Acquired - Andreessen Horowitz Part I

0:00What do you think about playing the full who got the truth song at the end at the end? I like that. Yeah, it's so good God the truth Welcome to season nine episode one of acquired the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle based Pioneer Square Labs in our venture fund PSL Ventures. And I'm David Rosenthal and I am an angel investor based in San Francisco. And we are your hosts. Listeners, David and I decided to open this season with the complete story of the firm that totally upended the entire venture capital ecosystem a decade ago, and recent Horowitz. But as we started researching, of course, that meant telling the journeys of Andreessen and Horowitz themselves before founding the firm, which of course means telling the history of the web browser, the creation of Mosaic, the founding and eventual IPO of Netscape, which was the first real internet tech startup, and of course the tumultuous story of Loud Cloud and Opsware.

1:28So much more than that that you don't even know Ben Well, this is great. This is the first time I've literally not opened your notes at all like normally we don't trade notes, but I have no idea what you've prepared and listeners the If it does for that is that this was going to be a one-part episode until last night when David texted me and said, how about we do a two-parter? So there are early things about Mark and Ben that I did zero research on and I'm excited to learn from David along with you all today. I'm like the old legendary Chicago Cup shortstop or any banks. Let's play two. Well, I'm really pumped to do this one as a two-parter. I think the history...

2:06of Mark and Ben is really important to understand the world views of both of them and how they were shaped by it and I think for all of us working in a startup ecosystem that was so shaped by the 2009 creation of the firm entries in Horowitz, I think it's.

2:24Paramount to understand the things that shaped them because they have shaped us all and I don't know I'm really excited because I feel like my investor psychology has already changed since starting the research in Tomark and Ben Totally can't wait to dive in Yep, well listeners two things to be aware of if you like the show one is our slack There is awesome discussion that takes place on not just our episodes but also the tech news the day going on there There were now 8,000 strong, so you can come and join us at acquired.fm slash Slack. And two is the limited partner program. And this is where we drop subscriber-only content, like our library of over 50 interviews and deep dives on company building topics, like venture capital fundamentals. And you'll also get access to our LP Zoom calls with David and I. So you can click the link in the show notes or go to acquired.fm slash LP. All right, listeners.

3:18Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

3:46So the founders did exactly what great founders do. Operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love like tabular review where you.

4:05drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lugora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

4:25And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time LaGora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months truly insane numbers and that is the real test

5:17Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you.

5:39Well, David, take us in and listeners, you know, normally this is where I would warn you that this show is not investment advice. Dave and I may have investments in the companies we discuss and this show is for informational and entertainment purposes only. But this episode, all this stuff's pretty old, like good luck investing in any of this defunct technology. We're going to be talking about a lot of dead companies on this episode. Next time, we'll be talking about a lot of live companies. One disclosure before we jump in here. I think this is the first time I at least have done this on this show. I have a new investing vehicle that I'm not quite ready to talk about just yet, but I'm doing it with my buddy, Nat Manning, who's the COO of Kettle, and should tell everybody that a couple of the GPs at Andrewson Horowitz are LPs in that vehicle. I don't think it has affected my telling of the history, but everybody should just know that going in. Congratulations, David.

6:37Thanks. Super excited. Can't wait to talk more about it soon. All right, so we start history in facts in 1966 in London, England. Not what you expected. Was it Ben? So this is not Mark. Nope, not Mark that we're talking about here. We are talking about Ben who was born in 1966 in London, England.

7:06I did not know that. It was the 60s. The counterculture is in full swing. In London, you've got the mods and the rockers, the hoo, the rolling stones, all that. And Ben's family, that he has born into, a young family, is living in London at the time. Their American expats, the husband, a Ben's father, had come to London to work for Bertrand Russell, the philosopher.

7:35philosopher, polymath, a logician, mathematician. Oh wow. So the family already had either one or two children. I'm not sure if Ben is the second child or third child. But nonetheless, in 1966, Benjamin Abraham Horowitz is born, of course, would grow up to become the Ben Horowitz. So usually on this show, on most episodes, we would just kind of like stop there with the family. Like, oh, yeah, this is the, like, milieu that our protagonists were born into. We can now move on to the people themselves. This time we're going to spend a little more time on Ben's family. His mom's name is Alyssa, then Horowitz and now crowd tamer. And his dad is David David Horowitz. Now that name

8:28may not mean much to probably most people listening, but some of you listening are saying, wait, David Horowitz, that, David Horowitz? Yeah, I have no idea what you're talking about. Yeah, well, so David was and is a radical political activist and very much a large and still active part of American history, even though I think most people these days are not aware of it. So at this time, The reason he was in London is he was one of the leading young intellectual radicals that was championing the new left at the time in the counterculture. And they were in London. He was working with Bertrand Russell, protesting the Vietnam War and advocating for like world peace and worldwide nuclear disarmament. Oh, wow. So he was working with not only Russell, but Jean Paul Sartre, Simone de Beauvoir, James Baldwin, Stokely Carmichael. He is in the middle.

9:26of everything happening in the 60s. So this continues for a couple years. And then in 1968, David gets an opportunity, he can't refuse, which is to move back to America and become the co-editor of the magazine, Ramparts, which was like one of the leading publications of the hippies and the counterculture. They originally published Che Guevara's Diaries. It's crazy. And Ramparts was based in Berkeley, California, which is how Ben Horowitz ends up growing up in Berkeley, California. It's funny. I knew Ben grew up in Berkeley and I just didn't make the connection that like any time you hear that someone was in Berkeley in the late 60s, you should ask the question, like, well, what were they doing in the counter culture movement? Like what role were they playing and how did they end up there, rather than just being like the way you would today, which is like, yeah, it's a little bit of a hippie, hippie town, but you know, it's part of the Bay Area. It's part of technology.

10:24Nice suburb, we get the college campus there, better weather than San Francisco. It has a little different back in the day. Okay, so speaking of different, we know David's sort of already part of the counterculture. When they get back to Berkeley, get this. He intersects with Huey Newton, the leader of the Black Panthers and becomes very close with him and with the Panthers. And when I say very close, I mean, like, very close.

10:52So he writes about them and ramparts all the time helps bring them to national prominence. The whole family, including of course young Ben, would go to the Black Panther Church every Sunday in Oakland, the Son of Man temple. Wow, crazy. And you know, this is like a little bit certainly outside this scope of acquired. But just to paint the picture of like where Ben came from, the Black Panther party, like if you're not American or from the US and studied American history, like it was one of the most powerful forces for black and civil rights in America's history, and the whole family is right in the middle of it. But unlike Martin Luther King and the civil rights movement, the Panthers did not advocate for non-violence, shall we say. Less about the civil disobedience. More about the disobedience. More about the disobedience. I didn't know this, but it was actually originally founded as the black panther party for self-defense. Oh, wow. And the whole purpose of it was to resist

11:52police brutality against black people in Oakland. That was the origin of the black panthers. Wow. I mean, this was like wild times. So in 1969, FBI director J. Edgar Hoover described the black panthers as the greatest threat to the internal security of America. That's how wild this was. So they're like right in the middle of it, including young Ben, the Patty Hearst kidnapping, like everything. So then in 1974, when Ben is eight, An incident happens with changes things dramatically, very dramatically. So the Panthers needed help with their bookkeeping. And so Huey turns to David, who's due to running this organization, Ramparts. It's like, hey, can you help me like we need bookkeeping now? If only they had pilot, like history would have taken a very different course. So David introduces them to Ramparts bookkeeper, a woman named Betty Van Patter. The Panthers bring her on. Six months later, Betty

12:51disappears. And a few weeks after that, her body washes up a shore across the bay in San Francisco. Oh, wild. So the crime was never solved. No one was ever charged, but David and many, many others believed that she found out too much. And Panthers had ordered her killed. Wow. So, you know, later Ben, of course, would write the hard thing about hard things. And you know, lived through all this crazy technology stuff. You just got to imagine he was eight and his family went through a this. Wow. You know, a busted IPO doesn't seem so hard after stuff like this. So anyway, we will move on and get to Mark and Netscape and Loud Cloud and Andrews and Horowitz now. But yeah, it's crazy. And for David, he does a complete 180 and ends up becoming an arch-conservativeist. He was one of the primary strategists behind Trump's political strategy for defeating Hillary Clinton in 2016. What?

13:46Jeff Sessions and Stephen Miller, where I like protégés of his. Oh, I had no idea. David Horowitz Freedom Center is one of the biggest funders of Trump leading political ideology in America. And crazy enough, they still talk. And David, they apparently still have a great relationship. There is a wonderful New York Times piece that we'll link to in the show notes. I recommend everybody go read about all of this that came out a few years ago by David Straitfield about it. But yeah, this family history is just...

14:15wild. That's fascinating. And it's so cool that family bonds can transcend and not just political beliefs, but like deeply seated ideological beliefs about the way the world should be. Totally. And yeah, that out of all of this 50 years later comes the entries in Horowitz. Uh, okay, so back to Ben, obviously he like soaks all this in and has a huge influence on him. But he also wants to blaze his own path and get out of his dead shadow. And he gets turned on to this other revolution that is happening in the Bay Area in the 70s, which is the computer revolution. He ends up going to Columbia in New York for undergrad and studying computer science there and probably wanted to get sort of a way from everything happening in the the family life at that point in time. He then goes to UCLA afterwards and gets a master's in computer science. And while he's there, he interns at the legendary

15:13Silicon graphics. Otherwise known as SGI, led by Jim Clark. Jim Clark, who will come up later many times. Oh, he's definitely going to come up in the story. And SGI is just legendary. I don't think we've talked about them as much on acquired, but they were right alongside Intel and Microsoft and Apple, one of the big early computing companies in Silicon Valley.

15:41The current Google campus was originally. Yeah, that's crazy. The SGI campus. It's wild. They did the not just graphical computing, but 3D graphical computing. So they did the effects for tons of Hollywood movies like Terminator, Jurassic Park, the N64 Nintendo video game console, which is going to come back up later in the story. SGI made that. They made the processors for the N64. Really? Yeah. So if you played Mario Kart back in the day, you have SGI.

16:10Okay, the thing that I know that we're going to talk about later about N64 coming back up makes way more sense with Jim Clark having the SGI background and SGI making the chip for that now. So is there any ties between Lucasfilm and SGI? Oh, that's a good question. The University of Utah folks that ultimately became industrial lighting magic. So Jim Clark was one of those Utah folks.

16:35Uh-huh, along with, of course, Nolan Bushnell and Alan Kay. I think that's right. I think that's right. I don't know if there are any direct ties between Lucasfilm and SGI, although I'm sure they were using SGI's hardware for the effects at ILM, industrial latent magic. That was, it was Alan Kay went to the University of Utah and graduated with his masters in 68. So it would have been that same time as Nolan Bushnell. All this stuff going on.

17:04So later, we're now in the very early 90s, young Ben, coming out of school, coming out of his master's program, he joins SGI. He doesn't say that long though. After about a year, he leaves and he joins a startup that's coming out of SGI. And that startup kind of fails, but it's his first startup experience. And then he moves on and he joins Lotus. Yes, what should have been the way that we all processed words and numbers, but alas, Microsoft crushed them.

17:34Yeah, what was it, Lotus 123? I think. Yep. And Lotus Notes. Lotus Notes. Yep. So it's while Ben is at Lotus that he hears about this new exciting paradigm development, new piece of software coming out of not Silicon Valley, but the middle of the country, the Midwest, the heartland of America. Illinois, we are talking about Mosaic, the Mosaic web browser.

18:02The NCSA mosaic. Indeed. Wasn't it originally X mosaic? Ooh, I don't know that. Yeah, it was originally released as a sort of prototype piece of software originally only for Unix systems and used the X window system. And it was sort of a common thing to denote it with an X in the name of the piece of software. Ah, wow.

18:26Well, we're gonna get into the name more in a minute here, but Ben here's about mosaic and of course it's celebrity wonderkinned young brash founder I guess question mark mark and recent so who was mark and recent a man who needs no introduction but His background was let's just say pretty different than the Amelia that Ben was growing up in so He was born in Cedar Falls, Iowa, which is not a super, super small town, but he was raised in New Lisbon, Wisconsin. Do you know what the population of New Lisbon, Wisconsin, is today then? 10,000? 2,554 people. Wow. So Mark's father Lowell was a sales manager for a seed company called the Pioneer Hybrid International Seed Company.

19:23and his mother, Pat, worked in customer service at Landsend. I think Landsend, I think they would go on to become a sizable customer of Loud Cloud, but that is in the future to come. So Mark, he talks about this all the time. If you've heard Mark talk about his background, he could not wait to get out of this small town in the Midwest and computers in the internet where the vehicle he was going to do it. He says of his family, which he rarely, rarely talks about.

19:52The one quote I was able to find is he says they were Scandinavian hardcore very self denying people who go through life never expecting to be happy. Well, yeah. Well, and it's worth pointing out to that like when you say this non-traditional background you alluded to him as this wonder kind and that was just not true yet at this point in history and we have Brian McCullough from the internet history podcast to thank for this. I finished like the first ten episodes of that podcast to prep for this, but He brings up the point that Mark was like an hourly worker at NCSA. Oh yeah. Who's getting paid 625 an hour? Yeah, like no one recognizes his genius yet and the innovation of creating mosaic of actually mobilizing people to work on this thing was like, Hey, we have a lot of follow resource here. We have some smart people. I have no authority, but I'm going to wrangle the troops to try and do this with me. Well, and I think if there's one thing that's young Mark and Jason and now

20:51Older Mark Andreessen is very good at. It is putting himself in the right environment to meet the right people and to succeed. So, you know, we're referring to the University of Illinois where he would end up going to college. He was very intentional about deciding that. He decided that he wanted to go to school, aid a study computer science. And so he wanted to go to school with a great CS program that his family could afford and B, he also wanted a place where he would have the opportunity not just to study CS, but to actually like work while he's in school on like cool stuff that's going on. And of course, our band of champagne had not just great CS school, but what we've referred to a few times now at the National Center for Supercomputing Applications was attached to it, the NCSA. So Mark, when he gets to Illinois, he immediately starts interning doing like work study

21:46at the NCSA. And while he's there, so how does this kid, as you mentioned, he's not yet Mark Andreessen, how does he end up coming up with Mosaic? So while he's at NCSA, they're interfacing with all of the other supercomputing centers around the world, including academic research, like particle accelerators, particularly with CERN over in Switzerland, the particle accelerator.

22:14which is where Tim Berners-Lee is. And that's where Tim Berners-Lee comes up with the set of standards, like HTTP and all that stuff that he dubs the worldwide web. And all the way across the world, like halfway across the world in Illinois, this kid working there, Mark Andreessen, he hears about it and he's like, oh, well, that sounds very interesting. Totally. It's cool thinking about how this came to be because you got Tim Berners-Lee there on one of the few next workstations like the next cube that actually shipped and was actually used by people because this crazy expensive thing that only went to people working in academia and of course this is sort of Steve Jobs's company before returning to Apple and it says so much about Tim and the environment in which the internet and the worldwide web was sort of started that it was on a next machine because it came out of this rigorous academia

23:12corner of the world, which is frankly so different than a lot of the startup innovation that is happening today. A lot of the frontier tech stuff comes out of academic labs, but I think we often forget, especially with how counter-cultural a lot of new things on the internet have become that it started in a very closed way, honestly. The original intention behind all these set of protocols.

23:38worldwide web, like it was supposed to be just for universities and research. So they could share research notes. Yeah. And it was very controversial what Mark was doing because people didn't want to let the riff wrap in. They thought it would dilute the quality of like this is supposed to be a pure thing about like conducting research. All right.

23:56I got this great quote from Mark so they gave us an interview in 2003 that's talking about on starting mosaic and he says but the internet community back then the key technical people didn't want the internet to become easy to use or graphical because that would pollute the environment only smart people can use the internet was the theory so we needed to keep it hard to use we fundamentally disagreed with that we thought it should be easy to use and graphical so you should be able to point and click. Totally hot so great like.

24:23It's really just because Marley, he doesn't give a crap. He's getting paid 625 an hour over it. He's like, well, it's the worst that can happen. I'll just code this thing up. He convinces Eric Beena, who's a full-time employee there to work with him and code up an easy-to-use graphical browser to sort of open this up to everybody. He's like, yeah, they'll fire me if it doesn't work. Who cares? Totally. This is the first playbook theme that I want to pull forward. Listeners are trying something a little new today, interspersing more of the playbook throughout the story, but this is the very first time

24:52Mark runs the playbook of there's something right now that's only for some small closed group of people that's in an inaccessible way. I think there's something very interesting to be done by opening up to the masses. And of course, there's no business model behind this yet. It's just let's let.

25:08everyone use the internet and let's make that possible. And when you think about Andreessen Horowitz, all these years later, funding things like Clubhouse and investing in social media platforms like Twitter, like Mark did very early or help Coinbase. Absolutely. It is very much this. Let's take something very esoteric and make it very available to everyone. And then we will figure it out later. This is the very first time he runs that playbook. Totally.

25:37The other sort of counterintuitive thing or going against the grain element of building a mass market browser for the web was that this was not how most people thought the internet was going to go at the time.

25:53At the time, this is, you know, in the early 90s, people are talking about the information super highway. And actually, SGI was a big part of this. SGI was working with the cable companies to build like these internet enabled set top boxes. That's right. Everyone thought it was going to be TVs. It was going to be TVs and...

26:16Even worse, it was gonna be the cable companies and the government in like private public partnership that owned all these pipes. Could you imagine and that they were gonna control the stuff that was gonna go on there and Americans were gonna access it through their televisions. This was a big platform with the Clinton administration when they were campaigning for the 94 election was that we are going to be a big part of the information superhighway from the federal government and it's fascinating to like zoom out a little bit.

26:45It makes sense that you have these big screens and you have fat bandwidth that's able to send perfect, not choppy, high fidelity audio and video to TVs. And then you look over at this internet thing, which is only a thing for academic institutions. There's like 40 nodes or something at all. There's 40 servers, period on the whole internet. And all it can do is send text back and forth like, no, you're not going to bet on that platform to be the way that this ends up coming to market. Yeah, totally. Now to be fair, to the soon-to-be Clinton administration, and in particular to Al Gore, who would become Vice President Gore, in the 1991 Gore Bill, which is allocating funding for all these various internet projects that are being built out in America, they actually specifically allocate funding to the Mosaic Project at the NCSA. So this is how

27:39they get the resources to pay Mark's 625 hours salary for all the hours that he had Eric are going to work on coding this thing up. So you're telling me Al Gore did invent the internet? He did. Sort of. I guess he was kind of like the VC who funded the internet. Wow. Al Gore was Mark Andreessen's VC and you heard it here first. You heard it here first. So they do this. They create mosaic. And in 1990.

28:06three, they open it up for anyone to download and use for free. But importantly, and this is going to come up again later, they do not open source the code. So the NCSA retains the code behind mosaic. It's not free and available in open source, but anybody can download it and use it. And of course, people go nuts and do in 1994 wired wood right.

28:32The second phase of the revolution has begun. Don't look now, but Prodigy, AOL, and CompuServe all are suddenly obsolete and mosaic is well on its way to becoming the world's standard interface. Well, because those were all these walled gardens. I mean, AOL, like everyone should remember, AOL was not the internet. It was AOL keywords. It was pay-to-play. It was, you could only publish the content on AOL if you did a deal with AOL, which is, of course, how they had this incredible revenues that they were reporting. And everyone thought this was the most unbelievable company ever. But the internet was fundamentally something different. The worldwide web was something completely different. It was open is probably not the right word yet, but used to standard protocols. And so when you mentioned that it grew like crazy, I grabbed some stats on that in February of 93 when they released the first version. And this is like super prototype. There's some great comments from Mark Andreessen out on the

29:30NCSA X-Mosaic listserv when they release version 0.5 in January of 93 that say things like, I'm looking more for feedback on design and functionality than bug reports right now. Don't take the current code too seriously. New releases will probably come out every 7-14 days until 1.0 arrives.

29:50The book of the program will be rewritten in C++. Anyway, so there's like disclaimers all over the mailing list that he's distributing this thing out to, but the stats are crazy. It's like the early Ethereum. Totally. So the next month there's 12 users in February of 93. Within three to four weeks, there's a thousand. And by spring, so like you got January's that listserv, February is 12 users.

30:16a month later, it's a thousand by spring. So two months later after that, it had 10,000 users. And then nine months later in early 94, it has a million users. So like the very first thing that Mark Andrews and shipped had insane growth and perfect product market fit right out the gate. Those are still pretty good numbers today. Sure. Oh, absolutely. And this is in an era when people maybe have a dial up connection, probably people have PCs, but like not that many people. Oh yeah, the Tam of the internet was super small. Like if you had a million people by early 94 using your software on the internet, I don't know what percent of internet users that is, but it's meaningful. You had like 10% of all internet users. Totally. It was the killer app for the internet. So this is funny, right? So we're talking about it's 1993. This is also Mark's senior year at Illinois. So he graduates in spring of 93.

31:14probably when mosaic is at the like, I don't know, 10,000, 20,000-ish user adoption curve. He doesn't think that this is going to be a thing. And he's like, oh, this is like a cool thing I did during my, as an internship during my college years. I want to move out to Silicon Valley, move out to California and get a job. You know, I'd like a real computer company. And famously, he talks about this. He felt like he already missed it. He felt like Silicon Valley had happened.

31:40Absolutely, I got the quote from this too, so marked it a great interview on the Tim Ferris show a few years ago. And he says, when I got to the Valley in 93 and 94, I thought I had missed the whole thing. The great PC companies I'd gotten built during the 70s and 80s and by the time the 90s arrived, PC was done. It was finished. You could go buy one and it was great, but it was done. People in the Valley thought there was nothing else left to do.

32:03And then there was this moment where I and various people wrapped our heads around the implication of the internet which today seems obvious, but at the time it was very contrarian. If you said the internet would become a mainstream consumer medium that three billion people are going to use worldwide for all forms of human activity, you would have been laughed at, you would have been institutionalized. It's spoken only as Mark Andreessen can to insert a playbook theme here. I mean, this is always true. There is like no moment.

32:32in Silicon Valley writ large in tech, where this is not true. I remember graduating from GSB in 2014 and commiserating with all my friends, being like, we missed it. It's over. Like, the valuations are so high. It's crazy. I felt like this after shipping apps to the app store. And then I was five or six hit. And suddenly there were a million apps. And I was like, shoot, it's over. And meanwhile, machine learning had yet to arrive. Crypto had yet to arrive.

33:00There's actually a really, really great Mike Meritz at Sequoia has a wonderful saying of this. I don't know that this is actually like publicly written anywhere, but that this is the biggest lesson that he took from Sequoia's Cisco investment, which he was like looking at the returns on Cisco, and he was like, how are we ever gonna top this? This is the top. We'll never do better. And he was talking with Don Valdeau about it. And Don was like, it's always gonna be bigger. Like as long as Moore's Law continues, then just like the Number and scale of industries that computing and technology can address is always going to grow as long as that is happening. So the next generation is always going to be an order of magnitude bigger than this generation. That has played out time and time and time again.

33:46And of course, Moore's law technically didn't continue, but the number of cores for the same price that you can put on a single system on a chip has followed the same trajectory as Moore's law. So even when we hit the upper limit on certain things in physics, the industry seems to figure out a way to continue to have the spirit of Moore's law and the price and power of compute continue such that, and this is another Andreessen saying, but at some point, the hardware limitations go away and compute becomes free. And then it's really all about with an infinite and free resource of compute, what can you do with software? All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI first world, that doesn't hold up anymore. Yep, your risk surface changes every week now.

34:43A vendor turns on an AI feature or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote shadow AI running with no security review at all. Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap, and the way that they close that gap is Vanta agent.

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35:38Every AI tool, the whole environment. And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you.

36:08So, okay, back to Mark. He can't even get a job at like a big respected PC or software company. He moves out to Palo Alto and he gets a job at enterprise integration technologies, which I think was a tech like implementation consulting firm, like doing like people soft installations for companies. You can imagine Mark Andrewsons fit with an environment like this.

36:33So of course, but as this is happening, this is when Mosaic is rocketing up this adoption curve. So he kind of, it's this weird thing where he's this kid out of school. We're gonna, no name job, but he's kind of a celebrity. And he's gotten kind of shoved out. And there's two sides of the story. I think the folks at NCSA would say that Mosaic was an official project. Mark says they sort of self-organized. It became very clear to him.

36:58that the sort of bureaucratic leadership at the NCSA was going to sort of take the lead on this and start doing the press interviews. And they did own the license to the source code. And so they, you know, he was an employee and it became NCSA's thing, not Mark and recent thing. Yep. Oh boy. Is that going to come back? So into Jim Clark, of course, Jim Clark, founder of Silicon Graphics, STI, Utah, you know, Mafia alumni, he had just left.

37:28STI he had been feuding with the board and he's out. He's looking for his next thing, but he has a non-solicit from STI so he can't take any of his people with him. But he knows he wants to start a new thing. He's got a chip on his shoulder. He's like, I got another act. I'm going to prove all these people wrong. He needs to go find new blood. He hears about mosaic. He tries it out. He's like, oh, this is amazing. This is the future. I got to look up.

37:52This Mark Andrews and guy who's there on the about page is like mosaic by Mark Andrews So he calls him up. He just called calls him and they get together. They have breakfast I think Mark would famously say this is like the one and only time he got up at 7 a.m. In his 20s. So here's how it goes down. They have breakfast and Jim is like Mark You should commercialize this thing that you're doing with I was like, you gotta get out of this job and I think we should do it together. Marcus like, I don't know, you know, I'm really enjoying this consulting lifestyle, doing software implementations, people soft, I'm loving like, hell no, let me get out of here. Let's go do this damn thing. Yeah, yeah, yeah. No, that's not how it went down at all. You probably know this bend from the research, but you would think that that would be the now in retrospect obvious thing. No, Jim.

38:43does take a shine to Mark. And he's like, okay, great. I want you on my team on this new team. I'm assembling. I want some young blood. But the idea I have is this N64 Nintendo console that we've been working with Nintendo over at Silicon Graphics. This is going to be the perfect information super highway node into living rooms. This is how we're going to win the internet. We're going to build an online service for the N64 console.

39:11It makes sense. I mean, given the background, given the hype that was going on around N64 at the time, I see why that was the belief. I mean, I remember being a 12 year old, like reading every single gaming magazine that would come out, just trying to get details on the N64. I got mine on launch day. I would have convinced my parents to pay any amount of money for an online service for that console, which is so interesting that this was what they conceived of instead of the browser because This would go on to become a huge business. You look at Xbox Live three, four decades later, this becomes an enormous opportunity. But at the time, this would have been absolutely the wrong move. And there's another playbook theme. Mark has a quote that says if they had shipped a year earlier, referring to the N64, we probably would have done that instead of Netscape. Yeah. So this is the history turns on a knife point. The console gets delayed.

40:08for a year. And because of that, they're never able to reach a deal with Nintendo and it's unclear that anything's going to happen. Meanwhile, they're both itching to get a company going. So they have a kind of brainstorming session where they're thinking of other ideas for stuff to do. And eventually, Mark is like, well, you know, this mosaic thing, like I did build that. And all my buddies that I kind of did it with back in Illinois, They're about to graduate, too, or they already have graduated. We could just go hire all them and recreated and commercialize it. And Jim's like, huh, okay, fine, let's do it. So they incorporate and they start the world renowned, go on to be history making, mosaic communications corporation to commercialize mosaic. I love that they were like, yeah, we'll just use the same name. Well, name our company mosaic, even though that's a thing that's owned by that lab at the university. Yep. So obviously,

41:07NCSA was none too happy with this. They threatened lawsuits. It's all back and forth eventually. They changed the name to Netscape Communications. And that is how it comes to be. It was actually Greg Sands, who was the first PM that they hired. Greg Sands of Coastanoah. Greg Sands of Coastanoah, previously of Sutter Hill. Oh, awesome. And Greg Sands little sister Emily was at Princeton with me and Jenny, and was, I think she was salutatorian of Jenny's class.

41:36One of the absolute top five most brilliant people I've ever met in my life. So they changed the name of the company to Netscape, but the internal code name. I was going to ask you if you knew this. Yes. Yes. The internal code name that they use and they continue to refer to the actual browser code itself is Mozilla, which stands for mosaic killer. It's so good. It's so good.

42:06It's so good. So if you are wondering where Mozilla came from, that's it. Yep. So as again, going Clark at this point time, his net worth from SGI is he would say around like 15 million or so. He puts in four million bucks. He finances the whole thing himself, hiring all these people with great people like Greg, which by the way, his net worth was 15 million from SGI, not because that was a little company, but because he had to take on a colossal amount of financing on various terms in order to make that company succeed. Totally. Yeah, that he would walk away with 15 million from SGI after decades and 15 million at a chip on his shoulder at a huge chip on his shoulder. So he's wary of all these VCs that finance SGI. I think NEA was the big VC behind them and took so much the equity. So he puts in 4 million, but then he's worried about like, well, this is really

42:59getting a lot of buzz starting to take off. We're going to need more capital. I don't have enough to finance it myself. I guess I will bring on some venture capitalists. He goes and he talks to his old buddies at NEA, but enter Cliner Perkins and John Doerr. Here's about the deal and outpads NEA invests $5 million in the fledgling Netscape Communications Corporation for 25% of the company. So 20 posts. Yep. Wow.

43:28Times are different back then. So not too long after that, Ben are erstwhile steeped in hippie, Berkeley, true Bay Area counterculture DNA friend Ben. He's over working at Lotus at the time and he had heard about Mosaic. Of course, I've been using it. He thinks this is the future. He hears about all this going on at Netscape and he's like, I gotta get in there. I gotta make it happen. So he has a friend get him into connection.

43:56He goes in the interviews and he gets a job and he gets put in charge of the enterprise web server product line at Netscape. And this is because there aren't web servers yet, right? What's the point of having a browser to load web pages if there's no software that can sit on servers that can create web pages? Exactly. So this is going to become like really big. But at the time, I don't know how Ben was feeling, whether he was excited about this or not, but it was kind of like a Okay, I mean like this is how we're gonna like make money. We're gonna sell licenses for the server business so that companies can create websites and have commercial websites. But the big sexy thing is this browser that is getting millions of people using it. So it's kind of this part of the company that was like, yeah, like necessary. This is how we're gonna make money. It is a beautiful time-tested business model. Like give away the consumer thing for free. Get as many people on that as you possibly can. It's actually kind of the first

44:50Real example of aggregation theory, Netscape ends up becoming powerful in the ecosystem because they're able to get all the internet users using it and thus then sort of apply pressure to businesses that if you want to create great websites you can do so when we promise to be compatible with Netscape the browser that everyone uses so you should buy these tools from us. It makes a lot of sense yeah, and really I think only came about because of the history of mosaic being part of NCSA like if I don't know, some company like Microsoft say, were to otherwise have gone out and created a new piece of software. You know what they did with Word or Excel or PowerPoint that they bought. Consumer licenses. Yeah, natural thing you do, you put it in a box, you put it on a CD, you shrinkrap it, you get it into CompUSA, and you would sell that sucker for 50-100 bucks to every consumer that walked in the door. Not the route that the browser took to its great advantage.

45:48which is fascinating, because that affected everything henceforth. I've never paid for a web browser. You could make an argument, people are paying for a brave and different ways, or I'm sure people pay for specialized browsers, but like, it's set the trend that you do not pay to get access to the web. Yeah, totally. So, famously, people at Netscape would talk about how we invented internet time, and that it was this parallel universe that was accelerating faster than reality time. By August, 1995 so we're just 16 months after the company starts in April 94 in April 94 Netscape has an 80% market share of web browsers in the world and they decide Jim Clark pushes them that they're going to go public and they've successfully killed mosaic at this point right 80% just I don't know 12 months ago the other thing that market reason created had

46:47close to 100% of the market share, which is wild. All right. Well, it turns out they haven't totally killed much. Okay. So 16 months you're talking from founding to IPO, like any good tech company, you know, right. Good tech company. So, you know, the bankers Morgan Stanley and Frank Quattroon and Mary Meeker on the analyst side are taking them public just absolute killers.

47:11Killer superstar team Frank Quattrone of the Amazon IPO Mary Meeker of bond capital and famously the Kleiner Perkins is state of the internet Yep, the people who would go on to do unbelievable things took this company public totally So they're not quite sure how to price that I mean nothing like this has ever happened before so They decide they're supposed to price at $14 a share which I do the exact math, but that would be Roughly like I don't know five six hundred million dollar market cap. Shall we say so like astronomical at the time? I mean 12 months ago. This was like a 20 post series a the client who did So they think in $14 a share the night before Clark remember he's like he's pretty salty from what he walked away with at STI He pushes them to up the IPO price what they end up pricing at the night before the $28 a share the next day the stock

48:10doesn't open because there is so much buzz about this company. Obviously, the institutional demand is high and famously institutional investors were kicking themselves for having missed out on Microsoft a decade earlier and how big that became and so the hype is like, this can be the next platform, this can be the next Microsoft. But meanwhile, they've got millions of people, like moms and pops and kids.

48:37using this thing on their home PCs. They all hear, you know, in the news that Netscape is going public, they're using Netscape. They want retail wants it on the IPO. So famously, tell me there's going to be a pop. This is like the origin of the pop, the IPO pop, or at least the extreme IPO pop. So famously Charles Schwab, the brokerage, they had to change their phone systems, leading up to the IPO, because remember, there's no internet brokerages at this point. You can't place orders online, even through Netscape. So they change their phone system that when you called your broker at Charles Schwab, you would get a message in the couple days leading up to the Netscape IPO that said, welcome to Charles Schwab. If you're interested in the Netscape IPO, press one. Press one. Press one. One. Oh my goodness. So there is so much demand. It takes hours to open up the stock.

49:35On the day of the IPO, it opens at $75 a share. Wow. The bankers were like, I don't know that we can go up to 28 the night before. So they thought they were going to price at 14. The bankers reluctantly IPO'd it at 28. And then the first retail trade happens at 75. 75. Yep. It falls a little bit during the day, but it closes at $58 a share, giving the company a $3 billion market cap. Just insane.

50:04Totally insane. I think Microsoft was about 10 billion at this point in time. I remember it. And it's worth saying a few things. One, this absolutely kicked off the .com bubble. This was the moment that it started. There were a couple of internet IPOs before this, but this is the one that blew the doors wide open, made valuations not matter and created four and a half years of absolute madness from this point forward. But let's keep...

50:31had an unbelievable growth trajectory, not just in users, but in revenue. Like in the Ben Horowitz corner of the business, revenues were doubling every quarter, which means they were 16 X-ing revenue year over year. Well, they'd only been around for five quarters. Sure, but at a 16 X year over year run rate on revenue. They did 17 million in revenue in the first six months of 1995 alone, which like, you know, for a company that entered 1995 being what eight nine months old and then was doing you know what call it run rate 50 60 million revenue in that first full year of existence that is very impressive yeah for sure the other thing that's worth mentioning here is

51:16that it was unusual for companies at this point in time to IPO without being profitable. And so people were sort of like bankers were making this exception of like, well, this one's gonna be hot even though the company's not profitable. Whereas now you look around and it's absolutely the minority of the time that a company is profitable before the public is willing to take on the risk of continuing to finance that company. So it's just funny how how much things have changed. I mean, it really the Netscape IPO, this was like a cultural moment for tech for the world for finance for everything. Funny story, this was only six days before the launch of Windows 95. So this is the most like interesting month ever in the tech industry to this point. And if there's, I mean, this must have been in the risk factors of the IPO perspective. I didn't look it up. But if there is one bear narrative on the Netscape IPO, it's Microsoft.

52:12Absolutely, like everybody knows Microsoft is they control Windows. They control the operating system of 95% of the install base of PCs in America, you know, in the world at that point in time, you know, what are they going to do? But nobody pays too much attention to it. And famously shout out to Brian McElla for finding this and calling it out around the IPO. And Jason gives an interview, Mark gives an interview and says famously that, you know, they ask for these worried about Microsoft competing. And he says, I'm not worried about it.

52:42Netscape can become a company that will turn Windows into a quote, mundane collection of not entirely debugged device drivers. Well, Pride comes before the fall, as we all know. Obviously, you know, this is Microsoft in the 90s, which is like absolute killers, pre-doj, pre-doj, which happens because of all this. So in May of that year, you know, Bill Gates saw this happening. He saw Netscape. He saw where this was going to go. And in May of 95, he had written the internal internet title, if memo. And for anybody who hasn't read that is just worth reading its entirety to understand one, the genius of Bill Gates. But to to understand the context of that time, even Bill Gates, like even Microsoft, who was so steeped in this stuff, their strategy was the information superhighway. They were long all this stuff, interactive TV, but

53:40They, just like most other people, did not predict that this low end disruptor, the internet based on text being sent over HTTP and, ooh, images in line that Mark and Drieson managed to get into the browser too, that that actually was going to be the thing. And it's not until early 95 when he pens that memo where it becomes obvious to even the smartest, most well-positioned people in the whole tech industry to react to this. But once he realizes and writes that memo, Oh boy, is it ever game on? Guns out. So, this is strategic priority, number one of the company. We're gonna compete here and we're gonna win. So, turns out, they actually have the perfect strategy to kill Netscape already in progress within Microsoft, which is that back in 1994, Thomas Reardon, a famous

54:36Microsoft employee and then would go on to be founder of control labs, which Facebook acquired a couple years ago. He had actually licensed, he was playing around with, you know, he thought browsers were interesting. This was going to be a thing. He had licensed for Microsoft some code for a browser from a little company called spyglass ink, which happened to be located in Illinois in Urbana, champagne. Why was it located in Urbana, champagne? Because it was the Commercial entity started by the university to spin out and commercialize the IP that they developed at the NCSA, including the mosaic web browser. So Microsoft's got a license to the mosaic web browser. They're like, well, we've got this license.

55:28We can use it and the terms of the license actually are that we pay spyglass, you know a portion of the revenues that we make from distributing this thing Well, what if we just bundle it into windows and we give it to everybody for free? Oh my god, it's stone cold killers There actually ends up being a big lawsuit about this a spyglass shoes Microsoft and it's like hey, you're giving it this away to like hundreds of millions of people and you're not paying us anything because you're not charging for it and classic Microsoft Legally, they're like, hey, look, like we savvily negotiated an agreement with you and, you know, sorry, your fault that you didn't anticipate the way that we would go on to distribute this thing. Famously, they run this playbook and done the same thing with DOS back in the day. This is worth a quick sidebar because this is absolutely unbelievable and as part of the reason Microsoft got sued, but Microsoft had a deal in place where in order to

56:22use DOS at all, to license DOS from them. If you're an OEM, you know, making computers, you had to pay them whether or not you chose to use DOS as the operating system on that PC. It was a per CPU shipped license. So if you're a PC manufacturer in order to get access to DOS, Microsoft's like, sure, we'll license it to you, but We're not tying the amount of money that you owe us to the amount of computers with Windows on it. It's the amount of CPUs you ship period. So then, of course, the incentive there is for the OEM to say, well, we're going to make the most of this license since we're getting charged for it anyway. They put Windows on everything they ship. And that is how Microsoft became the dominant platform with DOS, where then every application became written on top of DOS because every CPU had DOS on it. Yeah. Well, and famously, Microsoft did not develop DOS.

57:18They did a very similar deal. They licensed it. From another Seattle company. Yeah. Another story for another day. God, they were killers. So the net of it is, even after the lawsuit, they pay a grand total, Microsoft does, of $8 million to spyglass, which will go back to the University of Illinois. The NCSA in Illinois get $8 million for Mosaic, which becomes Internet Explorer. That's right. Mosaic.

57:45which, you know, Mark and Jason and Eric Bina wrote at NCSA, the IP stays at NCSA in Illinois, spun out into spyglass, licensed from Microsoft, that is internet explorer. And for anyone who was thinking, geez, how did internet explorer launch so quickly after Microsoft needed to catch up and create a browser? This is how they did it. Yeah. So people know that this is happening and Netscape knows that all this is going on. Meanwhile, Netscape at this point is helmed.

58:13Joining before the IPO was a new CEO, Jim Barkstale. They brought in sort of a professional CEO operator. He was the former CEO of FedEx. He came actually from McCaw Cellular and AT&T before that. They have this sort of grizzled industry veteran at this point because even Jim Clark for all of his executiveness from SGI for the IPO, Netscape actually did want this sort of like robust professional public market CEO. So everybody knows this is going on.

58:42but Netscape thinks and the market thinks that, okay, Microsoft's now that they've got this Internet Explorer thing, they're gonna run the office playbook here. They're gonna sell this at CompUSA and you're gonna buy it and blah, blah, blah. And then as he said, been two weeks after the Netscape IPO. They launch Windows 95 and not fully bundled in then, but they say that there's the Windows 95 plus pack.

59:12And Internet Explorer is bundled into it for free. And of course, this would eventually, very quickly, Internet Explorer would just be bundled for free, directly into every copy of Windows 95 and then Windows XP. All of a sudden, Netscape is now forced to compete with free and bundled. Brutal. And every operating system basically on the planet. Absolutely brutal. Totally brutal.

59:41So now this little division that Ben Horowitz is running, the enterprise server division, that becomes hugely more important. This is the only part of the company where they can even conceivably compete against Microsoft. And this becomes major strategic initiative in that escape. We're going to focus on selling enterprise server products. And of course, the enterprise server products have to produce web pages that are compatible with Internet Explorer, because that's now what everybody is using. It sucks. Oh, it's so brutal. So, famously, they start scrambling. Ben and the team start scrambling. They're going to make the product way better, the Microsoft Server product. They're working on a bunch of new features. They line up a big announcement event in New York City for March of 1996, about the new version of the product.

1:00:34And famously, two weeks before the event, Mark ends up giving an interview to computer reseller news of all publications where he just reveals the whole thing. And Ben sends an email to Mark and the email just says one line, I guess we're not gonna wait until the fifth to launch the strategy. Mark responds, the email was just from Ben, just to Mark. Mark responds, copies in Jim Clark, copies in Jim Mark's tail.

1:01:03And it says, quote, apparently you do not understand how serious the situation is. We are getting killed, killed, killed out there. Our current product is radically worse than the competition, competition being Microsoft. We've had nothing to say for months. As a result, we've lost over three billion in market capitalization. We are now in danger of losing the entire company. And it's all server product management's fault. Next time, do the Fing interview yourself, F you mark.

1:01:33reading this email is like in print and of course we're being family friendly here on the air. But like he didn't say that. Just seeing like FU comma mark. I just can't imagine sliding an email that way. Here's the best part. That email was written the very same day that the time magazine cover came out. The barefoot. No way. The barefoot Mark Andreessen on the cover of Time magazine. Barefoot on a throne.

1:02:02as the third of the next new Silicon Valley king. Wow, Mark would later say about this whole escapade quote, this is why I should not run a company. Yeah, no kidding. No kidding. Maybe you should be a venture capitalist instead. Oh boy. Wow. That's actually a good question. In Mark's entire career, including the Loud Cloud story that we're going to go on to tell later, has Mark ever been the CEO of a company?

1:02:30I don't know. Was he the CEO of Ning? He was the CEO of Ning. You're right. Okay. So once we'll get to that. But it's very interesting that all the biggest successes he was either effectively the co-founding CTO or a board member or the venture capital is behind it. And, you know, not the CEO of any of the most successful stuff he's done. Well, this is going to be the great. I don't want to say lie because it's not alive, but the sort of.

1:02:56Posturing from one of the key elements of the beginning of Andrews and Horowitz, which was their motto that, you know, all the general partners here need to have been CEOs. But like half of the first like five or six general partners had never been CEOs. Right. There's a lot of credibility behind that they were strong operational leaders and executives, but yeah. Absolutely. Like Jeff Jordan led the PayPal acquisition and ran PayPal within eBay. He was not the CEO of eBay, but like, right. I would take him on my board. But yeah, that's funny.

1:03:23Well, I think this is a good point before we get into like the 96, 97, 98 continuation of the browser wars, what happens to Netscape, and I'll leave it there for the moment. Alright, listeners, now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

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1:05:12So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. All right. Well, David. So we're in the browser wars. Microsoft just blew net scape out of the water. What's going on for net scape now? Such a tragedy. I mean, that year of the IPO in 1995. This is the thing like, this actually was a really great company. It did 85 million in revenue. That's gave it in.

1:05:411995 and then in 1996 it did 346 million in revenue and then 534 the next year in 1997 like people like love to dunk on this now has like mania, you know IPO mania Unprofitable blah blah blah tech bubble like it was for real But the stock once Microsoft strategy bundling strategy became obvious here in December 95, I think, which is when they announced that it was going to be bundled into all copies of Windows 95 going forward. The stock had peaked then at $171 a share, which is, you know, even hugely up from where the IPO was, but it never got above that. It was just kind of straight downhill from there, unfortunately. And then in 1999, finally, famously, NetScape sells itself to AOL for $4.2 billion.

1:06:37But it's an all stock deal with AOL. Yikes. And that's pre-time Warner merger. So who knows by the time shareholders actually ultimately got liquid on that, what they were able to get out. So Mark and Jason, as part of the sale, become CTO of AOL. I love this. You could imagine how well that's going to work out.

1:06:59The funny thing is like he's not actually responsible for any day-to-day operations. He's kind of like chief futurist at AOL. I think his role is forward-looking technologies or something like that. He only lasts until like September of 99 when they like right ahead of the time Warner deal. He's like, yeah, I want no part of this and leaves before that. Yeah. Oh, wow. I didn't realize he didn't even stay a year. No. So I wonder if he forfeited some burnout or maybe he was just like, the stock is going to be worthless soon anyway. Probably. Well, so Ben, though, this is going to be very interesting. Actually, this deal becomes huge for the next chapter and ultimately for Andrews and Horowitz, the firm. So Ben becomes the VP of AOL's e-commerce division. And what he ends up doing is him and

1:07:54pretty much the whole old server team from Netscape. What he figures out that they ultimately are tasked with doing is that all of the brands that are selling, trying to sell on AOL within the AOL world garden. You know, this is Nike, this is LLB, and this is Lanz, and like we're talking about you to all these retailers and CPG companies, they want to sell, but they're not internet companies. They don't have like e-commerce apps and servers and all the infrastructure that they need to make this happen so AOL can help them. But they got to go stand up like servers and data centers for all of these customers. And that's what Ben's team ends up doing. And quickly he realizes like there's actually an opportunity here like AOL is going to do this for their partners selling on AOL. Which again is not the internet is not the web.

1:08:52It's not the web. Yeah, it's the internet, but not the web. The web is, you know, I know that this is where the whole market is and is going to be in the future. These companies, Nike, et cetera, they're going to need help doing the same thing for their web applications. Why don't we go start a company where we can operate this infrastructure for all these companies that are not technology companies?

1:09:20And then they can just host their websites and their web applications on our infrastructure. It's kind of like a cloud, like a cloud of internet infrastructure that you can just deploy your applications to. You can dynamically spin up and spin down these virtual machines, David, so not even owning your own server, but having virtualization across multiple servers that scale elastically as you need them. Yeah, I mean, this is kind of a big idea, right, Ben?

1:09:46Wow, in 99, that feels a little ahead of their time. Maybe a little ahead of their time. But they like the idea so much that they move back to Silicon Valley. They leave DC where AOL was based. Actually, I don't know if they ever moved there or if they stayed in Silicon Valley. But they leave AOL and they start the company. They call it. They really want to embrace this cloud concept that they're pioneering. They call it loud cloud.

1:10:11Oh yeah, I can't wait to get into this. I do want to close the loop on a couple of net scape things though before we move into the loud cloud chapter. So I was wondering, first of all, why did AOL buy net scape? Like if they're getting wrecked by Microsoft, why are they giving $4.2 billion of their stock? Is it A? Because they knew their stock was wildly overvalued and let's say it's 10x overvalued. Eh, what's $400 million of actual value to go and pick this company up?

1:10:38which what we now know about the way that they were motivated to do the time Warner deal to basically do a stock swap for a company whose stock they felt actually had real intrinsic value. It makes a lot of sense that they would wildly overpay for this sort of pseudo defunct net scape, even if all they got was the people and some technology behind it. So that's one explanation. The other would be basically to get a bargaining chip against Microsoft in case it became relevant for them to try and be less dependent on i.e. to have a browser of their own that they could bundle in and distribute. There are other people who believe that AOL was interested in net center, which is basically net scapes web properties, which drew a lot of the traffic. It's sort of the like MSN play that Microsoft had to be the destination website. So that's sort of the reasons why AOL could have been willing to part with $4.2 billion of their stock to do this.

1:11:33Now if you trace it all the way through to today, I really have been trying to figure out what happened to like the Netscape brand and what happened in the Netscape IP. Well, the brand is an easy one to trace. That stayed with AOL until they ultimately were bought by Verizon. So the big red check mark Verizon owns the Netscape brand today.

1:11:55But somewhere along the line, the brand actually got separated from the technology, the bundle of all the intellectual property and everything that Netscape was, which did need a new name, because they couldn't use the Netscape name anymore, because that brand was owned by Verizon. So that got renamed New Aurora Corporation, which AOL sold to Microsoft, who then in turn sold them again to wait for it, David, to Facebook.

1:12:25Oh my gosh, I'm so glad you found this. So this is from Jamie Zowinsky or JWZ who was an early employee pseudo founder. I think many credit him with being a founder of Netscape. He has his great blog and crazy sort of bar and concert venue in San Francisco called the DNA lounge. He writes, the former Netscape company is currently a non-operating subsidiary of Facebook, still known as the new Aurora Corporation. The Netscape brand remained with AOL. Wow. How crazy is that?

1:12:54That's so crazy. I'm so glad you paused us because there's another thing we got to talk about coming out of the Netscape app. Mozilla. Mozilla, of course. Yeah. So I didn't realize this actually happened before the AOL acquisition. They open sourced in 1998, I believe, but yeah, you're right, before AOL, they open sourced all the browser code. Ironically, like it's so interesting that Mozilla, the code name of the mosaic killer, and it up becoming the name of the foundation who ended up stewarding the open source code project, which of course then created Firefox. So out of the ashes of the sort of duplicated without ever looking at the code, Netscape, which kind of came from Mosaic, you then have Mozilla, and they did name the browser Mozilla for a while and had a separate browser called Mozilla, which was compiled from similar source code and then Firefox, which was a whole new thing, right?

1:13:49There was some code and comment with the original Netscape Browse. But it was very different. Firefox, when it first launched, I remember this, had the search bar in the browser, which was a concept they borrowed from Opera, but that was not in Netscape. Correct. And it was in the top right. It wasn't the Omnibar that Chrome pioneered. It was sort of that separate search window, but it makes sense to me now knowing all this lineage Y user agents have always been such a mess.

1:14:18This is going to date me, but if you've ever written raw HTML code and needed to do a user agent check because you need to figure out if it's iE and you need to account for some three stupid pixel offset that they have that shouldn't actually be in there, but the rendering engine sucks because it's licensed from whatever old mosaic thing.

1:14:36That's actually unfair criticism. The real reason why it sucks is because they had such dominant market share that Microsoft could do whatever they wanted, deviate from spec and just say, eh, everybody's using our stuff anyway. So who cares what the World Wide Web Consortium says it should do? The truth is what we say it is. So anyway, if you ever do these user agent checks on the strings, it has like every browser name under the sun listed. So if you're doing like a string search, you're looking and you're like, What is this Mozilla slash Firefox slash Netscape slash blah blah blah and it's because it all freaking comes from the same original branch and all these different browsers are competing against each other but there's kind of only two major lineages there is the mosaic lineage and then all those engineers left and without

1:15:20looking back at the old code, they wrote new code called Mozilla. And everything is basically either from Mosaic or Mozilla. And there's been different stuff over the years with WebKit and with whatever other, I don't know, where Opera is derived from. But it's amazing how much of the browser market share over time really just comes from those two. Yeah. And it all still funnels through today, which is crazy. Yep. It's so fun to actually.

1:15:47have the right excuse now to be able to tell this whole story on acquired. Right. Like, it always felt like Netscape was kind of, there was a point in acquired life where we would have done a whole episode on Netscape. But now it's like, I don't know that we can do that. And this is the perfect vehicle. I'm so glad to do it. Totally. Well, thank God from the lessons of Netscape and a loud cloud, which we're about to go into, became the, the ashes upon which the phoenix of a landscape changing venture firm would come from. So we the excuse.

1:16:16the Firefox adventure firms shall we say. I mean, honestly, though, after the financial crash, when all the funding is not crazy to call it a Firefox or a Phoenix or whatever in founding a venture firm in 2009 and deploying capital the way they did, I'm jumping ahead. I know we'll get there. Absolutely. If you want to be a really nerdy, you could call it the Thunderbird of. I used to use Thunderbird. I thought it was great. Yeah. Okay. So back to the story.

1:16:46Ben and his server team, they've realized this market opportunity. They've got this idea for a cloud computing cloud infrastructure. So he hooks up with two of his core team, Tim Hals and Sikri. They leave AOL. They go back to Silicon Valley. They're like, we're doing this. And it's still 1999. The bubble is still quite inflated at this point. And there is a lot of hype.

1:17:11Everyone's drunk. Netscape IPO'd with great revenues and great growth, but now everyone's just drunk. Yes. So immediately they want to get Mark involved, of course, like who wouldn't want Mark and Jason involved in something like this. Mark totally gets it. He's like, yep, this is a big idea. And actually, this is amazing at the press briefing for the launch of LoudCloud. Mark would be there and he would use In trying to describe what this concept is, this cloud infrastructure concept, he would use the very same electricity metaphor that Bezos would then use eight years later describing AWS at the YC event. And what is the metaphor? So Bezos' analogy that he used was German beer distilleries used to produce their own electricity to mash the hops and everything and do what they were doing in the distilleries.

1:18:05And then they hooked up to the grid and just used electricity from the grid and the innovation they realized is the electricity doesn't make the beer taste any better. There's no reason why they should create the electricity and the whole idea of cloud infrastructure is the same thing. Renting your infrastructure from loud cloud or Amazon or Azure or Google doesn't make your beer taste any better if you're an application provider. So Mark was the first one to use this.

1:18:35So of course they want to get him involved. But remember, Mark has learned at this point that he shouldn't run companies. Although I guess he made that mistake with Ning later. Mark says, I don't want to be an active co-founder, but I'll be chairman and I'll invest $6 million. So I guess he was able to get enough money out of the AOL stock that he can invest $6 million. So they go out to raise Ben and team, go out to raise venture money on top of this and they meet Andy Rackliffe.

1:19:04at Benchmark Capital, who they just love. And Ben in a hard thing about hard things, which is a quote that he has describing Andy, says, if I had to describe Andy with one word, it would be gentleman. And the relationship between him and Ben and Mark is deep and continues to be deep to this day. And Andy, of course, was Benchmark's, you know, like, Infrastructure guy. He started as a telecom investor. So this is completely in his wheelhouse and he gets it. So now this is where things get a little murky. And no doubt this scene is one of the major seeds of injuries in Horowitz and the firm's whole philosophy and it would get sewn right here. So I don't know exactly how it went down. I don't think anybody's ever

1:20:00given the whole story, but this is as best as we can reconstruct it. So we'll have to just have the protagonist on for a kumbaya one day. Yep. So obviously this was a super hot deal. And yeah, Netscape had failed quote-unquote, but like you said, Ben, everybody was drunk at this point in time. Somehow, I believe that Andy and Benchmark agree to do the deal without a full partner meeting.

1:20:27and they agree to do it for a very high price even at the time, which was a $45 million pre-money valuation, and benchmark is gonna invest 15 million in the company. It's a big check for them. Are they even doing their $400 million funds at this point? Probably around that. No, and I think this was before their billion dollar fund, which famously they said they'll never repeat. I think their funds were like maybe $253 million.

1:20:55at this point in time, so big check, big valuation, brand new company, and no partner meeting, at least as far as I can tell. So, the deal's going down, and the benchmark partnership, though, doesn't like that Mark is investing so much personally. He's not actively involved co-founder, he's investing six million bucks, and here's the thing. The price of the deal is based on a pre-money valuation.

1:21:25Because venture deals, you know, until the last five, six, seven years, they all used to be priced on a pre-money valuation. Now the problem with a pre-money valuation. Nobody knows what they actually own until you specify exactly how much is being raised. Exactly. So if more money gets raised, then you're going to own less of the company because the post-money valuation goes up based on the amount of money raised. So benchmark is writing this huge check. They want to get 15 divided by 60. They don't want to be the only money into the round. Well, then they should have specified the post, David. They should have specified the post, but people didn't do that back in the day. So here's Mark coming in now. He's pumping the valuation up by six million bucks and he's coming in. So they try to cut Mark out of the round. Oh, yeah. So that was wrong move number one. You don't really want to cross Mark, Andrewson.

1:22:22Even if we just stop the episode there and say, let's look at this from a single turn game versus multi turn or iterated game. Massive, massive, bad idea for benchmark to contribute to create and reason, Horowitz in the future. Sure, it could have been the most valuable thing to do for this deal in that moment. But for the next 20, 50, 100 years, it would be great for benchmark if Andrews and Horowitz didn't exist. Not only if Andrews and Horowitz didn't exist. But if Ben and Mark were like part of the benchmark family. Totally. That's an even better point. Oh my gosh. Oh my gosh. Yeah. Creating a little bit of a friction point here, assuming that that is any factor contributing to going on to create their own venture firm. Well, that wasn't the only part. So it gets worse. So supposedly after the deal is done and closed, Mark, of course, is like,

1:23:20F you, I'm putting my six million bucks in and you think you're gonna come between me and Ben? We've been through this, it'd be like Benchmark trying to come between you and me. That's not gonna happen, right? So, Mark invests the six million bucks, it's a 66 million post money valuation. Benchmark only gets 22.7% ownership after the deal's done. Remember, and I think this is why I think they didn't present the whole partnership.

1:23:49before the deal was done, because Ben and Mark and the whole leadership team of Loud Cloud over this new company, they come in to meet the full benchmark partnership. I think they only really knew Andy at this point. They come in, it's supposed to be like a slap on the back, get to know you, you know, oh, this is great. You're a VC firm. Hey, that was weird with Mark, but like, we'll get over it. Right. So supposedly in this meeting, David Burn, who was then one of the GPs at Benchmark, and he had been a very successful executive recruiter before joining Benchmark as a GP. Ben is presenting the whole management teams there. And he says to Ben in front of everyone, hey, just stop. When are you going to get a real CEO? And Ben is like, what do you mean? Like he knows what...

1:24:41David means here but like he's trying to like hey like this is a friendly meeting like let's not break out the knives yet and in front of the management team in front of the management team and mark like that just pulls out the rug underneath his ability to lead these people to do that yeah so apparently then burn just like doubles down again and keeps attacking Ben and is like you're not qualified to Lead this company, like, how are you gonna take this thing public? You know, blah, blah, blah, all of this stuff. Which also is ridiculous because of course men is qualified to lead this company. Even if you weren't, why on earth would you say this?

1:25:19he was doubling revenue quarter over quarter at net scape in his division. I mean, and on top of all that, Mark and Dresan threw six million in. So I mean, he kind of needs you, but it doesn't really need to. And you've already committed, like just do the value creating activity of giving the leadership team the confidence and their leader at this point. Totally. So this creates, as you can imagine, an intense dislike between Ben and Mark and All of the benchmark partnership except for Andy because you know, I guess nobody else really like stepped up to defend them here. So we will later impart to get to the amazing profile that Tad Friend did in the New Yorker of Mark Andreessen in 2015. But 2015, so 16 years later, there are these great quotes in there. Ben says

1:26:10about the whole philosophy of Andresan. He says, we were always the anti-Benchmark. Our design was not to do what they did. And he's talking about this. And then Mark says about Bill Gurley. Of course, the, you know, most visible benchmark partner at the time. I can't stand him. If you've seen Seinfeld, Bill Gurley is my Newman. Jerry's bit noir.

1:26:34Oh, wow. This is something that you definitely have to know about Andrews and Horowitz, especially in their early days about when they were starting. They were loud about being different. Like they wanted to position themselves as in every way we possibly can, we are the opposite of your classic venture capital firm personified by benchmark, which is totally we're going to get into this in part two, but is so great because that is the exact same playbook that benchmark took.

1:27:03against Clienter Perkins when they started. It's fascinating. It's such a good strategy. And who was the architect of that strategy? Andy Racklove. And who is the one benchmark partner that they love? Andy Racklove. And Andy would then retire from benchmark not long after.

1:27:20And the ties here end up actually running deep like Eric Fishery, uh, who was, uh, you know, well out exec would go on to become fantastic partner at benchmark. Well, here's the funny thing about all of it. Like, this is so great. It's such drama. And I really do think that this experience was a big part of what planted the seed for Ben and Mark to start, Andrews and Horowitz, but.

1:27:43All of this drama is just great for everybody. It's great for Andreessen. It's great for benchmark. No press is bad press. And the more that people are talking about and writing about this as Andreessen Horowitz is getting off the ground, the more it just increases the stature of both firms. Well, in the 2015 piece you're talking about is literally called tomorrow's advance man about Mark Andreessen. That's the one you're mentioning, right? Yep. That is the.

1:28:09Puff piece of puff pieces like it's a great analytical piece, but it's like hey, you're the best futurist in the world. Say whatever you want. And so having a platform to be able to kind of do any of this stuff, Mark takes full advantage. Oh, totally. It's so smart. All of this drama around the funding aside, nonetheless, people are still jazzed about loud cloud. Two months after the series A, there is another 45 million dollars.

1:28:37a wired runs an article calling Loud Cloud, Mark Andrewsons second coming, but then the clock starts to run out. It's also crazy that like the press can't get enough of Mark Andrews and Ben Horowitz is running the company, but Mark, it's like this internet-king narrative that everyone just wants to keep perpetuating, which is true in many ways, but just interesting that he was not the CEO of neither of those companies. I mean, yes, but he was on the cover of Time Magazine on a throne, so.

1:29:06Okay, so here's the thing though about LoudClown, which is very, very different than Netscape. It's not a software company. It's an infrastructure company. And the thing about an infrastructure company about what they're doing is that if you want to grow, if you want to take on more customers, you got to go lease some more data centers and you got to go buy some more servers and rack them and rack them and stack them. Sounds like CapEx to me, David. Sounds like a lot of CapEx. So.

1:29:33As they're raising all this money, they're investing forward in all this CapEx and they're getting orders in like pets.com is like, oh yeah, thrilled to get some of this infrastructure. So then in early 2000, of course, in March 2000, the bubble starts to deflate a lot of these orders start vaporizing, but they have forward contracts to buy all this CapEx. So they need money even though they just raised $65 million.

1:30:02They go around. This is such a great moment. They're trying to raise money from everyone and all the VCs are spooked at what's going on. So they're literally traveling around the world. They go to Softbank. They go, I don't know if they actually fly to Japan or if they meet with Softbank in the US. Oh, I had no idea. They meet with Mosa. This is great. So Bill Campbell, the coach, legendary coaches by this point in time on the board of Loud Cloud and Mosa back channels to Bill. And this is an hard thing about hard things.

1:30:31Ben's like, Bill, how'd it go? How'd it go? With Masa. And feels like, honestly, he thought you were smoking crack. So you know it's bad even when he's like, this is crazy. So eventually they do raise a series C of $120 million at a 700 post, but it's like by the skin of their teeth. This is in mid 2000. They still burn through all of that quickly and are once again, on the brink by the beginning of 2001, the only crazy last-ditch potential financing option available to them is to try and go public because weirdly, there were still some believers in the public markets, even though all the VCs and private investors at this point were like, oh boy, we don't want to be funding any of these. So in March of 2001, they actually

1:31:29Go public at $6 a share. And the Wall Street Journal runs a piece leading up to the IPO where they have, it's called the IPO from hell. I think it might have been either referenced in the piece or the title of the piece. Everybody's calling this the IPO from hell. They have a quote from Dick Kramlik at NEA saying quote, this is what we call a Hail Mary deal. You throw it up in the air and you hope for the best. Oh my God. Wow.

1:31:58You know, that's not good. Immediately after the IPO, which they do get done, they lower their guidance. It's a great thing to be doing in your first quarter as a public company. Totally. The stock drops by two thirds to two dollars a share. And Goldman and Morgan Stanley had booked around the IPO. They drop research coverage on the company. No, even like one quarter is done. Amazing. So what's the logic there? It's just expensive to have analysts.

1:32:25covering your company and they're like, look, we just don't believe in the company anymore, even though we underwrote it. So we're going to stop paying analysts to do this work. That's a good question. It could be that. Or I wonder if it's more that like, Hey, if we were to cover this company, we would say you should not invest in this company. Yeah, you should sell. And we don't really want to do that because we were just the book runners on the IPO. So probably easier to just drop coverage. Yeah.

1:32:54Wow. And the logic of why they're dropping guidance is like look all the companies that we thought were gonna be customers are going out of business. So like we are a picks and shovels business for an industry that is going away. Yes. The gold rush is drying up. People are not going to want to buy Levi's and at this point in time no one is moving to California. It's unclear yet that Levi's are going to become a fashion statement, which of course they do metaphorically speaking.

1:33:22David, you're like three levels deep here. Take me back to storytelling. Exactly. Okay. So by 2002, like, it's clear that they're running into a brick wall. Ben manages to engineer a deal to offload the entire infrastructure business to EDS, Ross Perot's electronic data systems company, which that we need to do a company profile on at some point. That's like a fascinating one. Oh, totally, totally. So they sell basically the entire business.

1:33:50for 63 and a half million dollars, they lay off almost everybody at the company. That's one tenth of what they last raised at. Or no, when they went public for more than that, for more than 700 million. I think it was actually about flat when they went public. So 10 cents on the dollar is what they're liquidating the server business for totally. But they don't want to give up. They decide, hey, you know, we've got this tool that we've built internally.

1:34:19to help us provision the servers that we're racking in our data centers, we might be able to sell that as software. It's pretty good. And EDS is actually really interested in this. They want to own the infrastructure business because that's part of their business. But they're like, yeah, I mean, if you can deliver that as a software product, we'll pre-sign up and we'll be a $20 million a year customer for you for the server automation product, which that's $20 million that Loud clouds like great we can use that to make payroll exactly exactly so they do this they lay off you know most of the company and they restart as this software firm doing data center server automation there's only one problem the tool that they built which is so great it has no UI and it is called the jive and is entirely pimp themed

1:35:11That's just one problem. That's just one problem. It's not exactly something you can really like deliver to EDS or any customer. When this happens, the stock craters to 35 cents, which is a $28 million market cap. Remember, they've got 63 and a half million in the bank and a solid $20 million a year customer contract. Whoa, talk about trading below book value. The street is valuing them at half of the cash on the books.

1:35:41But Ben is undeterred and this is mostly what he writes about in the hard thing about hard things. They go to work and they rebuild the company back up. They claw their way all the way back over really not that long a period of time to five years later they sell the company to HP for $14.25 a share or $1.6 billion. Close to 2X what they went public for. Totally. So this is a win. Ben would write later about this.

1:36:10If I'd learned anything, it was that conventional wisdom had nothing to do with the truth, and that the efficient market hypothesis was deceptive, how else could one explain, optsware, which is what they changed the name of the company to? Trading and half the cash we had in the bank when we had a $20 million dollar a year contract and 50 of the smartest engineers in the world. No markets weren't efficient at finding the truth. They were just very efficient at converging on a conclusion, often the wrong conclusion.

1:36:40And this experience I think would totally inform really what I think was kind of the founding thesis of entries in Horowitz, which was there is no bubble and the internet is going to keep getting bigger. And y'all think we're crazy for paying these prices for these companies, but like we're not crazy.

1:37:00Yeah, and what you're alluding to there for folks that don't know, Andrews and Horowitz's early sort of reputation is these guys started on a brand new venture firm. They raised too much money because in 2009 a $300 million fund was big and they're just giving startups these crazy valuations and overpaying and blowing everybody else out of the water. And David, you're exactly right. It's a, the efficient market hypothesis is wrong. And also that any crash we're in is a local minima.

1:37:29All that matters is can you get through this localized crash and continue to ride the sort of intrinsic value wave that is the internet and software taking over everything. Totally. And it's not easy, right? Literally the title of the book that Ben writes about this is the hard thing about hard things, which is so good. So good, such good title. It's like they had good marketing people there or something. Oh, I mean, and to your point about it, not be easy, like Ben gets asked in interviews, You know, how did you get through that when you had to lay off half the company and then get the other half to recommit to basically starting a new startup with you? And his answer is a lot of crying by me. Yeah. It's brutal. But I think the lesson to be learned from this and I totally, it totally resonates for me is if you're in a technology market and you find yourself early to the market like they did with, you know, the cloud and virtualization. Eating a AWS by seven years. By seven years.

1:38:27It's not good to be in that situation, but if you could just hang on and stay alive until the market can catch up with you, these markets will grow. And you can become a big, big player, even if everybody's already written you off. Can you stay alive long enough to become lucky? Yeah, obviously better to be lucky up front. But if you're not, like wait for luck to come to you. Anyway, so there's one more other fun little part of the loud cloud, upswear journey.

1:38:56One of the characters that's going to become very important later in part two, which is one of their other board members. So the board of Loud Cloud, pretty awesome, Mark Andreson, Andy Rackliffe, Bill Campbell, the coach, obviously Ben, and the other independent board member who they had. Do you know who it is, Ben? No. Michael Ovitz. Oh, that's how they met Michael Ovitz. That's how they met.

1:39:26Michael Ovitz. Of course, we're talking about Super Hollywood agent founder of Creative Artist Agency, Michael Ovitz, later erstwhile CEO and president of Disney under Eisner. Briefly. Briefly. So after the whole Disney debacle, he was like, you know, looking for stuff to keep him entertained and wanted to invest in, you know, the then hot internet area.

1:39:52And so he gets introduced to Ben and Mark and ends up joining the board of loud cloud. Isn't that wild? Wow. So that's how, you know, Mark and Ben get infected with the idea of creating the CAA of venture. A venture totally. It's so funny how like, you know, we've painted, hopefully the picture on this episode of all the life experiences, you know, leading into Netscape, leading into loud cloud, leading into that moment with benchmark. And then Ovid's joining, like it's all.

1:40:21It all gets expressed in Andrews and Horowitz. Wow. There's one more principle that you touched on earlier that I want to tie a little bit of a bow on that's a founding principle of the company. When Ben Horowitz is getting dressed down in the partner meeting at Benchmark and they ask him, you know, when are you going to hire a professional CEO, this becomes a major tenant of Andrews and Horowitz about technical founders being CEOs and being armed with the resources that they need and the ability to even before they would otherwise acquire those skills, sort of have a leap on being a professional CEO. And there's this 2003 interview. I love reading things from 2003 about Mark and Ben because it's this really interesting perspective where it's post-netscape, post-loud cloud, post-crash, but they're just angel investors. It's six years before they start entries in Horowitz. And one of the questions in this great Q&A that we'll link to in the show notes is, should a founding technologist run a mature company?

1:41:21And Mark's answer, you know, he's a brilliant person. He gives these long philosophical answers to every other question. This one, he just answers absolutely. It's so great. This is so brilliant. We'll talk about this much more in the next episode. But what's so smart about this and so dumb about the rest of the venture capital industry until Andrewson changed the game, which is like, let's put aside what's right or wrong or what you believe or don't believe. It was so dumb.

1:41:51to preach and practice anything else except that founders should run the companies they start because if you say anything else, who are you alienating? You're alienating founders, right? Like, so if you want to win deals, why on earth would you say anything other than I support my founders and I'm loyal to them to the end? Yeah. Just wild. Just wild. Okay, David. So Take us forward. They sell the Obstware business to HP. What's going on after that? So we've alluded to Ning a couple times along the way Mark had started Ning. What year is this? What year is the Obstware sale? We did the episode with Michelle Feister. Yeah, which was so great. She was at HP and bought the company way back in early acquired history. So

1:42:44I want to say it was 2005. I think I actually don't ever down when Mark started Ning. It was 2007 when OpSword was sold to HP. Okay. So Mark was going along with Ning and Ning was sort of a way for any community to launch their own social network. I guess kind of in a way like what we have with our Slack community. It's like White Label Facebook. Yeah. Once again ahead of its time, Mark I think was not super thrilled with how that was going. So he ended up stepping back full-time, brought in right after the acquisition, the Obstware acquisition, brought in Jason Rosenthal from Obstware, who had been a Netscape guy before that to come in and run Ning and Mark stepped back to just being a chairman. So remember, now we're in 2007. We're now in the heyday of Web 2.0, which it's so funny. Like any other point in time, if we hadn't had the

1:43:42tech bubble and the crash and everything everybody lived through here. The rest of the market would have been Gaga over Facebook, LinkedIn and Zingha and Shutterfly and what was Stewart Butterfield's first Flickr. Flickr and everything that was going on, it was so exciting in the valley but because everybody still had to hang over from Web 1.0, valuations were...

1:44:07Miniscule for these companies. Well, and in 2000, 2001, 2002, even in 2003. Venture firms weren't raising new funds, so everyone's preciously holding on to the last fund they raise, parceling out each dollar to their own portfolios, trying to make sure they're only investing if it's, you know, the very next Yahoo, and using their bullets very carefully. And so, you know, when Facebook comes along in 2004, it's like one of the only sort of obvious ones that's growing like absolute crazy and kind of kicks off that next generation of, okay, like, we're gonna start You know, venture capitalists are going to be able to start raising big funds again and kind of come out of the tech bubble screaming. But even that takes a long time. And ironically, it's Mark and Ben, you know, arguably people who got hammered hardest by the dot com crash who recognize like, oh, wow, no, this is the time to put capital to work and embrace everything that's going on.

1:45:02So they start angel investing together, right? This is the era of super angels if you think back to the sort of Ron Conway and Dave McClure era and there was the famous sort of bin 38 scandal but Mark and Ben are these super angels that are individually investing tens of millions of dollars in startups. It's easy to forget now, but they were like the prototype super angels easy to forget now because of now of course they're a venture firm and of course Mark made like 150 million bucks on the Opsware sale from, I think it's about right, because he owned about 10% of Opsware at the sale to HP, Ben owned 5.5%. So they've got cash to invest and they're dedicated to helping to build the next generation of startups. Yeah. And not only that, this is where the pieces start to come together, they also embrace as users Web 2.0 and what's a big part of Web 2.0? It's blogging. Blogging.

1:45:59Uh, the P Mark A blog and Ben's blog. This is where it all starts. It was so good. And it's before, I mean, Mark obviously became a prolific tweeter tweeting like a hundred times a day until in 2016 he stopped and we'll cover all that in the next episode. But like, very much embracing the idea that like, I'm going to be loud on the internet. I am going to share my thoughts with the world and very early to blogging. Yep. So through all this, they end up Angel investing in companies like Twitter of course like Zingha Facebook LinkedIn like LinkedIn and Mark is still on the board of Facebook and still keeps up with Mark Zuckerberg. I hope so so the Facebook story is super interesting when Andrews and Horowitz the firm would launch they launch with a big piece in CNN money

1:46:54And Zach is quoted in the piece and he says, I moved to Silicon Valley in 2004 and I was introduced to Mark Anderson by Peter Tiel in 2005. Mark became a sounding board about management and how to build a strong technology company. He has strong views on that and they help shape mine. Mark homes in on important things. It's very liberating. He has helped me not worry so much about the unimportant things. So what's Zach talking about here? So.

1:47:24Remember the Yahoo situation where Zach turned down the billion dollar offer when Zach goes and vomits in the bathroom turning down the billion dollar Yahoo offer Literally everybody around the table is telling him like sell Supposedly all the VCs Everybody involved with the company all the rest of the management team are like we got to take this offer because remember it's web 2.0 you know flicker sold to Yahoo for what 30 million something like that something like that the idea that there could be a billion dollar outcome Now, post-bubble is crazy. Apparently, the only one of the advisors who told Mark not to sell was Mark Andreessen. Wow. Andreessen has got about this. He says, every single person involved in Facebook wanted Mark to take the Yahoo offer. The psychological pressure they put on this 22 year old was intense. Mark and I really bonded in that period because I told him, don't sell, don't sell, don't sell. And that, because of that, is...

1:48:21why Andreessen ends up joining the Facebook board in 2008, as well as the eBay board in 2008. Yeah, that's a fascinating one. Oh, that'll come up next time for sure. And he stayed on the HP board, by the way, after the loud cloud opts for a deal until 2018. Like he was a long time HP board member too. Yeah. So it's pretty crazy. Like they built up this like vehemently founder friendly don't sell.

1:48:49Build big companies. We're going to finance you technical co-founders stay as CEOs forever. Yep. We love technical co-founders. We are willing just the two of us to finance 45 different companies, including dig.com, angel list, four square, LinkedIn, a lot of very meaningful companies of that era, a high hit rate. I mean, They're like the most active venture capitalists in Silicon Valley at this point, but this is when Sequoia is writing the RIP good times memo. And they're not even venture capitalists. So this is the best. This is the best. I think this is my favorite part of the whole episode. So one day, Ben is still at HP. He becomes a VP of, you know, something or other at HP. And it's clear like this is going to be just like the AOL situation. He's going to stay there a year and then move on. Do his next thing.

1:49:44He gets called from Doug Leoni. That's a quiet. Oh, interesting. This is so classic, such a classic Doug story. I love it. Doug says, I want to know how you did it. And that's like, uh, did what? And Doug says in, uh, maybe not quite these words, but, but, but maybe actually these words knowing Doug, I want to know how you took a dog of a company and turned it into a billion dollar outcome. I've never seen this happen before. And I want to learn how you did it.

1:50:14So great, great because A, it's so doubt like, what a learning machine. B, it's so great because it's obvious what is happening here. Oh, he's trying to get Ben to come to Sequoia. He's totally trying to get Ben to come to Sequoia. So great, so great. Do you think they wanted to recruit him as a partner or as like a person to come fund next? I'm sure they would have been happy with either, but I'm assuming probably as a partner. I bet they were trying to run the...

1:50:42the same playbook they did with Alfred, which when Alfred joins Sequoia after his apos, the original idea, and Don Valentine says this in the Stanford GSB talk that we always recommend when he holds up Alfred's resume, he says, yeah, Alfred's here, he's a partner at Sequoia for now, but he'll start more companies, and we can't wait for him to start companies and spin them out. Obviously that doesn't happen with Alfred, but I'm sure they just want to, they want Ben and presumably Mark as well to just come be part of.

1:51:11Sequoia, man. We don't do this section on episodes anymore, but in the spirit of what would have happened otherwise, you think about if Ben had accepted an offer to go be a partner at Sequoia. And if Benchmark hadn't made the cardinal mistake of causing the executive team to potentially lose faith in their CEO right there in the boardroom, how things could have been different in the Valley. Totally. Well, the funny thing I was thinking about through all this is obviously as we've alluded to.

1:51:40Andrew Snorowitz is gonna counter position against benchmark when they launch Nobody ever counter positions against Sequoia. I think it's just because like how could you they're so good Yeah, it reminds me of the the quote from the wire You come at the king you best not miss. I don't really want to make a run at Sequoia I wouldn't publicly counter position against them. I was thinking the exact same thing So great so great So Ben takes this call. I don't know the exact timeline here, so I'm both hypothesizing and dramatizing for effect, but with that said, he takes the call. He knows what Doug is up to. He hangs up with Doug and he shoots Mark an instant message. We ought to start a venture capital firm. And Mark replies, I was thinking the same thing. Boom. And that...

1:52:40Our friends is where we're gonna leave part one. Oh, that is a perfect, perfect spot. I feel like I now have a really robust understanding about the like frame of mind they're in going into starting injuries and how it's the firm. The question is, when they're texting, is this before or when they're on I am, is this before the financial crisis? I am imagining this is sometime in 2008.

1:53:06Yeah, which is fascinating because then between the time where they have the idea to do this and when they actually launch the firm There's a global recession and bank financial crisis that they have to fundraise during pretty wild totally Well, I think we did a lot of great sort of playbook themes during the episode. Are there anyone you'll highlight here? Yeah, there is actually one and we'll get into this more next time but it's pretty courageous Do you choose that word carefully? I did not. I did not. Okay. I came to mind. It's pretty courageous what they do here, right? Like, I mean, okay, it's not courageous in that they have a lot of money. They never need to work again, et cetera, et cetera. But to turn down Doug Leoni to say we have a lot of money, but we're going to deploy this money and put it at risk while all the rest of the world thinks everything is falling apart.

1:54:06I think it's easy to look back now and be like, oh, you guys have, you know, Andrews and Horowitz has 19 billion dollars in capital under management and is this massive, enormous 200 plus person firm with all of these funds and like, yeah, yeah, yeah, you guys are money managers. Like, that is not how it started by any stretch of the imagination. Yeah, it's such a good point. And we'll get into this next episode. But from everything that I can sort of hear, that's still the way that Mark and Ben act today.

1:54:35that they're by no means enjoying the 19 billion under management lifestyle. I think they're very much thinking about what is the next, not just generation, but what is the next epoch of Andrews and Horowitz, the firm look like? What are we beyond an venture capital firm? What is the institution B in the future and the way that you chose courage carefully?

1:55:03I chose Future Carefully, and we're gonna talk about both of those in the next episode. I love it. I love it. I've got a few just to bring it back. I mean, the timing, luck, and right place, right time is so strong here. I mean, especially in the N64 slipping one year part of the story, like Netscape wouldn't have existed if N64 had shipped on time. And as crucial as it is to be brilliant, you have to be brilliant in the right place at the right time and get lucky also.

1:55:31And I think that, you know, we've seen that people always talk about Steve Jobs and Bill Gates being born at the right time in the right place to be able to start Apple and Microsoft. Kind of the same thing with Mark being around right for the start of the internet and being able to really jump on to the emerging web and create a huge part of it. I also think a big playbook theme is knowing what good feels like because you've experienced it yourself in launching Mosaic and getting a million users in the first year on a very nascent web for Mark's whole rest of his career. That's the bar. I think if you've never experienced something like that viscerally where you've operated or founded or worked at a high level at a company that was undergoing that because you don't know what the benchmark is, you don't quite know what you're chasing.

1:56:21And I think it meaningfully shaped all of his future experiences and Ben's experiences and Andreessen Horowitz's experience when they knew what true product market fit and crazy growth felt like from the very first experience. Oh, I've got to want to really want to add on to that. So yeah, totally agree. Yes, everything you said. And what makes it really powerful is the contrast. Like they also know what total failure looks like. And I think you see a lot.

1:56:50People think like what you said, knowing the benchmark, knowing success, that's what you need. I think you need both. Because if you only know success, you don't know the difference between success and failure. And you don't really know what made for success and what was skill and what was luck. But I think what's really unique here in this story is they have absolutely have both like highest to the highest lowest to the lows. And I think that can really help one triangulate on Where you are in any given point in time and why? Totally agree. I think it's a great point. Well listeners, we are gonna hold on grading until the end of our next episode, we'll have that conversation about actually the firm entries in Horowitz rather than trying to grade something Mark and Ben's past. And David, do you want to do some carve outs before we bring it home? Yeah, let's do it. I've got a fun one that is tangentially related to

1:57:50at least the N64 aspect of the episode. I've just been on such a gaming and classic gaming kick lately. I don't know what it is. Maybe it's like everybody you hit your mid-30s and then you just get nostalgic for the era when you were a kid. So my carve out is my new favorite podcast. Besides acquired, of course, the resident arc YouTube channel and podcast. These guys are so great. They take What do they call themselves? They call themselves a video game story book club. So they take old classic video games like RPGs like from this era. So they did Final Fantasy 8. They're now doing Zenogears. They did near the first near game, which is more modern in the interim. And then they do like a book club. They do playthroughs. So they're like, we're gonna play not not a stream. But like we're gonna play from the beginning of the game to x point.

1:58:48And let's all you know, we'll go play you audience go play and then we're going to do a podcast. We're going to do a three hour podcast at each checkpoint where we're going to dissect the story, the development, who was the dev team? How did this project come together? What is the context behind all of this? That's a clever structure. It's really, really clever. I really like it. So it ends up for all these games like being 10, 15, 20 hours a worth of podcast time, but it's so cool. It is a really innovative.

1:59:18format. And you know, you're talking to people who are willing to dedicate 10 hours of podcast time to a single podcast, like a Berkshire Hathaway trilogy. Exactly. Couldn't have found a better place to recommend it. A podcast after my known heart. I love it. Why a little bit more of like a more serious one, I don't know, serious. It's a nonfiction book called The Elephant in the Brain. And it is a psychology book that was originally going to be this person's academic paper and then they decided I'm just going to get together with my friend and actually write it as a book instead and reach a much broader audience and just like publish it as a consumer-facing book. And it is a really interesting book. One of the main themes is we humans are animals and so why do we sort of try and go around pretending that we're not and trying to do things that are socially acceptable?

2:00:12when they're sort of an elephant in the brain that we are animals and we are subject to these very base desires that come from evolution and it's not saying act on those but every chapter sort of points out a different and very observable basic animalistic thing that exists in our brain. The thing that I took away from it was.

2:00:34once you can be more mindful of the way in which your brain is not acting quote unquote logically or appropriately as you should present in society as it says it's acceptable to just like being aware of the way that your brain is working and why it is working in that way so that you can then apply your higher functions on top of it is very interesting. And I highly recommend it for anybody who is interested in psychology, capitalism, how to fundraise for nonprofits.

2:01:02how to lead, how to organization build, all of this stuff is sort of tight in there. And they basically take anything that seems like people are doing purely altruistically or purely for whatever reason. And they find the animalistic desires that underpin that and then find the data to support why that is often happening, especially if you're interested in going into politics, it's a phenomenal read. I love it. So recommend that. All right, listeners.

2:01:31Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you shipped next. This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences, or just evolving your existing core product, go to Statsig.com slash acquired to get started.

2:02:30All right, well, listeners, thank you for joining us on part one of this journey. And if you want to join us and talk about all things acquired, all things tech, with a great community, really thoughtful, respectful, good, high-brow discussion. Join us at acquire.fm slash slack. As always, if you want to be a deeper part of what we do on the show, you can become an LP at acquire.fm slash LP. Do you get anything else you want to say? Pumped for season nine. We are underway. I know.

2:03:00me too. And I think this next episode is going to be really fun. Andrews and Horowitz has played such a seminal role in the development of the tech ecosystem of the last 12 years that it's a walk down like kind of my whole adult life and career to walk through from 2009 to today. So I'm excited to do it. Yeah. Should we start recording right now? Just run it back? Let's play too. No, I need a break. Listeners, we'll see you next time. We'll see you next time. And until then, Young Spielberg, Mike Taylor, take us out.

2:04:56People wonder what they can get the truth Not so much to lose now Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Is it you?