[REPLAY] Chris Dixon – Frameworks and Investing at Scale (EP.258, Crypto for Institutions 2, EP.05)

21:44And if you look at the numbers, around 2003, 2004, the quality started getting better and better. It started sort of hockey sticking, exponential growth in terms of users and contributors. Fast forward, I think Encarta shut down in 2007. Today, Wikipedia, I think everyone agrees, is an incredible resource. A couple of interesting points there. Wikipedia really only has something on the order of 20 ,000 people. You don't need that many. Now, of course, 20 ,000 people, how many people did Encarta have? They probably had a couple hundred or something. I don't know what a typical encyclopedia company has.

22:12So even if you just get what's a small number on the internet, like 20 ,000, you can have one of the de facto biggest companies in the world. That shows the power of that. Open source software is still an under told story in the world. 99 % of the software that your listeners are interacting with on a daily basis is open source software. Open source software was a radical left-wing political movement in the 80s. Richard Stallman at MIT, it then morphed, and a lot of people dismissed it in the same way they dismissed crypto today. It morphed into a technology movement in the 90s with Linux and service systems like that.

22:43And then in the 2000s, it really grew. And today, it's 99 % of the software. Most of the software on your iPhone, almost all of the software on your Android, all backend software is open source software. The same kind of thing. It's this power of the crowd. It's the power of the community. And so one of the things I'm really excited about with Web3 social networks is being able to tap into that crowd energy, the crowd of developers, the crowd of creators. And I think we're going to have a really interesting time now in the next couple of years. And I've been talking about these ideas forever, but one thing I'm really excited about is now we finally have great entrepreneurs pursuing it.

23:10And I think we're going to see some real results. And both those examples, music tokenization and ways of paying creators, and then the decentralized social media, you can imagine both of those being at some point in time, a natural monopoly or a natural oligopoly, where on the music side, whoever figures out how to deliver this to creators the best way should be the ecosystem that derives most of the creators, most of the talent. They can move easily, both from a venture capital perspective and then an ecosystem perspective. There's the concept of decentralization, but then there's also power that gets ultimately concentrated, like any industry, in the hands of a few networks.

23:49Curious how you think about that in the endgame. Power in tech is network effects, almost always. Occasionally, you have scale effects, brand effects, but generally, it's network effects. The key question is, where do the network effects accrue? In Web1, you had big services around email and Hotmail. And the reason Hotmail never got that much power is they didn't accrue the network effects. You didn't get dependent on Hotmail. You could leave Hotmail. You could leave Hotmail and still be able to email people because they didn't control the network. The network was owned by a community. To me, that's the key distinction.

24:16In the case of Web3, the network is owned by the community. Yet, I think you'll have big services. We'll hopefully invest in some of them, but they won't have the dominant network effects that lock you in. And users will have a choice. Users can exit. Why do email providers or web hosting providers stay in check? Because you can exit and you exit through DNS. I own cdixon.org. cdixon.org, I point it to an IP address. If that IP address is a service provider that I don't like, I can switch where I point it to. That gives me power. If I had that same ability on Twitter, I'd switch off of Twitter.

24:43I'd switch cdixon on Twitter to something else because I don't like how they run that service. They have spam and a bunch of other things. And I'd like to switch and take my followers with me, but I can't do it and I'm locked in. And so it's all about network effects. So my suggestion is when you make predictions about monopolies, you need to analyze where the network effects are accruing. And you basically have two choices with network effects. We can have them accrue to a company or we can have them accrue to the community. Those are the two ways we know how to build networks. Maybe there'll be a new way in the future.

25:07Those are the two ways we know it now. And to me, that's the critical question as to whether when you analyze, is something going to lead to a monopoly? What are some of the other themes you're excited about on the investing side? I'll say first and foremost, one thing I've learned in venture capital, for better or worse, is it's fundamentally a talent business. We invest in people. And so someone will come in and have some new idea we never thought of in a category we never thought of and we'll invest if they're great. I'll talk about themes, but I just want to mention that the first thing we'd like to do is throw out our themes and invest in great people.

25:33In our practice, we break it into multiple categories. We have a very active infrastructure practice. The way I look at the history of computing, you have two layers of activity. You have the infrastructure layer and the application layer. Just to give you an example, let's take smartphones. I was sick for a week and I was watching old movies. Lethal Weapon, Mel Gibson, it was great. It was funny because they had these giant cell phones with these huge boxes they were carrying around. In the 90s, there were companies like General Magic. There's a documentary. It's really interesting about it. It's a company in, I think it was early 90s, They tried to create an iPhone, but they were too early.

26:03I had a lot of these devices. There was the Sidekick, the Trio, the Palm, Windows Phone, the whole thing. And then finally, boom, 2007, the iPhone came along, Android, and that really accelerated the modern smartphone adoption. But you had this whole period where the infrastructure was getting better and better. And then finally, you get to a point where it gets good enough. You've created the right abstraction layer where the developers no longer have to understand how the infrastructure works. So almost all of the big mobile apps were created between 2009 and 2011. In 2007, he had the iPhone.

26:322008, then he released the App Store. It takes people about a year to figure it out. And then people can go build these services. So if you take something like Travis Kalanick building Uber, at that point, the infrastructure was good enough that he depended on GPS. Obviously, Uber does to locate the taxi and the rider. But he didn't have to understand how to build a GPS chip. He could focus on building a taxi service. The infrastructure had gotten good enough that you could really have modularity separation between the application and the infrastructure layer. I think we're close to that in blockchains and crypto.

27:00but we're not quite there yet. So we're making a lot of investments in the infrastructure layer to get to that point. There's obviously financial and entrepreneurial opportunity in that. I also think it's important for bringing the space forward. We're going to take a quick break in the action to tell you about SRS Aquium. Want to make sure your M &A processes aren't stuck in the past? Partner with a company that's been defining the future of dealmaking for nearly two decades instead. When it comes to M &A innovation, SRS Aquium has reshaped the way that deals get done, streamlining processes for maximum efficiency and minimum headaches.

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28:25So composability, it's a very important concept. Going back to my discussion of open source earlier, I think you can't really understand the history of technology if you don't understand why open source became so dominant. I think a lot of people that talk about technology don't talk about this story, and I think they're missing a huge component. Open source is so dominant because you only need to create each thing once. So when When you go on GitHub and you create a piece of code, that code can be reused by anybody. Instead of how proprietary software works, you build a widget and you got to keep building more and more stuff and rebuilding the same thing over and over.

28:57The beautiful thing with open source software, it's like Lego bricks. Someone builds one Lego brick, someone builds another, someone else comes along and combines them. I like to say composability is the software as compounding interest is the finance. It has that same amazing thing when you do compounded interest, you're like, whoa, that really matters a lot. This is obviously well known to your listeners, but in software, that's kind of the thing that gives you that same effect. Composability has a long time been recognized in the open source software world as the key factor by which open source software can move so quickly as compared to proprietary software.

29:29So one of the interesting things that blockchains introduce is composability, not just at the software code layer, but at the service layer, meaning you have running software. So you can have a service like, as an example, Compound, which we're investors in. It's a lending protocol built on Ethereum that has tens of billions of dollars managed by the protocol. This is a very interesting new idea where the money does not sit with a company or in a bank account. It literally sits in the code. This is one of the new kind of capabilities of a blockchain. And Compound, by the way, contrary to a lot of the news you'll read today, Compound and all of the other on-chain DeFi protocols have performed quite well in this volatile market.

30:03One thing interesting about Compound is it's a service in and of itself, but it's also a Lego brick. We have another investment called Goldfinch, which builds on top of Compound. And what they do is Compound is only on-chain. Goldfinch go to developing countries and other places where there's a need for capital. and they borrow from these protocols and then build other services on top, which bridge these services from the digital to the offline world. And that's very powerful because they don't have to go rebuild that first piece. And so you're not reinventing the wheel. And that gives you this accelerated effect.

30:31We've seen a bunch of interesting examples of this. I think that over the next couple of years, people are really starting to understand how to do this and developers are really adopting it. And I hope we see accelerated examples of composability. I'd love to go through a couple of those app layer categories and just see what's exciting you. What else in DeFi is getting you excited? DeFi is really interesting. We've been involved for a while. We invested four or five years ago in MakerDAO, which I consider one of the original DeFi protocols. And then Compound, as I mentioned, Uniswap, which is what's called a decentralized exchange, just passed a trillion dollars in trading volume, quite popular.

31:05A lot of those came out two or three years ago. And there's been some interesting stuff since, but I think somewhat of a lull in DeFi. A lot of these things run on what's called layer one Ethereum, where you have high transaction costs. One of the interesting things happening now in blockchains is that we're seeing production-ready, scaled other networks, including what are called layer two networks on top of Ethereum that are really ready for prime time. And that dramatically lowers the transaction costs and therefore opens up a lot of new design possibilities. When you have high transaction costs, as you did previously in Ethereum layer one, you had applications like lending where you maybe borrow a million dollars, you don't mind paying a hundred dollars plus for the transaction.

31:45By lowering the transaction costs, I think you're going to see a lot more new design. So it's an area we spend time on and we're actively looking at. We made a few investments, seed investments in smart teams recently. I expect we'll make more, but I do think it goes in waves and right now waiting for the next wave. As we're going through this tumultuous time in the whole ecosystem, how do you think about in the area of DeFi, the embedded leverage in the system? So we should distinguish DeFi from quasi-crypto DeFi. I mean, there's these companies now in the news that are not DeFi. They're not on-chain, that are involved in lending and things, which according to news reports have been in trouble.

32:20Everything on-chain, all the DeFi stuff that we're investors in, it's all open source, open data. You can go analyze it. It's all just there. So we can see it all. All of those things are fine. We'll see if things could change, but by all metrics and reports, these other companies are very opaque. I don't think we have really any insight to them. I don't know where that will go. And maybe it will get worse before it gets better. You have some hedge funds now that maybe you're in trouble and maybe have leverage. Maybe we can just allude to regulation. Contrary to some reports, we have been advocating for regulation in the space.

32:49Specifically, I'll just take stable coins as an example. That's been in the news. Some of these non-collateralized stable coins blew up. It's a very important distinction between collateralized and uncollateralized stable coins. For example, USDC is a stable coin that's co-sponsored by Coinbase and Circle that is fully collateralized. So if you have a dollar of USDC, there's literally a dollar sitting in a bank. It's audited. It's regulated. Maybe the regulations can be improved. And then you have uncollateralized. Terra Luna was this prominent thing that fell apart. And there you didn't have a dollar in the bank.

33:19That should be regulated. I think people making claims to consumers that can't be backed up, that's the point of financial regulations. Quite frankly, for us, it's been frustrating because we're not involved in the uncollateralized ones. USDC gets all the attention from the regulators and the other ones are ignored. And it creates this perverse incentive where it actually, I think, incentivizes people to be offshore, more aggressive because they don't get the scrutiny. And the people that want to operate in the U.S. and play by the rules do. And I think it's been exactly the wrong way to think about this.

33:48What's happened in the gaming area? Axie Infinity had a big growth adoption and then a contraction. What are you seeing today in gaming? They have a new game that's doing really well. As with most of the press stuff around this, it's overly dramatic and quite negative. and I don't think very accurate. We have a separate games fund at our firm that's not crypto. We just launched it about a month or two ago. But I've had a games practice for a while, which is separately, by the way, an interesting story because I think the games industry is changing and we're trying to be part of that. That games team has no specific focus on web trading crypto.

34:18There's like a set of great gaming talent companies out there, Blizzard, Riot, Epic, Valve, Supercell. And what will happen is maybe not the most senior people, but the next most senior people will sometimes leave and decide they want to strike out on their own and create a studio and come to firms like us. And that's kind of what our games fund does is they invest in these really talented top end game developers, people that have created world-class games. Those game developers, I would say the majority of them are now doing NFT Web3 gaming. We've probably made 15 investments in what I would call world-class game developers.

34:46This idea that Web3 gaming, you pay people to play. I think that's a very early version of what's going on. I think what's really going on is that modern gaming, if you look at games like Fortnite, League of Legends, they make their money through virtual goods and they have many economies in these games. The most extreme example is something like EVE Online, where it's truly this big, really fascinating economy. And the idea, in my mind, in Web3 Gaming is today, in these economies, you can't take your money out. You're kind of locked into the game, and all of the profits go to the corporation that sponsored the game.

35:16So imagine instead an economy that's much more fluid, where you can take your money out, and where the company takes a tax, I think in Axie it's 5%. But the goal of the game will be to create this giant economy and grow that economy and let it permeate the internet and interoperate with other games and be part of this fabric of this larger, quote, metaverse. Take a tax on it. They're for-profit companies, but the taxes need to be 100%. And that's where it is today. I think the current designs are very limited in how they think about it. They're much richer designs where the users can benefit and can have this fabric of games interoperating as the internet becomes more and more important.

35:50if 20 years ago you told people there people were making a living making videos online and tweeting, it would sound crazy. I think that trend will only increase and there'll be more and more people who earn a living digitally. And I think creating spaceships and EVE online and selling goods and creating worlds and doing all sorts of other creative activities, for example, in a gaming universe will be a really interesting source of income for a lot of people in the future. At the programming level, the concept of being able to take whatever virtual goods you have and move them from one game to the other isn't actually that hard to understand.

36:20How difficult and how far away is that from being able to be programmed so that, as you said, someone who doesn't understand what the technology is can just seamlessly play these games and move around their virtual goods? I think it's less of a programming. I think the programming is there today. NFTs are a pretty simple programming standard that's relatively easy to bring from one game to another. I think a lot of it is more questions that need to be worked out on the design side and the standard side. So if I have an elven magical sword in one game, what does it mean to take it to another game?

36:51How does it behave? Are the attributes the same? Are the visuals the same? What are the incentives for the user to do that? What are the incentives for the games to interoperate like that? Those are the more interesting questions. And I think there's two ways to look at that. One is, wow, this is hard and we haven't figured it out. The other is opportunity shows up wearing overalls. It's a really exciting thing to figure out. That's where the most creative games people are self-filtering into this. And they're saying, wow, this is fun. I don't want to create another cut the rope, the 18 ,000th puzzle game on the iPhone.

37:21I want to invent new design patterns. It's the frontier. So the opposite of backing some of these great creatives is you mentioned the notion of decentralized content and story creation. What's happening in that area? Yeah, we've made a couple of investments there. I'm very excited about this. There's a blog post on our website created by a friend of ours called Fantasy Hollywood, which first inspired me. If you think about fan communities on the internet, websites like Wattpad with fan fiction, or you go on Reddit and you read Star Wars communities or Harry Potter communities, people are very, very passionate about these.

37:52They create new stories, they argue, they vote on canons. The idea I find fascinating and I'm very excited about is imagine if the next Harry Potter was actually created by an internet community and that internet community not only created it, but actually owned it both economically and in terms of control. They could decide on the canon. They could fork the canon. They could create new characters. And they, in some way, participate in the economics of it. If it's very successful, if there's a movie license, whatever it might be, they get to participate in that. So to me, that is what I was talking about earlier, the development of the internet and things like Wikipedia.

38:23This, to me, takes it all to a next level. Wikipedia is fun and everything else, but they still have that banner every year begging for money. They have no economic engine. So what if you combine all of that enthusiasm and energy that people have already demonstrated for all of these various creative communities and combine it with an economic engine that rewards them. I've been spending time in LA. The media world, people in Hollywood in general, I think are very excited about Web3 for a couple of reasons. One, NFTs and selling emotion and digital objects. It's not at all strange to them in the way it is to Silicon Valley.

38:53People at Google and Facebook, in my experience, just don't get this stuff. Web2 entrepreneurs just scratching their heads and they say it's all scams and fraud. They just don't get it. People in Hollywood get it. It's not weird to them. They've been selling emotion and stories and everything else for a hundred plus years. And number two, they don't like the current status quo. They don't like the intermediaries. They've suffered from it. And so the idea that you could create new things that go around those intermediaries is very exciting to them. So I think you'll see a lot more partnerships between the Web3 community and the media community.

39:20I think we're natural partners and the idea of partnering with them and helping them bypass these gatekeepers is a really big opportunity. As you built this business at A16Z, The firm has this wonderful reputation for being a full service provider for portfolio companies, entrepreneurs. I'm curious how you adapted that to your crypto investing on your team and what you're providing to your investments. Before I joined, I joined in 2013. The firm started in 2009. And the major innovation of the firm, VCs had always promised to do more than provide capital, but they didn't really have the support system to actually deliver on that.

39:56They said, we're going to have a different model where we're going to take our money and our management fees and spend a lot of it on what we call our operating team, for sure, teams that support our company. So that's always been the model of the firm. When we started the first crypto fund a few years ago, we had shared services with the rest of the firm and forked out the investment side. But what we found though was, to your point, that really the crypto Web3 entrepreneurs wanted different services. So we've actually now split things off. I mean, we're still formally part of the bigger firm and we have economic relationships, but from an operational point of view, we're a completely independent team.

40:23We have 80 people on our crypto team. 13 are on the investment team. Then there's some set of back office and support, and then 50 or so on our operating teams. Soon to have 10 people on our talent team. Talent is executive and engineering and design recruiting. And we do everything from sourcing to recruiting to placing. This is just a hugely high demand thing in our portfolio. We have an engineering team that's contributing to open source projects, that's helping our companies with coding problems. We have a six or seven 10-person security team. That's a big topic in this space. So we have manual code auditing to find bugs.

40:57We're starting now a formal verification program. That's the thing to write software to go find security vulnerabilities. We have a 10-plus person marketing comms team that we're growing. We just launched our first Web3 podcast newsletter. We're going to do a whole lot more there. We started a research team. We hired this amazing guy, Tim Roughgarden, who's a professor at the computer science of Columbia, who now is full-time with us, who's leading that effort, and just hired a whole bunch of other great professors and we're going to be putting out research. All of that will be open source. We're trying to model it after the great research labs.

41:24In the AI world where they've pushed the field forward and published a lot of great work and done that in an open source way. We have a business development team. Much of it is demand driven. We talk to entrepreneurs all the time and they say, hey, I need this. I need that. Can you help me? We don't try to replace what the entrepreneurs do. Great companies should build out their own capabilities, but we think there's a role for VCs to supplement that. We make a very heavy investment in those areas and think it's very important. When we invest, we don't do quote unquote party rounds. We don't put a little bit of money here and dabble.

41:52We either invest and lead and back up the truck and put all our resources behind it and roll up our sleeves, or we don't invest. That's our model. With both your team and say your talent team in helping your portfolio companies, I'm curious if the hiring practices in these types of projects are different in what you can look at for someone's talent and skill than they might to have been in a traditional organization? I think so. There's some similarities and some differences. So for example, in our world, a lot of people may not have formal educations. They may not have the same pedigree, brand name, resumes.

42:25We've hired a lot of people who have not gone to college. What we want to see is they've demonstrated excellence. That excellence can be through open source code. It can be through other kinds of things they built, other achievements. Credentials are significantly less valued in the space. This crypto blockchain is global. This SKU is more technical. It's very mission-focused. And we just had our offsite. But what makes it so fun and why I find it so exciting is a team of true believers. And I think that's true in a lot of the people we recruit. I think they're really mission-driven. If you're in tech now, what are the exciting new pioneers and missions you can pursue?

42:57This is no way to diminish other categories, but I just don't think people feel mission-driven with respect to SaaS software, as an example, or databases. I think those are important categories, just so you know, and our firm invests in them. They provide real value. But Web3 is probably unique right now in the tech world in that it feels like more than just a job. We really look for that as well. When you're backing entrepreneurs, you mentioned earlier the importance of you're really backing great people. Does the definition of what that means in a technical space in this mission-driven, decentralized way differ from what it might be, say, elsewhere in the types of entrepreneurs A16s backing outside of the space?

43:33One of our core frameworks is invest in strengths, not lack of weaknesses. So what that means is look for people with some kind of superpower, but that doesn't mean they have to be well-rounded. The truth is a lot of great people and a lot of great companies have a lot of flaws. And if you go and look for things that are well-rounded and check all the boxes, I believe that's a path towards mediocre returns and mediocre hiring. So we try to really understand that core characteristics you look for in entrepreneurs are probably pretty universal. It's some really great strength, superpower, some kind of deep insight that might have led them to that startup, whether it's through their personal experience or technical experience or some other reason.

44:10And then a lot of it is grit. My mental model is basically every startup hits the quote-unquote trough of disillusionment. I think that was a Paul Graham blog post. You start a company and you have this idea and everything's fun and you're having beers and splitting up the equity and talking about all the big visions you have. And then you get into the details of it and almost always you hit this trough of disillusionment. The trough of disillusionment is like, oh my God, I don't have product market fit. What was I thinking? This is a lot harder than I thought. You get through that trough, you have to have two characteristics.

44:37You have to really just be all in. You have to have grit and you have to be willing to put up with that. and be kind of miserable and all your friends say, what are you doing and why are you wasting your time? And then the other thing you have to do is you have to have really deep and comprehensive domain knowledge because you've got to figure out how to get out of that trough. Usually that solution is not a business solution and not a technical solution. It's a comprehensive, cross-disciplinary solution. And you have to have a founder who really sees that whole thing and understands it to get through that.

45:03There's no formula for predicting people will be able to get through that. I don't have the answer. I think I've gotten somewhat better at predicting it over the years. But that's another key characteristic you look for. That's a very important one. I'd love to turn a little bit to this market environment. We've talked in the past about the different crypto winters and the bull markets and what happens at different inflection points in market pricing, capital flow, technical development, and talent. Curious in this most recent sell-off, if you're seeing anything underneath that's changed in any material way.

45:32My read on this, you first had the high growth tech stocks fall. I saw today Netflix was down 70%. Crypto has obviously fallen. To me, this feels more like 2008 than the crypto downturns of 2014 and 18. A macro thing with inflation, interest rates, the next few months will tell maybe the inflation was transitory, or maybe it will lead to problems in real estate and credit markets. And my sense is this is a broad macro risk-off mood and that crypto is caught up in it. And you're getting these domino effects where some of these firms are failing and things which are exacerbating it. I feel very strong and solid in all of our core thesis in the space, and none of that's changed.

46:08And I don't see any wavering among the people we're involved with, whether it be at our firm or in the investments we have. And historically, I'm never happy to see a downturn and people get laid off and there's all sorts of bad things that happen. But for me, at least, these kinds of downturns have been generally the best investment periods and have also been, I think, very good from a entrepreneurial focus point of view. People aren't distracted with money and shiny objects and things, and they're just building products. So I'm quite optimistic. Where has the underlying technical advancement, say, over the last year been most pronounced that someone who doesn't understand the technology wouldn't really appreciate?

46:42We now have a new wave of blockchains that I call Gen4 blockchains that are coming out that I think are interesting. So for example, two interesting ones were spin outs of Facebook DM. So Facebook had spent a lot of money and resources building out blockchain infrastructure. They were not able to launch that for a variety of reasons. but the code they wrote was open source and a lot of the teams have left. What they did in that process was that they recruited a lot of great, what I would call classically trained computer scientists who have deep knowledge in relevant areas like distributed systems, cryptography, et cetera.

47:12Those folks had the benefit of being able to study the history of the space and looking at the strengths and weaknesses of various systems in the past. They are now striking out on their own and creating a next generation infrastructure. This is a very common pattern. You saw it with PCs as an example. So PCs started it off with hackers and Steve Jobs and Wozniak were at the Homebrew Computer Club, and it was a bunch of tinkerers. And they did a great job. And some of them make it to the promised land, by the way. When I say Gen 4, I think the Gen 3 and Gen 2 blockchains, a lot of them will upgrade and be very important in the future.

47:40There is also sometimes an advantage to starting later, in the same way that you had Apple and the other tinkerers, but then you had Compaq and Dell and Microsoft and all these other people take the baton and run with it. I think you might see that here. If you look at just generally at the history of technology, people mistakenly think of these things as laws of physics, like Moore's law, people talk about as if magically there's this inevitable march towards being able to pack more transistors on chips. I think in reality, a lot of these performance improvements are really economically driven.

48:06Once the iPhone hit product market fit and sold a hundred million units, they could go and do all this amazing advancements in chips and optics and everything else. I think you're seeing the same effect here. I think now that we're seeing an economic model that's working, you're now seeing a lot of investment in the underlying infrastructure and you're getting this technology economic flywheel going. Is there anything in this particular downturn that concerns you differently than downturns of the past? The main thing I think about there is regulation. In the past, the space was too small. I think regulation is coming and I think we want to help have a discussion about it, at least.

48:38What I would like to see is an outcome that regulates away the bad behavior while allowing the good behavior, the innovation I'm discussing on this podcast to continue, as opposed to the two other states, which is under-regulated now, which I don't think is good either, or over-regulated to the point where a lot of this innovation moves offshore. We believe very strongly that this innovation should be in the United States. Most of our companies are domiciled in the United States. We always recommend that. We want them to pay taxes. I mentioned Uniswap. I'm in New York right now. They're down the street in Soho.

49:07They have an office here and they pay taxes. We had these debates in the 90s over encryption and all these other kinds of internet policies. I think they landed in a pretty good place. Fast forward to today, I think that was a very wise decision because this has been a huge economic engine for the United States. We basically have two exports in the US right now. We have tech and media. Just look at the numbers. Those are the two killer products that we have. It's important that we continue that. This is the future. Web3 is the future of this. And it's very important that we find a balance that gets rid of the bad behavior.

49:36And I agree there's bad behavior. We want to get rid of that. It's not good for anybody, including the space, but also provides a path for entrepreneurs and innovators. So to me, that's probably the thing. It's gotten high profile enough that that's just inevitable. That's something I think about a lot. All right, Chris, I want to ask you a couple of questions before I let you go that I didn't get a chance to last year. What is your biggest investment pet peeve? When we invest, I think of it as a covenant between us and the entrepreneur. We're going to be there. We're going to roll up our sleeve.

50:03I take pride in the fact that we're very supportive as investors. So Coinbase, as an example, I was on the board and we invested in 2013, but they did 15 rounds of financing before they went public and we invested in every single one of them. Dapper Labs is a company that makes this popular product called Top Shot. But before Top Shot, they did, I think it was six rounds of financing and we invested in all of them. So we see ourselves as very loyal and we want that back from the entrepreneur. Our expectation, our hope is that there's a commitment both ways. We don't expect them to win or be successful, but we expect them to try really hard.

50:30A pet peeve would be entrepreneurs who just don't keep that covenant. Hey, I'm going to quit my startup and go take this cushy job. When we invest, that's kind of The only thing we expect, certainly don't expect success. We just expect perseverance, I would say, and keeping that covenant. Which two people have had the biggest impact on your professional life? Maybe I'll be nostalgic for a second. I grew up in a small town in Ohio, and I got interested in computers. Dayton has an Air Force base. It turns out that's an Air Force intelligence base where they do a lot of computing stuff. And I didn't realize this at the time, but I was very lucky because there were these groups of people.

51:03This is in the 80s. My parents would drive me over to these school gyms every two weeks. And there were all these guys who were probably in like their 40s or 50s or whatever. And they had beards and mysterious jobs. And we would just sit around and talk about programming. We'd bring our computers. We'd show off our code. This is pretty real internet. And that was really formative for me. I don't remember the specific people, but I'm sort of lumping them together. What was so great about that too was it was a real community. PCs in the 80s were pretty niche. before you really had the breakout of desktop publishing.

51:35And it was a real sense of camaraderie, like you're in this too, everyone programmed. Basically what you did back then is you programmed or you played games. I was incredibly lucky to have that because that really got me interested in computers and gave me the sense of community. And by the way, it's one reason I love crypto today. I feel like it's a community too. You meet people that are into it and you really feel like it's affinity. To me, a community is not when you look up to a leader like Steve Jobs, it's when you bump into somebody at a bar and they're interested in that topic and you actually feel an affinity.

52:00And that's how the PC felt back then. And that's how crypto feels today. I used to write letters. I wrote a letter to Apple. I basically said, look, I'm a 13-year-old and I have an Apple and I don't have any books on how to program. And I remember Alan Kay, who's a very famous computer scientist, literally wrote me a letter and sent me a giant box of books. That was the atmosphere back then. It was this really collaborative, small community and had this big influence on me. My whole career has been finding those communities that could be the PC back then, then moved to open source software and the internet.

52:30And I think blockchains and crypto have picked up that cult-like community feel today. How about one more recently? I used to be an entrepreneur in the 2000s. I had a lot of entrepreneurs who helped me out. Someone like Ron Conway, for example, influential angel investor. He was just so great because I started my first company in 2004. And it was a consumer internet company, which was just really not a popular thing. It was very hard to raise money. I just met him and then he introduced me to a bunch of relevant experts. And I think they all said negative things that he still invested. and he helped me and he opened up this whole community and introduced me to people in Silicon Valley and just so supportive and helpful and didn't have any reason to be that I could tell.

53:06People at the firm, Mark and Ben, I joined the firm in 2013 and I think they had a billion dollar fund, which at the time was a big deal. People saw it as too big. The venture world, 2013, it was sort of happening, but it wasn't anything like it was today in terms of scale. And I came in and I said, I want to do really cutting edge stuff like crypto, drones, AI, virtual reality. And I want to do it aggressively and invest a lot of money. And I came in guns blazing. Some worked out, some didn't, including things like I led our investment in Oculus, which was a large check and a hardware company.

53:36And one or two other firms on earth at the time would have both the financial resources and the will to do that kind of investing. That kicked off a lot of stuff I did later on. And that was important. As with anyone with a fairly long career, I had a ton of people that helped me along the way and gave me breaks. and I was very lucky. All right, Chris, last one. What's the biggest mistake you've made and what did you learn from it? Generally, people who might be listening to this, who are interested in technology, if you have tech skills and you're in this world, they dramatically overestimate the risk of starting a company.

54:10And you'll see a lot of people who, I finished Stanford computer science and now I'm gonna go work at Facebook for four years and now I'm gonna do this. I wrote a blog post years ago called Climbing the Wrong Hill. The idea was, then you get stuck on it where you're at Facebook, there's always some carrot, some next step, get the promotion. And it's very easy to get trapped on kind of a local optimum, as you say, and see us like the wrong hill. And it's very hard because at some point too, especially as you get further in your career, you have to take a step back to try a different hill. You probably have to take a pay cut and lower title and everything else.

54:42When in fact, I think the optimal strategy, especially early in your career is to experiment. It's to try different hills, to try one, to try another, to optimize for learning, to optimize for meeting great people. You are the sum of the people around you. You become some kind of amalgamation of the people around you. And I did this myself in my 20s. That's advice I would give is don't wait. A very simple heuristic is people will come to me, can you give me some career advice? I'm like, great. Well, what do you want to do in 10 years? I want to be a founder. What are you doing now? I'm at McKinsey.

55:09How does McKinsey get you there? Well, I'll get two more years of training. No, no, no. Just go do it. And maybe you fail the first time. But if you do it right, if you fail right and you surround yourself with the right people, you can often get another shot. Chris, always super interesting. Thanks so much for taking the time. All right. Thanks, Ted. I appreciate it. Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com, where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time.