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[SOUND] 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.
>> [LAUGH]
>> 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.
>> [LAUGH]
>> And perhaps, perhaps we could, just start by outlining
the, 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, that you've had throughout your, your esteemed career.
And so, if we could perhaps start with the,
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 Mark 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 evaluations?
>> So I, unfortunately, I can't, ten years, ten years from now
I can come back and tell you all about the WhatsApp deal, but
right now I'm on the, I'm on the, I'm on the Facebook board
and I know that you all would not come visit me in jail.
So I will, 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, you know, years of
pain followed by then, sort of, what I think of as, 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 phenomena of, of
trying to close the, 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, we could talk at length about kinda why I think, in fact,
tech is not now in a bubble and has not been in a bubble since 2000.
the, 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, the best thinker on this topic is an,
is an economist named Carlotta 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, it'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, 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 state.
The deployment stage, you could argue, is
where the actual interesting thing, things happen.
It's where all the tech-, 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, 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, in, in, in the 90s.
For example, Facebook, people argue Facebook as an example.
Facebook went from $0 to $10 billion of revenue in less than ten 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, 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 gonna be worth anything, you, you
could take that position, I'm not sure you would recommend it.
>> Yeah, no, that makes sense.
When you, as you say, when you look at the, the cost per user, it's
actually only $36, which is much, much less
than in many others for the What'sApp deal.
But another thing you, you previously mentioned was that, MBAs
flocking into the tech sector is a sign of the bubble.
So to play devil's advocate.
>> Yeah.
>> Many of the people here are flocking to the tech sector.
>> Yeah.
>> So, could that, perhaps, be a sign of a bubble?
>> So things are heating up.
And so, [LAUGH] 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, tilting, tilting into the, tilting
into the, 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, kinda the, the slightly long version of
this, which I, I think there's actually a whole new, a whole new way companies are
being built in the last ten years and, 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 kinda divide the story of
how technology, 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,
you, you only really have these really extreme characters who, 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.
You know, he makes, he makes all
of today's entrepreneurs look like cream puffs.
>> [LAUGH]
>> He would just literally sit in his staff
meetings for like five hours and just scream at his,
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.
He, David Packard, people now remember for the HP way and for kind
of that whole warm and fuzzy, you know, kind of approach to running companies.
When, 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, you know, 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, you know, he was fantastic as a business builder
when he came into contact with the American public, people went, what?
and, you know, 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, you
know is, is the same kind of character.
He's, he's an ex-, he's a very, very
extreme character and, and, and he always was.
But that's what it took, you know, for him to do
what he did in the 70s, and 80s in venture capital.
So those were kinda 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 Morris, Jim Breyer, you
know, who are business people or investors first, and, and never ran companies.
And then you have 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, you know, kind of like puff pastries of
companies where, you know, they didn't really
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 kinda
mercenary, hit and run approach to building companies.
And then all those companies vaporized after the crash
cuz 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.
Cuz they were completely sales-driven, sales-led,
these kind of mercenary kind of exercises.
At, at the, at the height of, of, 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 kinda the apotheosis
of kinda the, 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 have 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.
>> Could you see the role of MBAs in
terms of helping scale through that sales and marketing function?
>> Yeah, so, yes, definitely and, 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.
>> [LAUGH].
>> You know every 24-year-old technical founder,
you know, 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, and this is the, I, 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, you know, Bill Campbell, probably well known to the folks
in the audience, you know, 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, 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, you know, they have to be, you know,
in the case of the technical founder, they have to be forced out.
And, of course, Apple, 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 Scully-Steve Jobs model to to the
Bill Campbell-Scott Cook model and you kind of see
how, you know, kind of where that came from.
And so that's a model that can also work very well.
And so as, as the folks here think about as you build your careers, and think about
these things, I think if you're gonna be
in the tech industry, the really key question, you
know, it might turn out either way, but
the really key question is what's the partnership that
you're gonna 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, you know, to have one plus one equals three.
>> So at, at Andreessen Horowitz, the, the VC fund
you founded, you invest in many of these founder COs.
They all want a share-all?
>> Yep.
>> And finding a share-all isn't, isn't necessarily that easy.
And you've built up a, 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?
>> 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, 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 let 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, I'll come back to the other part.
So we kinda 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, 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, 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, you know, what things are like.
And so, when something goes wrong, and, you
know, 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, cuz I probably made all those mistakes and
then I can tell you, you know, 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, what's the, you know, we sort of thought about what are the reasons why?
You know, if, 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, you know, VP or general manager,
or CEO in Silica 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 CIO's, and CTO's and you know how to go sell the
things and you know all the VC's 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.
You know, writing code most of their, most of their lives.
And so basically, what we decided was, let's preconstruct 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, 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 sharer as a consequence, we, waiting for, we are trying to
build very deep relationships with all the sharer of both genders, throughout
the valley just a sort of a normal part of sort of
art network building exercise, and then when we have companies that are
kind of maturing to the point when they need somebody like that,
you know, as one example, we will know who those people are
and we'll have kind of you know, very easy access to them.
You kind of help them to sort of bridge the gap.
>> No that's, that's very understand, helpful understanding
how you lean in once you've identified the founders.
>> That was good, that was good.
>> Stop it.
>> That was good.
>> The how do you actually identify them initially?
And so what do you think are the, the traits that founders have and I'd
also love to hear about some of the best and worst pitches you ever heard.
>> So the, the basic math is the, so there's
a basic math component and then there's the, 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 cuz 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 you know, say 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, it may be Sequoia, or Excel, or Greylock, or who, who
knows who it is, but you know, does this company kind of clear the bar?
And I think the way the math works, basically, is, you
know, there's about 200 a year that are fundable by top VCs.
That, that, that get funded.
By the way, within the 200, about 15 of those
will generate, you know, 95% plus of all the economic return.
So just cuz it gets funded by a top VC doesn't mean, it,
even the top VCs right tank, you know, 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 kinda 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, you know, the picks.
And if there's one thing that's frustrating in this job, that every VC
deals with it's, you know, 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, you know, people come in and pitch to us.
At the heart of it, there's two things which we look really, really hard for.
I mean, there's the kind of surface level stuff you look for.
So if you look for a huge market, you look for, you know, differentiating technology.
And you look for you know, 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, 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 on people are, you know, 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.
You know, courage which is to say not giving up in the face of adversity.
You know, just being absolutely determined to succeed, you know, is
something that, you can, 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.
You know, 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.
You know, there's there's one of my partners
quotes, he quotes Nichie a lot on these, he
says it's, it's will to power, it's, it's
you know, it's people who simply will not stop.
and, and by the way, right, there's always been this kind of thing at
Silicon Valley of like, sort of this, 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.
[LAUGH] We think failure is a terribly, terribly depressing thing to go through.
We think success, on the other hand, is wonderful.
You know, you wouldn't think that this is
something you have to actually say out loud.
But we, 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's a huge part of it.
And that's something we really look deep, we look incredibly deeply for, you
know 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.
>> 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?
>> Oh, 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.
[LAUGH] Makes a, makes a great birthday present for all of your friends.
[LAUGH] He actually tells the story in his book,
it's actually in his book, and it's it's when our,
it's actually it's it's when our, it's it's, our
second company, Loud Cloud, when, when got just taken apart.
We started our second company Loud Cloud in September 1999.
And it was classic, you know, we were, I mean it was fantastic.
It was incredibly high rapid growth rate off of a standing start.
Straight into the, you know, the the last six months of the bubble.
You know, 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, you know, an enormous amount of cash, cuz we
were, we had, created a company for much, much higher growth.
And 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, you know, NASDAQ, you know, start sending the D-listing letters
and they send about one a day saying if you don't get your,
your, your stock back above a dollar, we're gonna D-list 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 you know the tech industry will never ever recover.
I think we, the thing we are most proud
of is, is, is actually working our way through that.
>> Fair enough that is a tough thing to get in.
The You spoke about Ben's, Ben's book and, and Ben talks a
lot about these, 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?
>> Yes, yes.
I'm hoping, I'm hoping that wasn't a commentary of
my figure, that's my, that's my main, that's my.
[CROSSTALK].
>> Or your dances.
>> Or 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.
You know, we kind of describe ours, I mean we, we, we love
each other and we, we, we do everything together, everything in business together.
We you know we describe ourselves a little bit as the old married couple.
Yeah, 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 kinda staring at each other.
They're always there, but they're not talking, you
know, 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 you, you know I would say at this point, at this point it's troubly hard
to untangle how the partnership works other than
just we've been working together for so long.
And so we have the 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 I know,
he knows exactly what I'm good at and what to defer to me on.
And then both of us trust the other, you know.
So we, we both know that we'll make decisions in both of our best
interests, and there's never anything that's you
know, advantages one of us over the other,
and so, as a consequence, each of us are very comfortable, you know, essentially
caving to the other on any topic, which I think is, is actually very helpful.
That said we argue about everything and we constantly argue.
and, you know, we often come at things from very different points of
view and, you know, in you know, I don't even know how to describe.
We, 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, when we used to run companies together.
A big thing we'd argue about is, you know, I would,
I, I, sort of 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, what's the, you know, what should we do?
And then the way he thinks about it is, from an organizational standpoint,
from a management standpoint, is, what I, 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, you know, 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 you know,
look, I know that the organization is gonna get challenged by this and I
know it's gonna 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 uses his book
is kind of all about this is we, we call
it, there are no silver bullets, there are only lead bullets.
There's this, there's this temptation especially when you get into crisis.
When you get into real, real, real problem, there's
this temptation to think there must be a magic answer.
Like, there must be some stroke of genius, you know.
It's almost, it's like what you, I don't know.
if people watch the new Sherlock Holmes, you know, TV series, which I just love.
It's like, you know, Sherlock is gonna have, you
know, no matter how dire it gets and no
matter how like evil Moriarty is, Sherlock's gonna have
that stroke of genius that's gonna save the day.
And there's this really strong tendency to kind
of think, that that, 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, you know,
the engineers working, you know, later at night
for, you know, six months and, you know,
getting the next version of the product out.
And the answer is probably for, you know, the
sales reps to go call in twice as many customers
and try to close some more deals and the answer
is probably to, you know, your stock price is low.
You know, go find the investors who are willing to invest when you're
trading at half the cash cuz 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, you know, 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 cuz 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.
>> At yeah, that, that seems a, a very healthy argument.
Perhaps I can bring you on to a, 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.
[LAUGH] And when, he a, he brought up, as an investor of
eBay and that eBay should divest PayPal and allege the you had
a conflict of interest and could you speak a little bit about
how it feels dealing with those sorts of allegations in the press.
>> I think that the and by the way it's not just, it's
you know, Carl has become very active in a bunch of Tech companies lately.
It's actually not just Carl, there's a firm called Elliot 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, 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, it, it, you know, although I'm not, not, I'm not getting
that much of a thrill out of the, my current level of personal engagement.
This stuff is, I view this, all this
activist, and, activity as validation of, 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.
>> Yep.
Fair enough.
>> And oil companies and airlines.
>> Yeah, it was, it was interesting to see that in, as you, as you blogged in 2011,
he was advocating exactly the, the sorts of board
management that he's now seems to be criticizing it.
>> Yeah, Carl Ichan in 2011 was extremely enthusiastic about
board nominees with conflicts of interest that came from his organization.
And so I, I posted from this morning
extensive exerts from his communications from that time.
And so, as far as I'm concerned he can now argue with himself.
[LAUGH].
>> And it's very helpful for us as, as
students to understand how you actually spend your day.
And, and I'm sure it's a, an incredibly busy one.
So, thank you for taking the, the time out today.
But could you perhaps describe what yesterday looked like?
[LAUGH] >> Oh, yesterday?
Good lord, what did yesterday?
What day was yesterday?
>> Monday.
>> Monday.
Okay, good.
So Monday is butts in seats day for us.
So Monday is all day partner meeting.
And all the VC firms kinda 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 gonna build.
[UNKNOWN] are going to go into.
And he start a VC from what's really important and what your
conference table gonna look like, and how comfortable your chair is gonna be.
Because you are gonna be in those chairs for along time.
So it's basically, it's, you know, 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 kinda 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 and then we have, at
the end of the day we have what we call [UNKNOWN] review.
so, we actually do that twice a week.
Most firms do that once a week, but we wanna
move a little faster, so we do it twice a week.
Mondays and Thursdays, and so that's basically a complete, you know,
sort of, you know, basically a
complete pipeline report, maybe possibly interesting.
So, so we actually run our deal process
like a sale, like a, we actually use salesfirst.com
and we actually run our entire process and the
firm like a sales first 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 you know, a team that manages that.
And a great, a great operating person who who manages all that.
And so we, 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.
>> In those in those deals for the meetings, are there any technologies?
I know, for example, you've blogged recently about Bit Coin and how
excited you are about Bit Coin and the future of the news industry.
Are there any particular technologies or
industries that you're, you're most, excited about?
>> So there's a two part, two part answer to that.
And so, the first answer I will answer the question in the second part, but the,
the, the first answer is, we, 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, they, they actually are,
those firms are actually very explicit about how
they think about Protestant 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, you know, at the beginning of
each year, and they'll literally draw a map
of what they think markets are gonna look like.
And, so, you know, and, and it, 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, the family of such things like routers,
but, then we get into things like, you know, ISP's and then
ultimately lead into things like, you
know, and other wireless businesses, whatever.
Kind of draw that entire thing out, as a map.
And then you basically have boxes for each of the product, product categories.
And then, you know, 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, 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, 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 the case, now all
the crazy ones also seem nuts so it's a little bit of a you know 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, the first
time you see them and, and it's the fact that they seem nuts, can be
a very positive signal because number one, it, that, that can explain why that thing
already isn't being done by an existing
big company, cuz it's just considered too strange.
And then number two, you know, if, 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, you know, 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 kinda wanna in, in our view we have this
sort of approach, you wanna kinda tilt into the really radical ideas.
But by their nature, you can't predict what they're gonna be.
And so what you basically wanna do is have as prepared a mind as you possibly can.
And learned 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,
you know kind of zen, you know set ideal
of kinda perfect humility, which is hard for venture capitalist.
You know, sort of perfect humility at the
beginning of the meaning basically saying teach me.
And then they either, you know, they either do or they don't.
But then, you know, the, the hope is, you know, 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 know, you're open-minded enough to
say, you know, 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.
You know, snap trap for dogs.
Like, it, it, you know, it's the I, I.
[UNKNOWN] 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, and, and Paul Graham in, in, in the adventure
community Paul Graham calls this the Hollywood approach to, to startups.
Which is, it literally is, you know, it, you know, 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?
Cuz it turns out there was just gonna be a search engine.
There wasn't gonna 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, kinda hit and run, you know, kind of stuff.
So, we, 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, 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, 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 you know, 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 you
know, 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, you know, this is