federally funded and they
00:12:28didn't they hadn't legalized it yet so we started asking kind of right writers they swish it so but it was widely viewed as number one it's illegal on dh that number two even if it were legal people wouldn't want to do it because you can't trust the internet
00:12:39there's hackers and thieves and all this stuff and it's just not something and then ordinary people just won't do this And so so it was very counterintuitive Within a year though like by nineteen ninety five when the sort of conventional wisdom people started to get exposed to it
00:12:51and they started to happen in their lives and started seo i'll actually like this and this starts making sense There was then this amazing flood of talent were all these incredibly sharp people in silicon valley who had worked on previous generations of technology with the previous twenty years
00:13:05They turned out they were still here right and so and you either at the older companies where they were just parked you know kind of on the beach and all of a sudden there was a new thing and they just all showed up out of nowhere andi so
00:13:14it was like this materialization of human capital on talent Basically out of thin air and i was just stop should say these incredibly talented people coming and engineers marketers salespeople and then all that you know all the other people need to make a company go hr people lawyers
00:13:26and all these people finance people they just show up and all of a sudden you've got this company that's like fully up and running with all these people with all these skills and experiences that you didn't even i didn't even think was possible Well today and this is
00:13:36the magic of the valley but i mean this is the people side of the magic of the valley is the human capital will the people will flow into the next opportunity much more aggressively than even you find I think anywhere else in the world So when when you
00:13:46say they just show up in my mind's eye you have stanford you of berkeley you have all these great universities nearby Caltech you have a history of companies going backto fairchild semiconductor and what have you plus a lot of defense and nasa related stuff So you would you
00:14:05would envision it's almost like all the parts are are they're just waiting for something to crystallize it and send everybody off so i've always looked at this is this is kind of a magic one of the magic parts of the country in boston a similar and dc a
00:14:25similar and now seattle has it and to a lesser degree portland has that same sort of once you get a critical mass of human capital well all bets are off who knows where this goes Although you seemingly have known where this was going to go before many other
00:14:40people in some cases but not others what was your so to get back to the original question about michael lewis's new new thing i assume you read the book did you enjoy it Did it bring true Ah do you recognize a lot of the characters in it Even
00:14:56people you may may not necessarily know i would say it captured a moment in time was sort of the top of the dot com bubble on dh that captured a part of jim's personality which is the ability to kind of materialized new ideas out of thin air into
00:15:07existence I don't think it captured in fairness jim i don't think it captured his death as much as i s oh that's hard to do if you're here to do so did you specifically said jim look tells a lot of his life story is very very interesting background
00:15:21but is it culminated ultimately is in the navy and so forth but ultimately culminated in he had a phd in our science from the university of utah which was actually the creation origin point for a lot of things in our industry today actually utah there's something special that
00:15:32happened university utah in the sixties and seventies on dh basically all of computer graphics and video games and all this stuff and all the stuff that led astra ultimately it was all kind of conceived The ideas were conceived actually you taught that time pixar it off If you'd
00:15:44like trace pixar back it all flows back to this moment in time at the university of utah in so many ways saying a phd and cs and then he went to stanford he's a professor at stanford right And then he just he decided he was the life of
00:15:54an academic was not right Academics don't have the largest yacht in the world and he was building when the largest sailing vessels i think he wanted to play a little more than he wanted to teach or at least that's my take Oh so this is part of the
00:16:07thing also that yeah he's so that that that and becoming a big part of the book But i was there and again i would just say what was missed was when i worked with jim and other people over to jim will tell you like he goes just as
00:16:16deep as he goes broad like is he is very deeply in the details of technology He's not he's not book makes it i think come across like you kinda glosses over the details and leaves those to the other other people way i did not find it be case
00:16:29like he's incredibly deep on technology he's incredibly comprehensive thinker on all aspects of business Like he he goes really really deep it's just that's Not quite as i don't know quite a sexy for the book again right Yeah it captured part of his personality but it didn't capture
00:16:42the death in the seriousness and the application and his role really as a primary inventor and inventor not just of ideas but inventor of actual technologies And then also by the way as a recruiter he's one of the great all time People who can gather other people around
00:16:55and he's really good at painting a picture and because he's so deep in the technology he carries tremendous there's a lot of people who are promotional right a lot of them will show up and they say we're going to x y z and the engineers will be like
00:17:06well you don't like what you know where did you go to school like what's your professional credential to be ableto have this concept and why do you think we're just going to do all this for you Where's the gym he's like a lit he's like an actual technology
00:17:16legend right He probably knows more about the topic than you do on dh so he paints the picture and then he gets by in for people you know incredible amazing people So and so there's just hey has a level of seriousness and capability that i think it's just
00:17:29way beyond what what what what michael is able to paint them so the netscape pipo is ninety five ninety six something we went public out so we're public eighteen months after founding in nineteen eighty five i remember that because i was a junior trader i was the logo
00:17:42on the desk and it was just a day of mayhem and that really be started a run of technology and internet companies for the next few years what was that ride like that had to be insane yeah no it was crazy like being shot out of a rocket
00:17:57like and not just me like the whole the whole valley had that had that had that experience and so it really was it was what you meant it was the establishment of a new platform it was the establishment of this kind of new front here it was the
00:18:08you know the idea that all of a sudden there were these thousands of new businesses you get creative on top it was this idea all of a sudden people are connected it's actually really striking if you look so the dot com crash right hit in two thousand and
00:18:20then all these ideas that were viewed then it's all the dot com ideas that reviewed his genius in the ninety eight reviewed is just complete lunacy and idiocy and you're into that's dotcom's doesn't make any sense in the classic example right So it's actually really striking all those
00:18:33ideas are working today i can't think of a single idea in that era that's not working today and then the kicker to the pest dot com stories there's a company chewy thatjust for three billion dollars right out of florida which is online pet food sales like two weeks
00:18:45ago Right And so even online pet food sales turns out to be a gigantic and very successful business and so basically the community the community the tech community the silicon valley community the global community they connected of internet very quickly between nineteen eighty five and call it nineteen
00:18:59ninety eight actually came up with all the ideas like they all people are very creative and all of a sudden there was just like if you read you remember you remember there was a magazine back then call the industry standard sure which became kind of the defining kind
00:19:09of bible of the time and there was a period where if you read the industry standard after the crash you're just like all these people just a high like this is this is just nuts If you read it today it's like a direct forecast of what's actually happening
00:19:20right Like all the stuff actually is happening it's all working so and so it was an amazing unleashing of talent and creativity and ideas interrupted by a very bad crash but it has sense all those ideas have sense really come true What one of the things i'm always
00:19:33hearing about is how well this is This is just like the dot com here of the valley is booming This all ends badly but when we i d this week we've been in everywhere from berkeley the palo alto too pleasant in the mountain view this looks to me
00:19:51much more like a robust economy than hey this is completely unhinged in it's a train wreck waiting to happen you lived through the last version of the dot com bubble How is this time so different in nature The obvious thing is a lot of these companies are actually
00:20:10making money some of them are making a lot of money so in fact now the eye position is they're making too much money which is the criticism on the other side so just means they're efficient and productive It doesn't mean anything is wrong Exactly so yes from you're
00:20:23from your lips to teo So so i guess i'd say it's Well i guess i'd say the economist actually has a theory actually in economics on this which they called economist called the depression baby effect which is basically it's a basement have spent studies papers read about this
00:20:37google depression babies it'll pop up investors who were in the stock market in nineteen twenty nine never back into the stock market they stayed out of the stock market for the rest of their lives because nineteen ninety nine prove definitively right The stocks are fundamentally unsafe and if
00:20:50you look at the chart of it literally from nineteen twenty nine you don't get back to break even till nineteen fifty four twenty five years later it's a full generation has to be born grow up get jobs and start investing in order for the market to get above
00:21:04that twenty nine peak exactly with no memory and investors right that's exactly right And then by the twenty five years exactly right And then the other kicker is it takes another fifteen years after that to get another actual bubble when the next stock market bubble did not materialize
00:21:15until the late sixties The full forty years nifty fifty nineteen sixty six the dow hits a thousand it's not over it for another sixteen years Quite quite amazing So So anyway the point is if you if you live through one of these scarring crashes you get psychologically marked
00:21:30you get you get traumatized on by the way that you there is everybody right it's not just the investors it's also the people who follow the market it's also people who run them out of the market is also people who work at the company's Everybody gets traumatized so
00:21:40we had way haven't tired We had and have an entire generation of depression Babies including may write in silicon valley who went through two thousand That's significant for a couple of reasons one is just i would argue that right the narrative basically since two thousand four has been
00:21:53it's bubble two point Oh i think exactly the opposite has been it's been a long term bust right I think tech stocks have been undervalued sort of consistently basically since two thousand to two thousand three and even to this day are probably undervalued relative to where they should
00:22:05be Village would come back to that but then the other thing is happening is now finally enough time is passing us now we're coming you know seventeen years since the crash So now finally we're getting off kids coming the valley who i don't have a memory of the
00:22:16craft they don't have post crash traumatic stress disorder like they were like in fourth grade Right and so they just they were like busy with legos like they just is not irrelevant concept and so when you get these weird conversations we find ourselves these conversations where you're telling
00:22:29these cautionary tales right of what happened in nineteen ninety eight or nineteen ninety nine and they just look at you like grandpa like you no tell us about the model t like it'sjust absurd kind of thing and by the way it's not that there's a good or a
00:22:41bad it's just people have different life experiences but my point is like the balance is shifting well and so and you just you have this new generation people in value or just like let's just go let's go bill thanks like let's not be held back by the superstition
00:22:52of what happens go build new things on dh then to your point like these things have worked when we were building netscape in nineteen ninety eight ninety seven ninety eight the maximum addressable market size for our company was fifty million internet users were almost run dial up and
00:23:05or tethered to their desktop pcs which were super slow in crude compared to today and now is you know you three billion people with smart phones and mobile broadband in the world on its way to six billion and so like this stuff is working like that it actually
00:23:15came true the fascinating thing every time when the nasdaq regains its regained its two thousand peak not too long ago people said here we are it's going to crash again and you look i always look at those folks and say well wait a second that was infinite P
00:23:31you know have cos actually not just making money but making boatloads of money and it's fifteen years later So whatever the problems were then how do you just assume that this the price level it's the same thing Clearly something very different is going on today so so sticking
00:23:49with that that point when when you hear people saying silicon valley is in a bubble again look at all these unicorns Here comes the train wreck Do you just kind of shrug to yourself what's your reaction to that So those have been the headlines for excuse me every
00:24:02year since two thousand for so two thousand four so they'll get it right eventually just keeps saying the same thing over and over in two thousand for two thousand two thousand two thousand four Only granted two thousand one to two thousand three were very bad so fully granted
00:24:15Two thousand for there were too many events yahoo bought two companies for twenty five million dollars each flicker and delicious and those that launched that created the bubble two point oh narrative in other words like if anything in tech works and if any company in tech ever succeeds
00:24:29it's therefore obviously evidence it's a bubble of course right And so that that's been the narrative the entire time we and we've done we've done decks on this we've dex interwebs like we've done detailed analytics on every aspect of the financial numbers and the lute the flows of
00:24:40money and the whole thing and you go through the whole thing and when you when you do the analysis i think correctly like just just objectively correctly it's just crystal clear how out of control everything got really between nineteen ninety eight in two thousand and relatively placid has
00:24:51been it's been ever since but it just just people don't you know it's the kind of thing people just have a very strong emotional it's a depression baby people have an emotional response right Most responses i got tricked once i'm not going to get tricked right And so
00:25:03it's just it's led to this continuous in my view underestimation of what's happening right it's led to the opposite problem which is people are really deeply if they were overestimate overestimating what was happening in idea they're underestimating it and they're still underestimating it Which makes sure why i
00:25:15say the stocks everything's probably still undervalued which makes sense if you come out after that experience and you are negatively tinged with that g i got burned last time because valuations didn't make sense fast forward fifteen years that doesn't leave these folks so that permanently colors and they're
00:25:32you know other related studies people graduate college into a recession it not only affects their earnings power over the course of their lifetime it affects their philosophical outlook they they're actually biased and expect recessions to occurred more often than they actually do It's our wet ware is kind
00:25:49of deeply flawed so you're a builder You've you've created a company a couple of companies including this one in your mind's eye Are you a founder or you of venture capitalist or a little bit of both So i think of myself as an engineer first on everything else
00:26:07after that and so it's kind of the core and then you never know how much of this is self delusion of course but i think about my assumption is we're all self delusional and and occasionally if you glimpse a little reality fantastic they either work for you or
00:26:20they don't so i was trained as a ninja i was always had sort of an engineering mind set and i was trained as an engineer training a great engineering school and so i just i always feel like i'm just trying to figure out how things work on then
00:26:29try how to make them work better on dan farmer interested figuring that out that in trying to draw value judgments on them are tryingto of other you know kind of base around them And so uh that's just been you know the core of the thing and so to
00:26:41the extent that companies have worked is because they build products that people wanted to the extent that this you know that this firm works is because we're going we're finding those products and the people who build those products early on betting on them and so it's sort of
00:26:51engineering is the corps discipline and then and then we we're lucky enough in my view to live in a system in which you know that rewards that skill in the sense of people can build things right people who can build things they're encouraged to build things culturally encouraged
00:27:04to build things and those things might be new products but those things also might be your companies back in two thousand eleven you wrote a fascinating screed called software is eating the world not only did it end up becoming a mean that went fairly viral it turned out
00:27:20you were not just a little bit right you were very right tell us about what motivated you to to put that those words on on paper yes it was a two part attempt one was to explain what was actually happening on actually a lot of it was actually
00:27:33against the bubble near the bubble the new bubble narrative was so strong at that point that i wanted articulated view of what was happening that was not just this is all a bunch of a bunch of hot air eso partially explanatory but also also attempt to forecast on
00:27:45dh specifically in the piece i sort of lay out a forecast for the future in three parts which i think is the part that kind of remains the section remains provocative today the three parts maybe recapture quickly so so so part one is every product or service that
00:28:02can become software will become software on dh there's a long conversation we can have that that's that's the big theme of what's happened in silicon valley right now i think it's that we're we're now going after entire industries that used to be dominated by by just like retail
00:28:14retail store fronts or one eight hundred numbers or so is this app ification or is this just the move Teo pure self well amplification is the consumer experience which is their everything that could be experiences an app if you can if you want you know you need you
00:28:26want a mortgage it should be an app right You want life insurance that should be an app you want to order pizza it should be an app like everything's just happened through that through that front end but it but it's deeper than the app because it's the complete
00:28:34back i'll tell the backend systems of software that may make the economy ultimately work so so so part one every every every product or service that can become suffer will part two Therefore every company that makes those products or services has to and will become a software company
00:28:49right So companies will become more and more defined by building software just like and silicon valley companies already like this a lot of companies have suffered companiesfirst that then get good at things like sales marketing right Whereas in the rest of the economy of a lot of companies
00:29:01that are good at sales or marketing that are trying to bolt on software right But takes any or ten years from now all these companies are going to suffer company's first because they're going to have to be that's fascinating form of the product and then the third sort
00:29:12of most either provocative arrogant you know or delusional the principal is therefore in any industry in the long run the winning company will be the best software company right So whoever is the best is that really all that s o the question The following question is how much
00:29:27push push back did your original writing get and are you still getting pushed back on that The third part of it Well that third one is very provide Third one is very provocative given example but it's pretty it follows logically it's If you believe in deductive reasoning it
00:29:41makes sense Well let's locals pick up particularly provocative example good cars if you soak our cars obviously cars there's a lot more software in cars and there was ten twenty years ago Everybody knows that it's a step further to say that in ten years the winning car company
00:29:55is going to be the card the card company that makes the best offer Right there's no existing legacy car company in the world today That would say that that's the case right They would all say that they are best at making cars and that the software is a
00:30:05component that goes in the cars But the whole point of being a car companies to be great engineering the actual physical automobile this deal on the rubber in this all the safety systems and the whole thing Well but if you believe self autonomous vehicles were coming that software
00:30:17exactly right right And so that that would be our thesis is that no actually going to happen is that about the value will flow to the software layer The entire experience of being in a car will be defined by the software and then at the limit which ever
00:30:29company that makes cars or makes the intellectual property that goes into cars whichever of those is creates the best software will will then be the winning company And we'll get the majority of the value Right Um and um including so So what you really define describing is the
00:30:43iphone This is manufactured in china I believe they make about five dollars per phone building it together and then this little complication you may know them they're up the street and cupertino Apple is the one that captures not only all the value from the iphone but pretty much
00:30:59all of the profits from the entire or ninety percent of the profits from the entire mobile universe is that the same basic concept is in an iphone model for everything else including automobiles So in general yes like so that that's that's the implication right and that's exactly analogy
00:31:17by the way that the car cos the car industry is grappling with right now is you a cz you know and phones who used to have these companies like nokia and rim and others that made phones and feud software is just this kind of out on the top
00:31:26of the hardware but i'm not that old I don't really remember those right on so you know when you look like our ceo's now they're they're all thinking like they're working on this the new generation of car ceos they're working to get it and they're spending a lot
00:31:39of time out here and they spent a long time with us and they're working hard on it but literally the way they frame that question is way e xtra Existing car companies do not want to be the hokage cars like and so that the nokia of car that
00:31:50analogy is very front and center and they're thinking now at one level of detail later or lower than that You know the iphone is a particular success case of vertical integration so apple apple does that you know they don't manufacture every component in it but they assemble the
00:32:05ho hardware software app stores all come together Sometimes the winner is vertically integrated There are other times in other industries and pcs were like this the other example which is horizontal structure And so the other outcome is you'll have for example microsoft of cars right where you'll have
00:32:21the software layer that that actually ends up and they actually in that model day instead of making the car that winning company might just sell it software to all the car companies But then it's like the relationship that microsoft ended up having with all the pc companies right
00:32:32where the pc companies did all the work of actually making the pc and microsoft got all the money right So the vic the victory for the best offer company could go either vertical or horizontal and that that varies a lot But the consider i believe the consistent theme
00:32:44will be the company with the best software will exactly point they'll end up getting most of the profits so and have the strategic control right they'll be only able to dictate the future of the industry by virtue of the fact that they control the suffer so that naturally
00:32:55leads the question is tesla an electric car manufacturer or is tesla's a software company that happens to make a pretty good looking car as well that's right so this is the thing if you squint with by the way let me line is deservedly alleged and so nothing i'm
00:33:09about to say should be interpreted as criticism of dylan but just from historic sweep of history standpoint you squint at tesla one way it looks like apple circa two thousand you know seven two thousand eight where they release the iphone they just have it sold very money but
00:33:21they're going to sell a ton right and they're going to be the vertical winner allah apple another way of looking at tuzla is you know their apple in nineteen ninety two with macintosh and yes they're integrated hardware suffer is good but other people are going to come up
00:33:33with software as well and then there are many other people who make cars and so you know the whole thing they just you know they may set the mode for what other people end up doing not much higher scale and i think that's the big question on tesla's
00:33:44like is which way is that tip Obviously ilan highly determined to make sure that he owns the whole staff and to your point he's incredibly focused on software like he's He is like deslatte deeply deeply immersed in the details not just by the way the software that obviously
00:33:56runs the car but for example power management isn't that sort of a secret sort of advantage right Does what people talk about that much Is it the bet they buy the batteries and somebody else But they write the software that manages the power was a big part of
00:34:08getting the range and the ludicrous mode and the and the ludicrous mode on dh then and then they're also he's now deeply involved in right building making sure that he's gonna try to have test will be the best self driving car which is entirely a softer exercise on
00:34:22so he's on it like he's he's pushing very hard and then he's the other car companies air all in you know more or less reactive moto catches it definitely has the lead right now but that said the other car companies trying figure this out and we now have
00:34:35our entire wave of new automotive software companies in silicon valley right ton i don't know there's hunt you're on dozens on its way to hundreds of highly capable founders engineers building new kinds of autonomous software for cars by the way vehicles of all different side shaping description air
00:34:50vehicles ground water vehicles right so there's there's a revolution of foot of which tesla's an important part but it's also become much broader now quite fascinating in um in the early nineteen nineties i keep coming back to that era when venture capitalists were funding startups people had to
00:35:07go out and buy their own servers they'd have engineers to manage that and build that and there was a giant infrastructure would take tens of millions of dollars just open a company today that stuff is if not free will certainly very cheap with amazon cloud services in the
00:35:23hole huge infrastructure so if you want to launch a company today it doesn't take ten million dollars just open the doors you could really do things on the cheap how does that shift in infrastructure change your job as a venture capitalist When you're looking at companies what do
00:35:41they really need Do we really need to give people twenty thirty forty million dollars in a pop when they could start for a few thousand dollars so that's exactly right that's exactly what's happened We think about that and i kinda turns is very rapid deflation of of input
00:35:54costs which is dramatic inflation input the input cost for startup in economic terms have deflated by a factor of like a thousand that's amazing teen years which is amazing right It's it's hard actually find a historical precedent for that happening We're used to cost ten million dollars just
00:36:08tow launch and now you could do it for a few grand Yeah way we routinely get you know we'll get three four kids and here the entire their entire catholics entire company is their laptops right That's it that's all that happened four thousand dollars and they're good to
00:36:21go that's it there you know everything else is like you know it's one hundred one hundred dollar bill this month on their amex for their for their for their amazon cloud services to launch the thing and see if it works And so that that's a dramatic step change
00:36:31like that's that's you know it's very hard to find any any any precedent for that which is a big reason why a lot of so much energy has come back to the valley So is a vc What that results in is the darwinian process of running experiments to
00:36:42surface the good ideas and the good cos is now happening at much higher scale in a much faster pace right and so is a vc it's this is amazing so it's it's not just the the pace of acceleration The second derivative is increasing also it's it's accelerating at
00:36:55a faster and faster rate Well the number one is just the sheer number of ideas that can explore is going to explode has gone way up There's elasticity The less it cost to test new idea the more new ideas will get sure more people will try to test
00:37:06new ideas and then write the second is it's just so much faster now it's just this speed to get to market How do you deal with that How do you sit through a near infinite amount of really fantastic An interesting idea So that's the that's the business and
00:37:18so the day to day business is we we see we see evaluate two thousand referred heightened qualified startups a year every year so that that's the day job here is to sort of sefton filter through the two thousand and of those of two thousand How many do you
00:37:31end up doing now You also do something unusual You do sort of angel funding at a very modest level and then brought her funding for form Or i guess we would say developed advanced companies so out of those two thousand that'd get reviewed What does it break down
00:37:47teo right now it's about thirty eight year thirty thirty a year out of two thousand yeah and i could go through in detail but exactly where but like that's basically the right so a little bit more than one percent by the way i should also say these air
00:37:56two thousand that are referred right So these these air sent us there's some connectivity to people we know so i can't give you an elevator pitch now Well now that you know now that now that you're here in fact you're in you're in the room give me a
00:38:08few minutes i'll think up the business model this's the this is the room for that so so two thousand a year and then the other side of it is it's not just write the whole thing with this is it's not just isn't a good idea good product it's
00:38:19also who are the people Right Because these are people at the end of the day these people businesses and so honestly most of what we're doing is evaluating people So that was always a question that i find intriguing very often these ideas come along there's no patents on
00:38:33them there's almost something in the ether where a lot of people get very similar ideas how often do we see for five different cos in the same space hey there's uber and lift and there's pandora and go down the list And every time you look at a concept
00:38:48it looks like a lot of people have said hey you know it would be cool right about now How do you figure out who has not just the best idea but the best way to execute it when you're dealing with some really young inexperienced technologists who very often
00:39:06have no business experience either just out of grad school sometimes dropping out of college that sounds like a near impossible decision making process so we call this the volcano movie problem there there's never just one movie about volcanoes there's two or three or four or five right right
00:39:22to jack there's never just one deep impact and there's no way to killer there's never just one killer meteor movies There's got to be too so yeah so that's a that's a thing and these ideas yeah they come in waves on dso that's exactly what happened So the
00:39:34the thing that we try to go i mean there's a lot of different lenses You applied it when you're evaluating people but one of the ones we really dig into hard try to pull kind of call kind of the real founders away from the people who just like
00:39:44think they have an idea how to drive something So the concept we call the idea maze one of our partners crystallized wrote a paper on apologies from boston to go the idea mason so the idea maze is it appears on the surface you look this is a cute
00:39:56idea like by the way lots of god's idea the real founders the really good ones what you find is they have thought about the problems so deeply and for so long long that they have worked their way through the logic maze of how to try the idea and
00:40:10what they're going to try next if it doesn't working with the implications would be if they learn something and who were the people they need to bring into the company And how did they segment the market and how do they go acquire the customers And so all these
00:40:20details it's it's the convert all the topics and sort of that you don't cover in the first hour of the meeting But you come from the subsequent five hours when you go really deep right with them and the really good founders tend all have in common is they've
00:40:30been all the way through the idea maze on their own before they come in and talk to b c So there is not ideal in the best case There is not a question that we can ask them in the meeting in the first six hours of discussion that
00:40:41they haven't already Not only have they already thought of the question they've already figured out the answer for themselves right In fact you actually get to the point with the really good really sharpened to a point where they get frustrated because they're like white Why is this not
00:40:51all obvious too You people like this is why you asking me all these stupid questions I figured this out two years ago like i already know that And it should be self evident and it should be self evident everybody because they figured the whole thing is a cz
00:41:02contrast it by the way to the ones who haven't on that if somebody's only put you know ten or twenty hours and thinking through something and they just decided put together a pitch it becomes crystal clear because you get eight or ten or twelve questions in and they
00:41:13stop being able answer questions now you just really low or they start making uh they start making up you know start making up the answers so you just revealed this or you would all concerned that people would come in and say okay now i have all my ducks
00:41:23lined up in mark isn't going toe throw me off my pitch well they try to trick us already so if they haven't been through the idea may try to convince us they have been but they just start making up the answers on and you can and that's all
00:41:33you can flush that out like you can figure that you can do this part about in part just content like they just can't back up their answers it's like i feel like this is how it's a little like police do interrogations so the way people eat food if
00:41:43you get ever getting interrogated by company thinks what he just does is he just the questions get more and more details no you weren't your alibis You're out seeing a movie that night Okay well what movie You know Well what was the opening scene right Well what You
00:41:54know what was the plot twist of the end You know what What snack did you have A You have popcorn Oh did you have salt in your popcorn or not Let's go deeper and deeper and deeper and deeper until you finally freak out because you can't like make
00:42:03up all these days right So it's it's the same kind of thing And so the reason why i say so openly is it would be good for us if maur founders actually went through the full idea maze like you would be great for us if more founders came
00:42:14in here having thought much more deeply about what they're doing And this is part of the pop where the popular narrative of start ups it's probably a little bit problem at the popular nervous startup says it's Like the popular narrative on invention is that the somehow eureka moments
00:42:24right It's a sudden flash of brilliance and you know you're just you're just you know so and by the way this cos all these origin myths like i was just a kid doing this and this idea came to me and like lo behold boom facebook right And that's
00:42:34not at all how it works right It's it's this incredibly deep and elaborate process of thinking on work that actually leads to these things happening And so i think for people to be if more founders understand the concept of the idea maze and they set the bar higher
00:42:46for themselves in the level of thought they put in their ideas that i think will benefit from that What could your future hold more than you think Because at merrill lynch we work with you to create a strategy built around your priorities Visit ml dot com and learn
00:42:58more about merrill lynch on affiliated bank of america Merrill lynch makes available products and services offered by merrill lynch Pierce fenner and smith incorporated a register broker deal remember pc we talked about some of the you unicorns before we talked about this ends badly I'm going to skip
00:43:12those questions Let let me before i get to facebook let me i have to ask a question i love the show silicon valley i know that mike judge and alec berg have described you as unofficial writing consultant to this so tell us about your experience with the show
00:43:34and i have tio i'm a fan of portlandia and having been to portland several times i came away with the impression that oh this isn't a sitcom it's a documentary How true is that for For silicon that's my understanding portlandia is literally true It certainly feels that way
00:43:52Is man on the streets right I put a camera in front of yes exactly of silicon valley's exact same way so so in all i have to confess i've still only seen the first season get out I haven't seen it it's so hilarious I know i'm sure it
00:44:04is i just the first season was soap perfect it was just going to stop I just i couldn't i don't know i've just had a mental block I haven't seen the one from the most recent one this sunday and people are telling me it's just so hilarious and
00:44:17over the top that's the funniest funny and it just rings especially being out here it's like okay i recognize him It rings really true do you ever get feedback from people saying hey what do you doing to us It's excuse like mark you're kind of making us look
00:44:35silly What are you doing from who exactly random people label you know other vc these other founders other other because they're very few people come out of the show with their reputation in s o that's the thing i can't call i can't comment i think i'm fast the
00:44:51first season we'll say the first season was perfect and i will tell you so that the secret of that show at least the secret of the first season which i consider a work of art is mike judge himself started his career as a chip engineer in silicon valley
00:45:04on dh if you if you meet him but actually it is not what you'd expect like he's one of the lead you know leading creative comedy geniuses of our era creator of all these you know beavis and butt head on all these things and which is fascinating because
00:45:15she started out so wildly overbroad and idiocracy and work your way down the list and as he seems to have gotten older and maybe his artistic vision matured it went from insane to overbroad too slapstick tio this is mildly a parity and somewhat of cinema verite although i
00:45:36think he'd already idiocracy was also a documentary I was a documentary but five years ahead of his time right right right so on dh so he just he has a very precise ah he is a very precise understanding actually How things work here more so than i think
00:45:51People would think so It comes it's gross Yeah And then and then his you know his partners are also geniuses And so it comes across so that's Good I would also say for people who haven't seen it halt and catch fire in a completely different one hundred eighty
00:46:02degree different moves Just a dramatic it's a drama there's no halt and catch fire is not funny at all It's just a it's A very serious show Halt Catch fire is a show on amc that's I think in its third season Now it is a period piece Unlike
00:46:16silicon values hbo silicon valley is current time honk It fires a period piece set in the early eighties of the birth of the pc But it's the story basically it's the it's a fictional story of the creation of the company Compact thicker than the birth of the pc
00:46:27industry in the birth of the pc clone industry at a time when ibm was by far the dominant company in the industry right and and so it's but it's a very it's a spookily accurate portrayal of what a startup is actually like and it's actually really funny The
00:46:41critics of the show in the first season it was getting criticized for being too melodramatic like this is all to superheated into emotional and i'm thinking no this is it's like they put a camera in a start up like this it was really this is what they're actually
00:46:53like Everybody would like it This is also part of the thing we see all the time as everybody wants to pretend that starts they're fun and it turns out started so no phone no it's a lot of work it's a lot of work and it is a stomach
00:47:01churning process of being told no by every body and being told your idea stupid is just not stop just you just feel like as a start every started finding they feel like they're under assault Although it's a halt catch fire does a very good child for capturing the
00:47:13other side of that What what about the incubators like juan y combinator or back Mon ity what about those Where All right this is a little more founder friendly environment with a little more support and a little less of of that negative castigated that you were referring to
00:47:32us so they're fantastic like they're fantastic they've been hugely additive to the to the valley the big thing that y combinator and other firms like it are doing is they're bringing people in earlier on dso right the path once upon a time i mean i was maybe an
00:47:44exception of this but the path once upon a time was you go work you know in a real job for five or ten or fifteen years ago real experience before you try one of these things because you need to build the skill set basically why see basically viewed
00:47:55it's almost like the fifth year of college or something where they have the ability to pull in You know kids are like cases where people who just haven't been exposed to start up a neighborhood daily basically try to spend them up much more quickly in their careers they
00:48:05talk openly about this right it's like it's it's sort of a new career path esso and then it is off part it's also part of this increase darwinian kind of feeding frenzy you were talking about So as long as we throw enough competitors gladiators into the ring will
00:48:18end up with that many more survivors that potentially khun khun b something one day you and i suspect i think you know part of the impact that these things have are the companies that come out of them you know out of the programs i suspect the long run
00:48:29effects positive effects will be even bigger Sort of the second third fourth generation right So it's it's you know the white sea founders this year right The icy founder sister got out on one hundred fifty companies in the batch right now Or something like that Like you know
00:48:40some of them are going to succeed A lot of them are going to fail But to me that's almost beside the point because it's all the people in those cos it's three four hundred people who are working on this companies and then what those people are going to
00:48:49do not just this year but five years from now ten years from now and so these people are being set up on a career path where they should be able to do amazing things years from now One of the nice things about silicon valley is failure isn't considered
00:49:01a mark of shame It's so this this start up blew off and that startup didn't make and we killed this But we pivoted this one and you know if sometimes the fifth or sixth time is the drum yeah that's right And so you get you get the the
00:49:12first started doesn't work you do you do get more swings at the bat and you do get by the way that you get different experiences like with you if you're first up doesn't work it's very often that ends and it's called a knack a higher where you end
00:49:21up getting sold a big company or you just or some people just get a job just to recover from the trauma of going through started writing work but then you get skills right So then you have you have your startup experience you have now experience maybe working at
00:49:32a great you know growth company where you're learning how this stuff works when it was actually it running its scale right And then five ten years and you start to learn how to manage people and you sort of pick up these skills and then you go start another
00:49:42company right And so there's neither is a sort of repeated swings with the bat kind of effect that happens and i think that these incubators just give people basically an early swinging the bat that maybe otherwise didn't exist coming up we continue our conversation with mark andriessen discussing
00:49:57the unique structure of andries and horowitz i'm barry results you're listening to masters and business on bloomberg radio i'm barry ritholtz you're listening to masters and business on bloomberg radio My extra special guest today is mark andriessen He is the co founder and general partner of the venture
00:50:16capital firm and grease and horowitz He co created the mosaic internet browser cofounded netscape and has done more things over the past decade or two than most of us will do in our life stock Entire life spans Let's talk a little bit about the firm were sitting in
00:50:32which is quite lovely It is a very relaxing zen vibe here with the blond wood and the just generally soothing atmosphere Not what you imagine when you think up think of the startup community and and silicone valley tell us how you structured the firm and and what was
00:50:54the thinking behind it Yeah so the big thing So we're trying to create we're trying to work with founders to create something out of nothing right And so is the time we invested most cos there's not a lot there and then the path is going to be a
00:51:06five ten fifteen year path to get teo teo to get to something impor I'm insignificant so you're really playing a very long game it's not two years hey we've got to start looking for an exit yeah it's it's i was with my friend and friends at cnbc right
00:51:18have the show fast money i'm always pitching them it's like you need the car money and slow money right And the slow money should be on every day and every day i should just be right you know what's happened today that matters and the answer is nothing you
00:51:29know what's what's going on you know not much okay i'll see you tomorrow right And so and you know the start looking startups working incredibly hard like the startups you know there's all kinds of activity of the startups but the investors say the vcs who freak out on
00:51:40a daily weekly monthly basis with these companies like burn themselves to a crisp like his stuff the company cass and so we go into it just knowing it's going to be with every company is going to be this long running journey and it just takes time It takes
00:51:52at least five years to build something that has real value and it takes at least ten years to build something that's going to endure for long for another ten years after that and so it is just going to be this thing this long thing and then i mentioned
00:52:03earlier is so much of this people like we liked i think brag unlike how good we are think about the ideas and the technical stuff and then we do spend a lot of time on that stuff but i think a lot of it is partnering with really high
00:52:12potential people doing a lot of cases you know to your point like don't have that much experience at the time they start their companies or even people with more career experience you haven't done it started before right Where there's a whole new set of things they have to
00:52:22learn and then we try to work and help them you know grow and become better and you know develop the skills that they need to build important companies on dh so the whole firm is kind of engineered around those ideas right So is an example we will never
00:52:34back a start up if we think it's outcome is it's going to get bought like every once in a while it's really like if there's a slide in the deck that says exit strategy you don't get bought by google in three years like for ten acts like all
00:52:43right well good we won't find the company i spent a lot of time on that but we're so now you want to create a company that worst case scenario exists on its own for the foreseeable decades in the future and if someone happens to acquire him great but
00:52:58that's not the target That's The kicker is the companies that actually get water the ones that don't have to get out the ones that actually could have started their own because those were once that actually have value That's not value right exactly so that that's the twist on
00:53:08the whole thing But so were always backing these companies with and there's people with an eye towards long run independence developing something of deep enduring value So one is just the time frame A cz important part A second part is how we coach and mentor and work with
00:53:23the founders and the team that the founders built around them And that has to do with our how we well i always liked general partners for our firm were the people who make the pull the trigger investments and go on the boards on dh There is all our
00:53:33big claim to fame There is all of our general partners are former founders and or ceos of tech start ups and so when we go on a board it's always the case with us that you're sitting with somebody who has been through the same situation that you're in
00:53:44right now and has had to make the difficult decisions and has had to live with the consequences of that decision right Right And so it's just it's a grounding in the device and the guidance that you get that i think just goes deeper than you know and there
00:53:55by the way there are great vcs who have no operative experience or little opera experience and some of them are actually very very good investors but there's there's just so much in that intimate relationship with the founder and with with the team that i think benefits from having
00:54:07the credibility from having actually you guys also do something unique in that every partner is on every investment as opposed to you do software you do semiconductor i'll do this every partner participates in every investment Is that an accurate statement So we do There is there was always
00:54:24a single gp on the board so there's somebody who's focused on you but then the way the firm a structured is everybody shares equally in the results of that So we so basically we just there's a lot of things were done in the firm toe design the firm
00:54:35to be a zero politics environment to be oh so what you discover what you're zero politics and vine was your politics i'm in respect to how the entrepreneurs i can't you're into a girl that all politics in the front i'm just saying as faras the founders experience that
00:54:47they should never run into it shouldn't be this guy in the firm likes this but this guy fighting again starting so what you often find it a lot of entry cap the firm says they present a united front and then there's a tremendous amount of infighting this taking
00:54:59place is by the way it's the same thing you see and you'll see what on wall street a lot like just for example there's just a battle for the there's a battle for the profits like there's a battle for the carrie and so for me to get more
00:55:08money somebody else has to get less money on that least of this weird adverse thing we're actually want the other guy's deals to fail because then i'll have more negotiating leverage in my comp you know discussion or there will be a battle between who wins the deal right
00:55:19the maybe the entrepreneur starts the conversation with one g p but maybe entrepreneur really would rather have another gp with a more relevant skill set right in the same firm on their board sure had a lot of firms that that starts world war three internally and our friend
00:55:30i couldn't manage everybody's fine with that another thing a little twist that we have we don't have a promotion path in the firm to general partner s o the way most other films restructured as they have young people in the firm who get promoted up the rights over
00:55:41time But it's a competitive process right So you'll have twenty junior people who are competing for you know six sort of junior gp slots were competing for two g two senior gps lots of course lieutenant ten or fifteen years and so they're in a constant knife fight with
00:55:54each other right Because they're just like at a law firm where i was going to say it sounds like the big big wall street or park avenue law farms where it's just a bloodbath and when they make the announcements of partners there's a handful happy people a lot
00:56:06of other people getting their resumes together and it's no fun for anyone And so when that struck that's exactly right So when that structure works well that leads to a very brutally darwinian effective eat what you kill environment where your breeding for your racing breeding sharks for maximum
00:56:18effectiveness The problem is is a client of one of those firms you get caught crosswise in the politicial right and you do not get at you basically only get access to the people who have the direction set help you in the firm you don't get access to the
00:56:28rest of the firm and that's the typical experience that founders have a feces which is they get promised the resources of the firm they get what they get in practice is one person that seems really counter productive very kind of productive and einar come by the way a
00:56:39lot of our work with companies is working with our companies to help them resolve these kinds of issues with the other pcs so because you guys are also co investors with other other eventually we just don't and again like this may work for other firms we just decided
00:56:52to take a different mentality where we don't have that kind of you to ever get caught in the crossfire because it doesn't exist um so it's a big thing and then the other big thing that we do is a firm is we do believe deeply in the idea
00:57:02that the founders not in every case but in a lot of cases really should be able to if they're if they want to and if they're able to do it they should they should run their own companies way could have a long conversation about that The other thing
00:57:13that we do is we really try to help arm up the founders who don't have a lot of deep business experience with all of the collectivity the network access that the professional ceos all timeto have so the technical final technical founder starts a company right And then you
00:57:26know a big part of it is i think it just going too good at managing and leading which is where the gp relationship is really critical mentoring Do you find that very often engineers and people with that sort of technical skill set the stereotype is their socially awkward
00:57:40They lack the usual skill set that a ceo typically has so that is often the case But also the reverse is often the case which is the highly social you know the ceo's out of central casting have you know the inevitably great hair and you know brilliant smiles
00:57:55and the great you know you look just like a great suit in front of crowds They often not always but they often laughed the technical grounding to determine the direction of a technology company And so and again like these air these air stereotypes and they're overly broad but
00:58:06they are pattern is there is some truth to it There's a crap for a reason I started in this case and so so what were now everything i would say the you know the kicker everything in venture is on an exception basis right And so by definition we're
00:58:17not looking for the pattern We're looking for the exception and so we're looking for the fare to your point the very particular technical founder who by the way may start out without a lot of these social skills may start out without really knowing happy with customers or may
00:58:28start out not really knowing how to manage people or hire people and then we're trying if if they're willing and able tto learn we will then put a lot of effort into helping them become great at those things by the way it's the same mr on the other
00:58:39side when it comes time some are cos we do end up with professional ceos and then we look for the professional ceos that not only have that skill but also then go deep on product in technology and so you're and and those are both exceptions like those air
00:58:49these air not on both sides These are rare people so so it makes me wonder is it easier to take someone who has the technical skills and teach them to be a ceo Chris it sounds like it's challenging to take a ceo and say by the way on
00:59:03the side we want you to get your you know your m essen in computer science over stanford at night that that doesn't seem like that first breakthrough product right at the same time same time i would think it's easy to teach the inexperienced unskilled but really sophisticated technological
00:59:21technologist the people skills and vice versa So in the tech industry we firmly believe exact what you said We found the general pattern as we want to find the great technical founder help me become a great ceo and that exactly your point that's easier than finding a great
00:59:33ceo and trying to turn him into a great product healthy visionary And i think the history of our industry confirms this like nine out of ten roughly of the big successful tech companies in the last frankly hundred years have been run by their founders for long periods of
00:59:46time For this reason is starting with hewlett packard and intel on you know many many many others you know now today facebook and google right on dso that's the thing now because it's easier though doesn't mean it's easy right now so you know it is a real life
00:59:58for these people to learn and grow you know for for an engineer who has not managed a large organization before they learn how to do that like that's a big thing that they really have they have to really want to do it some of them just simply don't
01:00:09and then you pair them up with somebody you can come up with a pair configuration where they can work with somebody who can help him with that on dh then some of them just simply can't write just hit the wall where it's just not something that they're gonna
01:00:19be able to do and so that there there there in lies the difficulty of implementing the theory but that that's that's that's what we do so so two things immediately come to mind when you bring that up The first is you have larry in surgery who were technologists
01:00:32who a bit eventually partner up with with their chairman ah eric schmidt who basically brings them along and teaches them how to be ceos ah co ceos or what if we want to call them But the other example that leaps to mind is mark zuckerberg and facebook so
01:00:52let's let's talk about that for a moment you're a friend of his rem ent or tell us how that relationship came about and how have you helped zuckerberg become one of the leading ceos in the world so first of all i should disclaim most credit on this which
01:01:10is mark has done most of this on his own ok he has been advised to help along the way by a lot of people so i'm not i'm not going to take any sort of giant giant credit on this one i did though i did get i did
01:01:20get to see it and i you know i was get to be in the room for for a fair amount of it so s o i met mark through peter thiel after first invested in the company and this was when facebook was four or five people sitting in
01:01:31bean bags in palo alto in an office with very colorful graffiti on the walls in the very early days on dh it was just crystal clear from the start i mean it was not i don't think clear that facebook was going to become you know behemoth come because
01:01:45just how often does that ever happen and how could you you actually predict that do you want to go through the list of how often that's happened with you or should we save that for later statement not very very freaking often i can tell you that so so
01:01:57does i will say like it was very clear from beginning that mark was alert i call him a learning machine he just siphons in information and this this goes toe what i mentioned earlier it's it's it's a technical founders it's both it's both Can they do it but
01:02:09also they want to do it and a big part of that for both of those is can they learn And by the way there there are people who just simply hit the wall where they just do not want to learn anymore like we've all dealt with people like
01:02:18that should say they're impervious to new information right Because they've deliberately set themselves up where it's like any new information at this point would be a threat And so i'm just i'm done They tap out and you have finished they just they picked like they just peeked in
01:02:29terms of everything there ever no one absorbed like that's just the way that they've decided live their lives and so too do what mark has done You need to be these at opposite of that you need to just constantly be pulling in new and mation until actually curious
01:02:40devouring you whatever comes court every possible topic that you can imagine it's going to be an element to what you're doing and so mark mark has just been the way i think marcus he's he's the most systematic person i think i've ever worked with it just pulling it
01:02:50just extracting the information on dh that was true when he was really young right and was not well known andi was very you know determined to go get the information from people who know and then it's it's only magnified out as he's growing and by the way he
01:03:02continue no he's out on this tour right now you know touring all fifty states like from our standpoint there's all kinds of speculation on that but from our standpoint the whole purpose of that is burning like not that he's running for president when he turns thirty five piece
01:03:14when he's working he swears not but yes hole when he talks about that like when you talk about that with us when he said he's going to go do it it's all i'm going to go learn i'm goingto country i'm going to learn about every state i'm gonna
01:03:23learn about people who aren't like me and and so for me it's so for me it was not surprising in the sense of is completely consistent with how he operates and i think this is an area in which he is a much he's a real role model on
01:03:34this like i really think like i think a lot of founders like look at mark and they try to drive like how do i get good And i don't know viral marketing or doubt about whatever product he just wants to take it all and i think if more
01:03:43people just look at market said how do i learn like that they would be much better if you're on the board of directors of facebook what's the reaction when the ceo and founder says hey guys i'm going around the country i'm gonna go to all fifty states because
01:03:57i think people have interesting things to say and i want to learn is their eyebrows raised or it's like oh that's just mark being mark go ahead yeah i mean mark does things like that my market is my point is mark has always trust himself like he stretches
01:04:10yeah comes up with a quest every year goes to this quest a quest a quest a couple of years ago i remember he was learning some obscure language if memory serves i don't remember what it was mandarin mandarin right Well not so obscure but a complex language so
01:04:25he does a quest every year and just basically keeps learning keeps now and he's been doing this is you know i don't for ten years now or something things and and so there's been through a variety of things that he talks about this he's very open about this
01:04:35and so you know he just he just goes out in siphons and so he's a guy he's a guy who's literally able to learn from some of the most you know experiencing accomplish people in the world certain topics but you know spend a day on a farm not
01:04:44far from where i grew up in wisconsin and milk couch like and he's just fine and he's happy to do this he's really one hundred percent so he's living the life he always want to live i just want to just suck everything i could possibly into my head
01:04:57as as rapidly as i possibly can well that's pretty fascinating let's keep going about the deal days you do I want to talk about some more of the combination angel investing late stage eso you do deal days and and how many people will the farm see in a
01:05:16given day or week when those air running well we have like i said we do about two thousand a year total so there's a little funnel and of the whole system and it's a lot of people in the firm who meet companies and whole process a kind of
01:05:25distilling the information so it's you know it's a dozens of weak you know kind of across the firm and then we see pitches on usually monday and thursday everybody got money thursday generally and a cz the gp team on that's you know i don't know monday it was
01:05:38five thiss week on thursday i think there's two or three more on this is every week so there's occasional vacations and stuff but pretty much you're running through three hundred four hundred pitches the gps will see everything is the way these were called the all gp pictures and
01:05:52so these ones are everybody's in the room on dh then many others there's many others that happen during the week where one or two or three key piece might see the so it's a giant funnel it shrinks down and down until and out of those let's call it
01:06:03three hundred a year you're looking at ten percent very very seriously yeah that's about right and and when you decide to do an investment in them are these usually angel fifty thousand dollar rounds or these much more substantial rounds or both yes so we don't really do that
01:06:19fifty thousand anymore who used to do more of those when we got started wei don't do those way tend to get much more we tend to kind of go all in or not right so it is and i could go through that but like that sure why now
01:06:29we work well why all in why not Well we'll get to three other investors and will nedra betsen go in part well they're still So is there a couple a couple of reasons One is just the level of the one is just an economic thing which is for
01:06:41us to be opportunity so there's costs then there's opportunity cost there's always opportunity cost on our time and our ability How many cos when we're work with is it maur the time or the money It's more it's more the time it's more than the cost It's Every deal
01:06:52every deal we dio fills a slot that can't be then filled by you know another hundred Deals that you might have done it staten so there's a big there's always there were any deal you do a big risk that your foreclosing some other deal the moon much better
01:07:03and so you have to just think very hard about earning right's time on dh then that's a big part of it then there's also just the economics of it which is just is a consequence of that when when you have a hit like how much of it you
01:07:16actually own actually really drives you returns right on dh so we have a responsibility to our feral piece to tryto you really have that they had to pay off on dh then part of it is just a full engagement model like we really don't like giving up we
01:07:27really don't like we don't you know there there are venture firms that if your company is not going well they just fell mysteriously none of these website like they just never get talked they get dropped on the memory hole and ah we don't tend to do that we're
01:07:39just comes from the fact we've all been founders and ceos like we just we don't tend to give up you know what it's like when you're on the receiving end of unreturned phone calls that is right yeah and so am i my view is like our way we
01:07:49make our money on the ones that work and we probably i think make our reputation the ones that don't that's a fascinating line right there because the math behind venture investing is look when you go out and buy stocks in the market fifty of them will do nothing
01:08:04Thirty of them will work in a ten of them will be disasters and a hand formal work really well The odds are far more daunting with venture investing It's it's almost ten x that you have and i think you've you've written this elsewhere you'll make one hundred investments
01:08:19and fifty of them just crash Twenty thirty Do okay but it's the one or two at the top of the pyramid that pay for the other ninety nine paid for the whole thing right Exactly That's actually roughly math So yeah so fifty in top gear Venture capital top
01:08:32deaths I'll venture capital across forty years of data on this which we have access to A couple different ways basically half the deal's good news is is not a ten percent success rate it's a fifty percent success rate right so it's not as bad as some people think
01:08:44but it is a fifty percent success rate meaning it's a fifty percent failure rate on dh then meaning fifty percent failure mate meaning zero return on that that have the fifty percent about about twenty five percent about half of the fifty percent go to zero on the other
01:08:58half returns between zero and one ex okay they return recover some capital but not all the investor capital and then the sort of that third quarter mile of sort of fifty to seventy five percent they return you know one two three acts and is basically the upper core
01:09:11tile that returns sort of you know god welling returns three x plus right and and some of the three x plus is a lot more plus yeah so that's the good the good news the bad news is yet you do get that you you do get the ones
01:09:21where you lose one acts pretty frequently The good news is they think they work they can make a thousand x right and so you and then the lp this is the great thing about kind of the venture ecosystem the lps don't care so for example in the data
01:09:34they don't care how you make the money once you do so that in the data for example of the top performing venture from strike out more often called a bit the babe ruth effect right The top performing firms have more zeros right there swinging their only swinging for
01:09:44home runs And so and by definition adventure If you're only swinging for home runs you're taking more risk right Crazier ideas makes sense It's like it's like you know the clinic planet perkins famously their google fund It was the fund at google and it had segway right Right
01:09:57and segway was a legendary disaster and you know got all this negative publicity and you know that guess what They lost one ex their money right Guess how much money they make good untold thousands right And so so so the good news on it is we and this
01:10:11is something that we're the us in particular has a real edge on this i think is we have a base of limited partners institutional investors in the us that deeply understand that this is how it works And so when we have one that goes to zero they don't
01:10:23call us up and yell at us and complain There is a yeah that's a cost of doing business In fact we've had all these ask us why we actually don't have more failures Where were you taking enough risk Really What they want to know is ok of the
01:10:34companies that are working how well are they working And we call this the how high is up question How high is the highs up How big could they get right on dh then and then literally adventure If you came back if you were lucky enough investor to come
01:10:46back every year with one big giant home run and all the rest were failures they'd be totally happy like so So they would not complain about that at all and of course is very very different than how the rest of wall street operates No no doubt do you
01:10:58run into every time there's that thousand acts do you run into how many times do people say well this is the next facebook no please stop saying that do you do sort of end up in that Mode where whatever was working hey let me explain to you why
01:11:14our company is the next x y z do these cliches begin to make you crazy Yeah they do well there there a tip they usually the really great founders tend not to say that i hope people are listening Teo all these suggestions this's going to be a how
01:11:29to pitch in greece and horowitz don't go there without having heard all these suggestions from this guy named is mark andriessen i would imagine that at a certain point you halfway through a pitch do you look at each other and like all right we're done with this every
01:11:45once in a everywhere i go i will say every once in a while but but i will say this the privilege of the job is the you mean these air two thousand two thousand of the smartest people in the world and the means in which they're operating who
01:11:57we get to deal with every year and so are the others that we we learned so much even in deals we were not going we're not going to do if there's somewhere we just made a mistake and we've seen a pitch that we shouldn't have seen because we're
01:12:05going to do the deal for some reason there's you know a dozen reasons why that could be the case we generally generally learned just a lie a lot of contextual information about what's happening in that in that industry because these people have to get to that point They've
01:12:18all thought these things through really running back to the idea makes thing we're talking about so that's what that's what you just learned you learn and it's And by the way what you experience it it's just a firehose of it's just the smart people the world coming in
01:12:28and spending an hour telling you everything they know like it's Amazing how how that was ah question Next question's How big of a strategic advantage is getting first looks at at two thousand the smartest people in the world Yeah i think that's a big part of it and
01:12:41i mean that that's why i'm so i've sort of become kind of a semi legendary sort of optimist It's really hard i think to be pessimistic in this job because you do see all these incredibly fired up people with all these incredibly vivid And brilliant ideas on dh
01:12:54you just you get a sense of the productive capacity of capitalism of of the intellectual pursuits By the way it's hard to be too negative when you're looking at the most optimistic inventions in the universe And by the way also the output of the great research universities like
01:13:08so much of what we do is building rep mention earlier So much of what we do is building up what what happens to stanford M i t in berkeley and all these other schools it's just crystal clear Like how amazing they are So you're oh that is just
01:13:19this That that that's that's cut for the psyche payout from the job is the ability to do that And then it just also i think just becomes clear like there are contra all that you know the headlines were just relentlessly negative these days There are a lot of
01:13:31smart people in the world There are a lot of people a lot of energy in the world I want legitimately want to build new things very excited and increasingly not just here right Not just in silicon valley not just in the u s not just in the west
01:13:41All over the world right And so that that's on the side of it is this this culture of entrepreneurship is really spreading on dh you know we're going to benefit from that in the sense of more opportunities but i think the entire world seem to benefit from that
01:13:51So you're focused mostly here in on the west coast primarily silicon valley You're not looking at china you're not looking at india's that affair observation So all of our companies want to be multinationals That's oliver companies want to operate on the ground in all these countries and oliver
01:14:06companies hire a huge number of immigrants Are our companies by definition a lend up with a lot of chinese immigrant indian immigrant and then by the way a lot of them are actually build office is on the ground and a bunch of companies with offices in china building
01:14:17out big presences indeed these other countries eso were heavily exposed to the sort of knowledge flow and talent that way we do against that that we do think that your capital is a craft There is a craft to the business sure and it's it's a lot of it's
01:14:30the relationship with the board members and the founders and the team on dh so there's a local dynamic to it it was the number event affirms that have successfully figured out how to operate in multiple geography ease and st world class it's a very short list most of
01:14:44that most most generally that doesn't work And so we just we made a decision at least for the time being to try to be really good in silicon valley So you said by the way we do fun cos outside the valley but just on one exception basis like
01:14:54they have to be super special So and we do have some of those So you you focus mostly local You're you're a software absolutist no clean tech no rocket ships no electric cars Is that still true It's it's software and software on lee So software at the core
01:15:10So the rule of the rule of suffering the course So there has to be we just think there's a particular magic around software there's a particular magic around how you could create things with software right It's it's it's called alchemy like you type on a keyboard and then
01:15:21things happen in the real world Like that that's an amazing process There's there's just kind of huge intellectual leverage there And then as a consequence there's huge economic leverage right which is to say capital software is labor that creates capital like it's software is labor that okay i
01:15:35like the closest thing to magic we'll ever have typing on the keyboard is like casting a spell and then something happens right it's like you know that lift lift guys they type software and then all of a sudden real people are being taken a real rise and rover
01:15:46cars like just by magic like just the software just caused that to happen and so we are looking for that kind of software leverage the sort of software magic in every company scalable magical and the ability to convert labor into catholic capital and then as a consequence but
01:16:02is the consequence of that our companies do end up doing all kinds of different things and so we have some companies that sell software we have some companies who provides offers a service we have some companies that provide absolute some companies that are making hardware we have some
01:16:15companies that are going after a new new healthcare pursuits in biology material science like there's lots of sufferers becoming so intertwined with the world right there are lots of ways to now use it to go toe leverage it in different spaces and so are the range of companies
01:16:28that were funding is broader than ever but they all have software at the core software at the core um i would start it out this segment talking about the firm there's a couple of things i have to ask about the firm because i'm fascinated by it so used
01:16:44to block a tpi marka and let me remind you that i warn you to pace yourself young man you're gonna burn yourself out I don't know if you remember that and and you tweet fairly actively i know we're on hiatus now and you podcast You guys have a
01:16:59podcast room it this doesn't sound like it's the typical forms of communication for the old line venture capital for i mean everybody has a web site and there's sort of this interesting hey hero the things we oops we passed on that we shouldn't have it's sort of this
01:17:17Ah i guess we could call it humility or attempt at humility Your gestalt is very different here tell me about the thinking behind that Yes so we're just we're trying to teach like yourselves kind of has been fundamentally lucky to have seen a lot of these things mrs
01:17:32these things we're trying to teach we think it's by the way to our benefit to teach because if more people know how to do this then there's more companies for us to fund and people for us to work with on dh then part of it is just look
01:17:41i think technology has gotten very important In the world much more than it used to be and so and it's complex and it's hard to understand And so i think and it's hard to understand from the outside on dso a big part of just what we're trying to
01:17:52do is to tell this story of what's happening not now and not just in our firm to tell the story of what's happening in the industry and what's happening with all these companies and with the implications of all these So you mentioned our podcast serious so i get
01:18:03no credit for that Our partners here are partners here have done all the work on that but it's become like i would say shockingly amazingly important influential among people who care about how technologies for sure the level of response we've got into that has been like an order
01:18:18of magnitude beyond what i would have ever thought was possible thie amazing thing is a couple of years ago people saying well podcast is all but over just read last week reid hoffman of lengthen is now hosting a podcast So this is a technology that a is not
01:18:35going away is a form of communication what is the benefit to the firm of being able to go out and tell a story that might not be hey here's why you should use injuries and horowitz it's never that overt it's always here's some interesting things happening in the
01:18:48world of technology you should know about what's happening a lot of people care but i think a lot of people care about this stuff A lot of people care about the implications A lot of people by the way are in a position to affect the world and regulators
01:18:58and journalists and people that big companies um and so we're trying to get to all the people who are decision makers You know the constituents in the entire ecosystem that have to cope with the consequences of technological change try to get a lot of folks were trying to
01:19:10pull more people into the industry right If more people all over the world had a sense of what's happening then they can they can decide they might want to participate We're trying to help people up level their skills become more knowledgeable about these things And e i mean
01:19:21we obviously benefit from all that but just more broadly like i think this is the topic of our time it's absolutely absolutely fascinating all right so we're almost at a time There's a tonic questions that didn't get to including the speed round but what i really want to
01:19:36do is get to the standard questions So how many minutes can we go over two minutes That's gonna be tough All right so so by the way if i forget teo say this thank you so much for being so generous with your time and and going through such
01:19:51thoughtful detailed answers The's he's really been been fascinating I have ten favorite questions I'm going to just go through a two or three of them really quickly tell us something about your background that most people don't know big when i grew up in the room midwest grew up
01:20:08in trump country you did Yes louis and has that affected your output on on the world at all your outlook Yeah absolutely Early mentors jim clark jim barksdale the two big ones and say very complementary personalities They work together very well but also starkly different in their skill
01:20:25sets in orientations And i learned a lot for both of them The question i get from listeners more than anyone asked your guests with their favorite books our favorite book so three quick nominations and i'm getting getting the hook your poor charlie's almanac the competitive charlie long girlie
01:20:39mongers and i thing a tremendous extreme ownership has been a favorite recent book about a guy named jacko will link was a former navy seal commander One extreme ownership stream ownership i one of the best books on leadership i've ever i've ever read in a tremendous by the
01:20:54way were storybook as well on dh then what is thie man There are so many there's a brand new book i robert sapolsky has a new book i've just started on human behavior isn't his magnum opus on human behavior he's the great evolutionary theorist and so it would
01:21:09probably be the third one that that's the new one but it looks very exciting and then our final question what is it that you know about technology and venture capital investing today that you wish you knew twenty five plus years ago when you were first starting out Oh
01:21:22there are no bad ideas there are on ly early ideas no bad ideas just earlier deal will happen it will happen i've become convinced now it'll happen every smart person who comes in here with a crazy idea it's all going to happen at some point they all happen
01:21:34eyes just a question of when we have been speaking with mark andriessen of injuries and horowitz if you enjoy this conversation be sure and check out all our other such chats you can find them on soundcloud apple itunes on bloomberg dot com i would be remiss if i
01:21:51did not thank our hosts mark andriessen and the crew here it andris and horowitz as well as mike batt nick who is in my head of research and help put these questions together We love your comments feedback and suggestions Write to us at m i b podcast that
01:22:05bloomberg dot net I'm barry results You're listening to masters and business on bloomberg radio Our world is always moving so with merrill lynch you could get access to financial guidance online in person or through the apple visit ml dot com and learn more about merrill lynch on affiliated
01:22:21bank of america Merrill lynch makes available products and services offered by merrill lynch Pierce fenner and smith incorporated a register broker deal Remember Pc

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