Please join me in welcoming Ben Horowitz.
So, how many of you heard the song that was playing right before? Does anyone know the name of that song?
We Are the World. Yes, that's correct. We Are the World is a 1985 single by a super group of musicians that all came together to raise... it was a charity single that was produced to help raise funds for the famine in Ethiopia I believe in 1985.
Yeah. Lionel Richie made a good documentary on it if you're interested.
The reason I'm bringing it up is because Ben is known for many things. He's the co-founder of Andreessen Horowitz. I'm very lucky to have called him my boss for a few years. He's also been a founder CEO. He's built several technology companies. He's behind one of the reasons venture capital still exists today after many moments when it got threatened, including the SVB financial crisis. But the thing I've learned most about Ben is from a documentary that Ben told me to watch about a year and a half ago.
Yeah. Yeah. Yeah. Triple OG. Yeah. Yeah.
It's called The Greatest Night in Pop. And I would really recommend folks who haven't watched it to go watch it. We're going to put it in the reading assignment for this class. It's on Netflix, so anyone can go watch it. But it is the documentary about the making of that song you just heard, We Are the World. And there's somebody in the documentary that you'll observe if you watch it by the name of Quincy Jones. How many people have heard of Quincy Jones? Okay. About 30%. So we need to school the kids a little bit on it.
Yeah, he was the greatest. And I didn't think...
And more importantly, great leader.
Yeah. Well, that was the thing he could do. He was the best at handling super talented, difficult to handle people of all times. No question.
And you can see it in the documentary.
Yep. There's a moment in the documentary where the camera is following Quincy around and he's walking into the studio where the musicians all are and he points to the top of the door and he says read that and there's a sign above the door that he's scrolled on a piece of paper and he's stuck up there. This is at like around midnight before the recording session is supposed to start and it says leave your ego at the door. Sorry.
And if I had to summarize Ben Horowitz in sort of one line, I would say he's the Quincy Jones of technology.
Yeah. Yeah. That's hard to take that credit. He is amazing. Yeah.
Ben, thank you. Ben is known for many things, but I think the thing he'll be most known for throughout history will be his leadership, the lessons he's left with a lot of people over the years, many of which I think are still not legible to the world yet and will only become clear over time. But today, Ben, I think it would be helpful to take everybody here a little bit behind the scenes of what it took for you to become the Quincy Jones of Tech.
You're not supposed to be blushing this hard, Ben.
I mean, Quincy. Yeah, having known him, he's a very high bar.
That's a high bar. Anyway, thank you for being here. Why don't we start with... let's zoom back all the way to the founding of Andreessen Horowitz. Let's start there.
Yeah, this is a systems class and Andreessen ended up being one of the most important innovations in the systems design of venture capital, of how capital should be deployed. You know where we'd love to contextualize this is the students have heard that three or four of the largest bottlenecks to progress are data, context, feedback, compute, capital, and culture. And we haven't talked that much about capital and culture. So today I hope you can take us a little bit to the frontier. What's going on in capital and culture especially in labs, in startups and teams that are pushing the frontier. But I think to get there we should rewind a little bit and start with what was the system that you created to even allow capital to get to this point.
Yeah. So you know we started the firm back in 2009 and at that time there were a couple of ideas about venture capital that I would say we thought were dated. One was like it was mostly an investment idea. So the product for investors, LPs, was really good in that they had very high returns but the product for entrepreneurs I thought was like pretty bad in that they didn't do much for you other than give you money. So that was kind of idea one that we thought we could just build a better product for entrepreneurs. And then the other idea that was very prevalent in venture capital was this idea that in any given year, and the historical data really supported this, there would only be 15 technology companies that would ever get to $100 million in revenue. So the whole industry was just about getting invested in as many of those 15 as you could. And that kind of just limited the size of the whole industry and the capital in the game. And we really thought that was going to change because at that time we thought software was going to eat the world and every new company was going to be a technology company and therefore there were going to be more like 200 companies a year that would hit that bar not 15. And so we decided, one of the things that I did as kind of the CEO of the operation was to say, okay, how do you scale this? Because venture capital for firms kind of notoriously didn't scale because they didn't have to. I remember Dave Swensen who is the most famous LP said, yeah, a good venture capital firm is like the size of a basketball team. You know, five guys and then a sixth man or something like that. And that was not going to be enough to have a great product for entrepreneurs and then also invest in such a large number of companies. And so to get to scale there were a couple of ideas that we had that sound very simple but ended up being important. The first was normally in venture capital it's a partnership and the partners share economics and control. And the problem with that idea, and you experienced this in your career at other venture capital firms, is if you share control then it becomes very difficult to change the organization because everybody's got to agree. And if you know anything about running an organization, the one thing about a reorg is some people are going to hate it because it's a redistribution of power. And it's not necessarily the people who aren't good. It's just like some people are just going to hate it because nobody likes to lose power. And if people get a vote, then there's no way to effectively reorg business. And so our idea was like you can't share control. We'll share economics but we'll centralize control and that ended up enabling us to reorganize and enabling us to get into many more kind of categories like American dynamism or crypto or bio or these kinds of things because we could change the organization and scale it and so forth and that ended up being an important kind of systems idea. And then we also kind of decon... because investing is always a conversation and you need a very high-fidelity conversation to get to the truth. You never want more people in the room than can have a conversation.
And so you can't have a conversation with 30 people. It's not possible. That's a presentation.
What is the optimal... over the years? What do you think is the optimal construct of a truth-seeking conversation when you're trying to understand the future of a technology that's super complex? Yeah, I think that if you have really good chemistry and rapport, it can be like seven. But if you don't then even that gets problematic. But yeah, you just can't do it with a large group. And so what we ended up doing is we just kept kind of splitting the firm into smaller and smaller groups over time. And each group would address a certain part of the market and that ended up being very effective.
And to contextualize for folks so when you started the firm the first fund was about 300 something million, 320?
300 million and you had all these sort of institutional folks like David Swensen and so on who had these long-held priors and assumptions. What did you find was the most effective way to realign them or get them to revisit those assumptions or update those priors in a way that was aligned with your mission?
Well, succeed. I mean, that's all it is. Like I think one thing, you think another thing. We're going to find out if I'm right. So then the first thing that happened was we invested like a quarter of that $300 million fund into the Skype buyout, which everybody thought was insane. But we knew there was a bunch of things we knew that other people didn't know. So the first thing that made it insane was the deal itself when it spun out of eBay. eBay didn't own the IP. They owned the company but not the IP which how they ended up there is like a crazy dumb story but by the way never do that. Never buy the company without buying the IP. So the founders kind of had this hold on them where they could have sued them and shut down the service. And so everybody was like, oh, that's an unbailable asset. But like we knew the founders, Janus and Nicholas, and we knew like the one thing they had in life that defined them was Skype. So they weren't going to shut that thing down. It was just a matter of like how much money did they want? How did they want to be on the board? Like the IP at the time was basically the Skype client and the user base. It wasn't the client, it was the underlying kind of library that controlled the protocol.
Oh, sure. Okay. The communications protocol.
Yeah. Which was, you know, very hard to replace and all that kind of thing. So anyway, we bought it and everybody goes, okay, well, even though we thought you were nuts, like maybe you're not completely insane.
There's so many interesting parallels to that era and now, but one property of that era was the explosion of networks. You know the idea of network effects became legible for the first time as a systems concept. So can you talk a little... take us back, I think it's hard for people now we just take these for granted but at the time can you talk about why was it novel, why were people resistant to it and what were the insights that then led to the architecture of the firm being a network effect-driven firm?
Yeah, I mean I think people just didn't understand network effects as well. So the big era of networking kind of started with the internet and then people thought the internet itself was just like a unique network and it was weird. It was different because nobody... like people got value from things built on the internet but the internet was not owned by anybody. It was like the kind of first real decentralized network. And so people didn't know what to make of kind of networks that... I mean Facebook early on had... you know there weren't like a ton of people giving them money for the first round. That's why Peter Thiel was able to do it at a really good price. And then kind of the same thing with Twitter and so forth like people just didn't know that basically how invincible those things got when you kind of got them up to strength. So the bigger... it's basically like an n squared value. So every node you add kind of increases the value by n squared. So like if you have five people on the network, that's 25, but if you have six, that's 36 and so forth. And the value, if you get up to internet size is just invincible. Like nobody's going to ever build a rival to the internet or very unlikely. And so at that point, us being involved in the internet and Twitter and Facebook and so forth, we had like a really good understanding of that. And so we always thought of the firm as a network and so from the very beginning we thought okay the more relationships that we have the stronger our network effect. And so we ended up doing things that other firms didn't do like we tried to build relationships with like every engineer in Silicon Valley and every executive and everything and then every corporation that bought technology and so forth. And we were in our minds creating kind of this network effect that would just make us the best place to raise money from because we were like an automatic. You could tap into that network and become extremely powerful right off the rip. And I think a lot of people didn't understand like how hard that was to do. And then the bootstrapping of any network is always the most difficult thing. So like yes, if you have a network with a billion people on it, it's going to be very valuable, but like how did Alexander Graham Bell sell the first telephone when there was nobody to talk to? Like that part is actually really hard. And so figuring that out and how to bootstrap the network effect, kind of coming from behind in venture capital was the idea.
Well, I mean could you say a little bit about how you bootstrapped it? What were the things that may be now lost to the annals of history where they were individuals or asymmetries... you know one of the things we talked about in the first class is often the students get excited about the speakers like you up here but we reminded them that one of the most valuable assets they have is the people sitting next to them, right? It's the relationships they build. When you were bootstrapping...
I think that's getting more important by the way.
Exactly. If there's anything that's going up it's that value right? So but if you zoom back when you were starting that bootstrapping and you didn't have the largest firm in the valley, you didn't have the most capital, you didn't have a track record as a venture capitalist other than your angel investments. How did you bootstrap? What were the moments where that may not be legible to folks here that you used something that was asymmetric that allowed you to bootstrap the network?
Well, the really simple idea was we knew like venture capitalists made a lot of money, right? So, they would take the fee money and then they pay themselves big salaries. And so, we were like, well, what if we didn't pay ourselves anything? And we just took all the money and we basically spent it on building this network, right? So we would hire people to like bring people in. We, you know, with our kind of, how do you get relationships with every big corporation, FedEx and this and that and the other. And the trick that we had there was we had sold the previous company to Hewlett Packard. And so we knew the people in their enterprise briefing center. And so we would call them every week and say, who's coming to the briefing center this week? And can we get their numbers? And we would call those companies and we would have them come to our briefing center and we just show them all the startups. So it would be like... and we'd have everything they like all the donuts and all that stuff you know so it was like very un-venture capital like but the corporations loved it. So all of a sudden we knew more big companies than VCs who had been around 50 years because we had this hack through the HP Enterprise Briefing Center.
I think it's very poetic that we're sitting at Hewlett 200 by the way. This is the name of the auditorium. It all comes back full circle. So you know when we started doing that usually when somebody new shows up on the block with an insight like that from a systems perspective what we've observed is often the antibodies come out.
Right. The immune response of the existing incumbent system comes out.
At the time I was across the street with Mike actually at Kleiner. I remember, you know, there was a, A16Z was in the headlines all the time and like our CMO at the time, great lady, but I remember taking one of the headlines to her and saying like, you know, we should do this, too. And she said, just executive briefings, just marketing.
Yeah. And I said, yeah, that's your job. This is working.
Yeah. And I've been consistently shocked by the number of times A16Z has done something from a product insight, deliver that to the entrepreneur, and then everybody else just says, oh, that's just marketing. Am I being overly facetious or is that true? And what were the immune responses like that you were experiencing? And how did you deal with them?
Yeah. Well, it was funny because every time we'd meet with our investors, our LPs, they would say, every time we meet with another venture capital firm, all they want to do is talk about you and say mean things. And I'm like, well, that's fantastic.
That's good. They used to call us A-ho. That was their nickname. The other VCs, they hated us. Some of it was my fault though, because when we started, I was coming from enterprise software, which is like a very competitive bare-knuckle kind of... there's no such thing as co-opetition in enterprise software. It's just like kill or be killed. So I did a... I wrote this blog post called four things that VCs do that I don't like where I just attacked them all. And then I did this big... there was this Sarah Lacy had this big event and she interviewed me on it and she's like well you know you seem like kind of you don't like other VCs. And I quoted Lil Wayne. I said when I see another VC coming at me with the peace sign all I see is the trigger and the middle finger you know and everybody hated me for that. You know, but it kind of worked because they hated me so much. They weren't willing to copy what we were doing even though what we were doing was working. So it kind of backed... I don't know if I would have been that antagonistic again. But you know, it worked. So you can't argue with it.
Well, I think we should come back to that later. What do you do differently? But yeah, so great. You bootstrap the network effect that allows capital deployment to start scaling into a bunch of startups. Now it really does feel like a back to the future moment a little bit, right?
What's going through your mind right now?
Yeah. I mean, I think so. So, the big thing that's changed or the kind of most fundamental thing that's changed from a VC standpoint in my mind is it used to be, I mean, for my entire career, the one thing that you knew about technology companies is you couldn't throw money at the problem. So, if somebody had a two-year lead on you, you could not hire a thousand engineers and catch them. That was never going to work because nine women can't have a baby in a month like there were just things you could not parallelize and then the communication overhead would kill you and my favorite joke used to be you know what's a man year? It's like 700 IBMers before lunch right? Like that, you can't catch up that way. With AI that's really changed and that you can throw money at the problem because if you have enough GPUs and enough data you can basically solve most problems right now. Like that just is what it is. And so now the capital race becomes a real thing and you have to think through okay code is not really a moat the way it was in the past and like user interface isn't really a moat and so like what is your barrier to entry? Like what is the thing that differentiates you over time? These have become really different and it's happening at the same time that demand for the technology is unlimited because the products work so much better than anything we've built before like these... I mean many of you are too young to remember the products of old but like none of them worked this well before like this is wild how well this...
Or even companies didn't always go from 9 to 30 billion in run rate in like six weeks.
Well but the reason they go that fast is like you use them and you go wow this works perfectly. How can I do more with it? Whereas in the old day like if you bought Siebel Systems software, it took two years to deploy the thing and a million dollars or at minimum and so that's going to limit demand. There is no limit on demand when technology works as well.
So you would say that the technology is working in a way that collapses the sort of gap that existing incumbents might have as a result of their human capital investments over the last whatever decade of software. There's willingness to pay at levels that...
Yeah I mean the return is crazy right? So I mean if you make an engineer 20 times as productive...
And you're paying that engineer well if you're a Zeke you're paying that engineer a billion dollars. But you know, like if you're paying whatever, it's going to be at least several hundred thousand a year. That's a hell of a return, right? So, that creates this. So, you know, the final project for the class for the students is the one person Frontier Lab.
Because what we're trying to get everybody to realize is there's actually an extraordinary amount they can accomplish with the right tools.
Yeah. Right. But we have an entrepreneur like that right now building a global VPN by himself.
Yeah. Yeah. And this started to become more common I would say when we were seeing pitches almost a year and a half, two years ago now, right?
What does that mean for folks here who don't have necessarily access to the most capital, may not have access to a ton of compute either. What would you say is... and but want to make a difference to the frontier?
Right. Well, I mean I think saying... I just be careful a little careful with like people don't have access. Okay. Like anybody with a great idea these days has like trust me you have access in that there's like unlimited money for good ideas currently, you know maybe that changes over time but like it's definitely there and I would just say this you know the world is changing and you can just think of it as like the jobs we had before the industrial revolution are all gone. And then we've been kind of living with the post-industrial revolution and then the post-computer age jobs since then. And we're going to get to like a whole another class of jobs and a whole another class of companies over the next 10 years that replace most of what we have now. And so if you're young, like that's the best thing possible for your career and for your life because in the opposite scenario where it's all the same companies, then you got to start at the bottom and work 30 years to get yourself to be a mid-level manager, you know, and you've got to politic and then the old people who aren't as smart as you get all the money and that sucks. But in this world it's the old people who have the challenge because they know how to do the old thing. They don't know how to do the new thing and you can walk in and learn anything. I think that the main thing is just understand the future and then the future is yours is the way I would think about it if I was 19 or 20 years old.
Well, you said something pretty important there, which is for the right ideas, there's unlimited capital, right? Could you talk a little bit about what do you think is the shape of good ideas today that's emerging in your mind?
Well, look, I mean, I think that, you know, it always comes down to can you build something, a product, an organization, a culture, an offering that people want? And then if you don't build it, is it getting built by somebody else or do they need you to do that? Does the world need you to do that or it doesn't exist is always the best entrepreneurial idea. And so, anything that needs to exist that doesn't otherwise exist is a good idea. And look, that was the whole story with a venture capital firm. Now, did the world need another venture capital firm generically? No. Did it need a different kind of venture capital firm? Absolutely it did. And so that's what we built. Now, I think that's kind of true for... I mean, if you look at OpenAI, they weren't the only ones trying to do AI, right? Like Google was... it was assumed like Google was just going to own AI. And it was panicking everybody. And that's why Elon, by the way, co-founded it with Sam. And Elon's still mad about what Sam did with it, but that's a different longer story. But you know, it was one of those things. Well, we need an AI, we need an alternative, the world needs this alternative to Google and that becomes a really good idea. So anything... and look the world is changing so fast that the new needs are going to multiply. There's going to be many things that need to be done. I mean, if you look at... I think kind of the old... nobody... the one thing that's interesting about the SaaS apocalypse is it's definitely true that the barrier to entry on building software and user interfaces is getting much smaller. But by the same token, like kind of the most boring thing in the world is to just rebuild Salesforce like... you know... no like Salesforce at half the cost or a quarter of the cost isn't nearly as interesting as like what do you really want for your sales organization because it's not that... I mean I don't think you know... and then the question is can you build it before they can but do you really want your sales people like entering data in like a crappy user interface and then most of the things that they work on aren't captured in the system and this and that and the other like so going to the future figuring out what like in a world of AI what does that look like.
You know one of the traps that students often fall into...
Is I call it the dorm room problem, right? Which is you've got sort of direct visibility into problems that are in your kind of sort of cone of the light cone, so to speak, of your visibility, which is quite narrow when you're still a student, right?
Yeah. And sometimes like when your friends are high in the dorm room and you have that conversation that sounds really good, it's not actually that good.
They should at least sleep for one night.
