I'm competing with myself. Life just gets a lot simpler if you just assume everything is your own fault. Everybody's feeling very tense and nervous and anxious and fearful, but everybody's pretending they're not feeling that way.
It has taken me 10 years. It has taken me 3,000 shows. But finally today, I'm so proud to have Marc Andreessen on the show.
I think every time we passed on a promising venture company over price, I think it's been a mistake. There's nothing that we're missing today that we could solve by going public.
The man who has built one of the greatest firms of our time. They manage over $90 billion. The tech industry is more centralized in Silicon Valley than it has been in its entire existence. And I think it's AI and have invested in some of the most generational companies.
This entire labor displacement thing is 100% incorrect. It's completely wrong. Essentially, every large company is overstaffed. It's at least overstaffed by 25%. I think most large companies are overstaffed by 50%. I think a lot of them are overstaffed by 75%.
This was a very special one for me and I hope you enjoy the episode. Ready to go. Marc, you probably don't know this, but I started this show when I was 18 years old, and you were one of three names that I wanted to have on the show back in 2015. I have to admit I've ticked off the other two and so I'm a bit worried that I'm going to have to stop after doing this show, but I'm so touched that you agreed to join me. So, thank you for joining me.
Good. I'm thrilled to be here.
Now, I was running listening to every show that you've done before, and you recently said that you don't introspect and introspection is potentially overrated. I really struggled with this because I thought we learned from mistakes and I valued experience in that way. Can you help me understand the lack of value placed on introspection and do we not learn from mistakes?
We do learn from mistakes. But the problem is learning from mistakes, sometimes it's good and sometimes it's bad, right? And if you just talk business for a moment, like in the venture mindset, this is a very big problem. There's a founder version of the mistake, there's a venture version of the mistake. The founder version of the mistake is if a founder starts a company in a category and it doesn't work, the founder is then emotionally angry at that category for the rest of his life and will not acknowledge when there's something that's going to work in that category. I've just seen that over and over and over again. And that's fine because most founders go on to do other things and that's fine and good and it generally doesn't damage them from a business standpoint. In venture, the same thing happens. If you invest in a category or if you invest in a kind of company or you invest in a kind of founder and it doesn't go well, it's extremely easy to learn from the mistake, right? And to say, "All right, I touched that hot stove. I'm never doing it again." And then you can tell me what happens next, right? Which is the next thing shows up in pattern matches and it's the thing that you should invest in and you have the chance to invest in, but you touched the scalded stove and you're learning from your mistakes, right? You're doing the responsible thing and so you don't do it. And so I think there's something that's particularly pernicious about learning from your mistakes in venture capital. And then I think that's also somewhat true about life. You get married multiple times as they say it's the triumph of hope over experience. Like I think probably you want hope to triumph over experience in that domain and I think there's a lot of other domains of life in which that's probably true.
I totally understand what you're saying especially when you say about hey it's easy to lose money in a sector and then think the sector by nature is cursed or it's so difficult you can't make money in healthcare you can't make money in X...
I'm old enough to remember internet search like you can't make money in internet search. The internet search companies in the 1990s did not work out well.
So then how do you when you are guiding conversation when you are guiding partners how do you ensure that they have a fresh mind with every new company and every new investment and are not plagued by the downsides have bluntly lost money before?
Yeah. So, by the way, just the other example, by the way, is AI. AI was a tremendously good way to lose a lot of money in venture capital from 1945 to 2017. So, look, when I was getting my computer science degree in the late '80s, AI was the one field that you knew would never succeed. There had been an investment boom for AI in the 80s and it failed. And everybody, including all the computer scientists, were like, "Yeah, this field is dead." And that happened five times over the course of AI over the last 80 years. So look, I think a couple things in terms of how we run our firm or how you run a firm like this. So one is as you well know that there are but very important there are two categories of mistakes right there's the mistake of commission and there's the mistake of omission or there's the mistake of cost and there's the mistake of opportunity cost. And so of course the mistake of cost is you invest $10 million in a startup it fails you lose the money that's bad. The mistake of omission is you don't invest in Google and you lose hundred billion dollars of opportunity cost right and so of course venture is like the most polarized possible economic field in which this is true. By the way if you're running a bond business or something where you just can't lose money or the whole thing doesn't work then obviously you can't run in this kind of model. In that case you better learn from your mistakes. But in venture I think you're always much more worried about the mistake of omission than you're worried about the mistake of commission. And then to your question, like I think in a lot of ways that's the key thing that Ben and I do at this point in our lives and in our roles at the firm is we're not like micromanaging the investment decisions at the firm. We have I think spectacular senior partners and junior partners that are doing a great job of that and we're in the room for it and so forth but like we're not we're generally not advocating for against a deal. But what we are trying to do is to get everybody to constantly have this let's say risk forward worry about the mistake of omission over the mistake of commission mindset. This anti-scalded stove phenomenon. We just routinely remind people like, yeah, you're emotional about this because of your bad experience 3 years ago or 6 years ago or 10 years ago and just like let that go. You no longer have to pay for that sin and you're completely liberated to be able to kind of let that emotion fade into the distance and be able to focus on the opportunity in front of you.
My biggest regret or omission experience is one of your companies, ElevenLabs. We could have invested at the seed round but we would have only got 1%, Marc. And naturally as an emerging manager I thought it was important to retain the high ownership model I promised my LPs. How do you reflect or advise me on when to break the rules versus when to maintain doing what I said I would do?
So quite honestly, it's the simplest answer in the world, and it's the hardest answer in the world, and it's the answer that I think every great investor ends up resolving to 30 years in, frankly. I had this discussion with Arthur Rock, who's sort of like, you know, obviously the virtually the creator of modern venture capital. And he wrote a paper on this topic. And I'll just give you his conclusion, which is also my conclusion. Arthur Rock, for people who don't know, he invested in Apple and Intel in the seed rounds and like in many other great companies for like 30 years. His conclusion was that he would have been a better venture investor had he fed all of the business plans and pitch decks straight into the shredder upon receiving them and if he had spent 100% of his time on the resume. And I think that's right, which is the great founders will buy you enormous upside that may break rules in all kinds of directions and may break precedent in all kinds of directions. And the world's best business plan executed by a mediocre team will almost certainly get lapped by a great team. Now let me say having said that this sounds easy. Of course why is that hard? Because it's somewhat tautological, right? Because we define great founders as the ones that have great outcomes and so it's a lot easier after the fact to be able to say oh yeah Steve Jobs is a great founder when you look at the success of Apple. But nevertheless I think that is the answer which is when you have special people you should back them almost without consideration of other factors and when you don't you shouldn't and at the end of the day it like that simply is the core thing.
How do you think about detecting greatness in founders when your benchmark is founders at late stage or when they're great? You obviously have been on the board of Facebook for many years with Zuck and seen him at a later stage as well as an early stage. I spend my time interviewing public company CEOs all the time. Marc, I'm so used to really fine-tuned Daniel Ek. When I meet a seed founder that's rough and unpolished, of course, they don't seem as good. How do you think about that challenge and projecting earlier and seeing if they're good given how much time you spend with perfection?
I'll just say look, I think people have different takes on this. My personal formula is as follows, which is you need high IQ as table stakes. Like you just need somebody who's like incredibly smart. My basic test is if I have my notebook open and they're talking, am I like writing out lots of notes or not? And if I'm writing out lots of notes and I'm learning from them, then like that indicates that their level of intelligence and some of the other attributes that we'll talk about, but indicates, you know, clearly that they're very smart. But I think that's table stakes because I think just intelligence there are many people who are very smart who are just grinders or just as they say, kind of the clerk mentality. "Put me in the back office somewhere or doing research or something and I'm never going to build something." And that's fine, but IQ is not enough. I think the second thing you need really is what my partner Ben calls courage which is you know an absolute determination to succeed and to be able to confront problems directly and to be able to pound through anything. There's various kinds of ways to phrase this but I think the Navy SEALs have the term "embrace the suck." So there's something to that. I always like the old Looney Tunes cartoons and I always like to say I want the founder who leaves a founder-shaped hole in any brick wall he runs into like a cartoon character.
Yeah. My favorite is when they run off a mountain and they keep running. I don't know if you've seen this.
And then they're suspended midair for a moment and they hold up the sign and it says, "Oops." Or my favorite one of that is there was one of the little kid characters in it at one point, little pig or something did the thing and he goes out over the cliff and he's hanging there and holds up his sign and he says, "I'm in second grade. They haven't taught us about gravity yet." Right. Which by the way, of course, this also happens in startups.
Reid Hoffman told me to build a parachute on the way down.
Yeah, exactly. Get out your knitting needle and get going. And so then I think the third thing, so sort of IQ plus courage. And then I think it's something and this is kind of courage, but I would describe it as like something fundamental. It's like drive, ambition. You know, I occasionally quote Nietzsche, it's will to power. It's sort of this determination because courage can just be I'm going to solve problems. I would argue that's not enough. And Ben might say that's not what he means, but like it's not just solving problems. There's something about like ambition and in the world being what it is, some people express that as like ambition to change the world, improve the world, humanity. I think that stuff's all great. I think those founders are great. I think those missions are often very compelling at attracting lots of smart people. But I do think there's a more fundamental ambition which is I want to build something of my own that really demonstrates what I can do. And I have a very primal drive to do that and people cast moral aspersions on it and they call it greed or whatever. So people don't want to talk about that and it's not I'm not even talking about the money component. I'm talking about like I want to build something. And then what I find on that one in particular, well number two and three, like you don't necessarily see them on the resume but like you can generally see them in the background. I think if you spend enough time with people you can get a sense of like okay was their entire life a sequence of things being handed to them and then sort of credential achievement which is a lot of what we see in the sort of elite workplace. Or do you have somebody where it's like oh when they were 14 they built this when they were 17 they built that when they were 20 they did this and they've kind of always been in that whether that's building a product or a technology or a company or an art or like whatever it is sort of this primal drive to create.
Do you find drive through pain the most contributing factor to success?
The full version of the theory is all the great founders are broken in some way right and so they've got the you get into kind of psychoanalysis quickly but you get into the kind of broken home or Steve Jobs being adopted or whatever and you kind of have all these stories and kind of the metaphor is like when the bone breaks it either doesn't heal or when it heals it's stronger and so you're trying to get people who are kind of responding to kind of childhood pain through overachievement. And I think there's something to that and in particular I think what there is to that that is really important I often talk about it of like you need some reason to get out of bed in the morning. That's not just I have a job or it's not just I don't want to embarrass myself or it's not just I want to be responsible. You have to have like a primal reason when things are really bad like when the shit really hits the fan and you're just miserable and like you dread checking your email and you just simply like do not want to know what the new bad news is because there's so much bad news that you just can't even cope with what you have. Like you need a very very primal reason to get out of bed and continue to fight that way. And so I think there is something about, you know, maybe trauma in the background that explains that. Having said that, some of the best founders in history have no trace of trauma in their background that I can tell. And I'll just give you two examples. Zuckerberg is one who grew up in a classic upper middle class New Jersey household, very very close with his parents and his family. And then, you know, Bill Gates his father was a lion of the Seattle establishment and he went to all the best prep schools in Harvard and as again, as far as I know, had a perfectly great childhood. People who knew both of those guys in their teenage years said like these are driven guys. It's very core to their origin stories. And so like you just you have to be open to the idea that some people are just born that way.
What's your primal reason today for continuing to build Andreessen Horowitz with the ferocity and ambition that you still have?
Well, of course that would require introspection. So I don't know if I'm going to give you...
I'm elegantly backing into it. Okay.
I don't know if I'm going to give you a great answer to that. I will tell you what I tell myself. What I tell myself is at this point I'm competing with myself. By which to say like I am trying to figure out how to be the best possible version of what I can be and what I can do. And so the way I think about it is like okay how good did... You read was it Jocko Willink's book Extreme Ownership? Did you ever come across that?
I love Jocko Willink. I also listen to his motivational talks when I go to the gym. Brilliant. 100%.
And his thing on extreme ownership, right? So his thing for people who haven't heard his thing on extreme ownership is just... And famous Navy SEAL commander, very very accomplished guy and the kind of guy people would happily follow into battle or would be a great CEO or great founder, that kind of personality. And he has this thing he says, extreme ownership, and he says look life just gets a lot simpler if you just assume everything is your own fault. Right? And it's just like, oh, I don't know, whatever. This LP didn't invest or this founder didn't take my money or whatever. It's like, oh, okay, it's my fault. It's not his fault. It's my fault. Clearly, I didn't do a good enough job. Clearly, I can do better. And his argument is it gets you kind of productively focused on improvement. And so, I found it that like put it this way, when I'm in my own head and I'm mad about somebody doing something that I don't like, the number one stress relieving thing I can do is I can say, "Oh, that's my fault." Because then it gives me ownership of the problem and it gives me something that I can do and then by the way it also drains away resentment, right? It means that I'm not resentful and angry at somebody else, right? Because I'm just like, okay, I'll just improve myself on that. So I operate in that psychology as much as I can. I try to maintain that psychology. I Recommended to Ben when that book came out. I fell in love with it and I recommended to Ben, I said, "We need to send this to all of our founders and like teach this." And he's like, "Marc, you're out of your mind." Like our founders already have the problem where they take too much of the weight of the world on themselves they're already miserable half the time like we don't need to saddle them with more of that. But I think there's something very powerful in that. It also has the enormous advantage of it becomes an intrinsic motivation over an extrinsic motivation right. So it's not a motivation to put points on a board it's not a motivation to achieve a certain net worth it's not a motivation to whatever be in some league table to win some prize these sort of external markers because the problem with all the external markers of success is are you going to get up in the morning when it really sucks? The extrinsic motivations don't do that and so you need something intrinsic and for me that's the intrinsic motivation which is like I know I can do this better.
You said that you're competing with yourself. Do you feel you're your best version of yourself today?
I think I'm my best version of myself relative to all my prior versions of myself, but I am still far short of what I would like to be. So I know of many areas of improvement.
What's the biggest one that you'd like to change?
Oh, there's probably a hundred. I'll give you an example. I have a strength and a liability, which is I get emotional. The advantage of emotion is when I commit, I deeply commit. I fall in love with things and I become incredibly determined, and I'll go very long lengths out of a sense of emotion or love. The negative is I will get emotional, and I've spent a lot of time—and people who know me will tell you—I've spent a lot of time trying to not get negatively emotional in meetings.
Do you care what people say about you?
It's something I'm trying to work on, but I still desperately care, honestly, and it desperately upsets me when I read bad things. I have a bunch of friends in the entertainment business who I look at and I say, "There's no way I could possibly do what you do," which is make myself vulnerable on an 80-foot screen that way. And they're like, "Yeah, that's the hard part." And then I always ask, "Do you read your own reviews? Do you read what people say about you?" And they all say the exact same thing: "I tell everybody I don't and then of course I do." It's very hard to avoid that. I do think "don't read the comments" is generally a very good life guideline. By the way, I will say YouTube comments have gotten much better, so maybe your YouTube comments are productive now, but in general don't read the comments is helpful. It's really hard. Everybody's human. I think it's really hard when somebody is cursing you out or saying horrible things; it's very hard for that not to stick. I would say I'm pretty happy not paying attention to that. Are you aware at this point of the concept of the meme of "maxing"?
If I'm totally honest, I've seen it on like every comment of our thread where I say like, "Oh, I've got Marc coming on the show." And everyone's like, "Ask Marc about maxing. Ask Marc about maxing." And honestly, it's one of those where I'm just like, "Okay, get back to my normal research," because I presume maxing is not politically correct and I shouldn't ask it. But you brought up maxing.
Well, first of all, maxing is totally politically correct because it no longer means what it used to. We now have 18 other terms that apply to people who are developmentally disabled. And so it now means something completely different. It turns out what it means specifically in the context of maxing... let me explain why I came across this. The internet meme machine is just absolutely spectacular. I think the process of cultural evolution of internet memes is absolutely amazing. I think the whole "looksmaxxing" thing, all the terms now are mainstreaming. One of my favorite websites in life is Know Your Meme, just a comprehensive catalog of memes. The cultural evolution of what's happening online I just think is incredible and wonderful in so many ways. And then I got in this dust-up online a couple weeks ago about introspection that you mentioned, and then a friend of mine sent me this thing and he said, "Oh, here's your answer. You're maxing." And I said, "I'm what?" and he said, "Oh, watch these videos." And there's this guy we could link to on YouTube who has, I don't know, 100 videos on maxing. And he's like my new life coach. I haven't met him, but from a distance. And it's just like: okay, fine, max, go to work, do a good job, come home. It's fine. Start a company. Succeeds, it fails, it's fine. Have too much to eat one night at dinner, it's fine. Go to the gym, don't cut your reps, it's fine. Ask a girl if she wants to go out with you. If she says no, it's fine. It's the simpler form of extreme ownership, or another form of it that says I don't need to take all this in on myself. I can just let it go.
The thing I love about the internet, Marc, is there is some guy who is doing these maxing videos who now has Marc Andreessen as one of his biggest fans. And you're just like, how great is that?
They're incredible. Well, they're like 30-minute videos about maxing. And you would think that after the first two minutes, he kind of covered it.
Oh, no.
But no. And by the way, they're all hysterical. They're all absolutely fantastic. And it's literally like him on his porch in the middle of nowhere with like a cigar and it's like a half hour. It's just absolutely spectacular. And so anyway, I do think there's something to that which is, in addition to all the emotional pain that life has already put on us or that we've already put on ourselves—and by the way a lot of it legitimately so for the things that we do to other people—it's just like: okay, how much are we going to torture ourselves? There's something about modern culture, modern Western culture where we've become very guilt-oriented and very into self-flagellation and very into the old concept of the hair shirt. We wear these metaphorical garments that just are tremendously painful. And so it's just like, alright, there's a point at which maybe some of that is helpful to correct bad behaviors, but it's clearly gone way too far and people get way too down the rabbit hole in this and it becomes very disabling. You probably know a lot of people who are like that. Inherently what you do, what I do, what venture and startups do—this is a high-risk operation. Sometimes they go right, but they go wrong in a thousand ways before they go right, and then even then they may not work. The nature of the beast is tremendous variability and pressure. Another thing I always thought about a lot as a founder and I really see this now as a VC is that, in particular, founders have a very hard time ever finding anybody they can confide in. Because if you as a founder admit that you have an issue, you feel like you're being a bad leader. You're showing a crack in the armor and if your people pick that up, they're going to lose confidence in you. Or if word gets around that you're second-guessing yourself or that your thing isn't going well or that you don't have total confidence in it, then all of a sudden investors won't want to invest and candidates won't want to join. And so there's this need, if you're going to lead one of these things, you have to do it with such a brave face. I always call it the metaphor of the duck: it looks totally placid above water and then it's paddling furiously underwater. I just think in particular founders have a very hard time finding anybody that they can confide in and then what happens is I think everybody individually has an inaccurate view of what everybody else is feeling. Because in practice everybody's feeling very tense and nervous and anxious and fearful, but everybody's pretending they're not feeling that way, but everybody thinks everybody else is doing great. Everybody else thinks they're the only one that's faking the smiles at the party. And so, I think it's incredibly important to be able to have an internal psychological mechanism to be able to deal with that and not have that overwhelm you.
You can kill me for this, but I remember I did a show with Orlando Bravo and it turned into a therapy session and then he kind of became my adopted father. He gave me a lot of advice. What am I scared of? I'm scared that I'll be Macaulay Culkin. Marc, do you remember about *Home Alone*? That the kid who everyone knew when he was young and then it's like "Oh yeah, what is he doing now?" Kind of no one knows. I have nightmares about being the Macaulay Culkin of Venture. What are you scared of? To me, you're the great Marc Andreessen of Andreessen Horowitz. You have nothing to be scared of.
I've been through every version of this myself. There's a famous F. Scott Fitzgerald line where he said in the 1920s that there are no second acts in American lives. Like you get one shot and that's it. And fortunately, I think he was very, very deeply wrong about that. I think he was definitely wrong about that for American lives. The point being like we don't look... somebody once told me there are two great stories: "Oh, the glory of it" and "Oh, the shame of it." "Oh, the glory of it" is the story of great success. "Oh, the shame of it" is a story of great disaster. But then the even better version of it is "Oh, the glory of it" followed by "Oh, the shame of it" followed by "Oh, the glory of it"—the recovery, getting back up on your feet and then re-achieving and rebuilding. I think as long as you're still alive and as long as you've conducted yourself in a way that you haven't brought some sort of really fundamental legal issue on your head or something like that, I think second chances are available for a lot of people. And by the way, of course, a lot of the great success stories have this in their background, including Steve Jobs himself.
Of course. You mentioned the nature of the beast there being our business. I've been a student of the business, hence reading so much of your writing for years. When we look forward, how do you think about the future of venture? Is it as simple as go big or go home? Obviously, we see Andreessen be so big now.
So, I believe and we try to run the firm this way, that the core of the business is a permanent state of affairs, and the core of the business is early stage. The core of the business is a founder or a small founding team with a dream and a clean sheet of paper and ideally a garage, although these days it's hard to keep the kids in the garage so maybe they have a house or an office.
They're expensive in Palo Alto, Marc. These are not cheap garages.
Palo Alto garages are indeed expensive. Yes. But look, a couple of kids in a dream and a clean sheet of paper. And then first money in and then the first two years—that is the core of the business. That really fundamentally is the core of the business. A metaphor we use all the time at the firm is that startups are like baking a cake. If you leave the sugar out of the cake, you can't pour sugar on the cake afterwards and fix your mistake. Sugar has to go *in* the cake. And so that first two years is when you're baking the cake. That first two years is when you're really figuring out what the formula is of what you're doing and what the product is and what the company is and what the business is and what the culture is and who the team is. Those decisions are absolutely fundamental and if you get those right as a founder, the payoff from that will go for decades and if you get those wrong, even if your company succeeds you're going to live with those sins forever. They're going to extrapolate out. There really is no substitute for that inception point, that early moment. There's no substitute for being the investor that does that. And then as the investor who's engaged with the company at that stage, it often becomes the key adviser to those founders for the rest of the company's life. Because you build this incredible emotional bond and then you have complete context on why all the decisions got made and you remember how it first started. And by the way, you remember how hard it was. And so I think there's just no substitute for the early stage. I think a firm like ours, this is what I always tell our folks: at the end of the day, the early stage business has to work. If the early stage business works, we have option value in doing all this other stuff, but that always is the core of the business.
To what extent is the late-stage fund a function of executing on the omissions of the early stage fund?
So it's in two parts. Part of it is yes, fixing the mistakes of omission and becoming partners later. And look that can work really well. Those can be very good investments and we do get very close to some of those founders but again they always at that point have somebody early on who they're very close to, so we do see the difference there. The other part of it is doubling down on the companies that are working or growing. Part of that is just economics, which is if you have the chance to do that you should do that as a professional investor. But there's another really fundamental thing about why we decided to go so big in growth. 10 years ago, 15 years ago, these companies would raise money from venture investors and then they would get to a certain point and then they would raise money from a completely different kind of investor that was not tech-centric. And then they would all of a sudden end up in this situation where they had a fundamental conflict on the cap table over things like level of risk, level of reinvestment, how fast they should go public, if they should sell the company, do they need to replace the founder and bring in a professional CEO? If you bring in a non-tech mentality, non-Silicon Valley mentality growth stage investors, you do set yourself up for a different set of pressures. And so one of the things we wanted to be able to do is to be able to be their partner across potentially every round that they do. And then as a consequence of that they can preserve our mentality on their cap table for longer and longer and longer. And I think that that works pretty well.
I love what you said there because I loved the boutique craftsman style of venture, but is it literally possible to care about a $5 million seed check when you have $15 billion that you raise at once?
Yes. And the reason for that is twofold. One is just the conceptual kind of reasons that I described, but the other is just pure economics. The upside on the $5 million check is every bit as big as the upside on a $500 million growth investment. This is what's so unusual about venture. If I make a $5 million seed investment and I nail it, I can make $10 billion on that. If I make a $500 million growth investment and I nail it, I can make $10 billion on it. It's the same upside.
Do you buy the "entry price doesn't matter because we're going to have hundred-billion-dollar companies" argument? I just see the round inflation across every round. It makes my life harder. With the greatest of respect large funds make my life harder because you have a different cost of capital. Do you buy that if it's a hundred-billion-dollar company the entry price doesn't matter or do you think differently?
Yeah, so the entry price definitely matters, in particular as the company grows in size. By the way it matters for a couple reasons and this is a lesson that gets relearned over and over again. It's the old Don Valentine thing which I do think is correct: more companies die from indigestion than from starvation. Overfunding is very dangerous to the operations of a company. By the way this is the one piece of startup advice that I think is tremendously grounded in reality for which everybody has many examples in the past. No founder ever listens to it. My track record of ever convincing any founder on this point I think is zero. But I will keep trying.
Because it's so flattering. "Oh, I want to give you money. Okay, you think I'm brilliant. Oh, great."
Yeah. Well, they come up with 18 reasons why. And then if I really push them they're like, "Well, we're going to have a lockbox and we're going to put them..."
I've never seen the lockbox.
Nobody's ever seen it.
Nobody ever does the lockbox.
Nobody ever does the lockbox. So, back to your question. I think overfunding is just as dangerous or more dangerous than underfunding. And then number two, look, the problem with these high valuations is: God help you if you need to clear the bar next time and you can't, right? Every round sets a threshold, a hurdle for being able to raise in the future. And this is something that people learn every cycle kind for the first time in a hard way. No new investor wants to do a down round in anybody else's company. If you put the investor hat on and you're like, "I'm gonna go do a down round in this company because I'm gonna be the hero and save the company" because it raised too high last time and now I'm going to do the rational investment, like everybody's just going to hate me, right? The employees are going to hate me, the other investors going to hate me, the founders are going to end up hating me. And so nobody ever does a down round in somebody else's company. And so setting these posts high is intrinsically a problem. Once again, I would say this is advice that generally people completely disregard. So I think both of those are problems. Having said that, I will tell you at least on the venture side—growth is a little bit different—I think every time we passed on a promising venture company over price, I think it's been a mistake.
Have the best companies been the most expensive?
So I think the underlying question is the question of "diamonds in the rough." Is that right?
Yeah. Like whenever I've done a good deal, it's never worked out.
That's right. So, here's another thing we say in the firm: don't ever do diamonds in the rough, only do diamonds.
This is an investor ego thing, I think. You say, "Wow, I'm the investor that's going to go find the thing that nobody else knows about." Another form of this would be like, "All these other investors are herd animals, they're all just copycatting each other and I'm the one who's going to be different. I'm going to go do the thing nobody else can think of." By the way, Peter Thiel does that really well. Nobody else does that well.
And you're probably not Peter Thiel.
And you're probably not. Having spent a lot of time with Peter, I can say I am not Peter Thiel, and the listener probably is not as well. There's a tremendous amount of "VCs are stupid, they're herd animals, they're blind, consensus seeking, heat driven, they only do the obvious thing." Having said that, the general pattern is—and this is like 99 out of 100 times—if it's got merit to be investable for venture, there are a lot of really smart and hungry VCs out there. And they are working extremely hard to sniff these things out. It's their full-time job and it's all they do. And so I think it's really unusual to have the diamond in the rough. Usually if it's the diamond in the rough, it means the company's offside for some fundamental reason—it's in the wrong place or it was structured wrong. There's a reason why it's a diamond in the rough that ends up becoming a big problem. The example people use was that there was a point when Uber was available for investment by anybody on AngelList. So yeah, every once in a while there's one of those. But there's a reason if you just look at the great outcomes in venture over the last 50 years, it's the same names over and over and over again. It rotates every decade or so, but the persistence is incredibly strong. The other reason you have the diamond in the rough is you have a founder who fundamentally is just too ornery to do things the obvious way. They're hyper-disagreeable and these are often the founders that have all these theories about how venture is terrible and awful and these VCs are all evil and they're very focused on terms and control. They kind of alienate everyone. By the time you meet them, they've alienated six of the mainstream venture firms and now they're the diamond in the rough. Every once in a while one of those is going to succeed, but I'm not sure that I would want that to be my business.
Do you need to like the founders you invest in, Marc?
Opinions vary. I said earlier I'm emotional both in good and bad ways. You do end up getting very close to people, and you do end up wanting to have a high level of trust, and it certainly helps if you like each other. But I would say no, you don't, because some of the best founders in history were not very likable people. The same thing is true of many of the great artists, filmmakers, literary geniuses, philosophers, and political leaders. I say no you don't because if you're trying to fulfill your personal emotional needs at work, I think that's a very fundamental problem and you shouldn't try to do that. It's the Harry S. Truman quote: "If you need a friend, get a dog." Another version is: do not bring your whole self to work. If you show up and you're professional and you're great to deal with and you're very productive and you add value in every engagement that you do—and if that's true for you as a VC and you're working with the founder and you're never friends and you just have a great working relationship and the company in the later years sells and you never talk to each other again—I've seen that work many times and I think it's totally fine.
Marc, do you want to take Andreessen Horowitz public? It's the question that came up time and time again, but when you look at the machine that's been built, would you like to take it public?
Yeah. I think we don't have to confront that question yet. There's nothing that we're missing today that we could solve by going public. Which, by the way, is also increasingly true of a lot of the companies that we both invest in. And so I don't think so, but I would never rule anything out. Ben and I have run public companies before. I'll tell you my funny version of the story. When we first started A16Z, we went around and we met with a lot of the top VCs at the time—this is in 2008, 2009—and pitched them on what we were doing. One legendary VC told us at the time, "The thing you're going to hate the most about being a VC is you're going to hate the LPs. These LPs are just like the worst people in the world." He gave us what we call the "mushroom talk": you need to treat LPs like mushrooms, which is you put them in a cardboard box, you put the box under the bed and you don't open it for two years. We said okay, that's one mentality. And then we said, well wait a minute, we've been running public companies for the last 15 years. We've been dealing with hedge fund managers, and say what you will about LPs, at least when you walk in the room they're not short your stock. If you want to deal with pain-in-the-ass investors, go public. And of course what we found is our LPs have been incredible partners, incredibly supportive. They understand venture, they understand the time horizon and they've given us license to do a tremendous number of things that have been very risky, of which some have worked and some haven't. So, I can imagine venture firms going public. I think you'd have to have a real theory on the value that you would get and you would have to really sign up for what it really takes to run a public company these days, which I would just say: public company CEOs have a very hard job.
If you were a betting man, who would go public first, Andreessen Horowitz or General Catalyst?
That's a good question. I haven't talked to Hemant about that. He is certainly building a firm that could go public, but I don't know whether he would or not.
How big a check do you have to write as an LP to get in the meeting with Marc Andreessen?
Oh, I would shut that question out of my head...
Fair enough. I was just intrigued.
I will say this: it's the same answer as your seed check question. There are certain LPs that are really smart and then specifically there are certain LPs that are very influential in the LP community. They are not necessarily the same LPs as the ones who write the biggest checks. There are certain LPs where I would 100% meet with them independent of check size. Those are the really great ones.
What product do you not have in the Andreessen suite today that you would most like to have?
You mean investment strategy?
The two that we've kicked around for a long time are public equity on the one hand and then credit on the other hand. I think there's really good reasons to do both and then there's issues with both in terms of running them inside a venture firm. So we've never hit the catalyst moment where we've pulled the trigger on either one, but those would probably be the two nominations.
If I were asking you about diamonds in the rough, I would say that well, I'm in Europe and so location can help you find diamonds in the rough. Do you think you have to be in San Francisco today or Silicon Valley today if you're building an AI company?
Yeah. So, let me start by saying I wish that we could decentralize tech. I come across as a Silicon Valley partisan a lot. I should, by the way, note I didn't grow up here; I'm an internal immigrant to California.
I got lots of people asking, "Why has he moved to Miami?" My research tells me no, but okay, maybe he's done a Sergey.
No, I'm a Californian. I'm very dug in. I am not a Silicon Valley partisan in the sense of thinking everything *should* be in Silicon Valley. I am a very keen student of all the issues here and I could spend a long time taking you through them. Silicon Valley has real issues as a place, including practical issues: cost of living, cost of housing, transportation, commutes. And then when you get into politics, it's a whole another parade of horribles. San Francisco proper has a city that 100% does not want to grow, where voters on average do not want business to be there. I would love to see the industry spread throughout the US and the world. I was very optimistic about that happening in 2020-2021. I thought COVID was obviously horrible but the sudden phenomenon of video conferencing and Slack and the virtual workplace... I was blown away in 2020 that the banking system didn't collapse and that it turned out you could just put all these companies online and they could just keep running. I was very enthusiastic between 2020 and 2023 that we had cracked the code on how to finally get away from the geographic constraints of Silicon Valley. I think in the last two years that process has whiplash reversed in an incredible way and I think the tech industry is more centralized in Silicon Valley than it has been in its entire existence. And I think it's AI very specifically. I think something very close to 100% of the quality AI companies are in California and specifically in a 20-mile radius of where I'm sitting right now. There are exceptions—ElevenLabs of course is one of the big exceptions, and Black Forest Labs—but if you look at the value creation numbers and the talent base, it's in Northern California. I think in practice, this region is going to be more central in the next decade than it's been in the last 50 years.
You mentioned the multitude of problems that are in the Valley and California more generally. When you look at the state of play in the US today, are you more optimistic today or are you less optimistic today?
I'm a lot more optimistic than I was 2 years ago, and I'm a lot less optimistic than I was 20 years ago. There is something magical in the American character and psyche. A lot of it is the inflow of people from all over the world; the great Europeans have moved here over the last 400 years. There's something about having a country that is this big and this powerful and this lucky in its geography and natural resources that nevertheless is incredibly dynamic and has risk-taking at the core of its DNA—a willingness and a history of throwing the harpoon at really big bets in extremely aggressive ways. You always worry that's diminishing. I use the term "managerialism" a lot; you worry that everything's just becoming managerial, bureaucratic, and stale. And there are certainly aspects of the US in which that's true. But when the new thing appears, there's something in the American character that jumps at it like crazy. Like throwing the harpoon unbelievably hard. It's exactly what we're seeing in AI right now. The level of enthusiasm, capital concentration, and determination... I'm sure you saw Elon's Terahub presentation the other night. You watch that thing and your jaw is on the floor. I spend all day with incredibly competent people with great ambitions, and I watch that thing and I just cannot believe it. Elon would say there's only one place in the world where that could be accomplished: here. There's only one place in the world where Elon would be able to do what Elon has done over the course of the last 30 years. Thank God he came here to do it. What the AI companies are doing, the big labs, what Nvidia is doing—it's absolutely amazing. I understand why a lot of other parts of the world don't want that. Young Marc would be like, "This is crazy. Why doesn't everybody see this? Why doesn't everybody do this?" Obviously, it's not all pure upside. Part of the American character is rougher than a lot of other cultures. There are definitely pros and cons to it.
Do you worry about the inequality that we're seeing in terms of wealth inequality? To me it feels like it's greater than it's ever been, and we're seeing wealth created in technology larger than it's ever been. Do you worry about that?
Yeah. So to start with, it's definitely not greater than it's ever been. We know history. The natural mode of history for thousands of years was a strongman—a king or prince—who has all the stuff, and then there are the serfs who work the fields and don't have anything. And typically in human history, there were slaves who also didn't have any stuff or any rights. The long-run state of human history has been a much greater, much more profound level of inequality than anything under capitalism. So I would challenge the premise of the question. The debate about inequality always is: would you rather live in a society that has a faster level of aggregate growth and a generally rising standard of living across the board but with greater inequality, or would you rather live in a society with lower growth or no growth in which things are more equal? I have a lot of European friends who say, "Marc, you don't understand, for a normal person living in Spain is much better than living in the US because the baseline is much more secure." I buy that. But if you want the country that is going to go to the moon and build AI and all the rest of the stuff happening here, you're going to have a dispersion of outcomes. If you look at the economic growth rate itself, it tells you a lot. There are a bunch of European countries now that are either flat or shrinking.
Do you worry about the future of Europe when you look at that flat or sinking growth rate for many European countries?
Yeah. I am tremendously pro-European at my very core. I'm an Anglophile and a Francophile and a Germanophile. I love these countries and I think every country in Europe has made fundamental contributions to civilization. The human capital in Europe is absolutely amazing. You'll hate what I'm about to say, but one of my things at the firm is that we should back every single European founder who moves to the US. We should just reflexively say yes.
I 100% agree with that. I think the data would agree with that too.
Yeah, exactly. It's a combination of raw talent, a great education system, and then if the move to the US indicates a willingness to seek risk and throw things up in the air to go after a greater level of achievement... I would love to see Europe flourish and be every bit as dynamic and exciting as the US on all these fronts. I would love to see AI in Europe be a huge thing. London has already played a key role with DeepMind, and ElevenLabs is heavily based there now.
If I were to make you head of the EU, Marc, what would you change about Europe? You have a magic wand to incite growth and ambition.
I have had this conversation many times over the course of 30 years with heads of state and senior officials. The conversation is always the same: "We really want a Silicon Valley kind of phenomenon in location X." And then I say, "Okay, then do ABCDE and F, here are the things you do." And then they say, "Well, what if we can't do those things?"
We couldn't do that. No, that's...
"No, clearly we can't do those things, but there must be some other set of things we can do."
Do you have an option B?
Exactly. I think every one of our listeners can fill in exactly what A, B, C, D, E, F are. Mario Draghi just did this; he wrote the Draghi Report. He just studied the issue, everything's in there. Just read that report and do those things. And you'll notice what's not happening is any of those things.
When you think about all the people that you've met who have been heads of state or in positions of political power, which one were you most compelled to feel you wanted to invest with or work with?
In the last five years, it's the heads of UAE, Saudi, Qatar, Kuwait. There is something really special happening in those countries. I find there are a lot of very talented European politicians where when you get them in private, they know everything. They know what needs to be done. It's almost like the policy discussions have been had so many times that we know all the answers already; we just either like or we don't like the consequences and trade-offs of those answers. I think there's a lot of people who know the formula, and they explain why they can't do it, then they go out in public and half-pretend they don't know what the answer is. The intelligence level is probably higher than it looks, but the courage part of it is probably not quite there.
And then they get unelected and then the cycle starts again.
Well, there is this fascinating difference between the American constitutional system versus the European parliamentary system. When an American president becomes deeply unpopular, he sinks down to a 40% approval rating. When a European politician becomes unpopular, he gets down to like 6%.
Yeah. They start at 40...
No, straight to six. And so I don't know, I always look at that and think: wow, if your default path is to go from 40 to six, maybe it's time to try something different.
We did have a Prime Minister, Marc, where the whole nation was betting on whether a head of lettuce would last longer than her in office. And it was a legitimate prediction marketplace live-streamed. We needed proof of death of the lettuce.
Yes.
We brought up the future of Europe and whether you need to be in Silicon Valley because of AI. When you project forward, do the gains in AI look like AWS in terms of infrastructure dominance, or does it look like the internet in terms of application value dispersion?
Let me give you a broader answer. The question of concentration in Silicon Valley applies to the mainline companies building AI: Google, OpenAI, Anthropic, Meta, X.AI, and Nvidia. That's true for sure. But I think there's a second phase to it which I'm very excited about. I think the power of AI diffuses out globally to a degree people are really not expecting. Furthermore, I think this is also an answer to your inequality question. The assumption always is that the biggest companies or rich people will have access to the best technology. But if you look at AI, I think it's the most hyper-democratic technology we've ever seen. It follows the internet and smartphones in this. The best AI in the world is the app that you download on your iPhone off the App Store. Whichever one is in the race—OpenAI or others—you download that app and that's the best AI. You might have to pay 20 bucks for it, or 200 if you use it a lot, but the free ones are pretty good too. Google and Microsoft give away a lot of AI value for free. I think people all over the world are already crossing a billion users, and we're not many years away from 5 billion people in the world having AI running on their smartphones. I think the consumer benefit, the business benefit, and the economic benefit will be decentralized to a radical degree.
So I guess the question is really to what extent do we feel it is a just assessment that the models will move into the application layer and erode value. We saw Anthropic announce a security update and CrowdStrike and Cloudflare tanked 8-9%. Obviously, it's not threatening them today, but do you think the core models will move continuously into the application layer and consume more and more of the value chain?
There's an even bigger phenomenon than that. There's a paper on this we could link to about "Schumpeterian gains," after Joseph Schumpeter. When there's a new fundamental technology—electricity, steam power, computers, the internet, smartphones, or AI—what ends up happening is something close to 99% of the economic value arrives in the market not in the form of benefit to the companies that make the thing, but to the customers. Economists call this "consumer surplus." If you look at the total amount of economic value creation downstream of the internet, something like 99% of it occurs to the users, not the companies that built it. Same thing with the smartphone; Apple and Google get 1% of the value, and the rest of the world gets 99% of the value. I think AI is exactly the same way. It might even be 99.9999% of the value accruing to the users. It's almost like dark matter; everybody experiences it in their own life and business and nobody's ever going to fully tally it up or get credit for it, but that's where the gains are. So your question is a fight for the 1% that stays captured in the AI industry itself.
Well, I guess the question is does that whole economic theory change when we believe that labor will be eaten? When software spend moves into human labor spend, the TAMs explode. A Harvey of the world eats a large part of legal work and junior lawyers—my girlfriend's a junior lawyer, so don't kill me. Does the TAM explode?
You have friends who were great coders before AI and are now using AI for coding. What do they all report? They're far more productive and they couldn't live without it. And are they working fewer or more hours than before? More. This entire labor displacement thing is 100% incorrect. It's completely wrong. It's classic zero-sum economics. It's the "lump of labor" fallacy. It happens over and over and over again, it's always been wrong, and it's going to be wrong again.
Leave it for mediocre people. And I know that sounds judgmental, but most social media managers are crap. If you get a social media tool that is AI-driven and can replace an average social media manager for AT&T, surely you'd do it.
I don't say this to be insulting, but it's the classic Marxist analysis where there's a certain amount of work to be done and either the machines do it or the humans do it. The answer has to be—and this is what technology has always done—that every single social media manager today now has AI at their fingertips. They're going to use AI to become a better version of themselves, to learn new skills, to become more productive at work, and to not do the grunt work so they can do higher-value work. Classical economics says the actual function of technology is to raise marginal productivity of the individual worker. This has happened many times. You take a worker who used to write with pencil and paper and give them a typewriter, then a word processor. You give an accountant a spreadsheet. Social media manager is a job that didn't exist before the internet; technology creates the new jobs.
Maybe I'm a European communist, but then why are we seeing layoffs everywhere? Why is every CEO I'm meeting saying they're flat headcount or reducing?
Oh, that's very easy. Number one: interest rates. Interest rates went from 0 to 5% at record speed three years ago. Every company had to completely replan their financials because their cost of capital went up five points. Number two: they all over-hired during COVID. The hiring binge was just wild. It was the combination of zero interest rates and the loss of discipline when they went virtual. Essentially, every large company is overstaffed by at least 25%. I think most are overstaffed by 50%, some by 75%. And now they all have the silver bullet excuse: "Ah, it's AI." I know this for a fact because AI until literally December was not good enough to do any of the jobs they're cutting. It just can't have been AI. People look at the spike in how hard it is for new college grads to get jobs and peg that on AI too. But number one is the over-hiring, and number two is that maybe the skill set of a lot of college graduates over the last decade doesn't match the job market.
Final one before we do a quickfire. You are probably the best copywriter of our time: "It's time to build," "American Dynamism," "Software is eating the world." I picture you in a musky room with the American countryside billowing out as you come up with these titles. What is your copywriting process?
It's the culmination of raw frustration.
There goes the romanticism of my imagination, but keep going.
It's the Mount Etna exploding phenomenon. It's always when I just literally can't take it anymore. I just think that fundamentally people are thinking the wrong thing. It's the old joke: someone is saying something wrong on the internet. It's when I think there's a fundamental misperception in the world and I have a sufficient ego to believe I can correct it. The actual drafting in every case has been two hours. Just rip it and go. But it's because I spent the preceding two years getting increasingly frustrated. Do you have an internal monologue? Do you talk to yourself in your head?
All the time, especially when I run.
Exactly. I'm arguing with myself all the time. By the time I write, I've been arguing with myself for two years to figure out what the good arguments are, and then it just all drops on the page.
How do you ensure that people will fight back when the weight of your voice is so significant?
Well, I don't want to lose the upside of that. But very specifically, you have to be careful when giving advice or even just asking questions because people will interpret them as directives. When I'm dealing with one of my partners or a portfolio CEO, I have to be really careful to say, "Look, I don't know what the right thing to do here is. I don't have the information that you have. I don't believe I can dictate this." I used to use the concept of an "in-flight magazine" board member. In the old days before phones, if you took a flight there was an airline magazine in the seat pocket. And the pejorative in venture was board members who flew in for the meeting, read the magazine that said "Java is going to be a big thing," and asked "What's our Java strategy?" The current version is whatever they read on X yesterday. As you get more senior in this field, you have to be really careful because even just asking questions becomes dangerous. You have to bend over backwards to say "this is genuinely not what I'm trying to do." Ben and I almost never weigh in on a direct way on an investment that one of our partners is working on because we don't want that warping effect and we know we lack the knowledge. Doing that in public is particularly dangerous. If we're going to have a difficult conversation, it has to be one-on-one.
We're going to do a quickfire round. Adam Neumann and Flow was a controversial deal. Why did you do it?
At the height of the WeWork meltdown, I talked to a friend who is a legend of the real estate world. He said, "Look, there are only two people in the history of the world who have built compelling brands where people care about the name on the building for commercial real estate. One is a President of the United States, and the other is Adam Neumann." He said this guy is an all-time talent in that industry. That really stuck with me, even up against the wall of negativity at the time. We got to know him and were thoroughly convinced he is a generational talent. We're very happy with that investment.
What was the most controversial or disagreed-upon deal internally?
I don't think we have individual deals that are really controversial because our deal with our partners is that they all get to take risk. They all get to go out on a limb and do things that other people think are dumb, so they don't backbite each other. The bigger issue is what sectors are in and out of the strike zone. The most straightforward example is the deal we *didn't* do and should have: Anduril Series A. It was obvious it was going to be special, we'd worked with Palmer Luckey at Oculus, but the politics and cultural elements at the time scared us off in a way that I very much regret. You'll notice that we are now extremely enthusiastic investors in defense tech, national security, and public safety. We would 100% not make that same mistake again.
If you could tell your kids one thing that would make them the most proud about what you've done, what would it be?
Impact on the world in the form of consumer surplus—stuff that I worked on or helped build is all over the world and has been on net tremendously beneficial. The other thing is the number of people I've been able to have a positive impact on, help through hard times, or teach things to who've gone on to be successful. As time passes, it's more that second category.
What was the most memorable first founder meeting you've ever had?
First meeting with Mark Zuckerberg. He was 19, and it was Mark and Sean Parker. Sean talked the entire time—mile a minute, every idea, absolutely amazing. Mark didn't talk; he just sat and listened. I walked away thinking either he's completely unsuited for the job because he literally doesn't talk, or he's listening and absorbing everything and he's going to be on a vertical learning curve because he doesn't have the ego need to say things. It turned out to be number two.
I love that.
In the second meeting I got him to talk. And by the way, everything Sean said was right and it was all genius.
If I were to push you on whether you'd like to be remembered as an entrepreneur, an investor, or a firm builder, what would it be?
Entrepreneur. Ben and I are lucky that A16Z itself has been an entrepreneurial project.
Marc, I cannot thank you enough for doing this. After 10 years, thank you so much for joining me.
Awesome. Thank you. I really enjoyed it. The questions were fantastic and you've been doing an incredible job. I really appreciate the chance.