Full text of Marc Andreessen on Big Breakthrough Ideas and Courageous Entrepreneurs at Stanford GSB conference.
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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.
So I kind of divide the story of how the great technology companies got built kind of in the three phases and I think we’re in the third phase now. The first phase was in the ‘40s, ‘50s, ‘60s, ‘70s. And it was so crazily hard. If you talk to people who were in business then or you read the stories, it was so hard to build a new tech company. It was such an unbelievably sort of exceptional thing to do that you only really have these really extreme characters who would do it. And there were a pretty small number of them. And they were extreme, extreme characters, like they were – they make all the current, like, high octane entrepreneurs look like wusses. And the ones I’m thinking of, Thomas Watson Senior. If you want to read, like, what it’s like to work for somebody who’s harsh, read the book on Thomas Watson Senior. He makes all of today’s entrepreneurs look like cream puffs. He would just literally sit in his staff meetings for like five hours and just scream at his guys, there’s just this — then he built this astonishing company, IBM, off the other side of that.
David Packard. David Packard actually was quite a character. David Packard, people now remember for the HP way and for kind of that whole warm and fuzzy kind of approach to running companies. When David Packard was actually running HP, he had two nicknames. One was Pappy, which is kind of what people remember in a kind of paternal instinct type. His other nickname was the Mean One. And he similarly would just tear people apart. And then Ross Perot is my favorite example. Ross Perot built the first great outsourcing company, one of the big tech successes in the ‘60s. And of course, he was fantastic as a business builder when he came into contact with the American public, people went, what? And again this sort of extreme personality.
So you get into this, this kind of – this sort of will to power thing that was happening. And by the way, the VCs in those days, I think, were very similar. Tom Perkins, who’s become re-famous again lately is the same kind of character. He’s a very, very extreme character and he always was. But that’s what it took for him to do what he did in the ‘70s, and ‘80s in venture capital. So those were kind of the extreme days and then I think both VC and entrepreneurship, tech entrepreneurship, sort of professionalized, and so you had a lot of VCs then. And this includes great VCs, John Doerr, Mike Moritz, Jim Breyer, who are business people or investors first, and never ran companies. And then you had this kind of move through the ‘90s where you had this kind of default model where the one thing everybody knew was that founders couldn’t possibly run their companies. And so you would have a founder and then you would basically promote or fire them to chairman or CTO and then you’d put in a professional CEO as fast as possible.
And I think what happened is that model just got extreme. And I think by the late ‘90s in the Valley, we were mostly building companies that were kind of shells, or, kind of like puff pastries of companies where they really didn’t have — at the height of the bubble in ’98, ’99, the products that were getting built for the most part weren’t very good. And these companies were kind of on this bomb run to get public as fast as possible, and you had all these catch phrases, like go big or go home. Or my other favorite one at the time which was, forget details, just do deals. And so you have this really kind of mercenary, hit and run approach to building companies. And then all those companies vaporized after the crash because it turned out they didn’t have valuable products. They didn’t have deep engineering capability. And then all the engineers who worked for those companies hated working for those companies, because they were completely sales-driven, sales-led, these kind of mercenary kind of exercises at the height of how bad it got.
Now I think you’ve got the exact opposite thing. I think the pendulum has swung all the way in the other direction, which is, now we all understand and take for granted, founder, CEO, technical founder CEO is a good thing. You know, Mark Zuckerberg is kind of the apotheosis, of kind of the idea that we have now. And so now what’s been lost for a lot of the entrepreneurs — a lot of the entrepreneurs are engineers, but not business people. Now what’s been lost is a lot of the actual art of building a business. And, in particular, what’s been lost is the art of sales and marketing. And a lot of today’s founders, one of the big issues we deal with is they’re very technical. They’re very product-centric. They’re building great technology and they just don’t have a clue about sales and marketing, and what’s more is they almost have an aversion to learning about it. It’s almost like a post traumatic stress kind of thing, you know, like 15 years after the crash.
And so now the challenge for a lot of these companies is how to take what are actually fantastic products and fantastic technology and then integrate in top-end business thinking, top-end sales and marketing thinking, and top-end operational thinking. So I think we actually collectively have a huge opportunity to put the pieces back together. And I think that’s what the next five years are going to be about.
Interviewer: Could you see the role of MBAs in terms of helping scale through that sales and marketing function?
Marc Andreessen: So, yes, definitely and, in fact, in the abstract, there is kind of two models, that are both actually working quite well. The kind of reference model now is the Mark Zuckerberg, Sheryl Sandberg model. And I work with Sheryl at Facebook and I tease her all the time. She’s lost control over her own name. It’s now become a proper noun. You know every 24-year-old technical founder was like, I need a Sheryl. And I’m like, so do 400 other people. Unfortunately, human cloning is not quite at the stage yet where we can fulfill everybody’s need. But basically the model of a very high-powered business person with deep capabilities in sales, marketing, and operations, who’s able to partner as a number two, as a president or COO, with a technical founder, CEO, when you have somebody like a Mark Zuckerberg. So that’s one model that works very well.
And one of the interesting things about the last five or ten years is more and more of the top end business leaders in Silicon Valley have figured this out. And, like Sheryl, have chosen to partner not as the CEO, but as the president or COO with a great technical founder and build great companies. A recent example, Dennis Woodside, who’s a top-end Google product or business executive, just left and became number two at Dropbox to Drew Houston, who’s another one of these guys. And so that’s one model and I think that’s a very exciting model and I think it’s working well.
The other model is what you might call sort of the Bill Campbell, Scott Cook model. Or maybe the Dick Costolo, model as sort of the other example, which is, in the case where these companies don’t have a founder who’s capable of being CEO or who wants to be CEO, to have a business person become the CEO, but with the sort of – with a much more advanced understanding of the role of founders and the role of product strategy and technology strategy than I think the professional CEOs got into in the ‘90s. So, and this is — I describe this as the Bill Campbell-Scott Cook model because that’s maybe the best example in the history of the Valley, which is Bill Campbell, probably well known to the folks in the audience, is not himself a technologist or a product person, but is an outstanding operator of businesses, has profoundly deep respect for founders, and has profoundly deep respect for products and, and for technology. And always makes it a point in his career, he’s always made it a point to partner with the engineers as opposed to be threatened by them or feel like, they have to be — in the case of a technical founder, they have to be forced out.
And, of course, Apple over the years has been a case study of this, and, of course, Bill came up for Apple and so he saw this. And so you kind of contrast the now legendary kind of John Sculley-Steve Jobs model to the Bill Campbell-Scott Cook model and you kind of see how, kind of where that came from. And so that’s a model that can also work very well. And so as the folks here think about as you build your careers, and think about these things, I think if you’re going to be in the tech industry, the really key question — it might turn out either way, but the really key question is what’s the partnership that you’re going to have with the technical visionary in the company who will often be a technical founder? And I think if you can crack that code, I think there is just an enormous opportunity to have one plus one equals three.
Interviewer: So at Andreessen Horowitz, the VC fund you founded, you invest in many of these founder CEOs. They all want a Sheryl? And finding a Sheryl isn’t necessarily that easy. And you’ve built up a very disruptive model within the venture capital industry where you provide a lot of value-added services, including hiring and marketing, to portfolio companies. Could you talk a little about, how you came up with that disruptive model and what opportunities you see going forward to continue shaping the VC industry?
Marc Andreessen: Yes, so my partner and I came up as entrepreneurs kind of in the phase where the assumption was that you fire or demote the technical founder and you bring in the professional CEO and you become a sales, sort of a sales-driven company. And so, and we kind of — we have a lot of experience with that model. Like I said, sometimes it works, sometimes it doesn’t. But we thought, this is — we started our firm, we planned our firm in 2007-2008 and started it in ’09 and our basic take was there was an opportunity. Many of the other venture capital firms had tilted hard in the direction of sort of professional sales-driven CEO, we decided to tilt hard in the direction of technical founder CEO. And so, we basically said, how would you build a venture capital firm optimized for a technical founder who wants to become a CEO? That led us — and by the way, not religious, that’s not the only thing we do, but like, how would you center the culture of the firm around that idea? And I’ll come back to the other part.
So we kind of decided on two things that would come out of that, which is — one is, if you have somebody running a company who has not run a company before or has not, maybe, necessarily been a manager in some cases before, or, in some cases, maybe has not held a job before, they become CEO of their own company. It really shines a very bright light on the background and caliber of the general partner that you’re going to propose to put on their board. And we just made the decision that — and there are many different kinds of successful VCs, but we just made the decision at our firm, the general partners will be people who have built technology startups before. And so I think at this point, seven of our eight GPs — I think I’m the only one who hasn’t actually been the CEO. I think seven of the eight of our GPs have been a CEO and I think five or six of the eight now have been founders. And so, sort of by definition at our firm, you get somebody on the board who really knows, has been through the war, really understands what things are like. And so, when something goes wrong, and things are just like horribly, like, crashing. You know, the key engineer quits, or the founders can’t get along. Or the biggest customer dumps you, or a competitor comes out with a much better product. And all these really horrible things that happen. You can’t raise money, that we have somebody in the board seat who is a really good advisor and can say, I was in that situation before, and I can tell you what doesn’t work, because I probably made all those mistakes and then I can tell you, gives you some advice on what does work. So that’s one.
And then the other thing we said was we said, okay, well what’s — we sort of thought about what are the reasons why, if a VC brings in a professional CEO and fires the founder, why do they do it? Part of it is likely experience. The other thing a professional CEO brings in, is very, very deep network. If you’ve been a VP or general manager, or CEO in Silicon Valley for 20 years, you have this enormous network of executives who you can hire and engineers, and recruiters and you know all the reporters and all the editors. And you know all of the customers. You know CIOs, and CTOs and you know how to go sell the things and you know all the VCs. you know how to raise money. So you just have the business people in the valley, who have been in the valley, have this just giant network of people and these technical founders often don’t because they’ve often been heads down, writing code most of their lives. And so basically, what we decided was, let’s pre-construct the network that will basically, where we can take a technical founder, inject it straight in the network, and sort of give them super powers of a network that’s comparable to what John Chambers might have. And so — and that’s been a very big effort on our part. We have about 60 full-time professionals now, across five operating teams in the firm. That are not GPs, but are full time professionals organized around the different areas of the network. So, sales, business development, corporate development, marketing and PR, executive talent, engineering talent.
And so, as an example when it comes time to find a Sheryl as a consequence, we are trying to build very deep relationships with all the Sheryls of both genders, throughout the Valley just as sort of a normal part of our network building exercise, and then when we have companies that are kind of maturing to the point when they need somebody like that, as one example, we will know who those people are and we’ll have kind very easy access to them. You kind of help them to sort of bridge the gap.
Interviewer: That’s very understand — helpful understanding how you lean in once you’ve identified the founders.
Marc Andreessen: That was good, that was good.
Interviewer: Stop it. How do you actually identify them initially? And so what do you think are the traits that founders have and I’d also love to hear about some of the best and worst pitches you ever heard?
Marc Andreessen: So the basic math is — so there’s a basic math component and then there’s all the intangible. So the basic math component is there’s about 4,000 start-ups a year that are founded in the technology industry that would like to raise venture capital. We can invest in about 20. So the falloff is significant. We — I like to say our day job is crushing entrepreneurs’ hopes and dreams. We actually have focused very, very hard on being very good at saying no because that’s mostly what we do. We see actually — we see 3,000 inbound referred opportunities a year. We narrow that down to a couple hundred that are taken particularly seriously. And I would say there’s kind of this very interesting kind of process where there’s – the hard thing is deciding which one’s we’re going to invest in, because we can just invest in so few.
The somewhat easier thing actually it turns out, this has been a surprise, it’s actually after you have been in it for a while, the thing that’s actually fairly easy to tell is, will this team and company be fundable by a top VC. Will it get funded by a top VC? It may be Sequoia, or Excel, or Greylock, or who knows who it is, but does this company kind of clear the bar? And I think the way the math works basically is, there’s about 200 a year that are fundable by top VCs, that get funded. By the way, within the 200, about 15 of those will generate 95% plus of all the economic return. So just because it gets funded by a top VC doesn’t mean — even the top VCs right tank generally, about half their deals. So even if you get funded by a top VC, it’s not complete validation. So about 200 a year that are kind of fundable by top VCs, we can fund 20 and then 15 of them actually generate all the returns. And so, it’s kind of a white knuckle thing when it gets right down to it, to try to make the picks. And if there’s one thing that’s frustrating in this job, that every VC deals with it’s, you miss most of the big winners, right? It’s like, the thing all the top ventures have in common is they did not invest in most of the great successful technology companies, which is an incredibly frustrating thing.
So, that’s the basic dynamic, and that’s the framework within which people come in and pitch to us. At the heart of it there’s two things that we look really, really hard for. I mean, there’s the kind of surface level stuff you look for. So you look for a huge market, you look for differentiating technology. And you look for incredible people. I think in practice, I think that we collectively and certainly — we specifically and then we collectively, VCs, I think we probably — we spend a lot of time talking about markets and technology and we have lots of opinions and I’m not sure that those opinions are actually all that relevant, all that often. I think probably, the decision ultimately, is and should be around people as like 90% of the decision.
The two things we really zero in on people are two things. They sound simple and they end up being very difficult: courage and genius. Courage is the one we talk about a lot because it’s the one that people can learn. Courage, which is to say not giving up in the face of adversity. Just being absolutely determined to succeed is something that you can like force yourself to do. It can be very painful, you can force yourself to do it.
The genius part is a little bit hard to force yourself to do. Courage without genius might not get you where you need to go but genius without courage almost certainly won’t. And so, we’re looking for some kind of magic combination of genius and courage. There’s one of my partners quotes, he quotes Nichie a lot on these. He says, it’s will to power, it’s people who simply will not stop. And by the way, right, there’s always been this kind of thing at Silicon Valley of like, I call it the failure fetish, right? Failure is good, right? Failure, you guys have probably all been taught this. Heard about this from a lot of people like failure is a wonderful thing, failure teaches you all this stuff, and it’s great to fail a lot. Like, and we don’t like buy any of that. We think that’s all complete, complete nonsense. We think failure sucks. We think failure is a terribly, terribly depressing thing to go through. We think success, on the other hand, is wonderful. You wouldn’t think that this is something you have to actually say out loud. But we do find it to be clarifying when we point it out.
And so we are strongly biased towards people who are so determined to succeed that they just — they never give up, they never quit, and I think that is a huge part of it. And that’s something we really look deep — we look incredibly deeply for — that’s the kind of thing that’s not listed on a resume, right? That’s something that has to be deep in somebody’s — fundamentally deep in somebody’s character and you have to see it in their backgrounds.
Interviewer: And what has been your — talking of courage, what has been your most courageous moment, and perhaps the moment of which you’re most proud?
Marc Andreessen: The moment actually — this is actually a good day to ask that question because my partner Ben’s book actually came out today. So if you haven’t bought it yet, number one on Kindle in management, $14.44. $14.44 makes a great birthday present for all of your friends. He actually tells the story in his book, it’s actually in his book, and it’s when — it’s our second company, LoudCloud, when got just taken apart. We started our second company LoudCloud in September 1999. And it was classic — we were, I mean it was fantastic with incredibly high rapid growth rate off of a standing start. Straight into the last six months of the bubble, unprecedented growth, cover of Wired magazine, on and on and on. We took it public in 18 months, and then just the world caved in, our entire business caved in burning an enormous amount of cash, because we had created the company for much, much higher growth. And our stock ultimately bottomed out at half of cash. So our shareholders made the judgement that not only were we so incompetent, that we were not capable of justifying the amount of cash we had in the bank, but that we were certain to burn at least half of it before we would call it quits and just give them the cash back. Those were probably the dark days.
And then, NASDAQ start sending the delisting letters. They send about one a day saying if you don’t get your stock back above a dollar, we’re going to delist you and you’ll be on the pink sheets and we came within days from that. And so guiding through that, and by the way, guiding through that kind of thing at the same time it looks like the entire world is ending, that it looks like the tech industry will never ever recover. I think the thing that we are most proud of is actually working our way through that.
Interviewer: Fair enough. That is a tough thing to get in. You spoke about Ben’s book and Ben talks a lot about these challenges. The whole notion in the book is dealing with the hard things. And have there been hard moments in your relationship and can you talk a little bit about that relationship? I remember once reading that, he described you as the Beyoncé of the relationship and him as Kelly Rowland, so how do you feel about being Beyoncé?
Marc Andreessen: Yes. I’m hoping — I’m hoping that wasn’t a commentary of my figure, that’s my main, that’s my –
Interviewer: Or on your dance moves.
Marc Andreessen: Or on my dance moves. So, I would — let me, maybe, brought it up. So it goes to the nature of business partnership. So Ben and I have been partners for 18 years, so I first met Ben in 1995. He actually tells the story in the book of how we met, which is a whole story in and of itself. It involves a lot of curse words. We kind of describe ours — I mean we love each other and we do everything together, everything in business together. We describe ourselves a little bit as the old married couple. You know that, you see like out on the park bench in the park in the middle of the afternoon, sitting on opposite ends of the bench kind of staring at each other. They’re always there, but they’re not talking, and maybe they argue every now and then. But they’re there this year and they’ll be there in five years, they’ll be there in ten years.
So I would say at this point — at this point it’s probably hard to untangle how the partnership works other than just we’ve been working together for so long. And so we have a deep level of trust that comes from understanding each other very deeply. And so I know exactly what he’s good at and I know what to defer to him on. And he knows exactly what I’m good at and he knows what to defer to me on. And then both of us trust the other. So we both know that we’ll make decisions in both of our best interests, and there’s never anything that’s advantages one of us over the other. And so, as a consequence, each of us are very comfortable essentially caving to the other on any topic, which I think is actually very helpful.
That said, we argue about everything and we constantly argue. And we often come at things from very different points of view and I don’t even know how to describe. We just have different backgrounds from before we have kind of different reference points for how we think about things. He is a far better operator than I am, so he’s much better at running a business. So for example, a lot of things, when we used to run companies together. A big thing we’d argue about is, I would — I think what he would say about me is that I’m sort of abstract. So I think about things like products and strategy and business in an abstract way. And so for me it’s like, okay, what’s the right answer? Like, what should we do? And then the way he thinks about it is, from an organizational standpoint, from a management standpoint, is what are we capable of doing? And so I will often propose things that, where he’s like, you’re out of your mind. Like, the entire — yes, in theory that might be a good idea, in practice, you’ll destroy the entire company if we try that. And I’m like well, that’s a pretty good point.
And then, you know the argument in the other way is, look, I know that the organization is going to get challenged by this and I know it’s going to be hard and we might lose people, but it’s so important that we have to do this thing, that we have to really push it. And so I think a lot of the theories that he and I have developed over the years about how to run companies are kind of at that intersection point of what’s kind of intellectually the correct thing to do or the optimal thing to do and then the actual practical reality of what can be done. He talks a lot about one of his theories that we use a lot at the firm is, his book is kind of all about this is, we call it, there are no silver bullets, there are only lead bullets. There’s this temptation especially when you get into crisis. When you get into real problem, there’s this temptation to think there must be a magic answer. Like, there must be some stroke of genius. It’s almost, it’s like what you — I don’t know, if people watch the new Sherlock Holmes TV series, which I just love. It’s like, Sherlock is going to have — no matter how dire it gets and no matter how like evil Moriarty is, Sherlock’s going to have that stroke of genius, that’s going to save the day. And there’s this really strong tendency to kind of think that that’s out there. And we see a lot of entrepreneurs that kind of cycle through different silver bullets, and then they don’t work and they don’t work and they don’t work.
Ben’s point is always, it’s probably the answer, it’s probably firing a whole bunch of lead bullets. And so the answer probably is, the engineers working later at night for six months and getting the next version of the product out. And the answer is probably for the sales reps to go call in twice as many customers and try to close some more deals. And the answer is probably, your stock price is low, go find the investors who are willing to invest when you’re trading at half the cash because it turns out they actually do exist. And then your stock goes up a little bit. People start to regain confidence. And so, I would say, I’ve certainly come around to that point of view a lot. And so whenever we work with entrepreneurs we often have very similar advice because it’s kind of — it’ll be tempered through the very practical realities of what you have to do to get through a situation like that.
Interviewer: That seems a very healthy argument. Perhaps I can bring you on to an argument that, that’s probably much harder to deal with. I mean, in general you enjoy an incredibly strong public image. And last week, Carl Icahn, rather than using either silver or lead bullet, used the kind of badly trained Gatling gun. And when he brought up as an investor of eBay and that eBay should divest PayPal and alleged that you had a conflict of interest. Could you speak a little bit about how it feels dealing with those sorts of allegations in the press?
Marc Andreessen: I think that — And by the way it’s not just — Carl has become very active in a bunch of tech companies lately. It’s actually not just Carl, there’s a firm called Elliott Associates, it’s a top hedge fund that’s become very active buying beaten down tech companies. There’s a bunch of others. Actually this is part of my theory of we’re not in the bubble, which is, when activists become interested in a sector, it’s because the PEs are low, because the cash balance is high and the debt levels are low. And so, although I’m not getting that much of a thrill out of my current level of personal engagement, this stuff is — I view this, all this activity as validation of my thesis, which is, we’re not only not in a bubble, we’re actually still in a bust. Especially the big tech companies are still in a bust. Multiples are very low, cash balances are very high. It’s the kind of thing where I think time will cure that. Because in time, PEs will expand. In time, companies will invest more of their cash in their own business or find other things to do with it and the activist will go back to harassing steel mills and oil companies and airlines.
Interviewer: Yeah, it was interesting to see that as you blogged in 2011, he was advocating exactly the sorts of board management that he’s now seems to be criticizing it.
Marc Andreessen: Yes, Carl Icahn in 2011 was extremely enthusiastic about board nominees with conflicts of interest that came from his organization. And so I posted this morning extensive excerpts from his communications at that time. And so, as far as I’m concerned he can now argue with himself.
Interviewer: And it’s very helpful for us as students to understand how you actually spend your day. And I’m sure it’s an incredibly busy one. So, thank you for taking the time out today. But could you perhaps describe what yesterday looked like?
Marc Andreessen: Oh, yesterday? Good lord, what did yesterday? What day was yesterday? Monday. Okay, good. So Monday is butts in seats day for us. So Monday is all day partner meeting. And all the VC firms kind of have this in common. And so, like one of the really critic — when you’re starting a company, there’s all these really critical issues, like what product you’re going to build, what market you’re going to go into. And you start a VC from what’s really important and what your conference table going to look like, and how comfortable your chair is going to be. Because you are going to be in those chairs for a long time. So it’s basically — sometimes, yesterday was like eight hours, it can be as long as 12 hours straight, of just straight meetings.
And so, it’s basically two things happened on a Monday. Well three things happened on Monday. So we have a breakfast every Monday. Then we alternate breakfasts. We have a general partner breakfast, and then we have a general partner plus senior operating staff breakfast and we alternate back and forth, and we kind of do all the firm related things. And then we have back to back, what we call the all GP pitch meetings. And so these are the companies that we are most likely to invest in. And so the signal if you’re raising pension money, if you get invited on Monday, that’s a good sign. If you don’t get invited on Monday it’s not a good sign. And so, and we have, and I think yesterday we had three of those back to back. Sometimes we have four or even five. Also, by the way, pitch early in the day, not late in the day. Just helpful advice. So, we do those, and then we have — at the end of the day we have what we call deal review. So, we actually do that twice a week. Most firms do that once a week, but we want to move a little faster, so we do it twice a week. Mondays and Thursdays, and so that’s basically a complete — basically a complete pipeline report, maybe possibly interesting. So we actually run our deal process like — we actually use Salesforce.com and we actually run our entire process and the firm like a Salesforce runs a sales pipeline. And so we have comprehensive tracking of kind of the stage of every — all the way from all initial inbound deals, all the way through the ones that are being closed. And so we kind of review that entire pipeline, and we actually have a team that manages that. A great operating person who manages all that.
And so we go through all that. And that’s where we have — that’s basically a long argument and we go through it and we argue about every company. And we argue about everything else we can think to argue. And then we go home and collapse.
Interviewer: In those deals for the meetings, are there any technologies? I know, for example, you’ve blogged recently about BitCoin and how excited you are about BitCoin and the future of the news industry. Are there any particular technologies or industries that you’re most excited about?
Marc Andreessen: So there’s a two part answer to that. And so, the first answer — I will answer the question in the second part, but the first answer is, this is another kind of theory we have at the firm. So, there are venture capital firms that are very top down and thinking about markets and technologies. So, if you go inside a particular Sequoia and Excel, and Bessemer, and I think Kleiner Perkins used to, and may still. The way that they actually are — those firms are actually very explicit about how they think about products and markets. And so they actually will have — I think in each case, they’ll run an annual planning process, where they will actually get together at the beginning of each year, and they’ll literally draw a map of what they think markets are going to look like. And so — and it’s basically a value chain map. And so, it’s an interesting exercise to think about. It’s like, okay, like for example, for networking, is that, like, fiber optics and communication chips, but then lead into things like routers, but, then we get into things like, ISPs and then ultimately lead into things like, other wireless businesses, whatever. You kind of draw that entire thing out as a map.
And then you basically have boxes for each of the product categories. And then, a VC firm can invest in one company per category. And then basically the goal for the year is to put a name in each box. And so they sort of consider it a success at the end of the year if they’ve invested in the best possible company they can in each box that they’ve identified. That’s kind of one extreme. We decided to be more on the other extreme, which I think is a little bit more what I would call the benchmark approach or, in the old — in the prior generation, it would have been called maybe the Arthur Rock approach, which is basically, and by the way, we have all the same theories, like we can’t help ourselves. We just sit around and talk about this stuff all day. But we need to climb more towards the other side, which is basically, the big breakthrough ideas. The entire art of venture capital in our view is the big breakthrough ideas. The nature of the big breakthrough ideas is that they’re not that predictable and in fact often upon first contact they seem nuts. And it actually turns out to be – all the crazy ones also seem nuts, so it’s a little bit of a — they called Einstein crazy but they also called Charles Manson crazy, you have to be cautious on this stuff.
But, the really, really breakthrough ideas often seem nuts the first time you see them and it’s the fact that they seem nuts, can be a very positive signal because number one, that can explain why that thing already isn’t being done by an existing big company, because it’s just considered too strange. And then number two, if it works, like if, if the bit flips at some point and it goes from being nuts to being like, oh, that’s a good idea Like, then, those are the companies that could just explode, could become just gigantically huge. And most of the big ideas, the PC seemed nuts at one point, the internet seemed nuts, BitCoin today seems nuts. And Airbnb seemed nuts, Uber seemed nuts in the beginning. And so you kind of want to — in our view we have this sort of approach, you want to kind of tilt into the really radical ideas. But by their nature, you can’t predict what they’re going to be. And so what you basically want to do is have as prepared a mind as you possibly can and learn as much as you can about as many things as you can. And then basically enter as close to a Zen like blank slate kind of state at the beginning, kind of Zen set ideal of kind of perfect humility, which is hard for venture capitalist. Sort of perfect humility at the beginning of the meeting basically saying teach me. And then they either — they either do or they don’t. But then, the hope is, if Larry and Sergey walked in, and they’re like, I know this is the 35th search engine but this will be the one that works, you’re open-minded enough to say, yeah, that might work, as opposed to, you idiots, don’t you know that that’s been tried and failed so many times before. And so we’re way more on the side of we’ve gotten sort of opportunistic trying really hard not to let ourselves be educated by the really smart entrepreneurs.
You asked about the best and worst pitch meetings. The worst pitch meetings by far are the rip. And, I mean, we try really hard to not have these get to us but Snapchat for dogs. Like — this is not a startup thing. I was giving an example. You see it in Hollywood, right? It’s like one volcano movie works and then there’s like 400 volcano movies. It’s like how many freaking volcanoes? It’s like 35 of the top hundred games of the iOS app store and now are like Flappy Bird clones, like, and so and, Paul Graham — in the adventure community Paul Graham calls this the Hollywood approach to startups, which is, it literally is — Airbnb for parrots. It’s just, it’s these infinite variations of all the successful ones that you get. And by the way, the ones that sound silly also just ones vertical search engines. When Google worked, so search engines went very deeply out of style when Google worked. And then there were vertical search engines in every single category, and, except for travel, they all failed, right? Because it turns out there was just going to be a search engine. There wasn’t going to be a search engine for health, there was just going to be a search engine. And so, it’s all the variations and clones and kind of, the mercenary kind of hit and run, kind of stuff. So, we try really hard not to sit in those, because those are very painful.
The ones that are the most exciting are the ones where it’s a really, really bright founder who’s done a tremendous amount of work and completely understands the domain and walks in with a really crazy idea and then in the course of an hour, can basically walk you through where we have this sort of concept we use called the idea maze, which is the really bright founders with these really radical ideas tend to go through what they call the idea maze. So they tend to have worked for years working their way through the idea to try to figure out how to get from kind of the initial crazy starting point to at the end, something that will actually work in the real world. And the really great entrepreneurs can walk you through the idea maze and make you understand the flow of thinking that got them to the point where they actually came out the other end with what is a great idea.
And what’s interesting about that is those are generally not — there’s this kind of theory in venture capital that you want back coachable entrepreneurs. The entrepreneurs who really have the radical ideas are generally not in a way coachable, they generally react with hostility to being coached. And so one of the things we test for, is basically say, have you thought about doing it this other way? And what we’re not looking for is the, oh, that’s a great idea. What we are looking for is the stare that’s just like, you idiot. Right? You moron. You’ve been sitting here listening — this is them talking to me — you’ve been sitting here listening to me for 20 minutes and I’ve been working on this for five years, and you think you understand this so well that you can make me a suggestion, and not only are you an idiot for thinking you can do that, but I will now explain to you in detail why you’re that big of an idiot. We love those. Those are fantastic, those are outstanding. And so — and it goes right back to the combination of genius and courage I was talking about. And so in particular I mean part of it’s in the word, but part of it’s just the look on the face. We love that look, it’s like caviar.
Interviewer: So I want to turn it over to Q&A, so perhaps you can just finish with one question, which is you had built two very, very successful companies. And then in 2009 you decided to not run a technology business, and instead found, what’s become the fastest growing venture capital business. People were probably telling you, you’re nuts, like you just said.
Marc Andreessen: Oh, yeah. Well we went — we went around to see, we went around to see, because we’d worked with — we were working with all, most of the big VCs. So we went around to see all of our friends in venture capital, and tell them what we were thinking, and they all told us we were nuts. Actually with two exceptions — actually two of them were incredibly helpful. Jim Breyer and [Neil Bruce] were both just tremendously, tremendously helpful. And we are very grateful to them for all their help, but the rest of them pretty much told us we were nuts.
Interviewer: So what drove you? And perhaps you could answer in this context when we apply to the GSB, we all get asked to write an essay on the following question: what matters most to you and why? So what today matters most to you and why?
Marc Andreessen: So we’re really deep believers in the power of technology. We think that the technology industry has made the world a radically better place in the last 70 years. And we think it will make the world a radically better place yet in the next 30 years. And we think it’s just starting. The fact that we’ve just now after 70 years in the computer industry gotten to the smart phone, which is the first computer that can get to everybody on the planet. That everybody on the planet is going to have one of those. That is a — we’re just reaching the point now where we’re able to apply technology to a lot of really fundamental problems in the world, a lot of fundamental problems and opportunities. And so we just all feel or I feel like we have spent — I spent my career and then even previous generations of entrepreneurs the value they have spent their career getting to the point where we can now do the things that we can do. And so it’s an amazing — it’s an amazing, amazing time in terms of what we can do.
In terms of starting a venture capital firm, there is an aspect to starting — there are some serial entrepreneurs who like starting seven or eight companies in a row. Dave Duffield is probably the best example of this. I think Workday is company number 8 for Dave which is amazing. I’ve done it three times, Ben did it twice. Well, it depends how you count but twice, two and a half times. For some of us at a certain point it starts to be like — it’s like you climb all the way up the hill and then you end up back at the bottom of the hill and you have to start the climb again. And so at some point you start to think, maybe there’s a way to contribute. That has to do with helping people climb the hill, as opposed to being the person out in front. And so I think we’ve reached that point. And we’re very happy doing that.
Interviewer: Thank you, thank you so much. Now we can have some smart questions.
Audience: We’re actually hosting the Future of Media Conference here tomorrow. So I was interested to ask you about the news business. Of course, you’ve been tweeting and writing and thinking a lot about that lately. And I guess if I could sum up your views, you’re optimistic about the prospects for journalism to thrive using a variety of business models. So I’m a former journalist and a lot of the issues that you are thinking about now have been being discussed within the industry for maybe eight or ten years, a lot of soul searching and reflection and experimentation. So what I’m curious about is why did you get interested in it now? Like what prompted you to get excited about that space and to start thinking and talking about it?
Marc Andreessen: Also, less from an investment standpoint, because we don’t really — content’s not content generally, so we don’t really — we’re not going to be making a lot of investments in media production just because it’s a different field. We can talk more about that. My interest in news, in media, is sort of twofold. One is a gigantic consumer of it, and somebody who thinks it’s very important, and then two, because everything I’ve worked on my whole life gets constantly blamed for the decline and fall of journalism. So, the Internet — everybody knows, right, the internet has completely destroyed the news business. The internet has destroyed journalism. The democracy is in peril, and it’s all my fault. So, at a certain point, I start to — and on behalf of all the people I worked with, to build things like the web, it’s like okay, maybe it’s not the new technology’s fault at a certain point.
So my observation is, and that I think it’s a very interesting topic, so I think the news — and I focused on the news business, because that’s kind of the pointy end of the spear, in terms of the thing that people are most worried about. I look at it as — I look at it, I do what very few people have been willing to do, I think, which is look at it purely as a business and basically say — and, so here’s my basic position is – our view of what the news business is, and about journalism is, is an artifact of a specific period of time, from 1945 basically into — basically 1945 to 2005, and basically post-war US. If you go back to the news business before World War II, if you start in Colonial days, and if you extend all the way up through the 1930’s, the news business worked very differently. It was a very successful business and it was — a lot of people were in it, a lot of people made a lot of money. But like, as an example this whole idea of objectivity, the journalists now take as kind of this — kind of pure concept that has to be maintained. Like there was really no such thing. Like I always say — sorry to say, like objectivity is an artifact of an era in which news businesses were monopolies or oligopolies. In the days when news businesses were fully competitive, subjectivity was out it went. And they always say, you’re a scumbag, how can you say that, and I’m like well Ben Franklin was a subjective journalist. And so stop calling Ben Franklin a scumbag. He actually knew what he was doing. He was actually a very successful journalist, a very successful publisher.
There’s a great book on the news business in the Colonial era in the US called Infamous Scribblers, which was what, it was a pejorative at the time for reporters, which could come back into fashion. And it’s a great articulation of how the news business actually grew up in the US. And then in the ‘20s and ‘30s, it got really interesting with figures like Hearst and Pulitzer. And so, you can actually study, kind of the historical news business, I think through those two time periods and then you kind of look at post World War II, and you say, well what happened. Well monopolies and oligopolies got established and it was sort of this era of centralization in a lot of parts of the economy. But it was very clear in the news business, you’d have one major newspaper per metro area, because of the cost of distribution. You’d have three TV networks, nationally, because of the limited bandwidth for VHF TV. You’d have a handful of local radio stations. You’d have a handful — you only had a handful of magazines. You could only really have three general news magazines on newsstands because you just couldn’t afford to distribute more than that. You scale — scale economics kind of ruled the day.
And so, the news business went into this mode where they kind of said, okay, we’re a monopoly. We’re a monopoly or an oligopoly. And if you’re a monopoly or an oligopoly, it’s incredibly important to stay out of antitrust trouble. And the best way to stay out of antitrust trouble is to not make anybody angry. And the best way not to make anybody angry, is not have any opinions. And so therefore let’s be objective about everything. And then we can just basically say, First Amendment objectivity, don’t break us up. And that worked really well, as long as the distribution was controlled, which it was. The distribution was locked down. And then the internet showed up. And then the internet introduced basically took the legs out from under all the distribution monopolies and then all of a sudden there are millions of voices.
So my point as a business person is okay that, that’s the past, that’s the old days, that’s over. We need to look back to what happened when these things weren’t monopolies and oligopolies. We need to look back to the thirties and twenties and back to the colonial era, and we need to basically think about how to build news businesses, media businesses, that thrive in a competitive market. And that has to do with being incredibly aggressive. That has to do with in many cases having a very strong point of view. It has to with, not with the idea that you’re going to be the only point of view, but you’ll be one of many and you have to argue things out. You have to have the right cost structure, you have to think about market segmentation and you have to do all the things that people do when they actually build businesses.
The issue in the news business is that a lot of the executives in the business did not grow up in a competitive market and so they just don’t know how to do that. So, now what’s happening is, the new entrepreneurs like Jonah Peretti at BuzzFeed, or Sarah Lacy at Pando, or, the people, the folks who built — you see a lot of this in the tech industry, TechCrunch and all these things. A lot of these new things, or, what Pierre Omidyar is doing with First Look is, you’re getting now very smart people who are coming in from outside with very fresh points of view, building very exciting things. And all the traditional journalists are like, oh yeah that doesn’t count, but healthy business, healthy journalism you have to get the healthy business before you get the healthy journalism. And so then you look at market size and you basically say, well how big is the market for all this stuff? And it turns out the market for news is gigantic and it’s growing very fast because so many people are becoming part of the modern world and so many people are getting access to information for the first time. And so the global market for news is going to be five billion people within ten years and everybody needs to know what’s going on. And so the market’s going to be large. And so I think there’s huge opportunities for market growth, but it’s going to be from companies that are able and that are willing to compete.
Audience: I’m looking for an internship in high tech, and there is a great quote that software is eating the world. And what I think is going to be next, and if you were an MBA, which university would you go to work to for the summer?
Marc Andreessen: Oh, that’s a good question. So I think that — I mean, so the big ones, the big ones clearly on deck are healthcare, education, and financial services I think are the next three kind of giant sectors where software can have a revolutionary impact. We’re actually putting, we actually started out saying we’re not going to do any healthcare, was one of our things, we had a bunch of no fly zones when we started our firm. No rocket ships, no flying cars, no space elevators, no drugs, either in the drug development sense or any other sense. And then we said, no biotech no healthcare because it’s a different category, and if you’re going to make pharmacy — industrial biotech companies or medical device companies, FDA approval, it’s a different thing.
We’ve actually got much more involved lately in the cross-section of health care and IT. And there’s all kinds of interesting things happening at the intersection of healthcare and IT and software. And actually there’s things happening, actually, on the medical side, and a lot of that, it’s very interesting, things now happening around genomics and big data applied to genomics. And then there’s another whole set of things happening around healthcare information. And making health marketplaces work better and direct access for consumers to doctors online and all these incredible kind of new services. So, I think healthcare is going to be really interesting and we’re diving in much more aggressively there.
Education is a big one, that I talked about a lot in public. But I think education is right for transformation. Actually, Clay Christianson has been doing really amazing work on that, it’s worth reading. He’s very passionate about that. And then financial services, I mean we think it’s go time for financial services. We needed a breakthrough software technology to be able to go after financial services. Financial services, right. The big problem for startups and financial services is, it’s regulated to death. And so — and it’s gotten worse, right, like we call Dodd Frank, the big bank protection act of 2012 like, it’s the largest wall in the world for a startup to have to climb over to really compete from scratch. But BitCoin and Crypto currencies gave us that technology change that we needed to go after financial services. And so we are now looking at a very broad cross section of, new kinds of whether it is new kinds of lending, new kinds of insurance, new kinds of derivatives, new kinds of small business financing, new kinds of fundraising, crowdfunding, crowdsourcing. We think now there’s enough technology change happening and both consumers and business are desperate for alternatives. There’s some very interesting financial services companies to get built.
And in the long run the two we would like to work on, we haven’t gotten to yet, but in the long run law and government are the other two really big ones but those are probably more in the out years, talk about that more at a future date.
Audience: How do you see about — how do you see sort of the path of affordable internet for the rest of the world? And when will Andreessen Horowitz start investing in frontier [rocket] technologies?
Marc Andreessen: I’m sorry, what was the last question?
Audience: When will Andreessen Horowitz investing in frontier [rocket] technologies?
Marc Andreessen: I just didn’t catch the —
Marc Andreessen: Oh, oh, it’s developed like, developing worlds. Or whatever the, yes, yeah, the term is. It’s a, it’s hard to keep up with all the terms. So we don’t — so we consider, I would say the following. We consider that the basically the amazing opening of the developing world or whatever terms you want to use. The billions of people around the world who have not had access to what we would consider to be modern education, modern information, modern communication, modern politics, access to markets. Most of the world has not had access to those things historically. Most of the world is in the process of getting access to those things.
And so we think the biggest thing happening in our time is the just tremendous flowering of basically the entire developing world. And it’s all over the planet. And it’s happening at different paces but it’s really all over the planet. There’s extraordinary stories now in almost every country on the planet of just amazing things happening. And we think it’s a twin story, it’s a political and economic development story and a market development story, but then it’s also a technology story. And we think it sort of is the rise of the developing world with first the PC and now the smartphone. It’s not an accident that it’s happening now. It’s on the heels of satellite TV and fax machines and so forth and the internet, but now it’s smartphones. And so we think a world in which everybody on the planet has a smartphone with internet access is a completely different world. Not just because they can play floppy birds but because they can — very fundamental things. They can get up to date market information on pricing which is very important if you’re a farmer and you’ve never had that information before. Or they can get up to date health information, or they can educated, kids can get educated in ways — a lot of countries around the world like they don’t have textbooks much less like modern education systems, so there’s just an enormous ability to upgrade modern education across the entire world.
And then of course huge political change and a lot of that is a consequence of people, number one, being able to see what they’re missing and then number two being able to organize. And we think the potential for these technologies as a way for political organization, political protest to happen. Everybody I ever talked to who has been through one of these kind of political protests in the last five years talks about the centrality of this technology. It’s only Western media commentators that say it doesn’t matter. It’s the people on the ground that are all over all the new stuff. So, it’s really, really fundamental.
We as an investment firm, are not — we’re a single office firm, we’re a boutique firm, so we’re just investing out of Silicon Valley and we’re mostly investing in U.S. companies and maybe a few, a few companies in markets like Europe. We’re not really set up to invest on the ground in the developing world. But a lot of the companies that we’re investing in are building products that we think are going to be transformative on the ground. And so I’ll just give you one example. Lyft is a company that we’re involved in. Lyft actually is a ridesharing company. That’s a — Lyft and Uber are kind of roughly in the same market. The difference with Lyft is that anybody can become a driver. So it’s not professional drivers, it’s ordinary people being drivers.
Lyft is actually based on the founder’s experience on the ground in Zimbabwe, when he was working on a development project where he saw in, like, poor villages in rural areas all over the world. You have — there might be a couple of cars and if somebody’s going to take a drive into town, anybody who wants to get in, is going to like chip in for gas, and everybody’s going to get to go on that ride. So ridesharing is kind of a thing that happens when not everybody has a car. So, Lyft is basically going to take the concept of ridesharing global and going to make it an information system, so you can have a much more optimal, right, spread of drivers and cars and rides. And so you can have transportation work much better, all throughout the world, including in the poorest parts of the world, right, all through the smartphone. Which could be a huge boost to quality of life.
Airbnb, same thing. Airbnb, you know, it comes across as a way for kids to travel around and stay in other people’s houses. The founder of Airbnb, and by the way this is a classic case, the founder of Airbnb, Brian Chesky went around and tried to raise venture capital everyone said you’re crazy that’s this, you know, nobody will ever stay in somebody else’s house, that’s nuts. He was getting really depressed. He went home for Christmas and talked to his grandfather, and his grandfather says, oh yeah, yeah, yeah back in the ‘30s and ‘40s, that’s what we used to do. Like, if you were going to go to another city, you would find out a friend of a friend, and you would say, hey can I use your spare bedroom, because like we couldn’t afford hotels. And so the opportunity to take real estate globally, and make it much more accessible and make it much more cost effective for people to be able to stay, be able to stay whenever they are on the road, whenever they are traveling. To make it possible for everybody who owns a house or owns any kind of property to be able to open it up for be able to make extra money. We think many of these ideas can scale, basically all the way up and all the way down. We think that these can be very broad-based ideas. And so we can kind of come at things, ridesharing, real estate sharing, education, financial services, all these things, and we can make them very, very broad. So that’s what we are trying to do.
Interviewer: Marc, we’re sadly out of time, so thank you so, so much.
Marc Andreessen: Thank you everybody.