Ben Horowitz & David Solomon on How Market Cycles, AI & Deregulation Create Opportunity

We were the largest wholesale funder in the world 10 years ago. There are a lot of things you want to be the largest in the world. Wholesale funder, not one of them.

Last year the four largest companies contributed 1% to GDP growth with their $400 billion of spending. M&A and capital raising, IPOs are driven by confidence. For the last four years, whatever the question was, the answer was no. Okay. Now, whatever the question is, the answer is maybe. David, you've been at Goldman now over 25 years. You know, what are you focused on to position Goldman for the future?

If you're in our kind of businesses, if you're attached to financial assets, this is as sweet a spot that I've seen.

I've had the distinct pleasure of working at least indirectly for both David Solomon and Ben Horowitz and have a lot of affection for both Goldman Sachs and a16z. If you haven't read, I highly recommend reading the book The Partnership, which is written by a guy named Charles Ellis which chronicles Goldman's nearly 160-year history. And I think the most remarkable thing about Goldman's history is the fact that it's not a business built through a series of bank mergers. Unlike many of its peers, it was really a business built brick by brick by generations of entrepreneurial partners raising their hand, going off and building new businesses, whether it was expanding into Europe or starting the merchant banking business or the wealth management division. You know, many of these business units became global franchises. And I'd argue that, you know, Goldman was and still is one of the most entrepreneurial financial institutions in the world. And as I think about where we are in our own evolution at Andreessen Horowitz, I kind of like to think that this is what Goldman Sachs must have felt like, you know, 50 or 75 years ago. You know, a small group of entrepreneurial investors betting on a future.

We weren't as rich as you guys.

Like they got very mad at each other over was it Sachs who supported Germany in World War I? So you actually remember your history. Wow. Yeah.

Well done, David.

Thank you.

But maybe, yeah, maybe just, you know, pulling on that thread, you know, David, you've been at Goldman now over 25 years. You joined the firm, I believe, in 1999, just after the firm's IPO, you know, how has the firm evolved during your tenure? And maybe more importantly, you know, what are you focused on to position Goldman for the future?

Oh, before first of all, it's great to be here. Great to be with everybody. Before I start on that, I just say one of the big lessons I have in my life is if you're joining a new firm, it's a private partnership. Don't spend six months negotiating so you carry over past the IPO date. Join before the IPO. It's a good lesson for all of you in private partnerships. You know, the firm's a remarkable place and I really appreciate what you said about the firm and the entrepreneurial spirit of the firm. The firm was for a long time a private partnership. And the thing about private partnerships is you have this mutual agency where people go off and they do things. There's some structure that creates a collective each year or each cycle where everything comes back and then there's a re-evaluation of the partnership shares and you go off again, you know, into the future to do more. And that served the firm incredibly well and the firm stayed a partnership much longer than any other real totally big Wall Street firm. But I'd like to say that the firm stayed a partnership until the last moment when it absolutely couldn't be a partnership anymore because it needed the permanent capital to really make it a relevant business. If the firm hadn't gone public in 1999, it would have missed kind of the global expansion of capital markets and probably would look more like, not to pick on anybody, but just to pick any, more like Lazard today than like Goldman Sachs. And so, you know, the stewards of the firm at that point did an incredible job. I think the challenge for us over the last 25 years and I think you know the leadership team over the last eight years has really done an incredible job at this working together to do this is somehow 25 years after an IPO we still have this partnership culture it's highly aspirational every two years to become a partner of Goldman Sachs we have 450 people who really are compensated and a correlation to how the overall enterprise does but the big thing that I'm really proud of that as a broad leadership we've done is we've started to recognize that we're not a small private partnership and you can't be a public company and not grow and have some form of top down strategic direction. Yeah. That really gets the whole thing making, you know, the 1 plus 1 plus 1 plus 1 equal, you know, more than what the math adds up to. And that's been a journey and it's been bumpy. You were there for part of those bumps.

True.

But I think we've navigated well and you know we've got I still think you know the principles the values that we kind of sit upon as a firm. We really strive to be the most exceptional financial institution in the world. We don't always get there but we strive for that and you know we really sit on four core values of client service, partnership, integrity and excellence. Try to live it and I think the firm's in a really good place. But it's in some ways it hasn't changed at all in 26 years. In some ways it's changed. It's changed massively.

Are there a few things you're most focused on as CEO kind of looking forward, you know, for the next five or ten years?

Sure. You know, one of the things I've I was a banker and I advised CEOs for a lot of my career, but actually owning the responsibility. That's one of my big takeaways the last eight years is very different than giving advice. You know, I think the most important thing that a CEO has to do in a big enterprise like this is they have to kind of own the strategy and the direction of the firm. And you know, I'm focused on how we ensure we're executing toward growing the firm because I know we have to do that to perform on a relative basis. But then I'm also thinking about and worrying about, you know, big picture strategic risks that can make the firm less relevant, less successful, less important, less competitive. And you know for us I think there are two things that the firm is really focused on. I think first of all one of the things that makes the United States an extraordinary place is we have the most extraordinary capital markets most extraordinary financial system. The most extraordinary financial institutions. I would argue that the six most important financial institutions in the US are all US financial institutions and there is no global institution that can compete in terms of its relevance in the world with the six most important US institutions. When you look at those institutions, there are different kinds of institutions. There are retail banks, more traditional banky banks. That would include JP Morgan, Wells Fargo, Bank of America, Citibank. They all have global businesses, but they are truly banks and what they do. They have retail platforms, retail businesses. And then you've got two institutional firms. That doesn't mean they don't touch individuals in different ways, but Morgan Stanley and Goldman Sachs are both institutional firms. And Goldman Sachs is a little bit of an island of one in the context of the way we're positioned as an institutional firm. And Morgan Stanley is a little bit of an island to one in terms of the way they're positioned. Scale matters a lot and I just went through all those firms. The two smallest firms of all those firms are Goldman Sachs and Morgan Stanley. And so when there's turbulence in the world, you always want scale. Scale in these businesses because they're so mature gives you enormous leverage and latitude. And so we continue to think a lot about scale and we think out 5, 10, 15 years how are we going to maintain a level of scale that makes us competitive? 10 years ago it would be unfathomable that Goldman Sachs could have a $1.9 trillion balance sheet but at the moment JP Morgan has a $4.5 trillion dollar balance sheet. When JP Morgan's six, we're gonna have to be at least three and a half, you know, at least three and a half. And so, we have to think about how we can continue to create that scale because these are very mature businesses and it's hard to really build that scale just purely organically. So, that's one. Two, funding. Funding these enterprises is one of the big strategic risks to these enterprises. These enterprises live on funding and liquidity and you know we don't have a traditional deposit funding platform. We've got and you participated in this a very excellent digital deposit platform that now has you know over $200 billion in deposits and we've also we have about $500 billion of total deposits. 15 years ago we had zero. So we fund about 40% of the firm deposits but deposits is a much more stable funding source than institutional wholesale funding.

Yeah. We were the largest wholesale funder in the world 10 years ago. There are a lot of things you want to be the largest in the world. Wholesale funder, not one of them. And so that strategically is another thing we were about. So those are big things on stepping back and getting away from the execution day-to-day and thinking 10, 15, 20 years which by the way I won't be here running the firm but it's still my responsibility to steward and chart that. I worry about that in the short term you know much more focused on technology across the organization. And how technology shifts the way we do things, how we're rebuilding processes, operating differently while staying true to what we do.

Awesome. Well, we're here to help with that today, too.

Absolutely.

Ben, maybe transitioning to you. You know, you and Mark started the firm at an auspicious time in the wake of the financial crisis in 2009.

You know, it turned out to be a really interesting moment because it was, you know, the beginning of mobile and the rise of the cloud.