Marc Andreessen on Big Breakthrough Ideas and Courageous Entrepreneurs (Transcript)

February 2, 2016 10:24 am | By More

Marc Andreessen on Big Breakthrough Ideas and Courageous Entrepreneurs at Stanford GSB – Transcript

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Interviewer: Thank you very much for taking the time to come in and speak to us. Many of us, are aspiring entrepreneurs, so we’d really quite like to be like you. And many others, would also like to pitch to you. Actually sitting here makes me — gives me a sense of how intimidating that must be. So, I won’t — I won’t wish it for much longer.

And perhaps we could, just start by outlining the three main topics I’d love to cover today. The first is your views on tech and venture capital trends. The second is, how you assess entrepreneurial DNA. And the third is your views on leadership and your leadership experiences that you’ve had throughout your esteemed career.

And so, if we could perhaps start with that first, tech trends, and go with something topical. You mentioned last month at the Goldman-Sachs conference, that tech was not in a bubble. Rather, it was in a mature deployment phase. And then the WhatsApp deal happened. And Marc is on the board of Facebook. So I just wanted to ask you, what do you think about that deal and how are you thinking about valuations?

Marc Andreessen – Co-Founder & Partner at Andreessen Horowitz

So unfortunately, I can’t — ten years from now I can come back and tell you all about the WhatsApp deal, but right now I’m on the Facebook board and I know that you all would not come visit me in jail. So I won’t — I will keep that one to myself.

So, there’s a couple of big things. So, just in terms of thinking about what we’ve been through in the last 20 years in Silicon Valley, some people in the room are old enough, you may remember there was a bubble. And it was a fairly big deal, in sort of 1998 to 2000, and there was a very profound crash, which was deeply traumatizing for those of us who went through it.

And then we went through this extremely long period of basically –actually years of pain followed by then, sort of, what I think of as very slow recovery. I think it’s actually been an object lesson in the psychology of markets and bubbles. I think that people are much more highly sensitized to bubbles after a bubble. If you could be sensitized to them before a bubble, you could make a lot more money. But people get highly sensitized and so there’s this phenomenon of trying to close the barn door after the horses have escaped. And that, that is a lot of what all the bubble talk in the last ten years has been about.

And so we could talk at length about kind of why I think, in fact, tech is not now in a bubble and has not been in a bubble since 2000. The deeper thing, the more interesting is this follows a historical pattern, which is what I talked about at the Goldman Conference, which is based on the best thinker on this topic is an economist named Carlota Perez, who wrote a book called Technological Revolutions. It’s probably the single best book. Like, that book and The Innovator’s Dilemma are probably the two key books that are really critical to understanding how this industry works. And so she describes in her book, she describes a general model for the deployment of new technologies and then how technologies intersect with financial markets. And so she’s got this whole thing, and it’s basically this multi-generational process. And there’s what – there’s basically these two big sort of phases of it. There’s what’s called the installation phase, and there’s what’s called the deployment phase.

And it turns out in every single case and this includes railroads and, like, lots of electricity and steam engines and lots of prior new fundamental technologies, there’s always this just gigantic bubble and then crash kind of halfway through. And historically that marks the transition from the installation phase to the deployment stage.

The deployment stage, you could argue, is where the actual interesting things happen. It’s where all the new technologies actually start to work. They actually make it into everybody’s hands. They actually become cost effective and we actually find out how to actually use all these things. And so that’s the phase I think we’re in now.

You know, without talking about the WhatsApp deal in particular, it is interesting to note that the companies that people think are overvalued today, generally either have billions of dollars of revenue, which was not the case in the 90s. For example, Facebook — people argue Facebook as an example. Facebook went from $0 to $10 billion of revenue in less than 10 years. And so that is definitely not what happened in the 90s.

The other thing is the companies that people debate today, for the most part, have extraordinarily high customer count — user count. Market sizes have expanded gigantically. And so you’ve got these things now that people are arguing about that have, in some cases, a half billion users, on their way to a billion users. And if people want to take a position that you can have a large scale internet service that’s worth a billion users that’s not going to be worth anything, you could take that position, I’m not sure you would recommend it.

Interviewer: Yeah, no, that makes sense. As you say when you look at the cost per user, it’s actually only $36, which is much, much less than in many others for the WhatsApp deal. But another thing you previously mentioned was that, MBAs flocking into the tech sector is a sign of the bubble. So to play devil’s advocate, many of the people here are flocking to the tech sector. So, could that perhaps be a sign of a bubble?

Marc Andreessen: So things are heating up. And so, historically, there’s actually been — and I suspect everybody in the room knows this, there has been a direct correlation between PE multiples and MBAs tilting into the tech industry, for sure. So I think something different is actually happening. I think something different is happening with how companies are getting built. And maybe I can do the long version, kind of the — the slightly long version of this, which I think there’s actually a whole new way companies are being built in the last 10 years and, I think that business people and MBAs turn out to be very central to it in a way that’s different than the past.

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