You know, if you want to change the world, you have to believe you can change the world. What you're really trying to find is are they literally the best in the world at a thing, and that's always the thing that's worth investing in, as opposed to they're pretty good at a lot of things, and I can't figure out what they're not good at. We just have a higher concentration of talent here than that's probably possible in a company in terms of just sheer IQ. There's a lot of VCs, very few who can actually help you succeed as a company. And so being one of those, I think, is still quite a special position.
So I'm going to start first with more of how you manage the firm and particularly lessons that you've learned over the years, obviously extrapolating lessons as a founder as well, and then how we think about running the firm on a day-to-day. So the first question I'll start off is from your book, but it's relevant to this conversation in part because when you wrote that in technology business, you rarely know everything up front, and we're sitting in this massive AI wave right now where it's still incredibly early. But the difference of course between a mediocre company and one that's magical is often the difference between letting people take creative risks and then holding them too tightly accountable. So there's many ways we could take that direction, but maybe first start: how do you manage a group of GPs, and particularly what's different about managing GPs versus a company, and what's the same?
Yeah, no, it's pretty different than a company in that with a company, there are functions, there are things, you know people, there are very specific outputs that you're driving to. And then the people in the company... I would just say we just have a higher concentration of talent here than that's probably possible in a company in terms of just sheer IQ. So if you look at Chris Dixon and Martin Casados and Alex Rampel and so forth, I mean these guys, one, they've all run companies, and it would just be very hard to have that many people that high IQ on an executive staff. So if you have somebody like Martin, who is probably the best architect in networking software in the last 20 years plus a really talented investor and so forth, I'm not really telling him, I'm not giving him that much direction. I'm more kind of helping him understand the process or how the process of the conversation affects the process of investing, and how you work your way to the right answer, taking the right amount of risk. The biggest mistake we make is we get too wrapped around the axle about some weakness that a company has, as opposed to focusing on what they're great at and how great they are. So it's not like everybody is kind of you could talk yourself into as great at something, but what you're really trying to find is are they literally the best in the world at a thing. And that's always the thing that's worth investing in, as opposed to they're pretty good at a lot of things and I can't figure out what they're not good at. That's a much generally a worse investment. So just kind of orienting around that, and then helping think through the platform, the personnel, how to deal with the conflicts, and how to close deals and that kind of thing. So it's very different. I would say, and they just, you know, understanding when people run out of gas. Investing in technology, you really have to be deep in the tech to be good at it, and I think that it's very possible as people get older, they get less into it sometimes, and so at that point we got to make a change.
But maybe just sticking on the topic of GPs, how do you also think about accountability? Because one question had come up over when to promote the right people, when to manage out the right people, and ultimately the vertical leads are making decisions, but you're also making decisions, you and Mark are making decisions at the firm level as well. What's your thinking and framework as that evolved over the last 16 years?
Yeah, I think it's evolved a little, but the main things are kind of the same. So I think it's dangerous in VC to wait for the outputs because they're so far out. To wait and see if somebody has a great portfolio after 10 or 15 years before deciding what to do with them, it's such a long time, and you can make a lot of bad investments in that time frame or miss out on a lot of good investments if you don't put that person in position to do more stuff. So I really try to look at, at the point of attack, how are they showing up? How good are they at finding opportunities? How good are they at winning those opportunities? And what's the general quality at the time of investment? Because some work out and some don't, but it's not all magic. You kind of know, okay, this is a great entrepreneur, Meera, or how great an entrepreneur is Ilia? Those are pretty special people, so if you can win that deal, that means something whether or not those companies work.
Maybe just to focus in on verticalization, because verticalization I think was probably one of the seminal points in the history of the firm and changing the structure of it. You and Mark have talked about this, and now in retrospect it's clear that that was the right decision at that point in time. How do you avoid some of the pitfalls associated with verticalization, meaning the communications and strengthening communication across verticals and making sure you still have that connectivity as the firm continues to size and scale?
Yeah. So, look, I think that the most important observation, and this is actually a conversation Mark and I had with Dave Swanson, the late great Dave Swinsson back in 2009. And what Dave said, which I thought was very interesting at the time, is that an investing team shouldn't be too much bigger than a basketball team. A basketball team's like five people who start, and the reason for that is the conversation around the investments really needs to be a conversation. So I always had in mind that any investing team, we really don't want to be too much bigger than that size, and so how do we maintain that? The only way to do it is to verticalize. And the other thing that was happening simultaneously in the industry was software was eating the world, so we had to get bigger in order to address the market. But I didn't want teams being bigger than a basketball team, and that kind of led to the vertical structure. I think in effect, the most important thing is that those teams should be good, and then the communication across the teams we do in different ways. So one way is if the teams are very close, like AI infrastructure and AI apps, then we have people from each team going to the other team's meetings, so there's good hardcore connectivity that way. And then in addition, we've got a kind of management meeting of that group that we do, and then we have the GP offsite. So we just take everybody away for two or three days twice a year with not much agenda. I do think David Haber has this thesis that opportunity lies at the intersection. I think everyone not only culturally knows but also economically is incentivized to see everyone win. So there isn't that level of politicking. I also think that sometimes can be prevalent at other organizations where it's very zero sum and protecting turf type of behavior as well.
Yeah. You know, that's kind of like a cultural idea that we have at the firm. And I would say the feedback we get from people who come from other firms is we have less politics than firms with 10 or 11 people. And it's just that's a cultural thing. Either politicking gets rewarded and then you have everything from coups to infighting all the time and they don't like each other, or politicking gets deincentivized, and that's what we have here. Another point around culture, I always remarked to you, I'm always in awe of the fact that you always hear the gossip around the firm, even detail around minor things, and I'm like how do you know that, Ben? And Mark commented, and you often say you got to, whenever you run something, it's got to be in the details, that's the only way to do it. But I'll ask the question slightly differently. How do you stay on top of the details? How do you hear all this? How do you find the subtlety without also micromanaging? Because I think there's also the creative process of letting things run its course as well. How do you balance those two things?
Yeah, if you think about my job, a lot of it is setting the direction and then making decisions when things get into conflict or we're not sure what to do. And if you think about what makes you good at decision making, it's a combination of intelligence and judgment, or judgment is a combination of intelligence and knowledge. So what do you know, and then how smart are you at turning that into the correct judgment? And the knowledge in an organization tends to live with the people doing the work. So meaning the not the managers, I would say, but the deal partners, the individual people on the IT team, the accountants, the people who go visit LPs. That's where the knowledge lives, in talking to people who are at the point of attack, so to speak, or talking to entrepreneurs. So I just spend, I try to spend enough time in the team meetings, and I end up knowing a lot about a lot of things. And then plus I'm a founder, so if something gets messed up in the firm, somebody calls me. That happens a lot. They're like, okay, I'm gonna tell Ben, he's not going to like this. So this is a key thing for leaders: you never want people to think, oh, we shouldn't bother them with that, because it took me like 14 seconds to resolve it. And generally people aren't looking for you, they're just looking for clarity. A lot of what an organization needs often is clarity, not correctness. And if you have clarity, you can move.
Yep. Yep. Yep. Yep. Last question on verticals. So we have seven verticals today. One topic that has come up is how do we know these are the right verticals, and how, maybe give some examples of vertical ideas that you've resisted to start but maybe sound good on this premise but doesn't have either the right technological legs or even entrepreneurial capability around that that we've decided not to pursue.
Yeah. So they're really kind of designed around the market and where are the entrepreneurs. So we try to match up to if there is a big cluster of important entrepreneurs that are going to create multi-billion dollar companies, do we have a team that's going to win those deals? And different categories end up having fairly different needs. So the needs of a crypto entrepreneur, a bio entrepreneur, an American dynamism entrepreneur are very, very different. So you kind of have to have a product that matches that market. In picking markets, you want to not be too early and not be too late. It's a little bit of an art. I think that what we've seen is I'm very confident those are the right markets because there's lots of very interesting activity in all of them. Now we've got to then perform in each market. So it's not a given just because we show up and we're Andreessen Horowitz that we're going to win that market. But we have to evolve the team and evolve our thinking and make sure that we win. But I think that the markets we're in are pretty clearly very good markets. We have had a few that have popped up that people have proposed that we haven't done. I don't think we got that serious with them, but the other one was kind of ESG kinds of things, clean tech, green energy, this and that. And we thought that the right lens on that was much more going to be American Dynamism one, because it wasn't weirdly constraining and it was much more oriented around the kind of economic outcome as opposed to the do good, do good by doing well or whatever the phrase is. Those things can lead you into very weird decision-making. So investing is hard enough without introducing other criteria other than is this thing going to be a giant company and make a lot of money. And you want to have a focus on that. And I think the beauty of American Dynamism would be maybe good for America or whatever, but there's so many opportunities in that space because the US really does have to modernize the way they do defense, we really do have to get much better intelligence in public safety to keep everybody safer, we've got to solve the energy problem, we've got to solve the rare earth mineral mining problem. There's very good problems to go dig into. If you look at, okay, we're going to come up with an alternative energy source or an alternative fuel, will any of those work? Maybe. So we never did ESG.
Yeah. I remember actually as you were going through that, I remember very early on in our discussion around American dynamism, I remember you pushing the team and asking them like, hey, is this a marketing message or is this real technological transformative change? And they went and did the work around it, and it was very clear now in retrospect there was real tech change especially happening on the supply chain side and the defense side and really how people actually even engaged with the government. But I think that often times when people ask us this question, it's both a combination of is there a real technology change because that's when you make and generate venture returns, and then also is entrepreneurial talent actually there to build it. Yeah, ADA is a good marketing idea. And I think when they presented it internally, they presented the marketing idea and I was like, well, I want to know what the fund idea is. How do I make money? We have investors, we got to make money. It's a great marketing story, but we're not doing all that. We're going to do the things that the fund is going to be less than that the marketing in terms of its focus. It's going to be tighter focus.
Yeah. Then we ultimately zoned in on three kind of core vertical areas that there was actually a tech change happening. Maybe switching gears. So Mark and I believe the best thing society can do for a person is give them a shot. Give them a shot at life, a chance to contribute, a chance to do something larger than themselves and make the world a better place. That's the best they can do. So can you elaborate on this and how it's driving how we are evolving as a firm, and particularly looking ahead as people think about what's going to be a set of funds that are deployed over the next two to three years but also ultimately have an impact over the next 10 to 15. How do you think about that as you think about leading the firm?
You know, I think it's important to put the work that people do into context. And we're in a super special position. What I wanted to get at was if you take a step all the way back and you say what's been good for humanity, what's been good for humanity historically is when people have a chance to do something larger than themselves and contribute. And I think there are many systems ideas like, well, what if we could make utopia or everybody equal or this and that, and that's kind of ended up doing the opposite. If you look at the history of communism or what have you, it's kind of everybody has an equal chance of getting no shot is much more what occurs. So you really want to enable contribution. And the rise of America kind of coincides with that rise in a free market, capitalistic, rule of law system. And if you look at the history of the country and the history of humanity, the rise in wealth, lifespan, population size of the earth all kind of grew spectacularly in the last 250 years. And so America's been very important in that. And America today is still, I think, very clearly the country and the system where people are most likely to have a shot, a real shot at life. And we've done some things to screw that up, but that's certainly still the case. And for America to maintain its importance in the world, it has to win economically, which means it has to win technologically. It has to win militarily, which means it has to win technologically. And our job is to help the country win technologically. And it's not only important for us, it's important for the country, it's important for humanity. And that's really what I was driving at. And I think that for our people, it really helps them go, okay, these things matter. Creating these opportunities matter. And just to give you an idea of some of the things it leads to. Actually, Jen and I were just in Mexico, and a lot of that was catalyzed by a junior person on the team going, what we're doing is so important. And we need to help with this alliance. We need to help secure the border. We need to help with our own defense manufacturing. We've got to help with energy. I'm going to get this meeting. And then we got the meeting. So if you want to change the world, you have to believe you can change the world. And that's a lot of what it was about.
It seems like little tech M&A is opening back up. What's your view on whether that is here to stay and whether that might actually expand to larger opportunities as well? AI is such a disruptive phenomenon that every company, every incumbent is under threat from AI in general. And so a lot of the ways that you deal with the threat is you just acquire the DNA of the future. So I think there's going to be a lot of M&A because I think that people need to reconstruct how they work if they're going to survive. So if you go back three or four years, I think people believed that the big foundation models would be these giant brains that could do anything better than anybody. It has not played out quite like that. The way it's played out is that the big models do provide a very important infrastructure that all of our companies end up building on to some extent. But often, for any particular use case, the long tail of not only scenarios but the fat tail of human behavior ends up being something that you have to model and understand very, very well. So if you look at Cursor, Cursor consists of, I think, 13 different AI models, all of which model different aspects of how you program, how you speak to a programmer, etc. And those models end up being so important that they in fact released their own foundation model specifically for programming and for coding. So they have a coding model that you can swap in in place of Anthropic or OpenAI if you want, or you can use the OpenAI or Anthropic models with their other set, and that thing has gotten great adoption. So it's kind of going, well, maybe the application behavior is actually in some ways more important than having a gigantic, the biggest model trained with the most GPUs. And it's not clear exactly how that plays out, but right now currently I would say that the complexity of the application itself is very high and is not subsumed in the foundation model. And so I think these things are not as straightforward as they appear, and the benchmarks can be misleading. And I think this also is showing up in every aspect of AI. So we've seen that there's a great post that Justine Moore from our team did on there's no god-level video model, which I would encourage you to read, which kind of gets into how different use cases end up needing different models, which is again not what we thought four years ago.
