Acquired - Andreessen Horowitz Part II

0:00I need an M1 so that we can not have this very quiet little background noise that hums that we have to remove in our audio that annoys me to the nth degree. There's a million reasons I need an M1 Mac, but this one is clear and present. I can't wait, September.

0:32Welcome to season nine episode two of acquired the podcast about great technology companies and the stories and playbooks behind them I'm Ben Gilbert and I am the co-founder and managing director of Seattle based pioneer square labs and our venture fund PSL ventures and I'm David Rosenthal and I am an angel investor based in San Francisco And we are your hosts Well listeners, welcome to Andreessen Horowitz part two We last left Mark and Ben in their instant messenger conversation in 2009 with the famous first words. We oughta start a venture capital firm and I was thinking the same thing. Yeah, I think that conversation was actually it was actually 2008. 2008 that makes more sense launched no nine takes a little while. We'll get into it. We can do it takes a little while to you know set up a venture firm raise the money. Well, you don't just like snap your fingers and have three hundred million dollars.

1:29Well, today listeners, we will cover the next 11 years from the firm's founding to today. This is the story of the VC firm that basically changed everything in the whole landscape. Super high valuations, massive fun sizes, criticism for both of those things, becoming an investment firm and a media company, popularizing the message that former operators make better VCs than career investors do. I mean, David reflecting back, it's pretty crazy that A16Z is only 11, 12 years old.

1:58Wow. Yeah, they became a big dominant force so quickly to put it in perspective. They were founded two years after the iPhone came out. That's right. That's right. Pretty good time to start a venture capital firm. Perfect timing. Well, listeners, two things to highlight if you like the show. One is our Slack. And when I say Slack, I do indeed mean the company that A16z made three-ish billion dollars investing in. Do you mean tiny spec?

2:26Oh, sorry, I do mean tiny spec, you're right. We've got a great discussion of these episodes, crypto, investment ideas, all good stuff with a community of 8,000 super smart people like yourself, join at acquire.fm slash slack, and the limited partner program. This is our members only community where we drop special four subscribers content.

2:50The most recent one was with Kyle Samani, who is the co-founder and managing director of Multicoin Capital. We talked with him about how to manage a crypto fund, how it's different than managing a normal fund, which is very different on this show. What was his line? He was like, oh, because they have a head fund and a venture fund all doing crypto. And he was like, well, the demarcation is, you know, if time to liquidity is more than like six, nine months or so, we put that in the venture fund. Oh, wow.

3:17Yeah, a whole completely different universe. If you want to listen to that or any of the other LP show episodes or join us on our next upcoming Zoom call with LPs, you can click the link in the show notes or go to acquired.fm slash LP. All right, listeners. Now 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.

3:45Yup, 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. Lugora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do, operate with obsessive customer focus.

4:09They 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...

4:21drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagores Bed 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.

4:41And 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. Legora 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.

5:33Plenty 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. All right. Well, listeners, as usual, the show is not investment advice. David and I certainly hold equity and some of the companies that we're going to talk about in the show. So please do your own independent research. None of this is investment advice is for informational and entertainment purposes only. And one other disclaimer disclosure, I do have a new investing vehicle that I am super excited about is called kindergarten ventures. And it is a angel fund that I've started with my buddy, Nat Manning, who's the COO of Kettle, great company.

6:31that we've talked about a bunch on this show. So as I said last time, a few of the entries in Horowitz GPs are small LPs in the fund. I don't think that that has had any influence on. I've been keeping you honest. Yeah. I mean, Ben, you keep me honest here. I mean, I'm going to be pretty lot of Tory of entries in here, but I think I would have done that anyway, but you can keep me honest here.

6:57Well, David, congratulations. Exciting. You are moving from angel to super angel in the 2008 parlance. That's right. Pretty cool. And just like Ben and Mark originally, it's not just about seed investing. Really it's about in a large part all the great folks on acquired. We invested any stage, any sector. We are super angels. All right, you're starting to spoil stuff. Take us in. You're sounding exactly like...

7:22One of the tentpole feces of the start of Andrews Morowitz. Indeed, indeed. Well, we'll see where kindergarten goes over time. Okay. So as you said, at the top of the show, we finished last time with the Ben Horowitz, not Ben Gilbert, gets off the obvious recruiting call from Doug Leoni at Sequoia. He hangs up and he, I am smart. I am. I love it. So you might be wondering, like, huh, why aren't they starting a company? Why are they starting a venture firm?

7:52Well, venture was something that Mark at least had supposedly been interested in, you know, back from his first kind of early days in the valley. He says to the wonderful writer, Tad Friend, in the great New Yorker piece that we are going to keep referencing today. He says to him about venture capital, quote, I always thought the entire venture thing was incredibly cool.

8:15Going to Cliner Perkins with the high ceilings, the markers on the wall, of all the great companies they IPO'd, Larry Ellison walking through, and at 11 a.m., the biggest buffet you'd ever seen. At a time when I was eating at Subway, it was the closest thing to a cathedral for nerds. That's some way to talk about the venture capital industry. So, as we talked about, Mark and Ben of course have been doing their super angel investing thing. You know, this wasn't entirely a huge leap, but...

8:45as many, many people would point out to them, and of course as they knew themselves building a venture capital firm that is going to lead deals and beat out other venture capital firms to lead deals is a very very different proposition than being an angel investor.

9:03Yeah, I mean, in this angel investing they were doing and we should say Mark and Ben did 36 deals together over just three years, so a deal a month with their own money of I think about 200k of a max check size. They're pretty much not leading rounds. So they already don't have the dynamic of needing to be the one to set the terms and come in. That is about to hit them in a big way of a total difference between coming in as a participating and versus lead investor.

9:32And I'll say, having now made the opposite journey, it is way easier and way more fun, not to be a lead investor. But that's a whole nother story. But like we said, it's a pretty interesting and definitely contrarian time to start a venture firm. Here we are in late 2008, early 2009. Of course, what's going on? The financial crisis. And so most other VCs And if not VCs, certainly the LPs, they're all tucking their tails and triaging their portfolios right now. This is not about deploying more money or starting a new firm. Sequoia's literally just done the RIP good times presentation. It's kind of crazy to think that, oh, we're going to go start a new firm right now. Yeah, it's wild. So here they are. Obviously we've talked about the...

10:28last time the big thesis that they have that there is no bubble. They're kind of all alone in shouting from the rooftops here that hey, like, things are actually great in Silicon Valley. This is not like the dot com crash. The financial crisis is actually only going to be great for Silicon Valley startups. And of course, they are right about all this, but pretty much nobody else is saying this. And Tad would write in the New Yorker piece later that a 16 Z was designed from the beginning to be a full throated argument.

10:58about the future. Of course, the time when nobody else was making that argument. So, they've got this insight. They've got the interest in VC and the drive to make it happen to go build a firm. They're mark entries in Ben Horowitz, but they're still just two dudes. And if you want to pull off what they want to pull off, they're going to need a whole lot more than that. So, they go to see who else, but their old friend Andy Raccliffe.

11:27And Andy, by this point, of course, had stepped back from benchmark, and he's teaching at Stanford GSB. And he has just made the jump to become an entrepreneur himself. He has founded wealthfront. But of course, knowing Andy, there is nothing that gets him more jazz than the idea of a, in the words of Howard Marx, that he uses a correct non-consensus bet. And that is, Obviously, exactly what Bed and Mark are trying to do here. So Andy tells him, this is great. I love you guys, and I love this contrarian bet that you're making. But you want to be in the upper echelon of VC firms, and you need a strategy to break in. And you see we did this at Benchmark about 10 years ago when we started Benchmark.

12:18And we've talked about this a lot on the show, but what we did at Benchmark was we counter-positioned against one of the two major incumbents at the time, which was Cliner Burkins. Cliner, as we've talked about, it was the Kuretsu Approach Daventure Capital. All of our companies work together in different ways. It's sort of like, you know, they're like a mesh network. And we sort of sit in the network as the capital provider, but they work with each other in all these different ways. Yep. And like, on the one hand, that was great.

12:47But on the other hand, certainly some of the Cliner entrepreneurs felt like they were pressured into doing deals and working with other Cliner portfolio companies that didn't really make sense for them. So what Andy and Benchmark did is they said, there is no pressure from us to do anything else. We are going to treat you as sovereign states and help you make the best decisions for you. So that was one. The second piece of the Benchmark counter positioning against Cliner, maybe this is the most important.

13:16The thing about Cliner during its heyday was, it really was John Doar. And we got to do a whole episode on Cliner itself. And story and history even before John Doar, but like the glory days, it was all John, you know, all their big wins from Netscape to Amazon. Beyond, it was John that sourced them. And John was the reason why the entrepreneurs wanted to take Cliner's money. But the thing about how it worked, that wasn't talked about a lot.

13:45was John would source the deals. He would be the face of client or the reason everybody wanted to work with them, but they need farm out the board seats to other partners and even associates. So how do you counter position events against that? Benchmark is like, well, this is great. We're going to be a small equal partnership. All the partners here are going to be great people you want on your board. You know what you're getting?

14:08somebody from benchmark, you're getting an equivalent, maybe not quite an equivalent, but they talked about like an equivalent of John Dore and your partner is actually going to sit on your board. So then if you're benchmark, you need to start talking about how important it is who your board member is. Right. And it's sort of this like all about the individual you form one trusted relationship. They aren't promising to do anything for you that, you know, we're not going to like staff up your company. We're not going to help you with PR. We're going to be the best financial investor in board member possible. And you're going to have this really tight one-to-one relationship with someone that you really, really want involved in your company personally. Totally. And I think it's worth doubly underlining this because obviously it is super important who your board member is. And the right advice from the right board member can make a huge difference.

15:03today we just take this for granted it's like you know fish and water you're like oh yes of course the board member that you have from your venture firm is super super super important that wasn't the case and you could actually ask the question of like is that the truth period totally we're gonna talk about a lot of things on this episode that Andreessen Horowitz introduced into Common startup wisdom. This was the one that benchmark introduced into common startup wisdom. Yep. And the reason they introduced this into startup wisdom was specifically to fight against Kleiner Perkins. It was a strategy credit. It worked really well for them. Exactly. Exactly. So then, of course, the last piece of the benchmark counter positioning related to all of this and all working in concert together was Kleiner is this huge firm.

15:50I know it's got lots of tiers of partners and lots of people there and lots of politics and lots of functions that aren't investing partners. So eventually they said, we're going to do the opposite. We're going to be a small, flat, equal partnership. So we're all going to get on board in a way that politics at a bigger firm like Kleiner would sometimes make difficult. Of course, there's a lot of luck that goes into building a venture capital firm as well.

16:14Probably the most important thing for benchmark was that they made that early investment in eBay and like all of this strategy and all this counter-positioning, sure, that helped, but like, they got eBay, you know, nothing else kind of mattered after that. And that helped them ascend to the top of the venture capital. Keep. So now, okay, Mark and Ben, like they started to do all this and they're hearing this from Andy and they're like, huh, okay. Well, what are we gonna do?

16:42And remember, of course, they love Andy, but they hate Benchmark. Yeah. And we should say like the way that Benchmark established these tenets that they hold true, the way that Andreessen Horowitz is about to, it's not pure marketing, at least from what I can tell in all the research. It is a self-examination of what are the things we hold to be true and then what are the subset of those things that we can make a really loud marketing message about that We were kinda gonna do anyway but play to a massive advantage for us. Yep. So, they're like, well, we like this counter-positioning thing, Ben and Mark are. Who are we gonna counter-position against? Not Kleiner. And probably not Sequoia, like we talked about on the last episode. Like you're gonna come at the king, you best not miss, and that just seems like really hard. Maybe we should counter-position against Benchmark. Our body Andy's not there.

17:39It's like the old saying you either die a hero where you live long enough to see yourself become the villain, right? Oh, and on that note, I know you're about to talk about this later and so I won't disclose how Mark announced the existence of the fund, but in the first sentence of the interview that he did announcing the fund, he literally said the sentence, I'm crossing over into the dark side. That's actually great because I cut that from the quote that I was going to use. Perfect. Perfect. So much later.

18:08Ben would actually just say point blank. He was like, yeah, we were always the anti benchmark. Our design was not to do what they did. And of course, he's referring to them telling him that he wasn't CEO material, but also just like in general, what we're going to do the opposite of what they do. So now the question becomes, okay, you know, Mark and Ben know what they're going to do. They're going to counter position against benchmark. How do they do that?

18:33Well, the obvious first thing is we don't fire founders here and we support young technical founders, help them become the best CEOs that they can be. And we're not going to do what David Burn tried to do to us. And I love the way they talk about this because clearly it's something they deeply believe having both been computer science undergrads and gone on to become founders of companies. The way that they sort of describe it is without synthetic network, without a network of what Andrews and Horowitz would become a technical founder doesn't really have a chance of becoming a professional CEO the pace of the company's growth is going to require a CEO network a CEO's Sort of understanding of how to organization build much faster than someone can develop those skills so the thesis behind developing

19:26what would later become platform at the entire VC ecosystem platform teams was really Mark and Ben saying well how can we synthetically create or simulate all the tools that are real professional CEO has if you are a technical founder if you are the innovator because their core belief they believe that the innovator should be the one who is running the company and if that is true oh my gosh there's all these problems that now we have to like help them fix.

19:54Totally. Well, now think about how this all fits back into these various VC firms strategies. So what was Kleiner's strategy for overcoming this? It was the Kuretsu, you know? Great. We're going to take all these founders and all these young companies and how do we turbocharge them into being real companies and building their networks and doing deals. We're going to have them all work together and we have the best companies. And so that's great. Now think about the benchmark strategy, right? Of like We're going to position against Cliner. What do you need if you're the benchmark strategy? You need CEOs who are grownups who are capable of standing on their own and running the companies because they're not going to get a lot of support on that front from benchmark because it's just the partners. So now it starts to explain some of the behaviors here over the past few decades. You show me the incentives. I'll show you the behavior. Exactly. Exactly.

20:49Okay, so they start thinking about this. They're like, what are we gonna do? Well, we want to raise a big fund and we want to be a big firm. We're gonna have a lot of management fees associated with that. And we, Mark and Ben, you know, we don't really need the management fee income streams. We've made plenty of money and we're used to as being entrepreneurs, not VCs, you know, not getting high ongoing salaries. Lumpy cash flows. Exactly, exactly.

21:15So what if we take all these management fees and we staff up, we build a platform at entries and Horowitz. So two and a half percent of $300 million is seven and a half million dollars a year. That's a lot of money. Right. And classically, when people say two and 20, it's two percent on average for the lifetime of the fund. So you can sort of say in the back half, we're not going to be doing as much active work on this particular portfolio. So we'll take one and a half at the front end. We want to take two and a half to balance it out.

21:45But yeah, David, you're right. It's like, gosh, if we're not paying ourselves, which we should say for at least the first two years, Mark and Ben did not take a salary. We got a lot of cash. We can spend on stuff. Yeah, on people and resources. So then you start thinking about this dynamic. You start thinking about the rest of the venture industry through Mark and Ben's lenses as former entrepreneurs. You know, if you've got These firms that are small partnerships, not that many people, but they're just getting these huge management fee streams. Well, it's kind of weird then that these VCs are telling entrepreneurs, oh, you know, you should take like $50,000 annual salaries, which is what we know was the norm back in these days. $50,000, $60,000 is your annual salary and you should give us this big ownership.

22:36But we're going to make a few million year each, you know, rain or shine out of these management fees. Hmm, interesting. So the next piece that they start thinking about is of how they can counter position. So benchmark more so than pretty much any other venture firm, even to this day, but lots of venture firms felt the same way. They had this series a purest approach and really this idea that still permeates venture to this day that the series A that's the real craft of venture that's the like, you know, the board, it's related to this board member thing that like that round is this secret special round where the shoe leather really gets polished, so to speak. And to say why? Because in this very clear cut world, which we're not in now of these crazy names for rounds and incredible fluidity of rounds, there was

23:32not a seed asset class. There were no seed firms. And so the series A was your first professional venture capital institution coming in and writing a check into your company, taking a board seat the first time you have real governance. And before that, you have whatever cowboy would help you as an angel investor get to something that looked venture capital fundable. If that even happened at all, I mean, in many cases, the series A that was the very beginning because you needed a few million dollars to go buy servers and do all that. But by the time we're talking about here in 2008, 2009, the Series A has really become this cat bird seat for the venture capitalists because they can outsource all the real early stage risk to the seed stage with way less capital, you know, have these companies get going. And then once they kind of start to show product market fit,

24:27And a lot of the risk has been removed. Then the Series A venture firms can come in, lead around, and there's still all this sort of hangover baggage with the round where it's like, well, it's the norm that whoever leads your Series A is going to get a huge ownership percentage in your company, like 25, 30% ownership. And it turns into this total bananza for the venture firms who aren't really taking that much risk. So Mark and Ben are like, hmm, well, what if we say, that in recent Horowitz, we'll do any round at any time. We'll do seed. We'll do lots of seeds. And we won't take board seats in the seed investments. And you don't need that much capital. We won't give you that much capital. And we won't take that much ownership. And then we'll do series A's, sure, but we'll also do series B's. And we'll also do growth rounds.

25:23So listeners who are not professional venture capitalists listening to this, it kind of sounds like, okay, cool. Yeah. They have a different strategy. They don't focus on a stage. They just focus on lots of stages. And for anyone who has raised a fund before, you will know how insane this sounds. Like what venture capitalists classically pitched to LPs is Our sweet spot investment is this. It is a company that looks like this. It is a stage that looks like this. It is an ownership percentage that looks like this. It is a check size that looks like this. And it's a set of governance rights that generally look like this. And we intend to do that 20 to 40 times. And that is how we will construct our portfolio. And so therefore there can be a bunch of different variations among the companies as they go along. There'll be winners. There'll be losers. But they'll all kind of start out like this. So that's what you're buying. And

26:13By starting a venture firm being like, we're like stage agnostic, we're governance agnostic. It's just like, so wait, sorry, what's the thesis? Totally. It seems crazy. But, you know, again, they look out at the ecosystem and they're like, wait a minute, there's these super angels of which we've been them. We're doing great. We're cleaning up on Twitter and Facebook and LinkedIn and Zingga, I think. Groupon, like all of these companies were in them. We're doing great at seed. Why on earth would we stop that? Then they look downstream past the series A. There's a whole set of venture firms at this point in time that all they do is they just ride the co-tails of Sequoia and benchmarking. And they say, what series A's did they do? Great. We're going to come in. We'll mark it up like two X at the series B. We'll ride along and they're doing great. And so in recent, it's like,

27:04you know, Adrian Norrads, they're like, we can blow these guys out of the water. Then they look across even further and they're like, whoa, there's this whole other asset class out there. There's like, I'm talking about like Summit and TA and Silver Lake, which is gonna come back up. Now those guys, they're deploying a lot of capital. They're getting less multiple returns, but like the dollar returns that they're generating.

27:29are enormous right now. In pretty short periods of time with very, very protected downside. So like very low risk, low multiple, but fast return big dollar amount investments. Totally. And they don't even pretend to offer any of this stuff that like venture firms pretend to offer. So like, huh. Okay. Great. So this whole set of things, this we're going to build a big firm.

27:56people wise, we're going to use the management fee resources to build out platforms to help technical founder CEOs, become CEOs. And they would later call these networks, like each individual function, you know, recruiting or finance or acquiring enterprise customers, they call these networks at the firm. Yep. So we're going to do that. We're going to not necessarily focus solely on series a's like we'll do series a series a's a great, but we'll also do seeds will also do growth.

28:24rounds because we think there's opportunity there and we can break in. And then the governance thing, like sometimes we'll take board seats, sometimes we won't take board seats, but we don't necessarily need to. And maybe that'll help us scale. I would say all of that collectively becomes the counter positioning against benchmark. You know, and it works to varying degrees. Like on the whole, it works great. There are a few specific things that don't work. So like the seed and the governance in particular.

28:52I think these are good ideas and they work now, but at the time, they sort of inadvertently leave a pretty big flank exposed to old school VCs here, which becomes this signaling effect. And this became talked about for like five to seven years after this was an issue. Oh, my God. People were still talking about this like three, four years ago, which is insane. All right. So what is it, David? So if Ben and Mark are going to go out there and do all these seeds and not take board seats, Well, the question then becomes if they don't invest in the next round in the series A or later, is that going to send a really negative signal to the market of like, oh, well, Andreessen Horowitz had the inside information on this company because they did the seed. And now they're doing the A in a competitor. Does that mean that the original company that they seeded is no good? Other VCs in private and in public, vehemently attack Andreessen Horowitz on this front.

29:52The reality is the most exemplary cautionary tale about this is completely the opposite. And that is, of course, Instagram, which is so great. So Andreessen, along with baseline, does the seed in Instagram and then chooses at the series A in one of the most boneheaded decisions of all time to instead back competitor. Pick please.

30:19Well, right, because they ended up both being in their portfolio, because Instagram started as bourbon, pivoted into Instagram, suddenly Andrews and Horowitz has a problem, because they have two competing things in their portfolio, and they're like, well, we got to pick one, and we're picking, pick please. Totally. So now, what actually happens here, like, oh, what you would think, you know, if you buy the narrative of the attack against Andrews and Horowitz, oh, signaling effect, Instagram, their toast. Far from it, they go raise a series A from Benchmark, from Matt Collar of Benchmark. And of course, we know what happens there.

30:48And what happens to pick please, which is nothing exciting. So the reality is the signaling effect kind of works more against the VC firm than against the companies, but you know, hey. So David, we've got this thing where the innovator should be running the company. And recent Horowitz is going to have all these networks that are going to augment that innovator and give them a CEO like.

31:14you know, resources at their disposal. So they can really be the professional CEO and the technologist who brought it into the world. They're going to spend a bunch of management fees to make this possible. They're going to raise a pretty big fund for the time, $300 million. They're doing wacky stuff with portfolio construction. Okay. So all this is great, right? They've got this great theory that you know, grand unified theory of counter positioning and you know, market entry strategy into the venture industry blah, blah, blah. Oh, good.

31:42But Andy's like, you know, look guys, this is one other thing, which is the reality on the field. I've done a bunch of research here, you know, since I joined the faculty at GSB, and I've concluded, you know, with data approved what we all knew all along, which is that there's a very small finite set of companies that get started in the valley every year that actually matter. And it is a blood sport to win the lead position as an investor in those companies.

32:11and you're fighting against Benchmark and Sequoia and Cliner, and you can counter position all you want. But like, you're gonna go fight against John Doer, and you're gonna go fight against Bill Gurley, and you're gonna fight against Meritz and Leoni and all these guys, and how are you gonna win? Just like, you know, the Mike Tyson quote, you've got your plan, you're gonna, you know, it's gonna work until you get punched in the mouth, and they are gonna punch you in the mouth. And how are they gonna punch you in the mouth? Well, they're gonna say things like, you know, yeah, Mark and Ben, like...

32:37Mark and Vincent the browser and that's great and whatnot, but you know, they haven't been VCs. They haven't been board members. They haven't been professionals here. But the other thing that they're going to say and that's going to cut way deeper for you guys, is they're going to say that you guys don't have staying power, you know, as Don Valentine would have said back in the day. Obviously, not about Mark and Ben, but you said, where are the monuments? What's Netscape? What's Optware? You know, you guys have built these good stories, good companies. They're not around anymore. Who's using Netscape? Nobody.

33:07So you talk this big game, but where's your eBay? Where's your Cisco? Where's your Oracle? Where's your Google? They aren't there. You want to work with us. We've got those monuments. So there's this great quote from the fortune cover story when they launched the firm, but there's this quote in there that says, just five years ago, Andreessen's image was more that of a smart, amiable billionaire playboy who dabbled ineffectually at technology's fringes. He seemed more Paul Allen than Bill Gates then in the same piece. This is the from the launch of Andreessen Horowitz like think about you know who was placing these quotes. There's a quote from Steve case somebody ginned up Steve case to like give a quote here. Mark is like a rock star who had his first album hit big and then the next ones were not quite the same.

34:01brutal, right? Like they get punched in the mouth hard. Wow, those are brutal. So David, you're implying then that in this punch you in the mouth landscape that's going on, the journalist is doing research for the story and they just get connected with people who are gonna from day one right out of the gate beat the crap out of Mark and Ben's accomplishments. Yeah, like I'm sure Mark and Ben and the great people they were working with on the PR side, which will get into in a sec. They weren't the ones that pointed, pointed people to this quote. The Steve case thing is interesting too, given that Mark reported to him for nine months as the CTO of AOL. Totally. There's actually another sentence to the quote where it really softens the blow. Something like people have a lot of respect for him that he's persevered or something like that. But the point like the damage is done here. Yep. So they're like, huh, we're going to have to deal with this. Fortunately, they know somebody who knows a thing or two about punching other people in the mouth.

35:00And that is their other old board member from the Loud Cloud, Opsware days. The original OG Hollywood Super Agent, Michael Ovitz. Yeah. So great. We've talked a lot about Ovitz on this show, CAA, and the whole Disney debacle where he goes and becomes president of Disney. And then we of course talked about him joining the Loud Cloud board after that on the last episode.

35:30But I think if Andy was the inspiration for the sort of highfalutin strategy of Andrews and Horowitz, Michael was the inspiration for the like, okay, how are we gonna get this done? So the quick story on Ovitz is he started in the late 60s in the mail room of William Morris, the storied long time Hollywood talent agency and everybody started in the mail room back in the days.

35:56the dynamic in Hollywood was totally broken like we're talking here about how the venture and startup dynamics were a little broken at this time like Hollywood was bad the studios controlled everything they held all the power they held all the creative decisions you know the talent and the artists the actors the directors the writers etc they were they were more but little more than indentured servants and the agencies like William Morris, you know, they claimed to represent the talent, but they knew who the real customers were, which were studios. I don't know if we've talked about it before on the show, but I've talked about it before with other folks in the Pioneer Square Labs context of how startup studios fit into the landscape. But I love this equivalence between the Hollywood and tech where especially in the old school days, you sort of had the VCs, which are a lot like the

36:50studios and there were three to five major VC firms with money and there were three to five major studios with money that could greenlight a movie. And then of course you've got the CEO founder who's a lot like the director of a film. And then everyone else including the actors who works on the film is a lot like the team of the startup. And watching the way that the power dynamics evolved between these two ecosystems in parallel is really fascinating. Totally. So.

37:19What of it does so he and a bunch of buddies from William Morris they're like screw this. There's got to be a better way They leave they go start their own firm. It's exactly like Jerry McGuire Jerry McGuire was actually about this guy Lee Steinberg in the sports agent world, but it's the same story So they leave they're gonna start a new firm and they're gonna focus on the talent not the studios They're gonna figure out how to deliver the power To the artists and the talent and take it away from the studios. So how do they do that? One they package projects and talent together, and then they sell whole packages to studios and say, we'll sell the rights to you. But by doing that versus like, oh, we represent this actor in new studio, you're making this project. It's more like, no, no, no, we got the project. And the artist's own the project. And we've packaged it. And we're going to bid these studios off against one another, to finance it at the highest price. So how do they do that? Well, they got to connect up the talent.

38:16They got to take the talent from being like each individual person from their own to like working together against the studios. How do they do that? Well, they transform what the firm from being, you know, each individual agent is a silo to we are a network. We're like a web network. They call it the franchise. And so anybody who's part of CAA, you know, your job is to have your clients, but to get them to work with all the other clients of the firm that are represented by shared rolodex, shared rolodex. And so to do that, everybody at CAA is a partner. No mailroom, no blah blah blah. Like we're all here. We're all together. This is about the franchise. And it's really fascinating in like a

39:02business strategy context, zooming out what they did. And this is a common discussion point on Stratekery of like, what is the point of integration within a value chain? And what it used to be was at the studio level because that's where the money would come from. And then they would get to aggregate all the resources together using their money. And the fact that it wasn't that competitive because there were very few people that they were competing against and they do them very well. And nobody wanted to lose their power. And When you start having CAA say actually we're going to package all this together the point of integration shifted down the value chain one click to where now it was happening with CAA exactly and the important thing here is wherever the point of integration is that's where you gain power that's where you're able to become more than a commodity where you're able to gain basically you're able to create margin where you're able to get more cash

39:58for something then it costs you to assemble it. So, what does CAA do? They create the project, so like Jurassic Park, lethal weapon, shinlers list. These are CAA projects. These are not studio projects. They pull them together, and then they bit them out to the studio, since now all of a sudden all these studios...

40:18Bidden against one another, the price goes way up, the dollars flowing into the space goes way up, and the artists all do way better. So Tom Cruise, Kevin Costner, Barbara Streisand, Steven Spielberg, you know, within a couple of years, CAA is just vacuuming up everybody. And so literally the term that they use, that I think of its coins are very, become said about CAA and Hollywood.

40:43about all this is they become, quote, the dream execution machine. You're an artist. You have a dream. CAA is your dream execution machine. Great marketing. Oh my god. So Ben and Mark, they're like, holy crap. This is so great. What better? What better analogy to use than we're going to go build the dream execution machine in startups?

41:11Which happens to work particularly well because they're working with technical founders. Exactly. You have the glint of a dream and the ability to create the sort of core piece of value. The core way a customer interacts with it and gets value out of the product. But like you can't do all the other stuff, we are the dream execution machine you should come to us. Yep. Yep. They're just like a director or a great actor or a great writer, etc.

41:37So the sort of last unwritten but it didn't need to be written principle at CAA was take no prisoners and we're going to burn the old system to the ground like F all of those people. And of course Ben and Mark have that same ethos about the venture ecosystem. And whether there's was written or not internally, it certainly became written externally in all of their communications. Like they pulled no punches in talking about how the entire existing incumbent industry sucked and people were greedy or we'll pull some quotes later, but they were not shy about being critical of the establishment. Totally. So this is the punch back in the mouth. Great. You're going to punch us in the mouth, say that where, you know, has been rock stars who are one hit wonders like we're coming at you twice as hard. So that's what they do. And they also, you know, basically wholesale copy the farm building approach from CAA. So, you know, as you said, the platform and the networks that they build up.

42:36They hire a whole bunch of people. They have a biz dev network to connect founders with large company customers. They've got an executive recruiting network. They've got an engineer recruiting network. They've got a future financing like other venture firms network and an M&A network associated with that too. You need an acquire or we'll hook you up with the choirs. And then of course, probably the most differentiated and important last piece of this is they have a PR network.

43:05Yeah, which they wouldn't say is the most differentiated. The most differentiated, I think they would say is like the executive briefing center and our ability to galvanize a set of Fortune 500 companies to become your customers. But in reality, yes, they are masterful at PR. Well, Ben would say later, I had this quote later, but here's the perfect spot for it. He would say, literally, we introduced a new concept to the field of VC, which was called marketing.

43:32And it's true. Nobody, you know, no venture firms were doing this for themselves or helping their companies with PR and marketing before entries in the harvots. Well, the interesting thing about why no venture firms were doing it about themselves was the commonly accepted wisdom is that opacity plays to our advantage. I think most people didn't actually think through it. They just thought what have successful venture capitalists done in the past. And that was be opaque. Don't make too much.

44:01PR noise other than to claim your win when you have it, but you don't need to take these big positions and be brash and counter position publicly. And, and recent highlights not only saw that as a thing they could exploit, but I can't remember if it was Mark or Ben. I was listening to out a podcast that we'll link to in the show notes, along with a lot of other sources we did for research for this one brought up the fact that If you trace back the origins of institutional firms, like venture capital firms, it comes from the investment banks of like the 40s and 50s, who were opaque because they were financing wars. There was lots of reasons about why they wouldn't talk about where their returns were coming from or their excitement about the projects they were financing, whereas Mark and Ben are unabashed, optimists about the future, Mark in particular, of

44:52Just standing on the largest soapbox possible and preaching about how cool the future will be and how much better off everyone will be both on average and in every spot in the distribution in the long run. So let's bring that closer as fast as possible and be really loud about the future that we see and about the companies that we're investing into build it and how much we believe in that and how.

45:14On apologetic, we are about that. And that was just totally different than the commonly accepted wisdom of how venture capitalists should go to market. Yeah. Well, two things. One, I think the version of hiding the war financing of investment bankers that VCs were doing here was they're hiding the management fees. Like, come on, you got a 10 person organization, half of which are assistants and you're making 20 mil across your funds and management fees a year. Like, I don't want to shout that from the rooftops if I'm a VC firm.

45:43or brag about how I'm putting two million into work to own 30 to 40% of a company. Yeah. Exactly. And the other thing though, like the flip side is, if you are going to go be unabashed about pounding the table about what you're doing in the future, if you're an entrepreneur who you think you're part of building that future, God, now you've got a champion. This is great. Yep. So there's one other person along these lines that they go see before launching the firm.

46:12which is the number one hands down best PR person in Silicon Valley at the time, market whenmokers at the outcast PR agency. So, market and co-founded outcast and they had all the best clients, like all the best clients, Facebook, Salesforce, VMware, and they worked with them from the time they were nobody's still up through, you know, being huge companies. Amazon, they did the Kindle launch.

46:41and still worked mate to this day still work with the Kindle team. So the story of how they get connected is Margaret tells this on an A16Z podcast episode. She says that one of the companies that Mark and Ben had been angels in wanted to work without cast but Facebook blocked it and said it was a conflict and wouldn't let out cast work with them. So Margaret just joined the board of Facebook and he gets involved in trying to smooth this all over and he's like, wow.

47:09Margaret is really amazing and I see a Facebook like what she's doing there. So he gins up and excuse to get her contact info calls her up, you know, supposedly to talk about this situation and instead brings her to the Creamery and Palo Alto sits down with Ben and they just like talk the whole time about how they're going to launch a venture capital firm. I've got another project for you, which is great. So Margaret's like, okay, you know, like we work with venture capital firms. I can do this. What are you going to call the firm? And they're like, we're going to name it Andrews and Horowitz.

47:37She's like, that is a terrible idea. You're talking of this big game about how you're gonna be a franchise, you're not gonna be about the partners, you're all about the entrepreneurs and network, and you're literally gonna put your own names on the door. Like, are you serious? And they're like, no, no, no, no, no, no, it's not what you think. We did a whole big branding exercise about this. We heard a big branding firm, we did all this work, and we decided we need to do this for two reasons. One.

48:03Andrews, you know, Mark Andrewsson is a known quality. He invented the brand. It's already a brand. It's already a brand. He's already a brand. So we can draft off of that to get going. And then once we get going, we transition from Andrewsson Horowitz to a 16 Z, which is a to Z. So you know, supposedly the story is, I guess it's probably true.

48:28that people used to abbreviate internationalization to. Oh, I actually know it's definitely true. My first job when I was 14 was as a product test engineer at this medical printer company in Cleveland. Huh? And I did not know that. That's awesome. We're learning some Ben Gilbert history. Yeah. And I did some internationalization work, which you will need to type that once before you're like, well, I never want to type that word again. And that is abbreviated I 18 in. So people really do do this.

48:57Absolutely. And there's another one. I think it's localization might be L something N L 16 N or L 11 and something. I can't remember how many letters, but yeah, interesting. So they're like, well, it's perfect. You know, it's kind of geeky reference. Super esoteric. Super esoteric. But it's A to Z. And we're going to do A to Z at entries and or it's we'll do any round A to Z. This is great. By the way, You'll get a heads up that Mark and Ben are going to step back from the firm when they actually formally changed the name to a 16 Z. I was looking forward in this most recent visual refresh that they did. I'm like, oh, is it time? Are they actually flipping it to a 16 Z? But nope, nope, the official logo, as you'll see on the art for this episode is still Andrews and Horowitz. It's still Andrews and Horowitz. Interesting. It's got to become. I mean, all across the website everywhere and all the media they do, it's a 16 Z. It's not Andrews and Horowitz. Yeah. But

49:53You know, it's still the unofficial moniker. Still there, baby. So there's one other thing, one other benefit about the name, which we know very, very well and acquired. They're gonna be listed first in the phone book. Huge advantage. Huge advantage. Literally is a huge advantage. You know, anytime that a reporter's writing a piece about them, talking about various venture capital firms, you know, as much as not, they're just gonna alphabetize stuff and who's gonna come first?

50:22Andrews and Orwits is going to come first. We happen to be just very lucky that podcasts clients are not terribly sophisticated in how they do sorting. And so whenever you subscribe to a show, it just displays them in alphabetical order. Totally. Uh, some markets like, yeah, all right, whatever. Fine. All right. You guys have done a lot of justification to put your names on the door. What are you with? Rationalize, rationalize, rationalize. Great. Yep. But what you need is you need to build a pipe and you need a cover story.

50:51So what do you want to do? What outlets do you want to go on? Where's your cover story? You know, I can get you whatever you want. What do you want to do? So February of 2009, Mark goes on Charlie Rose. Even 15 years later, it holds up really well. Yeah, it was really good. So landing Mark on the show when there's no reason for it's not like he has a new company or anything like there's no. In fact, the funniest thing is that I tweeted this from the acquired account last night.

51:20There's a some point where it brings up a little like title tag underneath, and it says Mark Andreessen, I think it's founder, yeah, founder, Ning. You're like founder of Ning. Like it was true at the time, but like did anyone care about Ning? Not really. That's the best you can come up with. Yeah.

51:39We should be clear like he is on the board of Facebook like he's like involved in some like stuff that's going crazy He's an investor in Twitter and Twitter is in like it's third month of like vertical line growth. He's not just the net scape guy He's involved in something that these companies that are part of a cultural phenomenon at the moment totally still is a pretty big win for outcast to get him on the show so Charlie starts off and says you know when we interview people like you we Always have to ask the question, what's the hottest idea there in Silicon Valley? What's the next big idea? Some mark replies, well, maybe this goes off track from your question. He's great at redirecting. He's obviously had some training. But I think the hottest idea is that innovation is actually alive and well. Remember, this is February 2009. But look, there are a lot of people out there who are arguing the other side of that.

52:36So he's already setting up like we are the champions of innovation. Only we can save you. Then Charlie asks him about rumors he's been hearing that Mark is starting a venture capital firm. Like rumors he've been hearing. This is why he's on the show. Like generous of you to give him rumors. He's been hearing from market that you are starting a venture capital firm. And you have to realize before you finish, like I think it's worth planning the seed. I watched this interview because I was reading an article and I was like, Oh, this article says that he announced it on the show, like I should go watch the Charlie Rose interview where he announces it. And I start watching it and like I get 20 minutes in and they're like, this isn't about entries in Horowitz. And then I remember like exactly what you opened with obviously it wasn't a brand yet. He wasn't known for being an investor yet. And so if you're making the pitch to Charlie Rose, if you need to have this guy on the show,

53:29Charlie's throwing Mark a bone by letting him mention his new project to galvanize it on this show. And so of course, it only occupies three minutes of a 50 minute interview. So Mark replies with, as he said at the top of the show, the yes, I'm going to the dark side. But then he says, so I'm creating a fund. And as you know, our claim to fame is we've actually been entrepreneurs were by entrepreneurs.

53:58four entrepreneurs, we've done it. We've been on that side of the table for a long time. We know what it's like. Yet another way they're counter positioning. It's like, oh my gosh, these professional investors out there, you don't want to work with them. You want to work with us because we've been in your shoes, which is now like the dominant dogma that VCs feed to founders and then just kind of uncommon. Like they were the first. You heard it here first on Charlie Rose. Yeah. Yeah.

54:27It's actually really funny. Did you get to the part later in the episode where they're talking about various new seed stage companies in Silicon Valley and Mark starts talking about this really interesting guy who's starting a company and he's proven demand for it. Yes. He describes what we do at PSL, like the validation process of driving traffic and having a brand and testing conversions. He just built a landing page. There's no product. Did you get to the part where he says who it is?

54:55It's Andrew Chen who would become his partner 10 years later. So great. So great. And he's like trying to remember. Oh, what was that guy's name? Right. Yeah, on this thing, I think he's getting close to having a round that's coming together. Good for him. And of course, like this is pre-Uber. Like Andrew hadn't even done the growth thing at Uber yet. Oh, so great. These artifacts of history. I just love them. It's like when Don Valentine holds up the resume and it turns out to be Alfred Lins. Like it's like that kind of reference. It's one of those moments totally.

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57:11So the actual big cover story reveal as we've said July 2009 cover story fortune magazine Marcus I think not barefoot in this one on a throne I actually didn't see what the image was that would be very curious. I'll look at Apple you talk great They announced and Jason Horowitz 300 million dollar fund which was very large at the time especially for a first time fund The piece starts off with the old Netscape email story about what that we told last time about Ben emailing Mark about the launch back at Netscape and Mark replying like next time do the Fing interview yourself F you And then this is where the quote from Mark of this is why I should not run another company comes up Which of course like this is the perfect. Oh, yes, we're starting a venture capital firm because I shouldn't run another company. Ha ha perfect

58:09So the cover image is this like pretty hokey Uncle Sam gag where it's Mark pointing at the camera and it says, I want you to get the future. David, I'll hold it up so you can see it here in the camera. Oh my God. That's so great. I want you to get the future so fresh and given that future would be the future for them. That's awesome. Okay. So a couple of quotes later in the article. First quote, entrepreneurs are sure to be attracted to Andreessen.

58:39drafting off the injuries and brand here, who expresses more kinship with founders than with his peers in the finance world. One blog post that Mark has written titled, the truth about venture capitalists raised the question, VCs, question mark, soulless and rapacious capitalists, or surprisingly generous philanthropists, two guesses which side of the coin he comes down on in that piece, talking about punching back in the mouth.

59:09It's like how could you even have listed the second one? It's like of course it's not the second one. Yeah Has anyone in John Doer's life or Don Valentine's life ever accused them of being merely a philanthropist like no, come on It's the readers of fortune too. They do some great philanthropy, but for sure, but not through Sequoia and Clienter Perkins. No, definitely not I mean, it's a value created for the world clearly. I believe that I wouldn't be in this line of work and you and us doing this show and everyone listening, but like, it's not philanthropy. It's just so easy for Mark to set up these straw men here, but the punches are flying in this article. We've already alluded to this a little bit. So later in the piece, another quote, the Andreessen Horowitz strategy of investing in a menagerie of startups could pose hazards. And here's a direct quote.

1:00:02in the article, if I were one of those guys whose company stumbles, will they, they being Mark and Ben, be there to help me, or will they have time? Says Paul Holland, general partner at Foundation Capital, a Silicon Valley venture firm. Where the pain part of it comes is when you get up to those 60 or 70 investments, it will be an interesting chore to keep track of all that. Bad idea to go on the record here Paul.

1:00:31I think everyone's just fine in a way to talk their own book. It's like, whatever my strategy is, is superior because XYZ, whatever they're doing is stupid because of XYZ. Yep, totally, totally. So it lands with a big splash. They're in business. They got this $300 million fund. It's summer 2009. I think, according to pitch book, the very first check they rate is actually a small, very small check early. I think they hadn't even done a final close on the fund into, do you know the company Ben?

1:00:59Is it Seattle based? Not a Seattle based company. This is a very small check that they're right. No. Into a larger round, a series C that is led by somebody else of a then, this is like at the end of 2008. So it must have been just like a first close on the fund, like a warehouse investment or something like that. A then very, very hot company, end of 2008 in Silicon Valley, not Facebook, not Twitter, another social media company. LinkedIn? Nope.

1:01:29dig dig.com dig I knew he was it I thought that was a personal investment I think it was but I think they managed to get a little bit of fund money into their I was obsessed with dig. Oh so great Kevin Rose amazing in the reddit versus dig war I was so team dig as like better designed it makes more sense I watched Ignatian. I think every episode of dig nation. Oh, I was all great. So great me too. Oh, it was the best So that was the first. Then the first like real actual like large check round that they lead is a Seattle company. Aptio. Aptio. While doing research for this episode, I was on a bike ride and I rode past the Aptio building and I was like listening to some podcast interviews with Mark and Ben and I took a selfie and sent it to David and I was like doing research. And the irony is I was going to a Giants game in San Francisco right at the same time.

1:02:27And when I get out of the Uber, like a block away from the giant stadium, I get out right in front of Andrews and Horowitz's new. Oh, that's so funny with the big sign up front. I didn't notice if it was a 16th year Andrews and Horowitz. I think it was Andrews and Horowitz. It's Andrews and Horowitz. Yeah. Yeah. You know, if they're putting it on the sign that the intention is for it to stay around for at least a few more years. At least a few more years. But yeah, the aptio investment. I mean, it's a co-investment with both of our former employer, Madrona. Yep.

1:02:56And Greylock, I think too. Yeah, and I think they had worked with Sonny in the past, the founder at, was it at Loud Cloud? So I think Sonny's previous company had been acquired into Loud Cloud. But that was really emblematic of part of what the thesis was at that point is we've worked with these amazing people over the course of our careers. We're going to be a network driven firm.

1:03:22and they didn't have the firepower yet to be a thesis driven firm like now they're extremely thesis driven but at that point it was like oh this guy's an entrepreneur and starting a company or it was I think already a company in flight like absolutely we should invest in we know very well great employee totally well so one of their other first checks speaking of stage agnostic I was speaking of that same you know we're going to invest in in the software allowed cloud a diaspora great great indeed Truly great people. I think this is one of their first like 5 or 10 investments. Rock melt. Rock melt. Our boy, great friend of the show. Eric Fisheria. Former Obstware VP of Marketing. Future benchmark capital. General Partner. Eric Vischria. Pretty cool. So funny that they let us around. Benchmark I don't think was an investor in Rock melt.

1:04:17Well, the other funny thing about that is that it was supposed to be a next generation web browser. And obviously, like Mark knows a thing or two about web browsers. And Rockmouth was like, you know, what if the browser had built in social characteristics and could bring in your newsfeed and Twitter and all this stuff right into the browser. So it was like a sweet spot investment for Mark and Ben having worked directly with Eric and then also, you know, Mark saying, that seems plausible. Yep, totally.

1:04:43It was, it was a great idea. I remember using it. I thought the browser was great. It was built on Chromium. You know, it was in many ways. It was brave before it was brave too early and before crypto was a thing. Yeah. Okay. Do you know what I was referring to speaking of stage agnostic? You're talking about their $50 million investment in September 2009. In the first year of operations of the fund out of a $300 million fund.

1:05:09Who's gonna put one six million into one company that ended up looking genius, but boy did this cause a lot of kerfuffle and criticism when they did it boy did it ever September 2009 50 million dollars Deployed alongside Silver Lake the private equity firm Silver Lake tech private equity firm Silver Lake who I believe The Silver Lake headquarters are in the same Rosewood office park on Sand Hill Road that the Andreessen headquarters are in. Maybe they talked about it at lunch at the Rosewood one day. We haven't talked about the headquarters on literally in the Rosewood complex on Sand Hill. I can't get any better than that. Nope. So yeah, $50 million into the spin out of Skype from eBay. So the whole transaction, a $2 billion purchase of 65% of Skype

1:06:06from eBay worked out pretty well, but they probably should have spun out PayPal instead of Skype. That would have been a lot better. Hey, I mean, well, they did eventually, but both of them ended up being really fantastic ideas. Both of them created a lot more value independently. Oh, I did. But yeah, Andrews and Horowitz wasn't part of the Early stage investors often talk about how there's a minimum ownership percentage that they need to hit in order for it to be meaningful for the the fund return, which is true if you're only deploying a very small percentage of your fund, but this is a case where they used $50 million to buy 1.8% of Skype. So on the one hand, you're like, oh man, that 1.8%, like gosh, we need to own a lot more for this to be meaningful for our fund. However,

1:06:53Since you were putting 50 million to work that even if you got like a 2x on that, which is not great by venture standards for a normal early stage investment. But I mean, that really is meaningful for helping to return the fund. Yeah. Yeah. And they ended up getting what, like a 4x on it. A 3x. Yeah. And it was quickly. It was just a year and a half and it ended up turning into 153 million for them. Yeah. So a couple of things on this. One mark.

1:07:21It'll be back to like, okay, what are we, what are we gonna do here at Andrews? No, this is gonna become a case study. So he helps broker a Facebook partnership for Skype, which I remember this. Remember when Facebook integrated Skype? Yes, for video calling. It was in messenger. Yeah, man, huge. Could you imagine something like that happening today? No. No, f'ing way. No. That was all Mark. And then he helps recruit Tony Bates to come in. Ah. See you, Tony.

1:07:50Sisko was a rising star there, and then in a later fortune piece that Margaret would place another great one, talking about the deal. Quote, the clincher was Bates' meeting with Andresen. Quote, I'd always been a big admirer, but never met him. Bates says of Andresen. Going into the Andresen Horowitz office was an experience. They have this wonderful library in the lobby, and I looked for a couple books that were special to me.

1:08:17One was Neural Mancer by William Gibson. I couldn't find it. So that became a good opening to the conversation. And I think it's Mark's personal library is the library in the lobby. But you can just see the whole mystique, the firm, the franchise, all of this being woven together here. Yep. And it's happening in public in Fortune Magazine. In the press. Yeah, so great. Yeah. There's another great little end of this story, which is there's a blog post.

1:08:46We're Ben Horowitz said that the Skype deal generated a tremendous amount of controversy for us. That controversy ended this morning. And of course, this is when the deal gets done. What was it nine and a half billion dollars that Microsoft acquired it for? I think eight and a half somewhere in that neighborhood. Oh, eight and a half. That's right. Still pretty, pretty nice quick return. Unfortunately, shortly after this, right around this time.

1:09:11I don't know. I keep saying the biggest mistake in the firm's life, but the reality is Instagram only got acquired for a billion dollars, like there were two mistakes. One, entries and screws up, not continuing to invest in Instagram. Two, Instagram sells to Facebook for a billion dollars versus a, I don't know, 200 billion, 500 billion, some massive company inside of Facebook that it is today. Totally. So sad. So that was March 2010. Fortunately, though, also in early 2010, They make a great decision. Wait, David, I just have to pause for one quick second and say Instagram was definitely not their biggest miss ever. Their biggest miss ever is definitely Uber, right? That's coming. Don't worry. Don't worry. Okay. Yeah. No, you're right. Not the biggest miss for Andrewson, but Silicon Valley's biggest miss to the past 15 years was Instagram being sold to Facebook. I crewed to Facebook shareholders, but not the rest of the venture ecosystem. Totally.

1:10:10That's a whole other rabbit hole that we've been down many times. So a great decision that they make in early 2010 is they lead the series A of Octa, the identity company, which they would then own what 18% at IPO, I think? Yep, they owned just a hair under 20% pre-money at the IPO before the new, the IPO cash came in. So that and what was IPO valuation was six billion, is that right?

1:10:39six billion and today it's what is it? 33 billion that company is continuing to just be a monster. Yeah, so and this is out of a three hundred million dollar fund. So at IPO their stake was worth call it one and a half to two billion. Yeah, at IPO at IPO and this one company and if they've held to today which it's unlikely given it was a fund one for them and totally and I'm sure you know they distributed over time so they probably captured some of this upside but just as a thought exercise what 20% of or 15% of that's what 5 billion ish ish yeah not bad not bad and octah this is another one that like mark talks about publicly is we were totally laughed at identity providers were a thing already and like Microsoft with

1:11:29Active Directory, like it was owned, but the CEO of Fox that Todd McKinnon had this like big thesis around the shift of the cloud means that there's time for a new identity provider. There's room for a new person to come in and none of the incumbents are going to be able to react to it. And Mark always talks about that like this is the kind of thing that we loved hearing when there's like a rearranging of the technology paradigms that are used. And right now it's just by a small select set of people, but over time, everyone will shift to the cloud. But Yeah, he said they were totally laughed at for doing the Octa deal because it was very against collective wisdom that that would be successful. Well, two things. One, it even goes deeper than that because Tim Howes who was early enough to keep guy and then co-founder of Loud Cloud with Ben and Mark and Sykry and everybody, he invented a LDAP, the directory access protocol. So they knew a lot about this. And then the other thing.

1:12:20You know, just everything he said reminds me of the classic Sequoia question, the why now? Why not? Well, it was a great why now for the cloud was changing everything. There were like a lot of companies around this time. And even for the next five years, we're just saying, Hey, we're going to do a thing that's already sort of a settled frontier and a very settled frontier in the on premise world. But we're going to bet big on cloud and we're going to architect it in such a way that like, we're not even compatible with the on premise world. If they mistimed the enterprise shift to cloud, The whole thing would have gone under because there would have been no way to be. I'm thinking specifically of like a snowflake, the cloud-based data warehouse. You had to be binary in your bet and say like, we believe in these thesis at this timing and obviously with Octa and snowflake, it paid off, but with other cloud bets like loud cloud, it did not. The timing was not, or the why now is not great. Well, actually, it was great. It was a good story. It just didn't play out well.

1:13:19They're spending money as, let's see, maybe their VC enemies would say, drunken sailors, maybe it would be a good term at this point. You know, we're still, we're in like the early parts of 2010, they've done 50 mil in Skype, they've done all of these deals, they're doing tons of seed deals on top of it. It's a lot, they're almost out of cash. You know, and they're reserving half the fund for follow-ons, so they only have 150 mil of new money to deploy. So...

1:13:46They're like, wait, wait, we gotta go, there's another font. So this actually just came out recently. I saw this in, I forget which publication this was in, but I quote recently that Ben said in a, this is a quote, Horowitz said in a recent clubhouse interview that when the duo were raising their first investment fund of 300 million, a big sum for a VC firm at the time, indeed.

1:14:10Andreson told him they needed to raise a second much bigger fund right away. And here's quote, in fundraising and Inventure Capital, strength leads to strength. Andreson said, according to Horowitz. It's so true. It's such a good point. It's so true. It's so funny. And it's so true. Have you read the Michael Mobison paper on persistent differential returns by asset class? I have.

1:14:37We'll put a link in the sources, but for those who haven't read it, there's all this data to support the fact that like you look on one side of the spectrum at like hedge fund managers, and if you're the top performing hedge fund manager this year, it has almost no bearing on whether you will be a top performer five years from now, maybe not even one year from now.

1:14:57But if you look all the way on the other side of the spectrum at venture capital and because he's a good academic, he doesn't presume to state the cause. He just states that there is a correlation that the top performing firms stay the top performing firms for a long time. You know, if you're the top performing venture investor this year, it's very likely that you will be 10 years from now. And so or at least one of the top performing ones and the sort of postulate is that, well, strength follow strength that When you do the best deals, you then start to realize the flight wheel of getting the best entrepreneurs that are referred to you. Totally. I mean, this is everything that we talked about. We spent the last, you know, hour and a half talking about of like, how are Mark and Ben going to break in to this dynamic. I mean, I remember I think I've maybe talked about this on an episode in the past, but

1:15:45Back when I was a even younger whipper snapper, just starting out in BC at Moderna, I got a chance to get drinks with Bill Gurley once and I was like, so eager. I had like all my questions prepared. I was literally like, I had like a notebook and the biggest one I wanted to ask him was like, Bill, tell me the secret. Like, what is the secret to success in venture capital? And he just kind of looked at me and he was like, David, the secret to success in venture capital is success in venture capital.

1:16:13It's so true. You have success and that gets you more success. You don't have success. Good luck. And to Mark's point here, it also is true in startups. Like if you are massively outraising everyone else in your category, like you're going to be able to kind of keep that mind share of the category leader. You're going to be able to recruit the best executives. You're going to be able to land those customers. So there is this on the one hand, it's hype. And on the other hand, hype is a self-fulfilling prophecy in a lot of ways.

1:16:43Totally true. I mean got what a great encapsulation of startups adventure and everything it is hype But it's also real anyway, so they go out summer 2010 and they raise a second fund one year after deploying an already large three hundred million dollar fund They raise a six hundred and fifty million dollar Second fund in 2010. This was nuts. This was like an atom bomb going off in the industry Two reasons. A, that is so much money. I mean, when I was in Madrid at the time, we were investing out of a $250 million fund, and we were a 20-year-old firm. It's still pretty closely after the financial crisis. Yeah, I mean, 2010, 2010. The pace, like the idea that you would blow, quote-unquote blow, $300 million worth of a fund in one year and be back a year later to your LPs to go raise another fund.

1:17:41This was crazy, you know, the established VC firms, they were still coming off the hangover from the dot com bust, where they stretched their 99 funds for like four or five, six years. You know, we did that special with how it altos talking about how they had to stretch a fund. God, how long was it like six, seven, eight years before they could raise their next one? So this is just like wild. What's happening here? And the press eats it all up.

1:18:10Now the other thing that raising now having almost a billion dollars in capital under management gives them is even more management fees to go out and recruit more people. So this is when they go back to market who's been just doing a bang up job for them on PR and they're like which we should say when you say a lot like this is $16 million of new fees coming in every year or about 15. So like you got a budget. Wow. You got a budget.

1:18:36How about you leave outcast and join Andrews and Horowitz full-time? Now, this wasn't totally crazy because she had already sold outcast to a holding company. So she had founded it, co-founded it, but it had been sold and they just brought in a separate CEO. So she comes in full-time joins as head of marketing for Andrews and no venture firm had a head of marketing before this. They also bring on Jeff Stump to run talent.

1:19:03They bring on John O'Farell, who was head of BizDev, I think, at Opsware, as a GP. Now, interestingly, he had not obviously been a CEO despite the mantra of, we only have CEOs as GPs here. But anyway, it works out well. So, what do they do? They've had the strength. They now have more strength. They keep the foot on the gas. They keep deploying the money quickly. So, early 2011, this is crazy.

1:19:31totally works out great for them, but gets pilloried in the industry at the time. They take all this money. They start going and buying private secondary shares in pre-IPO companies like Facebook, Twitter, and Groupon. I don't know how well Groupon worked out for them, but they deploy what was I think like over $80 million into buying pre-IPO secondaries in these companies, wild.

1:19:56Which they probably were investing like exactly the upper limit of each fund in secondaries because they weren't a registered investment advisory yet. They were just a regular venture firm. Yep. That makes sense. Which is what 20% per firm is what you can do into? Yep. 20% per fund. So 20% of 650 would have been like, yeah, I don't know, 120, 130 million. So I bet they did. It's like up to that. Give themselves a little breathing room. That's how you come up with the 80. Yep. It may have been more than 80.

1:20:26to that may have been just Facebook. Anyway, so then in April of 2011, they lead a hotly contested series B for a little gaming company, making a game called glitch tiny spec name of tiny spec. Mark had invested in the seed for tiny spec personally. And then in the previous fund, entries in Horowitz had put a little bit in in the A that Excel had led.

1:20:55And of course, the head, uh, the CEO of Tiny's Fec is Stort Butterfield. Stort Butterfield, I know that name. So shortly after, like very shortly after, I believe, um, Andreson Invest leads this around the series B. Stort sends an email to the board. Quote. We've had this quote on acquired before. I did not feel that we are pouring gas on a fire here, more like pouring good whiskey on a drugstore heating pad.

1:21:23It is unlikely to burst into flames. And he means that it bursting into flames being good for the company, not bursting into flames being quite bad for this new Andrews and Horowitz investment. I love dishonesty. I mean, that's great. Yeah. Just keeping it real. So he recommends, you know, they sort of all figured out his board. And I think you know, Mark's involved in all this.

1:21:45All right, well, what else are we gonna do? We don't necessarily want the money back and, you know, they pivot into... By the way, this is why repeat entrepreneurs, like, there's a lot of negative things about sort of like cereal or repeat entrepreneurs that get a lot of criticism. Like, it's not their life's work, they've already made their money, there's a lot of like reasons to be a little bit careful. But this is one way where it massively plays to the company's advantage that Stewart, from Flickr, knew what bursting into flames felt like.

1:22:12You could call it escape velocity. You could call it getting real traction or product market fit or starting the flat. Whatever it is, Stuart knew what that felt like much like Mark did from his net scape experience. And this wasn't it. It was not it. No, it was not. So of course, they pivot into this little front end that they'd built on on IRC. IRC? Yeah, it was like extensions on top of IRC. Yeah, extensions on IRC for workplace communication that they were using internally.

1:22:42decided to call it Slack. They call up our friends, Andrew and the crew at Metalab. Andrew now, of course, of Tiny Capital. Get Metalab to design the UI. Take it to market as product called Slack. Yeah, works out pretty well for everybody involved.

1:22:58that it did. And I threw out that 3 billion number earlier. A lot of these exit numbers are estimated since it's not like we actually know Andrews and Horowitz's returns, but we can back into it based on what we think they own from participating in various rounds or what they owned at IPO and when we think they may have liquidated.

1:23:16assuming that they held it from IPO to the 18 months afterwards to the Salesforce transaction, it would have been about a $3 billion outcome. So very good decision for Andreessen Horowitz to let Stewart keep running with the money even though, you know, the game was not bursting into flames. Yeah, that's a good couple of multiples on that huge $650 million fun too. How would they ever return that? Oh, boy. And when you say, how would they ever return that? That's because that was the like knock on Andrews and Horowitz at the time. That was the like bear narrative was like these guys rate this huge fun. There's no way. $650 million dollar venture fund. Can anybody return that amount of capital a little on these new guys? So 2011. Oh boy. What a schizophrenic year. Here are some of the investments that they made in 2011. Do you remember shoot dazzle? I do. Yup. Shoot dazzle. Jawbound. How about that one? Oh, yeah. Oh, yeah. Boy, everyone lost money on that. Oh boy. You give us a great quote from Mark.

1:24:12I forget where maybe it was in the New York piece saying that Jawbone is the new Sony. I mean, such a unbelievable cool technology innovation that just. Yeah. Yeah. Uh, Lightro camera. Remember that? Oh, yeah. Yeah. Yeah. How about this one? Fab.com. Jason Goldberg. Yeah. Oh, boy. That was a flame out, unfortunately. And there was a lot of other big name folks, speaking of Dig Kevin Rose was involved in that one too.

1:24:42Oh, in fab, was he? Yeah, I bought some stuff on fab. They had a really unique merchandise. Yeah, I did too. It was cool. But man, burned through a lot of money, but it doesn't matter because also in 2011, they bring on a new general partner. They bring on a few new general partners, I think, but one in particular, Jeff Jordan. Boom. Wow. So Jeff, I believe started his career in the Disney, the famous Disney strat planning group. I think he worked for Meg Whitman there.

1:25:11Hmm, I didn't realize that yet another, that's quite the mafia. Yeah, I think that's how he, if I'm remembering this right, I think this is how he ended up at eBay. And of course at eBay, he was North America GM and then championed the PayPal acquisition and ran, PayPal within eBay. Hmm, pretty good. Then after that, remember he left and became CEO of Open Table, who was Open Table's main venture capitalist and board member, Bill Gurley.

1:25:41Ah, wow. The bet noir over injuries in the Horowitz. But Jeff becomes one of the best consumer investors of the last decade at injuries in the Horowitz. He would go on to do the Airbnb investment, right? Oh, yeah. In 2011, right after joining. So I believe the first right after joining Pinterest. Wow. Pretty good. Then Airbnb, then Instacart.

1:26:08Then a firm, a couple years later, many others. He's done so well that in 2019, he actually became a managing partner. They made him a managing partner of interest in our what's the firm alongside Mark and Ben and Scott Cooper, who's also a managing partner, but more like the COO of interest. And I get the sense it's sort of the four of them are like really the sort of stewards of the firm at this point. Yeah. Oh, that's a good word. That's, you know, that's what a Sequoia calls the Sequoia Stords. They're the four stords of Andrews and Horowitz. So quick recap. And this is just a small sampling of the 2011 deals at Andrews and Horowitz, according to pitch book, shoot asl, jawbone, bump, light show, fab, Airbnb, Pinterest, stripe, nice Sarah, tiny spec, Facebook, Twitter, Groupon. What a collection. Whoa, also they did stripe. They did the seed. They didn't lead it, but they were part of the seed. Fascinating.

1:27:04Yeah, man, slugging percentage, not batting average. But, Ben, you've already, you've already alluded to it. You've already spoiled the biggest mistake in the history of Andrew Snorowicz that they make in 2011. I was going to ask if you knew what it was, but obviously you know what it is. Which would lead to a subsequent success, like a multi-billion dollar success, but... Yeah, Uber. Fall of 2011. Oh, this is brutal. Bradstone does great reporting on this in the upstarts. Andrew Snorowicz is in line.

1:27:33Specifically, Jeff Jordan. Man, could you imagine what a monster year it already was for Jeff Pinterest, Airbnb, all in the same year. He's in line hand shake on a deal to lead Uber's series being, of course, who was Uber's series A investor. Benchmark, Benchmark and Bill Gurley. And, you know, we got this huge feud between the firms, but like, hey, you know, Bill Gurley was on Jeff's board. Like, they're great. They know each other. We're going to we're going to make the peace here.

1:28:03Handshake deal. It's all done. Jeff is gonna lead it. Hot streak is gonna continue. Mark's involved. Everybody's shaking hands on a deal at a slightly over $300 million post-money valuation for Uber's series B. God, this reminds me of the Berkshire episode when Warren buys Berkshire. Oh, no, it's brutal. God, it's so brutal. So somebody and...

1:28:30Brad kind of implies in the upstarts that it was Mark himself starts to get cold feet about the deal. He takes Travis out to dinner and he tells him at dinner they still want to do the deal, but they can only do 220 post, not 305 or 310 or whatever it was supposed to be. That's a pretty big haircut. It gets worse. Supposedly Travis was still going to take the deal. He really wanted Andrews and Horowitz to be the lead. He like all the marketing had worked. He was going to do it. But then the actual term sheet arrives and in the actual term sheet, they must have really had cold feet like they didn't want to do this deal. This is half-assing your way into a term sheet right here. This is limping across the finish line if I've ever seen it. They put a huge new option pool refresh in there, which of course would delete it existing shareholders.

1:29:26particularly the entrepreneurs, even more. And that's the straw that breaks the camel's back. Travis is like, he very politely tells them he's not gonna take the time to see the referee. Typical Travis fashion. Nope, scorched earth. Big mistake, big. And is it Menlo that ends up doing the deal? Menlo who was, according to Brad, the stocking horse for the deal on valuation, they come in there like, oh yeah, we'll do. Well, do you want over a 300 post? No problem. We got that.

1:29:56which ironically is the Andreessen Horowitz playbook. I was going to say. Ashing them on. Right. Andreessen Horowitz has conditioned us all that we can pay 50 to 100 percent more than we thought for deals. And, you know, not only will we win them, but that may actually work out for us well in the future. And it worked out real well for Menlo. Not Andreessen Horowitz. So sad. For Andreessen, great for Menlo. Of course, they would go on to invest in Lyft and own.

1:30:23go look at my best guest data here. I think they owned about 6% at IPO. And so if you think about like when the lockup would have ended, it'd be about a $16 billion market cap at that point. Like they ended up with a billion dollar stake of lift at the time that they could liquidate. And you know, if you want to get really nerdy about this, we covered this, of course, on our left in Uber episodes back in the day. You know, at this time, While this series B is happening, Uber's a black car company. Like, nobody's doing peer-to-peer ridesharing yet. Nobody. And it wasn't until 2013 when Lyft would be the one that would pioneer, take the homobiles, playbook, and do true peer-to-peer ridesharing. And that's when Andrewson invested in Lyft, they saw, you know, the future. And then Uber launches UberX and the Warzone. Exactly. Don't really want to cross Travis Kalanick. But just to be like super crisp about this,

1:31:20It's a huge, huge loss. Like sure, Lyft ended up being worth $16 billion. Uber at that point was worth $80 billion. I mean, it would have been a completely different fun dynamic if they were in Uber instead of Lyft. Totally. Huge loss. Man, 2011, what a freaking year for tech period, but also for Andrews and Horowitz. Do you know what else happens in 2011? Ooh.

1:31:47Literally right before the Uber deal goes down, which just makes it all the more mind-bending that Mark would get cold feet here. No. Software is eating the world. Oh my gosh, that's when he published the op-ed. August 2011, right before the Uber deal goes down. Yeah, op-ed in the Wall Street Journal. Crazy. I mean, the piece itself, like it's kind of a masterwork of arguing this, there is no bubble thesis. I mean, at this point in time, people still...

1:32:16Think like, you know, tech is overvalued. You know, we're still in the shadow of the financial crisis. You know, Mark talks about in the piece. He says, this is a quote, today's stock market actually hates technology as shown by the all-time low price earnings ratios for major public technology companies. Apple, for example, has a PE ratio of around 15.2.

1:32:42the same as the broader stock market despite Apple's immense profitability and dominant market position. Yeah, I mean, Chris, today Apple's PE ratio is 32 and a half. Microsoft is 39. Amazon is 69. The market did hate tech or just didn't recognize tech at this point in time, which is fascinating because those companies did have unbelievable gross margin profiles and continually high growth rates for public companies. So it is.

1:33:09I mean, not as high as they have now, like it's crazy to watch all these companies continue to grow the rate at which they're accelerating even today, even later in their life. But yeah, at that point, he's totally right that investors in public markets hadn't really realized this about tech companies yet. The other thing that he sort of sharpens his pencil on this point later. I don't think he makes it as directly in the software as eating the world thesis, but he now argues, look, compute costs are just going to zero.

1:33:38Truly, it's going to asymptotically approach zero. And so at some point, if you have infinite free compute, which we should say, like that does require continuous innovations in energy because it does take a lot of energy to do stuff. And that's the big knock on crypto. But let's make the assumption that compute asymptotically approaches a cost of zero dollars. Then truly, Software can just continue to the question becomes what's the interesting thing that you can do with software even if you have to have it do a lot of compute to do the thing that you wanted to do Well, I think it's so cool that I didn't put together until doing the research for this episode Remember last time we talked about the Mike Meritz line that I don't think is public I think it's kind of more like an internal sort of sequai saying that every successive generation of technology companies should be in order of magnitude

1:34:32bigger because of Moore's law, because the cost of compute declines, that means that you can address every success of generation, can address and order a magnitude more industries, more people, and thus the outcome should be bigger and every funds performance should surpass the last. It's the same argument as software is eating the world. It's exactly the same argument.

1:34:54Compute costs, declines, and Marx says in the piece. More and more major businesses and industries are being run on software and delivered as online services from movies to agriculture to national defense. Over the next 10 years, I expect more industries to be disrupted by software with new world-beating Silicon Valley companies doing the disruption in more cases than not. That's exactly what happens. The only thing I will disagree with in Europe comment is that every success of generation of funds should be that much better than the previous because as we've seen even in the earliest stages price goes up. And so your entry point continues to be higher and higher even though as you're pointing out your exit value or the addressable market of every single company continues to be greater and greater a software company. Look at you making the anti-entry scenario. It's arguing. Someone's got to make it here on this. I love it. I love it. Optimistic program. So great.

1:35:48So great. And also then there is this question of like will that always be true? Like there's three billion people on Facebook now. At some point, if you saturate the entire global population with compute at their fingertips, and you take up 24 hours of their day, and you have 100% of their value creating activities, aka their jobs running on software, like at some point, especially because the population's not growing, it would seem that you no longer have an order of magnitude greater addressable market than in the previous year, but we're probably very far from that horizon or an order of magnitude more than the previous decade. Well, and I think it looks like now that crypto is going to be the next answer to that, right? Like, what is the next value of Moore's law accelerating and decreasing? You know, you said like a lot of energy. Oh, David Rosenthal calling it here on air. Well, I think entries in our Oh, it's has been calling it for a while. 2013. Okay. So back to that.

1:36:46So after software is eating the world at the end of 2011, in January 2012 they go out and they raise fund three, one and a half billion dollars. Oh my gosh, get it. Add me. You thought we were big before. Watch this. Watch this. So that one and a half billion dollar fund get this was seven and a half percent of all of the venture money raised globally in 2012.

1:37:15Whoa. One fund, one firm. Wow. That's wild. Isn't that crazy? It's interesting because it's basically like in a lot of ways, Andreessen Horowitz was just slightly out of step with the growth of the rest of the venture ecosystem. And they took advantage of these like arbitrageable moments where like the one that you were talking about where they realized, wait a minute, there's actually less risk in series A than there used to be.

1:37:45because there's all these seed investors so therefore we should invest at series a because we can kind of get paid too much in equity for the risk that we're taking or more appropriately other people are getting paid too much in equity for the risk that they're taking so we can price higher and they're kind of doing it again here where this is really like two years before the race is really on in raising massive massive funds so they can kind of play that to their advantage too.

1:38:10And what's the other piece of the arbitrage here? It's the summits, it's the TAs, it's the silver lakes. So, you know, they raise a one and a half billion dollar venture fund, seven and a half percent of all venture, you know, money raised in 2012, but a big portion of that isn't going to venture in the same way. So pretty quickly after they raise the fund, they do...

1:38:31At the time, you're like, this was not $100 million series A in GitHub. GitHub, that's right. Yep. Yep. And that was like the first real capital that GitHub had raised, right? It had been bootstrapped all the way. Yeah, yeah. It was the first real cap. So this wasn't a series A. You know, this was the type of deal that a generation earlier, you know, summit or insider or several like or whoever would be doing. And this was like the largest quote unquote series A ever. A masterful PR and branding of this as a series A. There's no way in hell this was a series A. But Anyway, I think they bought 10% of the company or something. Yeah, I think even more. I think it was a 750 post money valuation. That sounds familiar. Yeah, whatever, you know, slightly more than 10%. I do know that they would end up making a billion dollars on this in this the ultimate sale to Microsoft in 2018. Yep. So that almost returns the whole fund, right? I mean, this is how that type of investing works is like

1:39:27very low downside, you know, still pretty high ups. I mean, they 10X that money, right? Yeah. Again, going back to before a 10X, actually not interesting to an early stage investor. You kind of need to be in that 50 to 100 X territory to make the portfolio math work for that to be the big winner in the portfolio. However, if you're investing $100 million out of your $1.6 billion fund, then like that 100 million 10Xing, very impactful for the fund. Very impactful. Yep.

1:39:56Totally. So, later in 2012, Chris Dixon joins the firm. And Chris, of course, was very, very well-known New York entrepreneur, venture capitalist. He started site advisor and then hunch, which was acquired by eBay. He'd started founder collective, the seed VC firm. He'd been part of Bessamer earlier in his career. People, I remember because I used to live in New York. People really identified him with New York venture capital.

1:40:26He's like, going to Silicon Valley, join in Andrews and Horowitz. This was big news. And shortly after he gets there, in 2013, he leads a series B coinbase, $25 million in coinbase at a 150 post. Wow. Oh, man, really overpaying for that one. 150 posts. What does this thing even do? Crypto. Here's the kicker. Over the years, Andrews and Horowitz would keep buying shares from other investors. So other early investors were selling shares, including USB and others. And Andrewson was just buying, buying, buying, buying. Man, I mean, this is like ventures of power law. We're talking about so many great outcomes here. Like this one dwarfs everything, everything else. At the DPO, Andrews and Horowitz's stake earlier this year in Coinbase is worth 11.

1:41:20billion dollars. Oh my god, that's seven x that entire one and a half billion dollar Fund like oh my god Thank god for the investors in that 1.6 billion dollar fund that that Coinbase investment was out of this fund instead of one of the smaller funds because Returning a 1.6 billion dollar fund no easy feat, but if you have one 11 billion dollar return in there Okay. Yeah. And this is the whole thesis, right? There's like these outcomes are bigger than you think there is no bubble. These valuations are not just justified, but like the crazy prices we're paying now, we're getting the deal. It's wild. It's wild. They invest all told in 76 new companies in 2012. In 2013, they had another 97 new companies, including Lyft and Pagerduty, which is going to be another great win for them.

1:42:11Robin Hood, they only do the seed in Robin Hood. I think they don't continue until. I think that's right. I think until like 2020 or something and they did it with the growth fund. Yeah. Yeah. Oculus. By the way, all this great data that we're finding from our friends of the show at pitch book, just an awesome resource for digging through this and figuring out who participated in what round. Totally. So great for this episode. Databricks.

1:42:34is in 2013, which is still private, but that's going to be a monster for them. Most recently valued at 28 billion, they led the seed round and have participated. And I think every round sense, I bet they own a ton of that company. Yeah. Can't wait to see that. S one. I just love this episode. We've got so much great stuff. And we've got to so much funny stuff to Zenefits. That was 2013. Oh, I forgot. They were in Zenefits. Oh, they were the big ones in Zenefits. They were.

1:43:03They were holding that bag for sure. Klingel, remember Klingel? Oh, yeah. Oh boy. One of my DSP classmates spent his summer at Klingel. He didn't go back full time. That was a good choice. I did the kicker. This may be my favorite part of the whole episode. In 2013, they banned together a band of brothers, three musketeers. It ends up being called with Google Ventures and Cliner Perkins to create the Google Glass collective. This is the most ridiculous thing ever. It wasn't a fun. It wasn't like a like the crypto fund or the bio fund that we're going to talk about in a minute here. It was a collective where the three firms said they were going to share Google Glass related deal flow, but no actual commitment to invest in it. What? That's an incredible PR like to be able to plant that story is impressive work because like that's a non story.

1:44:00It's a total nonsense. Like, I agree to share deals with other investors all the time. That's a non-story. So there's, you know, huge press release. There's an event, a big tech crunch piece, money quote from Mark Andreessen in the tech crunch piece. You put on glass and you say, yep, that's the future. Yep, that's the future, Mark. Can't win them all. Can't win them all.

1:44:25I do legitimately think augmented reality, both visually and audio is the next big compute platform. Oh, totally. Yeah. But was Google Glass? No. Oh, they're so great. We tweeted the photo of Bill Maris from Google Ventures and John Doerr from Kleiner and Mark Andreessen wearing the Google glasses and posing on Sand Hill. Oh, my God. What a classic photo. It's just great.

1:44:53Despite all that, things continue to go pretty well. In 2014, Mark gets really into Twitter. He tweets something like, it was over a hundred times a day. Despite being an angel investor in Twitter, he had only tweeted twice before 2014. I remember thinking that was ridiculous back in the day that all these people who were talking about how they invested in Twitter and blah, blah, blah had never actually participated on the platform. I think Fred Wilson was the only one who actually was active on the platform.

1:45:23But then for whatever reason in 2014 Mark decides I'm gonna get really into this he tweets like 20,000 times in six months wild and he was like the best person to follow because like if you were interested in mental models and exploring wacky futuristic ideas like it was a buffet table of that yeah he actually people you know of course also creates Press and everybody wants to know why is he tweeting so much and like, it's so great. And he says in some interview, he says he loves Twitter because quote, reporters are obsessed with it. It's like a tube. And I have loud speakers installed in every reporting cubicle around the world. So great. March of 2014, they close another one and a half billion dollar fund just a little over two years after fund three, the one and a half billion dollar fund. So assets under management here, about four billion.

1:46:15Yup, they do Instacart, they do Reddit, they do Magic Leap. They do all sorts of stuff. Interestingly, though, the pace actually steps down a little bit. They stop doing quite as many seeds during this time period. They've now since stepped back up the seeds, but I think maybe they started listening to folks about the signaling talk or maybe entrepreneurs were actually listening to the signaling effect.

1:46:43It was resonating with people. I mean, David, like to recall a conversation we had when you were starting your venture firm in when was that? 2017, 2018. Yeah. This was part of the thesis. You were like, well, no one wants to raise seed rounds from the series A firms because of the signal risk. So we're a pure play seed firm. And I think that makes a lot of sense. And that was the professionalization of the asset class of seed happened because of that of the signaling effect. Yeah. Yeah. Totally.

1:47:12It's just so funny. It's completely disappeared now. Yeah. Well, in so many ways, everyone has followed Andrews and Horowitz's lead. And truly, every way, the one that we're describing here is kind of shrugging a little bit on what stage is the right one for me and how much do I need to stick to my knitting and, you know, how much does signal matter? Yep. So okay, in 2015, finally, the New Yorker piece comes out.

1:47:39It's so good. It's so damn good. You gotta go read it. Tomorrow's Advanced Man. A tad friend is such a good writer. And this is like, you know, once every year, a couple of years, the New Yorker is like, we're gonna do a profile on an industry. And they talk about this on the A16C podcast and like, I think it's the episode with market, like the opportunity to have the profile on venture capital in the New Yorker.

1:48:07and to have Marc Andreessen be like the mouthpiece for it. Oh, it's so great. So I'm just gonna, is it okay? Can I read a couple of lines because these things? Please do, yeah. These are so good. Okay, so first off, the piece starts off with a little vignette of Mixpanel, which of course was a big Andreessen investment. And talking to the founder, Suhail Doshi, you know, about his experience, raising venture capital, and whatnot. And he says, this quote is so good. Media-ocor VCs want to see that your company has traction.

1:48:37the top VCs want you to show them that you can invent the future. It's so funny and it's so true. It's just great. Let's see. Andrewson and Horowitz modeled their brand strategy not on the industry's elite but on Larry Ellison's Oracle and its aggressive marketing during the Enterprise Software Wars. For one investor in their funds, Princeton University's Chief Investment Officer Andrew Golden It became a running joke how long it would take other firms to complain about Andrews and Horowitz. In the early days, it was within two minutes, he says. Here we go, this might be my favorite part. One morning, as I sat down to breakfast with Andrews and...

1:49:21Arrival VC sent me a long email about a 16z's holdings. The VC estimated that because Andrewson's firm had taken so many growth positions, its average ownership stake was roughly 7.5%. It's actually 8%. Which meant that to get 5-10x across its four funds, you would need your aggregate portfolio to be worth 240-480 billion dollars.

1:49:48How could that possibly be? I started to check the math with Andreessen. He made a jerking off motion and said blah, blah, blah. We have all the models. We're elephant hunting going after big game. Oh my God. A that arrival VC would take the time to type out a long email and would take the time to have themselves or an analyst go model out a different firms average ownership. Are you kidding me? So great.

1:50:18So and model out close enough to be within half a percent of the actual. Totally. And wait a minute. So it's actually an interesting question. So they would need what were the numbers of how much market cap in aggregate would need to be created? 240 to $480 billion of market cap. So you got coin base at what is it 100? Right around a cool 100. You got.

1:50:43Row blocks at 45 so that's 145 you got octet 33 so that's around 170 Yep, you got slack at 24 No, so I'm like that. Let's take it to 200 Okay, I'm the 200 you got Airbnb. That's another handy right there Yep, you got Pinterest which is another 45 50. Yep. All right, so we're 350 so like you can see sending that email being like good effing luck and like you do look at the companies they invested in you're like yep they far surpass that and like we haven't talked about Instacart or Databricks or Robin Hood or and of course these are smaller positions but yeah yeah it's so so good and then Mark's response makes a jerking off motion with his head it says we're elephant hunting we're going after big game that has to be the first time that was printed in the New Yorker the New Yorker it must be

1:51:40So great. Yeah, I mean well the interesting thing is the whole industry seems to massively Get whiplash from some new disruptive entrant often who's writing bigger checks and has a bigger fund and the first reaction is oh my god complain about them see Tiger today Exactly it was Andreessen Horowitz and then it was Softbank and then it was Tiger and like at least with Andreessen Horowitz and it seems like I don't mean Information that's not public but like it seems like with soft bank vision fund one like strategy worked a heck of a lot better than people thought it was at least a lot better than the media was reporting so I don't know I suppose the next time my knee jerk reaction is to be like oh these new guys are they don't know what they're doing and they're like being irresponsible and they're blown us out of the water like maybe think twice about Just complaining and figure out okay, how do I actually need to adjust my strategy because maybe this is gonna work you couldn't have teed me up any better here

1:52:35Back to the New Yorker article. His quote, in Drieson caused us to up our game on the marketing side, said Sequoia Capital's Doug Leoni. Younger founders pay attention to media and we don't want to be depositioned. Sequoia hired an in-house publicist and two new marketing specialists to complement the four it had And most top firms made similar moves even if they primarily believed that a 16z services or simply a marketing tool. Oh, so Doug, so Sequoia, like we're not going to be depositioned. Like, yes, this is a good innovation. We're going to adopt it. Yeah. It's Bill Gatesian in that way. Yep. Totally. I can't wait until power to talk about this one. It's so interesting to me that this.

1:53:29caused effectively margin compression in the venture capital industry. Ownership compression. No, I literally mean margin compression in how profitable it is to be a general part. Oh, you mean the management side of the thing? Yeah. Yeah. Like, it's hard to run lean.

1:53:45as a big firm because you kind of need all this stuff to be competitive and that stuff is really expensive. It's a big team. You can't just take home $10 million in fees every year. Even if you're Sequoia, you need a big team. Totally. And so you end up with this fascinating dichotomy. It's the same thing that's happening in the media ecosystem where like there is no more middle. If you are going to be one of the few who succeed and you're big, you've got to have a big ass cost structure.

1:54:13And recent Horowitz is the New York Times of venture capital and simultaneously it will be true that there's this long tail of people they're like f that big cost structure. I'm going to start kindergarten ventures and take my small amount of capital and like no team and I'm going to play a completely different super niche game and there is some room in the middle, but there's not the room that there used to be in the middle. Yep, and you know, I think the industry is found that out painfully over the last 10 years. Yeah, but this really interesting thing of like it took a long time. It took 30 years or 40 years of venture capital as a profession for the arbitrage of profits to go away from general partners. Yeah. So flipside is going both on the staffing and the services side of things, but also on the deals and the valuations front and just like the support.

1:55:11Yeah, it just like beats me over the head and you know, maybe this will sound biased towards entry story. But I'm not trying to be a really just like doing this research thinking about the last 10 years. There is no bigger winner in all of this than entrepreneurs. Oh, for sure. Oh my god. Like you used to be giving up 25 30 plus percent of your company and it's Series A and getting like two million dollars for that and like somebody sitting on your board doing something maybe.

1:55:40You're absolutely right. I was talking about the margin compression and fees. Now let's talk about the margin compression in returns. Yeah. Everyone's cost basis is higher because there's way more capital competing to go in. So therefore, your ownership percentages are going to be less for the same amount of capital that you wanted to put to work. Well, and even on the fees side, vis-a-vis entrepreneurs, they're just getting a lot more. You can argue all you want people to do about how valuable these various services are and whatnot. But like, I think it's pretty valuable.

1:56:09that somebody, and Jason Horowitz in the lead, but now the whole industry is out there just like banging the drum about how great startups are and like, how great their portfolios are. And like, if you're an entrepreneur, why would you not want somebody championing you? And in a way that's going to be so hard for you as a founder of a small company to do, you're not going to go get a profile in the New Yorker. But, and Jason is, and they're going to talk about how awesome you are.

1:56:35Yeah, it makes the most sense for these things where it doesn't yet make sense for a startup to have that competency in-house, so having access to a fractional resource of that competency, who's a specialist, and one of the best in the world at it, and really highly paid who you couldn't afford for how tiny and pathetic your company is, which all startups are, it is an unbelievable boon to get that.

1:56:58are you facing less delusion and getting more capital than you ever used to before, but you are also actually getting a far superior product to what you used to get. Sounds like our cap chase ad read from last season. I love it. I love it. One playbook theme I want to highlight here and we'll talk about this again at the end, but anytime your name is on your competitor's lips, you're winning. Like you're winning. Like it doesn't matter what they're saying. If they are talking about you, Good, bad, ugly, indifferent, you're winning. You should just keep doing what you're doing. Particularly when they're the most successful incumbent of all time with Sequoia. So okay, after that, later in 2015, they raised a $200 million bio fund. June of 2016, they raised another $1.5 billion core fund. 2017, they raised a $450 million second bio fund 2018

1:57:50First, $300 million crypto fund led by Chris Dixon and new GP Katie Hahn, who, interestingly, I didn't know this about Katie till due on the research. Do you know what her background was before she joined? No, Jason. She was a federal prosecutor at the DOJ, and she led the Mt. Gox case. And then after that, Coinbase recruited her to join the board of Coinbase.

1:58:17After the Mt. Gox Devacres, they're like, look, we're going base. We're like doing this above board. We're the right way to do this. And so that's how Chris met Katie. And then she came into Andreessen. Superintendent, man, crypto is so different than the rest of the startup ecosystem. Totally. Let's see. 2018, also in 2018, they launched the Cultural Leadership Fund, which got a lot of like blowback at the time. And I think was pretty misunderstood. I think it's actually a pretty good idea.

1:58:462019 they split the main fund finally into separate funds for early and growth 750 million for early two billion dollars for growth and then 2020 just one year later they are back in the game with 1.3 billion dollar main early fund seven three point two billion dollar growth fund to 750 million dollar bio fund three five hundred and 15 million dollar crypto fund two set is six billion dollars in total across the suite of funds raised in 2020. Strength follows strength. Dang. And then this year, of course, in 2021, they added another $2.2 billion crypto fund three, bringing total capital under management to just a hair under $19 billion. All right, listeners.

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2:01:16So 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, other things that I pulled from pitch book about the firm today. So they made us this great tear sheet that we'll have to see if we can share this in the slacks. It's a great set of data on the firm. They did a little under a thousand investments in a little over 500 portfolio companies total.

2:01:44they've produced 160 exits, 20 of which were companies going public. There's now 22 GPs with the addition of a new New York-based GP. The first time there's been someone outside of the Bay Area, that's right, as a GP. Another friend of the show. David Haber. And David, as you mentioned, 19 billion hair under in assets under management, eight network teams, 220 people now work at the firm. So to give you a sense of like, They've got 22 GPs, but that means that 90% of the people who work at the firm are not GPs. So they've got a big investment team, but obviously these network teams have grown meaningfully. And I also was talking to some folks. They did a lot of hiring outside of the Bay Area during COVID. So as much as they were sort of one of the champions of Bay Area for life. And if you're serious, you invest here and the best companies are created here blah, blah, blah. The last year has like

2:02:40really change that. And not only are they investing in more places, but they actually have staff in more places and have adapted the culture and the processes internally to be hybrid. Then also, we debated, including all this in the history in fact, I think for a length, if nothing else, but also to do it right, we're going to do a different venue to talk all about this, but they've also built a media company alongside all of this. Yeah, absolutely.

2:03:08Yeah, there's a whole sort of forward looking view of a future looking view one might say. Yes. I was trying to avoid let's call it lowercase future looking view, not only of the media company, but like other things that they're doing that transcend being a venture firm with value added services. And I think that is Mark recently coined it and he had a great invest like the best episode on this HP 2.0. And there's definitely a lot more that we'll talk about there probably in a future episode at some point. Yeah.

2:03:38I think that's all right. Way to do it. So yeah, that's Andreessen Horowitz. Oh yeah, wait. There is one more piece to talk about. So there's this great saying in venture that is also a Mike Meritz phrase. He's just so, he's so good, which is that the apples take longer to ripen than the lemons. And of course, apples being a double entendre, meaning like good companies, but also, you know, apple. Yeah, in Sequoia's case, so good.

2:04:07They start having some success. So April 2017 success on the like distribution front. Octa IPO March 2019 lift IPO April 2019 page of duty Pinterest June 2019 is the Slack DPO December 2020 Airbnb January 2021 firm March 2021 Roblox which within a year they turn around like a 15 X on that. Yeah, here I actually calculated that so their initial investment into Roblox, which I think is out of their late-stage fund, the Growth Fund. Somewhere between $100 and $150 million, it was $150 million around at a $4 billion valuation. Oh, so great. Big shout out to Ho and our friends at Altos. Totally. It means they own probably about two and a half percent of the company at IPO, which of course is a $45 billion market cap today. So pretty quick turnaround for that.

2:05:04$100 to $150 million into $1.2 billion. You have. And then the big one, April 2021. What's that? Seven years after the initial investment in Coinbase. Coinbase. Damn. $11 billion stake that Andrews and Horowitz has in Coinbase.

2:05:27which I think isn't even better outcome or it's about on par with what Sequoia had with Airbnb if I'm remembering right from our episode there yeah sounds about right maybe a little less I want to see Sequoia had like a 15-ish percent stake in Airbnb 13-15 something like that but I seem to remember this like 10-12 billion dollar, absolute dollar return. That could be, but maybe it'd be treated up to around a hundred billion. I think it might be back down a little bit now. Anyway, we're splitting hairs here. These are pretty good. In any case, one of these single greatest venture capital returns of all time. Yeah. Hard to argue. Well, we're definitely going to get to grading a little bit of math. It's napkin math, but I think it's interesting to sort of review this. But let's do some analysis first. So let's take our

2:06:18Narrative section. What's the bull case and what's the bear case on Andrews and Horowitz moving forward? Let's start with the bull. I think we just painted the bull case, right? Okay, okay, bull case. I got two bull cases. One crypto. I mean, if you believe crypto is the next I wrote two and you just got the first one. Okay. Next bull case I would have. I'm curious if you'd have this as well. A16z has been pretty adamant like you said about like Bay Area and in particular about Western technology companies that they invest in. They haven't touched China, India, etc., rest of the world. No reason to think that their brand couldn't extend. So that feels like a green shoot for them. Those are the two off the top of my head. I like that. I didn't have that. The second one I had is this sort of HP 2.0 notion of, you know, in the old days, before there existed a startup ecosystem where you could get

2:07:16funded by venture capitalists to go and pursue your idea, you would try and rise up the ranks of an HP, or one of these companies as an executive to go and invent the future. And HP was the 100% owner of every division. GE was the 100% owner of every division of their company. Obviously taking minority positions is different, but can you sort of be more of the Huat Packard in their heyday?

2:07:42If you aren't the majority shareholder of these businesses, can you still find a way and now we're drifting into Kleiner Perkins territory a little bit. But can you find a way to both provide the services, find synergies between portfolio companies and really find leverage from your own scale such that you can find economies of scale across the different companies. And by that I mean does everyone really need their own totally separate finance team. Like at some scale, probably not. The same kind of thing that you see in industry consolidation when one company buys another. I'll be very curious if they sort of transcend the, we help you out with part time resources thing in their networks to see if there's some way where like actually some part of the fundamental operations of the company are happening at the venture level. Interesting. It's kind of like an, maybe sort of like an actual fulfillment of the,

2:08:39you know, the CAA dream execution machine thing. Because the CAA package, like Jurassic Park, you know, the packages that they were putting together, the talent, you know, they weren't doing any like, part of the reason CAA had to exist was like, they're not gonna pull together like, I don't know, I don't know what goes into making a movie, but I'm assuming there's a lot of stuff that the studios used to do, and that CAA was able to bring together into a package and then be like, nope, studios, you are just finances now.

2:09:08Totally. I wonder if this is part of what's informing this HP 2.0 strategy. Yeah, I mean, the thing that I wrote down is that the biggest case is that the firm is actually unrecognizable in 10 years, that they're sort of the startup platform for like an idea platform. And I'm not being specific about what that means because I don't really know, but maybe the right term is that they're like the startup dream machine, which actually lends itself more toward a studio. It would seem like, I mean, just based on all the work we've done at PSL starting 27 companies like I do wonder if they'll shift earlier and start being more of like a you literally are a person with an idea and we have an ability to sort of take that and plug it in and the cool thing about the studio is we have that machinery built for like the first 18 months.

2:09:59And I'd be curious, a lot of people talk about seed to IPO as an investor. It'll be interesting to see if Andrews and Horowitz can sort of become the startup dream machine all the way from idea to IPO. Yeah, yeah, yeah. Well, or you could just go raise a whole lot of money and you could be the next, you know, disrupting the industry. To a great point.

2:10:24It's really like that Mark and Ben kind of have no sacred cows and like whatever you know they're very experimental they're very willing to change things and like it wouldn't surprise me that if some point in the near future they stopped talking about it as a venture capital firm because they feel that it's a sort of broader set of activities. Well clearly they're already sort of going this direction with the media company and yeah all that yeah yeah we also totally skipped over crypto which I think is okay but can you give like one or two sentences on how they're different than other firms with a lens toward crypto? Well, in one respect, it was just simply that they were there first and early. And so they've been part of like these big ones. Other firms have to, you know, USB being primary among them and then native crypto firms like paradigm and multi coin and all those great folks. But you know, to the extent that success, breed success is going to apply in crypto, early state crypto investing as it always has in venture.

2:11:23And Jason has been there, right? Like Coinbase. Dang. Solana. Yup. Big love. Like everything interesting there there. So I think that's a big part of it. You know, the other piece of it is like, it's different doing that. And they've built the machinery to do it in a way that other traditional venture firms have not. I think, if I understand the history, right? I think part of the reason why they created a separate fund for crypto.

2:11:53versus doing it out of the main fund was because of this, the same things that trigger needing, with secondaries needing to be an RIA. I think if you do too much token investing in a court fund, you would need to register and you would lose your venture capital exemption. So while other firms were registering as RIAs to do secondaries, which of course, Andrews and also does, they were like, oh, well, we'll go do this first with crypto funds. And then now for the whole firm to be able to buy tokens instead of equity.

2:12:22So I think this is going to take a lot of firms a long time to catch up to that. And the operations of things of staying abreast of the things you can do in the US versus international like takes overhead and they've invested in that overhead and they've figured out what the necessary infrastructure is from a regulatory perspective to do crypto investing with LP dollars. Yep. So we talk about the bear case. Yeah. Okay. So here's my biggest one.

2:12:49We have been on an unprecedented unbelievable bull run in tech that started the same year that Andrews and Horowitz was founded. They've never operated in a down market. I'm not saying it's not going to go well, but like their strategy has aligned perfectly with the economic landscape.

2:13:12Well, they've been operating in it. So it is untested, unlike all these other firms that have needed to, uh, if you believe the A16Z haters who say, they have no price discipline, will that come back to haunt them during the, you know, one or two funds from the vintage years of whatever downturn comes at some point in the future? It could hit them a lot harder than it hits other folks. Yep. You don't have to debate that. I'm just saying. Yeah. Totally. Question mark. That would be the knock.

2:13:42The other bear case I was thinking of is like they basically overextend themselves in trying to get too creative and imagining what this HP 2.0 could look like and they have like a great very profitable business on their hands where they have really dominated an industry and like them trying to turn that into something entirely new and different may actually not work. I got to also say for a firm and people that are so good on branding and marketing and whatnot.

2:14:11Calling this strategy HP 2.0, you might want to rethink that one. It's like, I don't know that HP is something you really want to associate with these days. Well, and nobody, I mean, there's just not that many people alive and operating in the business world right now, or leading companies in an aspirational way who are aware of the HP that Mark talks about. Yeah, exactly. They're only aware of the defunct PC manufacturer. You want to say Amazon 2.0? Great. Yeah. But anyway, I think a big one that I have no view one way or the other way, whether this is happening or not, or at risk of happening, would just be that as you turn this into a big firm, it's already a big firm, politics are gonna start to creep in, right? Like it happens. This happens in organizations. And frankly, probably politics have been the downfall of every venture firm that has risen and fallen to varying relative degrees.

2:15:08You know, there are all sorts of reasons, right? But you break it down at the end of the day. It's people, it's politics. That's the problem. And the bigger you get the more opportunities there, the bigger you get the more time that goes by, the more opportunities there are for that. And so maybe some seems we'll start to get exposed and other firms can now come along. And you either die here or live long enough to be the villain. Like, I guess they've been the villain their whole lives to a certain extent, but at some point they're going to be the villain entrepreneurs.

2:15:37In some way, they've been the underdog too. Like they've had this tailwind of feeling like, you know, fight the man. And you're right. Like they're the man. So they're the man. Yeah. Yeah. I guess one other thing I was thinking about is speaking of Tiger Global and what's going on in hedge funds coming into late stage financing and now even early stage financing.

2:15:59Those folks are beating the drum of we're a financial investor and we're going to give you the cheapest available capital and you can use that capital to go and build your own relationships and hire people and do all the things you need to do that like VCs kind of a bundle of both advice and relationships and capital and we're just selling you pure capital. There's some set of entrepreneurs who are going to do that because they're very experienced, they have their own relationships, they don't need the services that a firm like A16z brings to bear, the question is, will that belief spread where more and more people, even if they're inexperienced and could benefit from the set of services that A16z offers? If they're like, actually, the most capital at the cheapest price sounds great to me. And I actually just want all these competencies in house, which is hopefully we've painted along the way here was a key component.

2:16:53of the Andreessen Horowitz strategy. Like there's all the stuff, there's all the services, everything about it, but also they were offering the best herbs at the highest prices for a very long time. And if they're no longer doing that, you know, I think it's a very valid argument that praises what matters. It's sort of like Andreessen Horowitz had a different underwriting model on the future than the rest of the VCs did. And so far, because we've been in this bull run this whole time, it has proven to be right. So everyone else who is being too conservative, in their sort of valuation models and basically underwriting of what future markets could look like was wrong. And that's why Andrews and Horowitz could both be the best product at the best price. But it may prove to be the case at some point in the future that the gas and the tank runs out on software is eating the world or that

2:17:46We go through a little extended hiccup where people stop believing that for five years and the money coming after you dries up. And LPs are difficult to raise from like I'm just imagining a little bit more capital crunched environment where like you can't be both higher valuations with more money and a really expensive broad set of services. Yep.

2:18:08Now I mean in the long run like obviously I think we all know what side we fall on everything it depends on your time horizon and if your time horizon is infinite then yes you and I being the optimist that we are we're like looking at this bear case being like yeah but as long as you can tough it out you'll be for the internet never bet against the internet never bet against the internet but you're so spot on about the underwriting thing that they were just Underwriting differently than everyone else and more correctly, you know the vignette from the New York article with the competing VC right the point of that competing VC was like This is crazy the math doesn't work. They're underwriting is wrong. Yeah, and a 16z is like on That thing that you said was crazy where you're like the math doesn't work because the numbers are too big We think we can hit those numbers and they did yep, and they did and by we like tech companies broadly that we invest in yeah, well, I think that's the

2:18:59This isn't exactly a narrative one way or the other, but maybe it's a narrative about the industry as a whole. We made this point on the first episode, but I want to double, triple, underline underscore here. We're telling this whole thing. And there's so much drama and it's so fun. It's like, you know, Andrew Sins, you know, the underdog and the disruptor and there's all this, you know, feuding and whatnot. This is all just great for everybody. It's just frickin' fantastic for everybody. Like, the fact that the New Yorker is writing about tech It's great for other VCs, it's great for startups, it's great for entrepreneurs, it's great for podcasts like you and me, it's great for Andrewson, it's great for Benchmark, it's great for Sequoia, full stop. Yep, which is a great lead into power. So I think this is interesting. I think that they had a source of power that worked really well for their first call it eightish years, and now they have a different power. And remember, for folks that are new to the show, power is

2:19:57the thing that enables a business to achieve persistent differential returns. Like how can they be sustainably more profitable than their nearest competitor? The first one was clearly counter positioning. We've used it several times in this show to describe the way that they positioned themselves in the press versus other folks versus incumbents. And I'm going to use it a little bit more specifically in this case, which is They literally did things that other people could not do because their business models did not allow for it. If you were to go to GPs at big firms and say in order to bet on the future correctly, the way these other guys are and we need to staff up like this overnight, we all need to stop taking salaries for the next three years. Oh, and we all make over a million dollars a year in salary and have personal lives and burn rates that have accommodated that. And you know, that's even before we start getting our carry.

2:20:55The chances of that happening immediately rather than over the next five to eight years being forced to was like zero. And so there was that moment in time much like how a CAA was able to do it in the agency world where they literally took a different business model and did a thing that the incumbents couldn't copy, which was genius. Yep, totally genius. The other one was brand. Totally. And that's the one that will last for the future.

2:21:24All this highfalutin stuff is great, and all the value added services are great, and all the networks are great, and the executive briefing center is great. Let's not forget the business that we're in here, which is deploying capital and getting a return on that capital. Now, that is a commodity. Capital is a commodity. And the way that commodity industries look is that they're pretty much undifferentiated, because the vast majority of the value is available from a near-exact provider substitute. And so what differentiates a commodity from another commodity? Brand. Coconut Pepsi, baby. There was actually a great quote, I forget where. I almost put it in the script and I didn't have an entrepreneur talking about the entries in benchmark thing and they're just like, oh, it's so great. It's like watching Coconut Pepsi do a price war. I'm just sitting here sipping.

2:22:22Truly, it's like watching a game of chess play out, too, because it is simultaneously true that having a great board member can be game-changing for your company, having this set of services can be game-changing for your company. Like, I just watched not to tune around Horn, but like some of the folks that were able to bring into portfolio companies through us at PSL recruiting them.

2:22:46trajectory changing for companies and I'm sure like I've never worked at Andrews Norowitz I'm sure that works in spades there and so like even forget all the other services like if you have a great recruiting mechanism game-changing for companies and also it is true that the primary value that comes from raising capital is the capital. The brand piece is also interesting too and you said about like you know and that just riffing a little more on the co-compapsey thing.

2:23:13Back to the benchmark versus Andrewson. Benchmark's brand. We are the craft venture capital firm. Yeah. Andrewson's brand. We are the franchise. It's just like Coke and Pepsi, right? It's like, you know, Coke is, you know, whatever, you know, Coca-Cola classic with the polar bears and whatnot and Pepsi is like the taste of a new generation, you know? It works. Like there's just different segments that they address. Like it works. Yeah.

2:23:38It's funny, while we're talking about power, we should also talk about like, when you talk about profits, you know, like persistent differential returns, you should literally talk about like pricing power. In Forbes, it was reported that Andrews and Horowitz takes 30% carry. And so it's interesting to see that like, their returns and their market perception has literally turned into them being able to...

2:24:02price higher than their competitors. This is LP facing, you know, when it's them versus other venture firms and they can say, yeah, yeah, yeah, you're going to get a worse deal with us than you're going to get with other people, but it's worth it. So you'll take it and they do. This is the Hamilton Helmer definition of brand power, right? Is like you can charge a higher price for the same product. Yep. That's why people pay more for a Tiffany's diamond than a no name diamond. Yep. So the brand thing is multi-sided. It's your brand entrepreneurs and it's your brand LPs. Yep.

2:24:31And the entrepreneur version of this is you get into the round. You get into the round and you get a large ownership allocation in the round. Yep. All right. Playbook. I know we've done a lot of this already, but there's a few, few that I want to hit. Go for it. All right. So just to review all the things that we're like, unheard of or uncommon before A16Z started doing them, GPs as former founders rather than investors, huge team of experts, which is now known as VC platform.

2:25:01calling everyone at the firm a partner. Blogging, which other than like Brad Feld and Fred Wilson, doing transparency versus opacity and content marketing more broadly, like that didn't really exist in venture. Paying huge prices to blow your competitors out of the water and just offer much higher valuations and bigger checks. It's crazy. Yeah, literally nobody did that.

2:25:22Yeah, it existed. It's some extent in isolated ways, but no one just said, like, effort. We're doing it over and over and over again, because we're underwriting the future differently than you are. Yeah, and not really. People would be like, oh, I can't believe. I mean, because I entered the industry in 2010. So, and Jason was there, but it was still early days. It would be like, oh, I can't believe the price that X-Firm paid for this. We offered a six-pre and they did an eight-pre. Nobody was just step-changed. Nobody said, like, what if you raised eight? And then we'll figure out how to value that.

2:25:52And then lastly, venture firms investing in crypto. I think USV probably gets a little bit of credit for, I think they were earlier in some ways, but not nearly investing as many dollars and for sort of as long a period and building a brand with the crypto community the way that Andreessen has gone on to. So you look at those, what is that? Six things. I would add seven, two of like PR.

2:26:16Yeah, I guess I put that into like the content marketing brand building, but you're right. It's a different function of marketing. So those seven things that like you kind of take it face value, like that's part of the job. That's what it is to be a venture capital firm, which like just weren't things a decade and a half ago before Andrews and Horowitz made that a part of what it takes to do this job. Yeah. I can't argue with that.

2:26:44is literally their playbook was to change the requirements of the job to be done for everyone else in the industry. On that note, there's this interesting thing that I've been thinking about which is like everyone, the common knock was that they were overpaying to buy name brand for themselves to sort of like buy their way into winners. Which, first of all, even if they did that, it actually is a creative to their LPs since their LPs would benefit from being investors within this Name brand fund in the future assuming that they were going to continue investing in subsequent funds like it actually was a good use of the capital Even if their prices were irrational because great now in the first year when that fund was deployed Yeah, we might overpaid for some deals, but now we're in a top three franchise So awesome and the first funds ended up being

2:27:35Good. Right. Would anybody argue today that they actually paid too high of evaluation for anything they did from 2009 to 2015? Absolutely not. Yeah. What other corollary on this playbook theme I wanted to make? We made this point on the last episode, but I don't think we've talked about it yet here. This is just so silly. And I didn't quite get this perspective until being outside of the institutional venture industry. And now it's just obvious to me. It's so silly.

2:28:05Why would you ever argue publicly argue as a venture firm that valuations are too high? Like who's your customer? Your customer is entrepreneurs. That'd be like saying like a politician running and being like taxes are too low. We need higher taxes. That is my platform. And not only that, but this specific other competitor of mine, you know, from the other party who's running the problem with their platform is they want lower taxes.

2:28:32If you are an entrepreneur listening to this, you're like, I like lower taxes, I like higher valuations. Right. Yeah. That's a great point. Yeah. Pick a different thing to argue about if that's your side. You can feel that way all you want, but like don't argue about it. Right. Yeah. Speaking of like things that are specific to institutional VC, like we discuss on our VC fundamentals episodes in the LP show, There's an investment process that has to happen because there's a lot of partners. So you need to figure out like we raise this fund, like we got these 22 people. Isn't that crazy? It's 22 now. But even imagine a smaller partnership earlier on five, six, seven people, like how do we make decisions to invest this fund? Well, an interesting thing that they do is they do not have a consensus based approach. So I think, and this is according to the information, which is linked in sources, any GP can pull the trigger on any deal on their own.

2:29:26So they can say, like, I'm going to bat for this. The way Mark describes it in some podcasts is that they assemble a red team to basically be there. The way we've talked about this at PSL, and I think I've talked about on LP episodes in the past is like to have a foil if you're advocating to turn a project into a spin out, someone should kind of be the the bear case on it or your foil. Mark calls it a red team. And he's like, we basically staff someone with the responsibility of going and trying to figure out why this is bad investment because if you don't have the consensus of the partnership and you're putting your name on the line sure we can we should do that investment maybe like it's a good non-consensus bet but also you should have to go argue with someone who's going to present the other side of the case and he's like we figured this out because Ben is my red team

2:30:11Like I can come in and be super optimistic about something and Ben is naturally good at because you know they fight like dogs like he's naturally good at presenting the other side of my arguments and we decided to institutionalize that in the firm which I think is really an interesting approach that both forces you to be diligent but also allows for non-consensus bets. Interesting. Yeah, I like that in theory. I wonder in practice how much it actually goes because like you and I know like these deals happen in like days, if not hours, like you're not, you know, lightning speed. Interesting. Interesting. At least in theory and like great to talk about on podcasts. Yeah. Great to talk about on podcasts. It makes total sense though that they can't be a consensus driven firm with that many people like you're never going to agree on it. Anything. Yeah. Especially at the pace that they're doing deals now because of the pace that the whole thing is working now. Yeah. The last one that I had that I just thought was interesting that we didn't talk about on any of this, but Mark talks about a lot, which is

2:31:10He doesn't really believe in pivots or the notion of like failing fast or the lean startup. I'm amenable to this argument even though I do a ton of testing of ideas that like the big innovations throughout history are made by true believers who just kept trying like there's something like the filament of a light bulb was like Edison's 200th attempt at creating filament and it's like It may not be the right decision for you as an individual to keep ramming your head against a wall, but it's good for all of us as a society that there are a lot of people who are willing to keep running at something almost illogically so in a way that is potentially not in their best interest because that is where the true breakthroughs come from. And if everybody is always looking at data from the first sort of test and they're like, yeah, it's not really working. Let's try something else.

2:32:06then you don't get the breakthrough innovations. Yeah. That makes sense. I mean, I think like both of these things are true, but certainly like we didn't like test acquired. And if we had tested acquired in the early years, we probably would have been like, well, that's not working very well. Totally. But passion projects, passion leads you to do things that aren't necessarily economic and that at some point you sort of look around and you're like, whoa, value creation has happened.

2:32:35I love that image. Hopefully not said in that sterile of language, but yeah. I like that. I'm going to use that with startups going for you to feel like, guys, value creation has happened. Well, I was talking actually with Portfolio CEO the other day about how I really believe from doing acquired now that and that we talked with Patrick O'Shaughnessy about this that like brands just take time.

2:33:01People don't love stuff quickly. They're always skeptical of new stuff and so brand is like it's time times absolute number of people who are familiar with the brand times the magnitude of how much they care about the brand Sure, you can get the coefficient on those second two factors to be very high, but it sure helps to have a lot of time because that you know multiplies through so just looking back at acquired and a 16z now has this going for it to it is remarkable, even if the product doesn't get any better, and certainly the product for us and for what they offer has gotten dramatically better, that time existing in market, continuing to bang your head against the wall and keep doing your thing and being true to it, even if it's an irrational decision because it may not pay off, the passion can allow you to stick it out long enough such that a brand can be built. Well, there's also like, once you get a brand,

2:33:57like that. I mean, I guess this is the point of seven powers. Like any of the powers once you achieve them, you're just like a whole lot more robust than you used to be. Like, think about the first Andreessen Fund and the Skype deal. If they had lost money on that, man, history would have been different. Totally. That could have toured Peter to everything. Yep. Now, they write a couple hundred million dollar check into something and it blows up in their face. Like, let's take Clubhouse.

2:34:23Jerry's still out on clubhouse like will it work? Well, don't worry, you know, but let's assume for a minute that just play out a scenario where it goes to zero and they lose a whole bunch of money on it Won't matter at all Literally no impact, right? That's such a good point are similarly like early days required, right? Like first couple episodes like if we had just like something really bad at half end we probably would quit But not that I want to do this at all, but like if we have a bad episode or something like that, like we're probably gonna be fine. Yeah. I don't know. Man, this is like my constant paranoia because it's such a big risk to dedicate. It does feel a little tightrope. Listening to a podcast is a risk because we're like totally off topic here, but this is something I'm like super fired up about. If an article's boring, it's fine because you skim it real quick and then under a minute you're gone. If an episode sucks, you're like, wow, I just dedicated an

2:35:11hour two hours three hours of my life to this thing. I'm not going to trust these people to produce things that are high quality anymore. I'm gone. And so I don't know about you. I constantly live in fear and have gotten aggressive on if this thing is not of the quality bar in which we set every single episode we release is a risk. It's funny. I think my level of I'm curious what you think. My level of nerves going into every episode has remained constant and steadily increasing for the six years we've been doing this. Totally. There's more on the line every time. Every time. Yep. Huh. Well, that was a digression. Totally. So great. There's so many stories. That was a, you know, continuing to riff on the tangent of the podcast.

2:36:03We were worried we were going to run out of stories after like 10 episodes. Well, we did run out of good acquisitions. That's true. That's true. But my God, there's stories everywhere. And in our community now, like it's just it's the best. Firewheel spinning. All right. Grading. Dun, dun, dun. So listeners, you know, we are not LPs in Andres and Horowitz. And if we were, we wouldn't be able to disclose their returns. That said, thanks to our great relationship with the folks at pitch book data.

2:36:33we are able to pull a ton of stats on when they invested at what rounds at what valuations were able to scan s1s of all these companies to see if they owned more than 5% at IPO what they own we do know how much money they've raised and so we're able to do some napkin math and here's the napkin math that we've done so we looked at the proceeds from their top 10 liquid outcomes and That may not mean that they've actually liquidated their position, but that they could have. So that is, and I'll just run through them real quick, because I think we said some of the numbers earlier, but it's worth highlighting again. Octa was a billion and a half to two billion, back to Andreessen Horowitz, Coinbase, 11 billion, the granddaddy of them all. Airbnb, we estimated around three and a half billion.

2:37:21based on an $85 billion market cap, they have IPO'd in the last six months, so it's reasonable to think they would start liquidating that position now. We think that they own about 4%, they're a sub 5% shareholder but are of course on the board. They led the series B and I think they put 60 plus million into the series B. Yeah, a lot of capital there. So probably 3, 4% somewhere in there. Lyft, they generated about a billion dollars out of pager duty, half a billion.

2:37:51Slack, we think about three billion, assuming they held all the way to the sales force deal 18 months later. Pinterest, a billion and a half, they own 10% at IPO, which was I think like a $15 billion market cap, but has three X since then. So it depends how much they held depends when they distributed. Yeah. Right. Could have been higher. Roblox, a quick 1.2 billion, GitHub, a billion, and a firm somewhere between half a billion and a billion. Again, all these things are estimated. But if you just look at those companies, and think about distributing pretty early, like assuming that they didn't hold Octa all the way until it is worth $33 billion that it is today. These companies probably generated about $25 billion in returns. So an interesting thing to do is to then look at that divided by the AUM of the funds that they come from just to say, what's like the worst-case scenario for their multiple? So that's assuming no more value from anything else.

2:38:49which is simply not true. And we'll revisit some of the things that still could bear fruit after we just do some quick math. So that you look at their total assets under management, 18.8 billion. But like a lot of that doesn't contribute to any of those companies we've talked about. So subtract out the early stage from 2019 onward because none of those companies were from, you know, those haven't matured yet. So that's 2.2 billion off the 19. Then You got to take out their most recent late-stage fund from six months ago, which is 3.2 billion. Then you take out at least crypto funds two and three and maybe you even take out crypto fund one, which is only another 350 million. But then you're pulling out from all of that another 2.7 to 3 billion. Then you take out all the biotech funds, which is 1.4 billion. You have like close to $10 billion to subtract out. And you could maybe even argue that

2:39:43one or two of the more recent early stage funds to take out as well. But to make this like, again, all napkin math really easy, because we're just trying to figure out like, did it work? Is it going to work? Is it showing signs of working? Let's just say they're first eight billion dollars. We have some data on and then the more recent eight billion dollars jury still out, we don't know yet, time will tell. And so if you look at that sort of first eight, well, that created at least 25 billion.

2:40:13which is a cool 3x. And you're not even counting, and this could be a monster, Databricks, which that couple is worth 28 billion. And it wouldn't surprise me if A16z owned like 25%. They invested very early and they've been investing every round. They could own like 7 billion of that company at the current valuation. Again, I don't know, but this would be a reasonable estimate. Instacart, it would seem reasonable to think they own like 2 billion in that. Robinhood, small percentage because it was only a seed investor and then something more recent in the growth round but like you also have like Robinhood, Oculus, Flatiron Health, Stack Overflow, Instagram which is so funny they generated 78 million out of Instagram which was a nice return at the time but sort of doesn't matter in this overall analysis today. So that 25 billion number that gross 3x is even before all these other companies that definitely contributed.

2:41:09And before all the other ones that, you know, may have returned capital, may have done well, but not Coinbase well. Well, there's one more dark horse too, which is I believe in the crypto funds and maybe some of in the early core funds, they're buying Bitcoin and and either. Oh, interesting. I'm almost 100% sure at least Bitcoin, if not Bitcoin and either they were buying in a bunch of these funds.

2:41:36Wow, depending on when they were buying that game changing for this whole, depending on how much capital they put to work for this whole analysis. The reason that I wanted to sort of do this napkin math is to basically say, okay, we know with the first half of the capital that they raised in their life, at the very worst case, they had as good a returns as anyone else in the top quartile of the industry. So at the very worst case, it didn't not work.

2:42:03yeah there's no uh this is not enough yeah they were able to do a hard thing which is burst onto the scene and break into something where there is really persistent returns year over your decade over decade and compete with the very best of the best. And do we actually have the data to tell you if they're, you know, the best in the industry or to compare them to Sequoia, it's too hard to do. But it also doesn't really matter. Right. Right. To be fascinating to know if they're better than Sequoia or better than benchmark or not, but like they're in the ballgame, you know? Yeah. And this also, I think we can finally put to bed that leaked data in 2016. This other, the data was wrong at all, but like the conclusion of all the people's analysis is, you know,

2:42:46For the brand that they have, entries in Horowitz is way underperforming. Gosh, they're only at a 2X or a 2.0 something and you're like, okay, we don't know yet. Coinbase, if you had analyzed Coinbase in 2016, would you have been able to determine that it's going to whatever gigantic multiple it was on that fund just from that one company? No, there's no way you would have been able to. The apples take longer than lemons to rip. And that was I, uh, I skipped over that in this script for a time, but it was a well-street journal article that was so clearly a hit piece, planted by rival venture firms, where they had a bunch of quotes from like LPs and stuff that like they're, you know, the entries and returns were, I think the headline of the article was something like, despite Blaster or whatever entries and returns are average. Yeah. Well, I don't have much more to add. And frankly, I guess I would throw an A on it.

2:43:41with the plus sort of being if we ever got cleaner data, but for what a challenge it was to break in and challenge the incumbents in such a short time frame, it's remarkable how well they've done. That's spot on. It's an A. Only reason it's not an A plus is like A plus is Facebook buying Instagram and getting $500 billion of value for one. We just don't know enough yet.

2:44:07Maybe it could end up being that in the future, but it's not that today. But, no way, this is less than a day. Who else did this? Nobody's done this. And just to put some numbers, like I'm gonna guess that the first eight billion of capital in these funds that we're sort of calling in bounds for this analysis returned somewhere between 25 and probably 40-ish billion. It's so good, you know, and it's funny, like the other...

2:44:36Naval gazing aspect to venture and investment returns that people talk about all the time is like the multiple and like the IRRs and efficiency of capital and like only having the best companies and blah blah blah blah just the magnitude is like at the end of the day what really matters is the magnitude here. Yeah, they absolute dollars the absolute dollars like They generated what? Let's make it easy. Let's say 30 billion that they've returned on 8 billion invested. That's 22 billion dollars that they've generated. Name me other firms who have done that. There are a few, but they're a very, very few who have done that. Yeah, it's interesting. Like a good multiple means you are right, but a great amount of absolute cash returned means you were three things. You were right with conviction.

2:45:26you had access, you had winning access to be a meaningful participant on that cap table, and you effectively did the work to obtain the capital in the first place to be able to deploy a large enough amount of it to generate a large dollar return. You got to be good at a lot of things and you got to be convicted and right in them. Yep. And I think large institutional LLP is how they think about it, right?

2:45:50You're like, yeah, great. You know, 10x fun. Fine. If it's a $50 million fund and you 10x and you return 500 million, like, clap. I'm proud for you, you know, but like I'm not jumping out of my seat, but you, you know, you return me 22 billion. Like now I'm jumping out of my seat. I don't care what the multiple is. All right. Well, um, gosh, it feels good to come to the end of this two part or you want to do carve outs? Yeah. Let's do some carve outs. I got two.

2:46:19First, they're both sort of Quasi Carvots. The first one is a Quasi Carvot because I've already had this author as a recent previous Carvot. Arthur C. Clarke. So good. I wasn't on the Ethereum episode, maybe. I had him as my Carvot OG super OG science fiction author. I have since continued to read this stuff and I read childhoods and have you read childhoods and no.

2:46:46Oh my gosh, this is so good. You gotta go read this book. You know the movie Independence Day. Yeah. The Will Smith movie. Absolutely. Oh, so great. So Independence Day is based on childhoods end, but it's only based on the very beginning. Like the beginning of childhoods end is what Independence Day was based on. But then the rest of the book takes a very, very different turn and it's super mind bending and really cool. Can't recommend it enough. That's number one.

2:47:15Number two is specifically for you, Ben. I have a carve out for you. We are both huge MKBHD, Marcus Brownlee fans. Yeah. And I think my most recent video, he just launched a new channel on YouTube called the studio channel with the video. You're gonna love this because you're such a gear geek, studio tour MKBHD studio and like, oh my god, it's so cool. And he's got great gear. I gotta go check that out.

2:47:45I was watching and I was both like jaw on the floor and I was like wow we are such amateurs that acquired like he is a litany of red cameras lit me and like wow video is I have so much more respect for what youtubers do like audio is easy we're playing on easy mode here. It's so much harder for sure okay cool I'm legitimately adding that to my to-do list right now to go watch that after. Alright mine is continuing my recommendation of the sopranos and good fellows, the Godfather. Somehow, I have never seen the Godfather trilogy. Like it just escaped me. I know. I'm like going back and like actually watching all these. Wait, so you started with the sopranos and good fellows without having seen the Godfather? You know, whatever path leads you to greatness, the point is you get to greatness. Yes. And greatness it is. God is so good. And like,

2:48:40One is so like good and raw and two is so artistic and well thought through and the method of storytelling flashing back and forth between the two stories. I think some people complain about it. I loved it. I think it's De Niro's best performance ever. It's definitely Al Pacino's best performance ever. And three, three exists. Three I turned off. Actually, I didn't watch three. I watched Coda.

2:49:07People think it's better than three. It's like a reshot. There's some stuff that's reshot and re-edited. And like, maybe if I had 14 years between two and three, then it'd be okay. But because I tried to watch them back to back, I was like allergic to the 90sisms of Koda that where I was just like, this is unwatchable. I mean, the haircuts alone. I think Michael Corleone says more words in the first 10 minutes of that movie than in the entirety of two. I believe it.

2:49:37I believe it's just no subtlety. So that's an anti-curve. I've ever watched three. This is what I hear from everybody. One, two, or so good. Oh, they're so good. They're the horse head. Oh, it's beautiful. Just great. All right, listeners. Now is a great time to talk about one of our...

2:49:56favorite 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.

2:50:52All right, well with that listeners come join us in the Slack, become an LP. All those links are in the show notes. If you liked this episode, share it with a friend. You could share it on social media, that'd be nice, but I actually liked the one-to-one stuff better. We're all about slow, methodical, high-touch growth here at acquired, and so if you can put your personal, someone that you think would really appreciate it, then that's who you should share it with. We love social media shares, of course, but it's kind of hard to like just post on social media and be like, you should listen to this three and a half hour podcast that is part two of Andreessen Horror. It's like, you kind of got to like really convince someone. So if you love this, tell your friends. It's like when I get an event bright invitation to go to something versus when a friend texts me and like, Hey, you should come over for this. You know, yeah, exactly. It's a totally different thing. All right, listeners, we'll see you next time. We'll see you next time. And wait, we got one more piece of news.

2:51:50Who got the truth live on Spotify? Go check it out. You can listen to it here for the next two minutes and then go listen on Spotify Young Spielberg Mike Taylor take us out

2:53:00All in small, God need to know Who got the truth? Is it you, is it you, is it you? Who got the truth now? Is it you, is it you, is it you? Shoot me down, say it straight Another story, truth now, hair for the cheap They flip flop like a sea saw Not freeze laws People wonder what to do They can't get the truth Got so much to lose now Who got the truth? Is it you, is it you, is it you? Who got the truth?

2:53:57Is it you, is it you, is it you, me down?