My Conversation With Marc Andreessen, Co-Founder of a16z & Netscape

So I love caffeine. For a very long time I always said that the ultimate day, like the perfect day, was 12 hours of caffeine followed by four hours of alcohol. Like that's just the ultimate. I did cut out, at least for now, I've got to cut out the four hours of alcohol. But yeah, caffeine is just one of nature's most marvelous things. But it turns out you can't overdo it. And so, yeah, a while ago, I was drinking so much coffee at work that I was sitting in a meeting a couple years ago and I started to feel just a little bit something felt off and I just took my pulse and I realized I was skipping about every 10th heartbeat. So, I had like an existential crisis because I'm like, 'All right, you know, I need to call 911. Is this like am I about to have a heart attack? Am I about to die?' And so, I go under the table and I Google and I'm like, 'Is this a problem?' And before Dr. Google said, 'No, it's okay. It's fine. You just might want to cut back a little bit on the caffeine.'

Yes. Zero. As little as possible.

Move forward. Go.

So I've read obviously, I think now 10 biographies of successful entrepreneurs and that was one of the most surprising things. Like what's the most surprising thing that you've learned from this is like oh they have little or zero introspection.

And you probably know if you go back 100 years ago, it never would have occurred to anybody to be introspective. Like it's the whole idea of, I mean just all of the modern conceptions around introspection and therapy and all the things that kind of result from that are, you know, kind of manufactured in the 1910s, 1920s.

Great men of history didn't sit around doing this stuff at any prior point. Right. It's all a new construct. It was, you know, well so first western civilization had to kind of invent the concept of the individual, right, which was like a new concept, you know, several hundred years ago. And then for a long time it was all right the individual runs, right, and like does all these things and builds things and builds empires and builds companies and builds technology, does all these things. And then you know kind of this kind of guilt-based whammy, you know, kind of showed up from Europe, a lot of it from Vienna in the 1910s, 1920s, Freud and all that entire movement and kind of turned all that inward and basically said okay now we need to, you know, basically second guess the individual. We need to criticize the individual. The individual needs to self-criticize, right? The individual needs to feel guilt, needs to look backwards, needs to, you know, dwell on the past. It never resonated with me.

Yeah. Generally, although in fairness, you know, the introspection is probably linked to the personality trait of neuroticism, right? So you know, a lot of the best founders are, you know, I think at like 0% neuroticism. Like they just don't get emotionally phased by things that happen which is a superpower when you're an entrepreneur. But having said that some of the great entrepreneurs are in fact very neurotic. Like it's not, you know, it's maybe it's a nice to have to be low neuroticism but not necessary. And so you know there are some that kind of get wrapped around the axle on kind of personal issues. You know, as you know, these days sometimes that then kind of turns into use of, you know, psychedelics of different kinds and hallucinogenic drugs. You know that's like one very interesting kind of trajectory for, you know, kind of the culture of the country, culture of the world and we'll see where that goes.

I'm not either. Daniel Ek has the greatest way to put this, like he thinks the best entrepreneurs are not optimizing for happiness, they're optimizing for impact.

Oh, I mean that would require introspection.

No, you have to.

But I am curious about you because like you have a series of quotes that I absolutely love. I save on my phone. I reread from time to time. One of them I'll butcher it, but it's like, you know, the world is way more malleable than you think. And if you just pursue something with a lot of maximum effort, drive, and energy, the world will recalibrate around you easier than you think.

Yeah, there's a lot that we're actually trying to do. I'm suspicious that that's my actual underlying motivation just because like I don't think external impact is enough to keep people going or at least I've seen way too many people who had a high level of external impact and then at some point they just stop.

Well, here's the problem with external impact. It's like okay it's 4 in the morning you're staring at the ceiling. Like is that enough? Right? Like external impact is stuff that's happening to other people, right? It's like all right, what is it about you? The story I like to tell myself is that I'm competing with myself, right? The story I like to tell myself is I'm getting up in the morning because I'm trying to become a better version of myself. I'm trying to become, you know, smarter and better informed and, you know, reach better conclusions and be better at what I do. And continue to expand my skills, but, you know, again, to actually analyze that properly requires a level of therapy that I'm not willing to engage in. So anyway, so yes, the much more comfortable conversation is the, yeah, what are you trying to do in the world, which I would love to talk about.

Yeah. I mean look, we just, we have had this, it's actually fairly amazing that it's become a controversial kind of thing but we just have this like fundamental view that technology is like on balance an enormously powerful force in the world and basically that the big problem with the world is that there's not enough technology, there's not enough information, there's not enough intelligence. And we have this opportunity, we have these special sets of technologies that let us fundamentally improve things. And then there's this very special kind of personality type to the entrepreneur who's able to build the product and then able to build the company and build a phenomenon and really make an impact on things. And so when I look at the world I'm just like okay this is just like, the world we live in is just a very primitive and crude place as compared to what it should be and what it could be. And so the whole thing that we've been trying to do for 17 years at our firm is build kind of the ideal partner to the founders that are trying to do that based on our own experiences of having been founders that were trying to do that. Overall the world especially the western world is just stagnant. Like the overall kind of theme of things is just everything is stagnant. And we could talk a lot about that, but you know, every once in a while you have somebody that comes along. It's just like, 'All right, no, I actually have an idea how to make things fundamentally better, and I have a way to build a business around that and build a company, build an empire around that.' And those people, you know, include ourselves in this. But, you know, those of us that are trying to do that, we're like a movement basically against stagnation. But like, without us there's nothing but stagnation.

It's like, well, nobody licensed us to do any of this. Like, we didn't apply for a permit, right? Like get judged by somebody ahead of time and told, 'Yes, you get to do this. You don't get to do this.' Like, many people could be trying to do this. Anybody can do this. Anybody can start build a product, start a company, you know, start, even try to be a VC. Like these are all completely open fields. And it's just shocking to me how few people actually give it a shot. And the fate of the world over the next 1500 years is riding on the people who actually want to give it a shot.

So I'd say the core thesis is the same. The specifics have varied, have changed enormously. We can talk about both parts of that, but yeah, no, the core thesis was kind of the startup, the entrepreneur, the founder is going to be the core engine of progress in the world. And I think that's more true than ever. In fact, when we started it was still controversial the idea that a founder would run their own company.

Yeah, it was still very controversial. In fact, there were high-profile companies at the time that were getting heavily criticized for basically having these little kids running around running these companies.

Yeah.

Well so Christopher Columbus, Alexander the Great. Right. So throughout history, most of the, you know, Thomas Jefferson, throughout history, most of the great things that have been built have been built by this kind of super charismatic founder type, you know, will of power founder type who basically built and ran something to hold on.

Hold on. I love that you went here because you don't remember this, but we had dinner in Miami with Jared Kushner like a year ago or something, and me and you would wrestle because I was so excited to talk to you and I was trying to get out of you like, you know, cuz I think about history first all day. Like, this is what I do seven days a week. Like, who are these entrepreneurs from history that you like? These are naming country founders.

Exactly. There's this like recency bias, right? Which is like the world that we live in today is the normal state of the world and like everything that happened in the past is like weird and different and those people were like dumber than we are and like all screwed up and it's like well maybe. Or maybe the world worked a certain way for thousands of years and we're in the weird time like maybe we're in a time that's just really unusual from a historical standpoint. And I think this is one of those dimensions in which that's true. It just never would have occurred to anybody 100, 200, 300 years ago that if somebody was going to start something that they weren't going to be the person who ran it like obviously it was just obviously the case. The book that I always recommend on this topic is called The Machiavellians which is a sort of famous book from the 1940s by this guy James Burnham who's like one of the great geniuses of the 20th century and he describes it basically as he said look there have been two fundamental modes of business organization over the course of basically the history of capitalism. There's what he calls bourgeois capitalism which basically is like founder runs the company, name on the door, and the classic archetype for bourgeois capitalism was Henry Ford in the 1920s and today it's Elon Musk, right? It's just like that's you and by the way in the old days it was Ford Motor Company, you know, it's not Musk Motor Company but everybody knows Tesla and SpaceX like these are Elon's. And again that maps to this historical thing which is that's also how countries ran and that's also how cities ran and like all these things, you just, religions by the way, like basically everything, founders led the way. That's the historical norm. And then he said, what he basically says in this book is he goes through and he says that there's this new basically model that basically is an artifact again, it's an artifact of kind of this weird period of time between the 1880s and 1920s where kind of the modern world as we know it today kind of formed. And he said there's sort of a new philosophy of sort of leadership and management which is called managerialism. Sort of the rise of the concept of a manager and specifically a manager as contrasted to a leader. And so therefore the manager, therefore the idea of a management school, right? Therefore Harvard and Stanford business schools, right? Therefore the idea of the manager who replaces the founder running a company. Therefore the idea of management as a skill set that can be used to run many different kinds of businesses. In the 70s this then turned into the conglomerate which was the idea that it doesn't matter what the company does. If you have a good manager the company should do, you know, 30 different things. And so managerialism is this idea that you have this kind of interchangeable management skill and that can basically run anything. And actually what Burnham says is he says look people are going to try to draw a value judgement on this and they're going to try to say this is better or worse than the old name on the door model. But he said the reality of the modern world is everything is big like for the electrical power grid to get big or the road network to get big or the car industry to get big, large scale systems need to be run by people who are trained how to run large scale systems. And so he said you may or may not, and same thing with countries, large scale countries need to be run by people who are good at running large scale things, right? And the founding personality type is not the manager personality type. Those are different and so there's going to be a handoff when things get big and complicated and so that's the model that Nolan Bushnell talks about and that's the model that dominated Silicon Valley for 50 years. The problem with his argument is that assumes the managers are going to do a good job, right? And I think if there's like one dominant theme that we're seeing in the last, you know, 30 years, in the west for sure is like managers generally, at large are not doing a great job. Or another way to put it is the managers maybe are good at managing something that's going to be status quo for a long time. Like if it doesn't change, maybe they can run the banks for a long time or they can run the power company for a long time or the car company. And as long as the car is the car is the car, or soup is soup is soup, it kind of doesn't matter. But the minute things change, the manager personality type because it's not the founder personality type, it doesn't know how to deal with change. Not everything is changing. A lot of things aren't changing. But for the things that are changing, they're changing like really, really quickly. I mean, SpaceX is like the classic example of this. Imagine being a professionally trained manager trained at a top management school working for a rocket launch company competing with SpaceX. And the assumption of the entire rocket industry for the last hundred years has been the rockets are used once and then that's it. And the economics of launch are dominated by having to build a new rocket every time. And then this like crazy guy in California comes up with this thing where the rockets fly in their butt and you can't replicate it. Okay, your management, what good are your management skills at that point. And I think there's a whole bunch of interesting areas of human activity where that shift is happening. And so I think this is where Burnham's thesis collapses where it's just like okay the managers actually can't do it. Yes, there's a need to run things at scale but no the managers actually can't do it because they can't adapt.

Well, that's the theory and that's a big part of our theories. Yeah. The founders can actually learn how to do this and look, this is still a controversial topic. This still comes up like because...

Well, it is because founders aren't, especially founders on day one are not good at doing this. Like okay so in tech, let's talk about tech specifically, like in tech the founder tends to have been in a lab, literally or metaphorically, for 20 years before they start their company. Like they've been probably working by themselves or with a small team. They've been building technology. They haven't been running things like they haven't been managing large organizations, they haven't been running public companies and so there is a missing skill set, right? And on day one they don't know how to do that and so they do need to be willing to learn how to do that and then by the way they do need to be capable of doing that because some of them can and some of them can't. But yeah, so this maybe is like the core thesis behind our firm which is you're much more likely to build something important in the 21st century if you start with the founder and train them on management than you are to start with the manager and try to train them being a founder on creating new things. And I think that this trend is intensifying. Because what's happening is all the old edifices, all the old incumbent institutions of the last 100 years that are run by managers they're all in some state of fundamental collapse. Like they're all collapsing in trust and credibility because they can't adapt. And so this issue is becoming more and more acute which is the system that we thought was necessary and sufficient actually just does not work and if anything good is going to happen it's going to have to be somebody, it's going to have to be a Henry Ford, Elon Musk type who actually does it.

Look, it's becoming more common. I mean when you get any Elon Musk and Steve Jobs, when you get these kind of archetypal examples of it, it's a lot easier to sell it. You know, Mark Zuckerberg we were talking about earlier like he's a now a great case study of this, right? He had, when Mark started Facebook, he had never had a job before, okay? Not only had he not managed people, he had not worked for anybody, right? So like he started with zero and his learning curve which by the way happened fully in the public eye, his learning curve was vertical and by the way it's still vertical like he spends like an enormous amount of time learning how to become better at running these things at large scale. He's still the founder and he's still the innovator and he's still like a fountain of ideas on what to do. So he's that double, you know, he's like the classic example of the double threat. And then what happens is other founders look at that and they're like, 'Oh, I could do that.' Right.

Exactly.

I can do that. Yeah. Exactly. And by the way, it's amazing like how fast this stuff shifted because like Steve famously had this short period of time where he worked for Hewlett-Packard and I think I don't know if it's true. The legend is that Jobs pitched his manager at Hewlett-Packard.

Was it Wozniak? Okay. Okay. Okay. Woz pitched. There was some other story where Jobs went into some meeting with some manager trying to pitch the thing and the line from the manager was absolutely not. This is the dumbest idea I've ever heard. Get your feet off my desk and get out of here, right? You can just imagine Steve with his, you know...

My favorite Apple lore is that the first sale in Apple's history was made barefoot when he walked into the Byte Shop. He was barefoot.

Do you think, and by the way Silicon Valley was built in large part on HP. HP was the original Silicon Valley company. Okay, that's the next run by its founders for 50 years and yet people concluded the founders shouldn't run the companies, right? And so it's like it's one of those things where it's like it's kind of so obvious it was staring everybody in the face and so people had to construct kind of elaborate, basically these elaborate kind of lattices of theories to basically get around the fundamental fact that you need somebody who knows what to do actually running the thing.

It was for sure the most influential company from 1940 to 1980. And then probably after that Intel. Yeah. Well, you go to the founders of Intel and you read biographies of them and they talk about modeling off of HP.

And then how many founders modeled off of Bob Noyce and Intel after the fact, including Steve Jobs, who would go to Bob Noyce's house for dinner.

Just in the short-sleeve white dress shirt and the skinny black tie.

He was almost like a disciplinarian to Steve cuz Steve was, you know, wild and reckless. Like I was also wild and reckless. You need to mature. And I think Bob's wife maybe went to work at Apple early on too. So he talked about this in his biography. There's a few great biographies of Bob Noyce, but he said that the reason he spent so much time after he was really successful spending time with young entrepreneurs, he said it was restocking the stream in which he fished from.

He thought it was really important and he's like, I learned from all the guys before me. I need to take that knowledge I've built up over multiple decades and push it down the generation.

Oh, so you know we've got all these elaborate theories but the practical reality of it was Ben, my partner Ben and I had become very active angel investors. And I'd been an angel investor since like the mid 90s. But then Ben and I started doing it kind of as a real thing. Put a significant time into it probably starting in 2003. Well, I did it kind of throughout the early 2000s, but in 2003, 2004, it's hard to remember now, but if you go back to like 2003, 2004, there weren't like thousands of angel investors. There were like eight. It was like a short list, you know, was like Ron Conway and a handful of people and then Ben and I were running around doing it. And this was very significant in the evolution of the venture capital industry because this was the point at which the traditional VCs got intermediated by angels and seed investors who kind of inserted in before the VCs arrived, which was this fundamental change that changed the whole industry. But, you know, we were part of that. So but as a consequence like we were investing in all these new companies basically at the point of formation, you know, we're basically playing amateur early stage VC and we're getting, and we always like we're not going on the board like you're going to raise money for a real venture firm later they're going to go on your board and whatever and work with you. And what we just found over and over and over and over again was we ended up getting pulled into these companies either because there were issues that just like the other people that they were working with or they either hadn't raised venture yet or the VCs that they had raised from couldn't help them with. And so we just kept getting pulled in. And the reason was we had been running companies at that point for whatever 20 years and so we at least had some idea of what we were doing. And then the other is we kept getting brought into conflict resolution between the founders and the VCs. So that because especially because again much more common at that time especially if the VC's fundamental point of view is the founder is not going to run the company and we need to replace you with a professional manager as fast as possible like the founders are not necessarily going to like that and they might resist that. And by the way even if they're on board with that idea they might not like the person who the VC wants to bring in. And so we kept ending up in these kind of basically arbitrators in this sort of, in theory we were kind of trusted intermediaries because we knew the founders, we knew the VCs and we could kind of help bridge between that. But literally what happened was after a while we were like spending like eight hours a day just doing this and we're like all right and it's like weird. It's like you're writing a $100,000 check and you're like spending all this time doing it and then to basically arbitrate a dispute with somebody who wrote a $10 million check and it's just like all right like we should probably just write the $10 million check and that was that. So it was, I always think like the best, the founders I always, one of my theories of like the great founders is they tend to be able to operate at kind of the strategic conceptual level and then the practical level at the same time. And so we had a whole theory I could take you through for the evolution of the venture business. But underneath that was just this actual lived experience of what was actually happening on the ground. The big theory of the firm that we had at that time was linked to this idea of founders running the show but it was also a structural observation of what was happening in the venture industry which was basically we did was we sort of in line with your philosophy we went back and we studied a lot of other businesses that have similarities to the venture business. That we study private equity, hedge funds, investment banks, law firms, management consulting firms, ad agencies, accounting firms, you know, basically anything where the product is fundamentally a relationship, a knowledge work kind of relationship as compared to something that gets manufactured. And what we observed is basically in Hollywood talent agencies actually is the one we've probably talked publicly about the most. And so that was a great case study. The old story...

Fantastic. And so and by the way he gave us, you know, we make a point of crediting like he gave us a lot of this theory so a lot of this comes from him but well actually I'll tell through his experience. So when he started his agency in, was it 80, whatever, no, 75, 75.

In the 70s, like in the mid '70s it was actually a very similar, it was structurally it was very similar to when we started A16Z in 2009 which was the configuration of the industry at that point was basically a bunch of essentially service firms, a bunch of talent agencies none of which were at very high scale and then each of them was basically a tribe of basically solo operators kind of lone wolves. And so the concept in Hollywood was you had an agent and that was your guy and that agent knew whoever that agent knew and had whatever relationships that agent had, but the other agents at your agency were not available to you. And there was no collective benefit to the fact that you were at an agency that had not just your guy, but like 100 other guys. There was no collective payoff to that. They ran that in that way for a very specific reason, which is this kind of this eat what you kill professional services mentality where everybody should have to go build their own book of business. But you end up just dealing with a guy as opposed to a firm like there's no firm, there's no collective thing. And that was basically the condition of venture capital in 2009, which is you have, and at this point we knew all the VCs really well and we had raised venture and we had worked with all these other companies that had raised venture and basically all of the sort of legacy venture firms at that point. They were all like that. They were all just like tribes of lone wolves. And then the thing that we knew that was not publicly known was generally speaking inside the firms. They didn't even like each other.

Right. And so it's like, you know, whatever, there's Joe and Mary, you know, who are partners at a venture firm, and you're working with Joe, and Mary has like a key connection that you need access to. And so you ask Joe, 'Can Mary introduce me to so-and-so?' And what you don't know is they're having like a brutal fight where, you know, they're like trying to destroy each other because they're fundamentally, economically, they're going for, you know, a greater slice of the profit pool. And so they're really going at it. And so we just, we saw example after example of a venture firm that was basically either two things, actually. One is either melting down due to just internal strife and conflict, or by the way, the other was generational succession, right? The other issue is a lot of the dominant venture firms in 2009 had been around for 30 or 40 years, and they were now on their third generation of partners going to their fourth generation of partners. And again, it's the same thing. They had been founded by dynamos, and then the later generation people were not like that. So we basically said, 'Oh, this is where the oldest thing comes in.' We said, 'Look, that's not going to last.' And so our theory of it was what we call 'death of the middle,' or we sometimes, the negative way to frame it is 'death of the middle.' The positive way is the barbell, which is what's happened in all these other industries, which is basically the industry gets stretched apart like taffy. And what you get is this barbell thing. And on one side of the barbell, you get early-stage angel seed investors who are really like first money in, like, you know, staying very light on their feet, writing a relatively small check, but like being involved in companies extremely early on and taking a lot of risk. And then on the other side, you get basically scaled platforms, right? So you get large-scale enterprises that have like a lot of throw weight, a lot of access, very big networks, and then access to a lot of money. The other comparison we always make is to retail shopping, right? Which is there used to be department stores like Sears and JCPenney, which basically, where the brand promise was pretty good selection of products and pretty good prices, right? And then now those are dead, and what you have instead are boutiques like the Gucci store, the Apple store, and then you've got the super-scale e-commerce companies like Walmart and Amazon. We're to the point where it's just like, there's no reason to ever go to a department store because it's got less selection than Walmart and Amazon, but it doesn't have the quality tier and the special experience of a Gucci or Apple.

Yeah. Exactly. Yeah.

You knew that by what? Just reading?

Yeah. Well, and so the classic stories, which I love so much. So J.P. Morgan's one of my kind of favorite historical figures. And J.P. Morgan was an example that the J.P. Morgan investment bank was like this basically, this had, it was very important, but it was like this tiny little operation. It was, you know, fit in a single office. You know, I don't know, probably 20 principals and some office staff or something. It was not large. And actually, the hidden secret to J.P. Morgan was he was the son. The father was Junius Morgan.

The other great thing about that area of history is they were all bifurcated by religion. There were the Protestant investment banks and there were the Jewish investment banks, and they did not mix.

Completely different worlds. And as a consequence, J.P. Morgan was the, the Protestant banks like J.P. Morgan were able to fund like the railroads, which were considered like the real businesses of the time. But then like all the disreputable stuff like movie companies and like department stores, like those are all the Jewish investment banks, by the way, with almost entirely Jewish founders. And then Goldman and J.P. Morgan is the big survivor of that today in the former J.P. Morgan Chase, and then on the Jewish side, it's Goldman Sachs, you know, is the great survivor. But again, if you go back there...

And so what happened was both J.P. Morgan and Goldman Sachs started out 100 years ago, they were on the one side of the, or around 100 years ago, they were actually in the middle. They were kind of, again, this sort of, you know, they were boutiques, but they were like of their time. They were like today you'd call them like mid-market, you know, who sometimes called bulge bracket, you know, kind of thing, as opposed to just like a solo operator or something. Actually, the way JFK's father got started was he literally hung out a shingle in the 1920s, which is 'Joseph P. Kennedy, Banker,' you know, private banker. And he like just did deals and he was like an angel investor at the time. And so, and then you had the big commercial banks, but the big commercial banks had no interest in issuing loans to these speculative, crazy, you know, entrepreneurs. And so in that time, J.P. Morgan and Goldman Sachs and Kuhn Loeb and Drexel and all these other kind of, you know, mid-market banks, Morgan Stanley, the bank that became Morgan Stanley, were kind of these mid things. Now what's happened, you know, sitting here 100 years later, those are now the scaled players. The ones who didn't scale are kind of long forgotten. Having said that, there's one firm that survives in the old model, and that's Allen & Company. And there are other boutique investment banks today, but Allen & Company was founded in the 1920s and has, you know, is uniquely the one that survived in the original model of boutique and deliberately being a boutique investment bank, and it stayed that way for 100 years. And so one way to think about it is that today that's the barbell in banking, which is Allen & Company on the one side and then J.P. Morgan and Goldman Sachs on the other side.

I spent about a year and a half planning the firm. And part of it was he was in what we call 'industry servitude.' He was working for Hewlett-Packard after we sold our company to HP. So he was running a big part of HP at the time. And so we couldn't literally start a new full-time thing until he got free of that. So we had a year and a half, you know, to kind of study and think and work.

Our matching suits. Sulka shirts was a little shirt maker in Beverly Hills. And Sulka, you know, all Sulka colors, white shirts. And then I think he had a bulk purchase deal, I think, with the local Jaguar dealer. And the legend at least has it is that the license plates all said CA1, CA2, CA3. And so, like, you'd go to a premiere and there would be like 20 Jags lined up and then 20 guys in identical suits coming out. And yeah, just this is exactly the thing. It's just like, now that you know, that's the Hollywood version, but like just imagine the psychological impact of that if you're just like an old-school agent. This is sort of the, you know, Michael's a very dear friend, you know, he became very controversial over the years. And the reason he became so controversial, I think, is just because he smoked his competition so severely. Like he pounded them so hard there was no response. You're just a guy, you're just a guy working for an old agency, and you've got your clients, and these 20 CAA guys are showing up, and like it's just, yeah, it's this force. And the clients, if you talk to, by the way, you know, a lot of his clients are still active today, you know, from the period of you talking to him, it's just like, yeah, it's just a no-brainer. It's like, do you want to work with a guy or do you want to work with a firm? It's just obvious. He has, I don't know if he told you all these stories. Did he tell you about his morning schedule thing?

For the firm. For the firm. So, this is again something that's specific to Hollywood, but it's a great example of the... Okay, so the agency business at the time he started CAA, the agency business is like 90 years old or something, right? It like started out doing vaudeville bookings and like music halls, and like it had been around for like decades. And so the people involved in it had had decades to think about like the best way to do it, and they had arrived at a set of practices. And one of the practices, I think I'm getting this right, one of the practices was at every agency they would have their staff meeting in the morning at 9:00 a.m. And they would basically share, you know, whatever information was going to get shared in the agency would get shared at that point. And oh, you know, this studio head wants a script to do. He wants to do a crime thriller and here's the script and whatever. And then, you know, this is like the point where there would be minimal, you know, whatever minimal handoff existed to the other agency. And so this is where everybody would kind of get updated. And so the staff meeting would go from like 9:00 a.m. to 10:00 a.m. And then at 10:00 a.m. they would start calling their clients and they'd be like, 'Oh, you know, we heard there's a, you know, whatever, there's going to be a casting call for, you know, this great new role for this professional thief or whatever, and you should consider doing that.' And so, of course, Michael's like, 'All right, well, we'll have our staff meeting at 7:00 a.m., we'll be done at 8:00. Between 8:00 and 9:00, we'll call the clients. By the way, we won't just call our clients, we'll call their clients, right?' And so, imagine you're whatever, Paul Newman, and you've got some agent you've been working with for 20 years, and he calls you at, your agent calls you at 11:00 and is like, 'I've got this great role.' And you say, 'Oh, the guys at CAA called me about that three hours ago.' And your agent's like, 'They don't represent you.' And Paul's like, 'Yeah, isn't it great? Isn't that fantastic?' And so you just again, you just like you rinse and repeat that a thousand times and it's just to the client, it's just like completely obvious what to do. And so yeah, so the more, the reason I go through this, the moral of the story is again, it's sort of this idea of incumbency, you know, incumbency, status quo, like you just end up, you end up in any business, you just end up with all these embedded assumptions generally. And then, you know, 90 years later, right? So the founders of the agencies were 90 years ago, they weren't involved anymore. So the people who were running competitive agencies were managers, not, right, same thing, managers, not founders, right? And so the thing a manager never does, unless they're under duress, is reconsider fundamental assumptions. Like they hate that. Like that's not the whole point of running something big is you don't have to do that. You get to run the big thing at scale. You don't have to like go in and like reinvent it from scratch. Like that sounds like a nightmare, right? And so, but anyway, as a consequence of that, you end up with like all these embedded assumptions that are basically just like unspoken. Nobody's questioning it, it's not happening. And if you take the time, you can kind of go in and go back, you know, first principles, you can kind of go in and you can say, 'Okay, well, how did they arrive at that?' And what we found in just industry, I mean, this is what our founders do every day, is just in industry after industry after industry, there's all these embedded assumptions that made sense in 1970 or 1930 or 1880 that just don't make sense anymore.

Oh, interesting. Yes. Right.

Yeah, that's right.

Yeah. Yeah.

He famously worked for the CEO of William Morris.

Yeah, that's right. And again, that may be a cheat code, but yeah, if you've been the customer, obviously this all becomes a lot more obvious. And I don't know if you want to answer this question or not, but in Warren Buffett's shareholders, he has this great line where it's like really important to play against weak competition. Did you feel that there was going to be, like, that point in time in venture capital history that you were going to be playing against weak or weaker competition?

There was no such thing as like scaled venture capital at the time.

Where else did you take ideas from besides the agent business in Hollywood and like the merchant bank investment banking industry? Oh, I mean it was just very obvious that it had happened to private equity. Like, you know, this was the time when like it was actually really, this was around the time when like KKR and firms like it were hitting their stride with they're actually building like a lot of operational capabilities in-house. They were actually building their own investment banks in-house. One of the things we've never done but has always been on the ideal list is to actually just have an in-house bank. And Cerberus had actually done that, just build a captive bank. And so, you know, they had done a bunch of things like that. And so we saw it happening, which is the mid-tier private equity firms were collapsing, and you either needed a solo, you know, very light on your feet kind of solo operator on the one side doing small deals, or you needed to have a scale platform like KKR. It happened at hedge funds. It happened in, but I mean it had long, actually, the TV show 'Mad Men.' 'Mad Men' tells the structural story of this happening in the advertising field in the '60s and '70s. And I will ruthlessly spoil 'Mad Men' because it's been off the air for like 20 years at this point. But, you know, a big part of the arc of 'Mad Men' is those guys are working, Sterling Cooper is a classic mid-market ad agency, right? And then whatever the third season, they sell it to McCann, which was the scale player at the time. And they show you all the pros, and they clearly talk to people who had been through this, because they showed you all the pros and cons of working for McCann, because McCann's this giant machine. And so Don Draper is used to like making all the creative decisions, and now he's just in this conference room arguing with people until he just like gets up and walks out. But then Don Draper and Roger Sterling start their own startup. They start Sterling Cooper Draper Pryce, the second one, which starts out as a true startup, as a true boutique startup. And then they have this whatever year and a half just hell, like they can't get anywhere, they can't get clients, because they're too small, you know, they're subscale. And so it kind of, and then I think in the end, I forget, it's been too long, but I think in the end they end up, I think they end up selling it, no, no, no, sorry, I got it wrong. They sell the first one to the British ad agency that just like completely destroys it, and then they sell the second one to McCann. So they actually showed that process happening twice. And so that again, to go back to history, that is what happened in the ad agencies basically between the '40s and the '70s. Like basically television catalyzed that. Like when television emerged, advertising became a much bigger deal than it had been before, and it just had to be professionalized in a different way. The other thing that happens is, of course, the external environment changes, right? So everything we just talked about just has to do with the internal mechanics of how these things run. But the other thing that happens is the external environment changes, right? And so part of what I think what Michael would say, I think you would agree with this, part of what made CAA possible is at one point basically Hollywood was just movies, and then there was like whatever a lower kind of TV division. And by the '70s and '80s, Hollywood was becoming much bigger than just movies, right? It was movies and TV and advertising and music and sports and, you know, politics and culture and like all kinds of things. In fairness to kind of our competitors, Silicon Valley between call it 1950 to 2010 was primarily just in the tools business, right? Primarily the companies that, you know, starting with Packard, the companies that we all backed and built were basically just building tools. And you'd build a tool like an operating system or a disk drive or something, and you'd sell it to people and they'd figure out what to do with it. It was right around the time we started our firm that the Valley was going from being primarily tools businesses to actually building directly competitive companies in incumbent industries, right? And so Airbnb going directly into the hospitality industry, right? So alternate universe Airbnb is just boutique booking hotel software, right? For Airbnb, it's a tiny little boutique business building basically little spreadsheet software. But no, Brian Chesky decided brilliantly, we're just going to go into the hospitality business and compete with hotels directly. Uber and Lyft in the old world were taxi dispatch software. In the new world, they're full transportation providers. Tesla in the old world would have just been software for self-driving cars. Tesla in the new world builds, you know, the entire car. By the way, Facebook, same thing. Prior to Facebook, if you built like online ad software, you were selling it to the media companies. Mark's like, 'No, we're just going to beat the media company. Like, we're just going to build the entire thing.' And so this was the other thing that happened was, you know, for us was that that was right around the pivot point when the Valley's ambitions went from just building tools to going directly into incumbent industries. And then this goes back to the scale thing. It's like, okay, why do you need to scale a venture firm? It's because the companies need to scale, right? And then of course AI now makes that crystal clear, right? Because right, the winning AI companies are raising, you know, billions, tens of billions, in some cases, hundreds of billions of dollars, right? The old world of $10 million or $30 million, $50 million checks, you know, where VCs tap out, is just not a relevant thing anymore.

We had a pretty good idea. So, I've been involved in Facebook, you know, basically, informally since inception and then formally on the board since 2007. And so I saw when that thing hit the knee of the curve, it was just very clear. It was just like very clear that we didn't know how big it was going to get, but it was going to get much, much bigger than the Internet 1.0 companies had gotten. And so there was that. What else? It was also around the time Apple was directly entering the cell phone market, which was another great example of this. Silicon Valley didn't used to make cell phones. The original cell phones weren't made by Silicon Valley. They were made by these like giant industrial companies like Sony and Nokia and whatever, and Motorola in Illinois or whatever. And then Silicon Valley would make the chips that go into them or the software. And of course Steve was like, 'Yeah, no, screw that, we're just going to make the phone.' Right? There were these signals that it was happening. And then the other thing was just the internet itself was maturing, right? And so, you know, at that point the consumer internet was 15 years in, and we had, you know, seen every part of that. And so we, you know, I forget what the number was, but that was probably around the time the global internet penetration was like crossing a billion users on its way to five billion.

I was old-fashioned. I actually graduated from college and got my degree. Very stone-age concept these days. So that was in 1994. So I was probably 22. So, there's this great book, I don't even think you like the book, written by Michael Lewis, 'The New New Thing.'

I've read it twice just because I don't know if anything in there is true, but the portrait he paints of this very eccentric character is just wildly entertaining to me. But what's shocking to me is when you talk to young founders, I'm like, 'This guy started three, I think it was the first person in history just to found three separate billion-dollar technology companies.'

I knew exactly who he was. And the reason was because his company, Silicon Graphics, his first company, they were the company in the Valley between like call it '87 to '94 or something. They were like whatever Google or OpenAI or whatever company you want to make, like they were like the company. And by that I mean like they were the company where the smartest people in the industry all wanted to work there. They built the products that were like the coolest products you could possibly imagine. They had this incredibly young and vibrant and dynamic culture. And then they hit this like cultural moment that was just incredible in I think '92, which was the turning point in the movie business when computer graphics really kicked in. And the two movies back-to-back were 'Jurassic Park' and 'Terminator 2.'

Built on the machines they made. It was the technology they made, the technology Jim invented was the technology that made that possible. And those movies, you know, those are still two of the great all-time, you know, movies. But at the time, I mean, I still remember the chills that you get seeing dinosaurs on screen. It's just like, this is, and then there's this company that builds the machines that do this. By the way, the Silicon Graphics computers are actually in the movie. There's a scene in 'Jurassic Park' where the kids are navigating through Unix. Yeah.

They just, that was like this moment where they were just like, they're just like the absolute IT company of all time. But by the way, their legacy lives on in Nvidia. Like Nvidia is Silicon Graphics basically with one turn. It's like the Trader Joe's thing, it had to be a new company for reasons we could describe to do the GPUs instead of the workstations and servers. Nvidia fundamentally is based on Jim's ideas. That's where that stuff all comes from. And so he was already legendary. And again, he was one of these, he was the full deal. He was legendary as an innovator in technology because, you know, he's a PhD in computer science and he actually, he himself invented the original, forget what they call it, I think it was the RealityEngine, the original interactive 3D graphics on a chip thing was actually him. I think it was like his PhD thesis. And then he started the company and then he ran the company. And then by the way, and then the VCs brought in a professional manager. And by the way, and the reason we know about Nvidia today and not SGI is because of this founder-manager issue, which we could talk about.

Yeah. Yeah. Yeah.

Yeah. Yeah. So now by the way, there's two sides to the story, and I wasn't there. And so I just reflexively side with Jim Clark, but I'll try to at least represent both sides of the story. So Jim's like a true, he's like an Elon, he's like a true Elon, Steve Jobs-level guy. And so like incredibly creative, incredibly bright, incredibly charismatic, but like he's volatile. Like he's exciting. Like being around him is just like incredibly exciting. There's always something new. He always has new ideas. And again, that was in that time where it's just like, okay, that's the personality type that clearly can't run the company. And so the VCs brought in a guy out of Hewlett-Packard who had been trained in Hewlett-Packard. And because at the time what happened is he wanted to hire a professional CEO, he went and hired a general manager out of either Hewlett-Packard or IBM were the two training grounds for those guys. So they brought in a really, really sharp guy who, by, I don't really know, I think I met him once, I don't really know, by all accounts he was like a very good example of this kind of HP general manager type who became a CEO. He took over the company. And by the way, like in his defense, under him the company scaled enormously. Like I forget when he took it over, but it was like '87 or '88 or something, and then, you know, by the time I got to the Valley in '94, like this company had become huge. And, you know, whoever's running the company gets at least some credit for that. So but anyway, they got in this classic fight. Like they got in this classic fight, and the classic fight was, you know, you can just, it's the same story every time. The founder is like, founder talking to CEO, and the founder's like to the CEO, like, 'We need to do things completely different.' And the CEO is like, 'No, like what we're doing is working. Like stop messing with everything that's working.' And the founder's like, 'No, it's working now, but it's not going to work in the future.' And the CEO is like, 'Well, then we'll deal with it in the future.' And the founder's like, 'You can't wait to deal with it in the future because by the time the future arrives, it's going to be too late.' And the manager is like, 'Why are you in my pants? I'm making you all this money, the company's super successful, like get out of my shorts.' Right? And you get in this, as you see this, and that was exactly the deadlock that they got into. And Jim Clark basically made two predictions as the founder of Silicon Graphics. So Silicon Graphics at the time was selling their computers basically starting at list price like $50,000 for a desktop workstation and then scaled up into the millions. And Jim was like, 'Look, two things are going to happen.' It's amazing that he figured this out by like 1991 or something. He said two things are going to happen. He said, 'Number one, everything that we sell today for $50,000 is going to go on a chip and that's going to go on a card and it's going to go on a PC and it's going to cost $300. And either we're the company that's going to make that or we're going to get destroyed, right?' Which by the way is what happened. That's Nvidia. Like that's what actually happened, right? So he was completely correct about that. The other thing that he had was he's like, 'Look, this idea of standalone computers is not going to be the thing. These computers are all going to get networked together and the network is going to become the important thing.' At the time there were different terms. There was people were using terms like 'information superhighway' or 'video on demand' or '500 channels.' You had all these kind of concepts kind of coalescing around what became the internet. And even before the internet kind of became a mainstream thing, Jim was just like, 'Look, it's just inevitable that this is all going to become connected. And then the function of the computer is no longer going to be mainly what just the computer does. It's going to be the fact that it can talk to all the other computers. And we need to do that.' And to do that, he actually went to Japan. He actually got this incredible deal. Nintendo, you know, then and now was like this giant video game company. So he actually had this deal with Nintendo where, number one, and Silicon Graphics actually did this, actually built the original 3D graphics chip for a consumer game player, the Nintendo 64. So he did that deal. And then he went to Time Warner, which at the time was, you know, this very important media company doing all kinds of things, and he struck a deal with them to do what was called interactive TV, which was basically pre-internet, basically it was like Netflix before Netflix in 1991, right? Like amazing foresight, right? Just like amazing foresight. But again, he and the CEO got in this conflict, and the CEO's like, 'Look, we just can't, we have to focus on the thing that we're doing. We're not going to do these things.' And so Jim did the classic founder thing, and he left. And when I met him, basically that was the state that he was in, which was, okay, like, you know, Jim, I'm like in the prime of my life. I know I have all these ideas. I don't know exactly what to do with my next company, but I know it should be a software company, not a hardware company. I know it needs to be a company that is able to anticipate these changes that are happening in the world. And I know that, and he was very sad about this, Silicon Graphics is not the company that's going to be able to do these things. And so I have to build the new company that's going to do it.

Yeah. And this again, this is like, I don't know, Zuckerberg or Sergey Brin or Elon or whatever decides to start a company, like that was his candle power wattage in the community at that time. And so yeah, you would think that the obvious thing, people would just say, you know, Jim Clark wants to start a company with you, you know, just the obvious thing is you just say yes. That was not happening. And so the, I don't know if I told the story, but the crystallized memory is dinner of 12 of us at this famous Italian restaurant in Palo Alto. It's where a lot of these companies were formed. It was Jim's favorite restaurant at the time. And so Jim had like a dozen of us, and us being people who were like in existing companies who were like basically technical people who he knew. Well, this is the thing. He was constrained. He had a non-solicitation agreement with Silicon Graphics. And so he couldn't just rip people out. And he didn't want to violate that. And so he needed to basically reach out to the technical community and find new collaborators. So there were like a dozen of us in there. And I remember that dinner very precisely for two reasons. Number one is I was the only one of the dozen to basically say yes. And then the other was it's the first time in my life I drank red wine. And I didn't know what to make of it. And so I kept sipping it, trying to figure out if I liked it or not. And I didn't realize that I was getting completely hammered because I had no idea how to calibrate red wine. And so the true version of the story is, you know, I leave the dinner and I'm like, 'Wow, this is amazing.' Like, you know, I'm going to say yes to this. We're going to do this. And I go to my car in the parking garage in Palo Alto across the street, my brand new car, my first new car I've ever owned, right? My brand new car. And I got it and I pull it and I rip the entire front end of the car off. It's like this screaming metal sound. So like the whole front of my car is just like hanging on the ground and I'm like, oh [__] me. So anyway, I parked the car, get out of the car, walk home.

No Uber. Like a three-mile walk at, you know, whatever, 11 o'clock at night with, you know, six bottles of red wine.

No problem.

I'm like, I think I probably won't mention this to Jim.

He might have. Yes. Yes. Yes.

So, originally, yeah, originally it was him and me. Yeah. We started the company and we had long conversations about like what to do. Well, okay. So, then the problem that he had was there was the idea of doing the graphics chip, but like, and again that's what Nvidia did, but Nvidia was essentially a spin-off of SGI. But like at that time starting a new chip company from scratch would have been tough and he didn't want to compete with SGI doing that. And then the interactive, what do you call it, it's lost to history, but this interactive television thing, like it wasn't time for that yet. It wasn't actually time for Netflix yet. And so like it was going to be cost prohibitive. Time Warner had rolled out this interactive television thing in Orlando, Florida to 500 people.