Ben Horowitz addresses the Web 2.0 Summit to speak about venture capitalism

I thought he did great.

No, I keep writing checks all day long.

Yeah, so it's interesting. Well, we were kind of being angel investors, we were very observant of the whole funding cycle and how companies were getting built. And we felt like the way companies were getting built was changing, but the venture capital model was very much the same as it had been when we raised money for Netscape and then also raised money for LoudCloud, Opsware. So we thought there was a real opportunity to design a firm that was more for kind of the way a modern technology company got built.

So if you go back kind of to the good old days, the go-go days of the mid-90s, Netscape, if you look at Netscape, first thing is it was kind of expensive to get the first product to market, or relatively expensive. In those days, to sell a piece of software, first of all there was no download thing because there was no Netscape, like you had to get Netscape before you could download something. So that means you had to sell it with salespeople or sell it in stores or those kinds of things. So just to get the product to market and to support it cost like $5 million. Now, I think Twitter, it cost them $500,000 to get the initial product out. Facebook, it cost about the same. So the amount of money to get a product in market has dropped at least tenfold and more for certain kinds of products. But venture capital was still pretty oriented around like you need $5 million to get started. The second thing was Netscape went public when we were 15 months old, and that sounds really fast and it is, but it wasn't the only company that went public very quickly. So it was very, very difficult to have a founder run a big operation and then also one that was public in two years. Like, okay, you're not only CEO and you've never been CEO before, but you're also public company CEO, and you probably have never worked in a public company let alone run one. And so venture capital firms were designed to kind of bring in professional management teams and CEOs. So you take a founder, good idea, product starts to go, bring in the professional management team and that's how it gets built. And we thought, well, today it would be nuts to replace Dennis or Mark Zuckerberg or guys like that or Marc Pincus with a professional CEO. One, it's not necessary. Two, like most of the company is engineers. And so we wanted to design a firm that would basically help founders, technical founders, become CEOs rather than replace technical founders with professional CEOs.

Yeah, that's right. And it kind of comes from the orientation we had when we wanted to be investors, was look, we want to build lasting franchises. And that was kind of a goal almost separate from making money. It was like we really want to be part of that. And when you go back through history as you said, IBM, HP, Intel, Microsoft, Facebook, Google, Apple, Amazon, they're all run by their founders for a very, very long period of time. And having been a founding CEO, we really believe there was a real reason for that. It wasn't just by accident. And the reasons are kind of several fold. First of all is knowledge. The founder has hired everybody who's joined the company, they've designed the product themselves often, they've made every single product decision, they've heard every bit of customer feedback. So they have a set of knowledge, historical knowledge, that's almost impossible to replicate. So nobody can come in and just mind meld like that entire history. And then very related to that is kind of a moral authority. So you look at Foursquare, like why does Foursquare work so well? Why did it beat all the other little guys? What is it about it that's so magical that gets people to use it? Well, Dennis knows. But to walk in, you don't know. So what about the mistakes he made? How do you get rid of those? What assumptions can you toss to the side? That's really hard for a professional to do. So when you look at the long arc and you say, okay, where's the next innovation going to come from? How do you evolve the company? Having that knowledge base, having the moral authority to say, look, I can change anything that we've done because I'm the one who did it in the first place, is very, very powerful. And the last part is really commitment. Not just commitment to the company, but commitment to a long-term strategy as opposed to a quarterly strategy. And so all those things combined make us very biased towards founding CEOs.

Yeah, and I should say like those are all super impressive firms with far longer and more illustrious track records than ours. So I don't want to sound like you're not, you're not criticizing, but there is a difference. I don't want to sound too much like a jackass or anything, but they are different. And it starts with who the general partners are. So the first thing that we decided is look, it helps to have founded and run a company if you're going to help somebody run a company who's a founder. And so when you look at our general partners, they tend to be founders and CEOs. So Marc, myself, Jeff Jordan, CEO of OpenTable, Scott Weiss, the founder CEO of IronPort, Peter Levine, the founder or the CEO of XenSource. And just being able to have advice from somebody who's been in that seat, we thought was important. But as important is that the firm bring to bear the kind of network that a professional CEO comes in with. So when you're a professional CEO, you do have some things that a founder doesn't have. You know, if it's an enterprise company, you know a lot of customers. If it's a consumer company, you know all the guys in the ecosystem. You know great executives you can hire, you know great engineers you can hire. So we've sort of systematically built the firm out to build that network kind of so that every CEO in the firm has a professional CEO quality, super high value network. And when you look at the headcount in the company, you can see that. So the traditional firms, if you look inside them, they might have 20 or 30 GPs and maybe six people on staff doing those kinds of things. We have six GPs and over 30 people on staff building out that network, making it kind of easy for a founder to step into that role.

Wow, yeah, I think that's right. I mean, I think it comes down to, one, I was smiling because if you talk to the entrepreneurs who are trying to raise money, it's not as easy as you make it out. There's a lot of rejection involved. But to be quite honest with you, I would say that a lot of the things we do are well differentiated and people value them as they get to understand them. A lot of the times entrepreneurs come to us simply because if you take money from us, then the engineers you hire and the executives that you hire have heard of the firm and so it just makes them comfortable joining the firm, saying, okay, those guys have raised a lot of money, they seem to be like reasonably smart and so forth. The other thing that founders like about the firm is we've kind of stated our investing philosophy and how we think about building companies, which doesn't sound like a big deal, it's like, well, this is what we think about how you'd build a company. But when you look at venture capital firms, even the ones that have been around a long time, how many people know what they think about how a company gets built? It's pretty secretive. And so that's been a big advantage for us.

Yeah, well, the big giant trend is the platform shift, or what we refer to as the platform shift from kind of the web, Web 2.0, cloud computing on the back end and mobile computing on the front end, which is probably the biggest platform shift architecturally easily since mainframe to client-server, but in a lot of ways bigger than that. And that's led to a whole series of opportunities under that. So everything on the back end is changing. The way networks get constructed and work are different, so there's a whole set of new networking companies that are very, very interesting. The way storage works is different, the way databases work is different, the way management works is different. So everything is changing very, very fast. And then every application is getting rewritten on top of that. And then the difference with mobile computing is also profound in that my whole time growing up in technology, the fundamental thing you could count on is the enterprise is controlled by Windows, particularly on the desktop. And the fact that that's changing is creating, there are all kinds of companies that you would never even imagine building in say the 90s or even the 2000s that now make sense.

All right. I prefer one word, but one sentence will be fine.

Best friend company. Best run company.

In technology.

Fastest growing company in the history of business.

Very innovative, very interesting.

Great team, great idea, execution excellent.

Changing the world.

I love it.

You can use more than one sentence on this one. Yeah, I mean, there's been so much said and written about him. He's the, it's just so spectacular what he did for the world and with his life. And then people have compared him to Thomas Edison and people like that. I think that's right. I mean, I think that's right in terms of the importance and the impact that he's had on the world. And just how many people he, one of the most magical things for me about him is just how many people he proved wrong over and over again. I mean, every step of the way was questioned. Apple was completely dead when he took it over, three weeks away from bankruptcy, and not a single person in the industry, including me, thought it was possible to turn around. And not only did he turn it around, he made it the most valuable company in the world. So what can you say? It's hard to even summon the right words.

Well, I definitely think it's both. But I think that he is, in my view, and I pay a lot of attention to CEOs, is probably the best new CEO that I've seen. He is incredibly thoughtful about how he's constructed that company, how he does the product strategy, and little things. And I've written about it, but one of the things that I spent a lot of time talking to him about is Facebook has lower titles than most companies in the valley. Generally the word is you go to Facebook, you have to take a one-title demotion. And just the thinking behind why he does that is really, I would say, greatly insightful into how hard he thinks about these management issues. So it's everything from he wants people to come to Facebook for the right reasons, not the wrong reasons. He wants them to come because they want to work for Facebook, not because they want to be a vice president. And then that goes into how they get oriented. So whether you're an engineer or a product manager, an engineering manager, you have a two-month boot camp where you have to go through and help build products. And if you're not about building products, if you're about something else, you're not going to play there. And I would say that kind of thinking is pervasive across everything they do. And it's not surprising that they have such great product velocity even as they get larger, because it's an extremely well-run company.

Yes. Well, positive role model, negative role model, a little bit. He's like one of the great innovators of all time. I mean, Silicon Graphics when I was there was, you know, was Google in terms of where every engineer wanted to work. The engineers there, the engineers who I worked with at Silicon Graphics are still the best engineers that I see around. I mean, one of them, Chris Wagner, is working at a company I'm on the board of and he's still the best engineer in the company. And another, Kurt Akeley, who's the father of computer graphics really, is at another company, Lytro, and he's the best engineer there. I mean, these guys that Clark assembled are still, normally you think engineers do their best work when they're young. Well, these guys were so good they can still outplay, it's like a 50-year-old quarterback, they're still better than any of those guys. So it's really impressive.

He's one of the outliers, right. That wasn't his temperament. I think that, and not every founder can be CEO. We prefer founding CEOs, we don't demand founding CEOs. And Jim in particular, I think that wasn't the kind of person he was really. The creative genius, mad scientist, incredibly creative, but not necessarily the person who's going to run the company.

Well, it's great being a partner with Marc. Not only is he my business partner, but he's my best friend. So we get along great. And like a lot of people say, but we're like an old married couple, so we're bickering all the time. And it's great to have somebody who you can still upset and fight with on a daily basis even though you've known them for a very long time, which is great.

Thank you, John. Have a good fight.