Marc Andreessen: What We Got Right—and Wrong—About the Future of Tech

0:00First of all, it's folding chairs. It's about 20 LPs to start in our little conference area with our flat panel TV on the wall. It's growing to be a somewhat larger production. It's like a process of falling up the stairs. Just when you think you've got to end figured out some weird issue pops up and you've got some new thing to prove. Every one of these companies that end up being global world -beater always has one of these stories that the path not taken. Today's conversation is with Mark Andreessen, one of the rare people who's helped shape both the internet's past and its future. We reflect on the firm's earliest days from folding chairs and a flat screen in a small office in 2010 to what's now a multi -stage multi -sector platform backing the next wave of generational companies.

0:39Mark shares what it was like raising fund one in the shadow of the 2008 financial crisis by scale became a strategic asset adventure and how software is eating the world evolved into a much broader and deeper investment thesis. We also talk about the shift from generalist investors to vertical experts and and how A16Z's little tech agenda is reframing policy conversations around innovation, AI, and American dynamism. Let's get into it.

1:09As a reminder, the content here is for informational purposes only. Should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. Please note that A16z and its affiliates may also maintain investments in the company's discussed in this podcast. For more details, including a link to our investments, please see A16z .com forward slash disclosures.

1:39So the firm has started, we raised the first fund in 2009, which was in the depths of the stock market crash after the high to the financial crisis of 2008. So the first LP meaning in 2010. So this is number 15. Wow. Yeah, first of all, it's folding shares. About 20 LPs to start with. Wow. Folding shares in our office in our little conference area with our flat panel TV on the wall. And actually, some of the same people are still with us. Which are original LPs are still here. And yeah, it's growing to be a somewhat larger production. And take us to some of the first LPs. They must have been true believers at the time, not just because of the strategy, but because of the market timing.

2:10Take us a little bit back what that was like. So the thing you remember is that .com boom bubble was sort of 95 to 2000, although it has its own ups and downs even during that period that got forgotten later. but in 2000, of course, catastrophic crash. And then it took three or four years to dig out of the dot -com crash. So I was like 2003, 2004, before anything really started to happen. And then immediately what happened was any sign of anything working in tech was immediately viewed by just screams in the press, which is bubble 2 .0, bubble 2 .0. It's just like it's all happening again. These crazy idiots are back at it again.

2:38They're everything's gonna come crashing down. There were two big M &A events in 2005. Yahoo bought flicker and delicious. So did Yahoo buy them both the thinkers and thing. And they were like $25 million tickets each. and literally the press just like bananas. You know, Facebook was getting started. Social media is a joke. What did your cat have for breakfast? Nobody cares. How are they gonna make money? Are they gonna make money? They'll never make money. And so it's just this like wall of negativity heading into 2008. And then the financial crisis happens. And just like everything just gets like completely devastated.

3:04Everybody's flat on their back in the financial investment world. And so Ben and I in March of 2009 decided it's a perfect time to go start a venture capital firm, which was an absolutely unique view at the time. There were only two venture capital funds arranged in all of 2009. It was us in a new Closel of Ventures Fund. and a benote, of course, is one of the legends of venture capital. So he was able to do that. But we were the only other literally venture fund rays that year. And at one point, where you're considering starting another company together, or we're like, hey, we really want to support entrepreneurs.

3:28This is the company. Yeah, we were done. We had started multiple companies. And so we were done. We completed that part of life journey. And so then we decided to start a firm. We met some people. We were really nice to us and really helped us kind of get underway. And then we started meeting the LPs. We'll get to the evolution of firm. But just because you mentioned it, the Zuckerberg acquisition story, you of course have been at the board in Facebook for a long time. Take us back to that memory and your conversations with Mark and what was your perspective at the time? Yeah, I mean, this has been chronicle over the years, but basically what happened was it wasn't negativity at that time of like this technology's evilness can be destroyed the world.

3:55The negativity was this technology is absolutely useless. Absolutely useless. Have no point. Have no purpose. It's a joke. Yeah, it's a farce basically. And like it, as you said, never make any money. And that was just kind of the uniform public conversation around it at the time. And so Facebook took off and they had ad revenue early on, but early on it was like remnant ad revenue. They didn't have targeted ads yet. So the early ad revenue at Facebook literally was selling remnant banner ads from the Bing ad network And so it was like the super low CPMs And you know mark always had this theory of how he could turn it into a big thing But you know, he just says wall and negativity and then he just at that time had a lot of people around him I mean it had been a fast rush from 2042 2008 to get to the point where all of a sudden they're starting to get offers in the Hundreds of millions of dollars and then was this after a down -rounder before the down -round the Microsoft down -round was after that Because that was after the 15 million dollar round.

4:39It was like a down -round. So that was a couple years later But I remember Yahoo at the time Yahoo was doing a turnaround under Terry Semmel at the time and Terry correctly figured out that yeah Facebook was a property that they should buy and so they actually struck a deal I don't know if it got literally signed or verbally agreed to but they structured a deal It was a billion dollar takeout. It was an agreement to do a billion dollar takeout and then the financial crisis hit advertising immediately collapsed because advertising is the first thing that gets cut in a recession and Yahoo came back and essentially renegotiated the deal tried to lower the price Yeah, and that gave Mark basically the I don't know cover kind of where with all of it you'd be able to walk away from the deal.

5:12But look, very least strongly considering it at the billion dollar level. And again, it's just like at the time, it was just like a spectacular home run for a company growing that fast, started in a dorm four years earlier, during a time when again, this stuff was all just viewed as a complete joke. The sort of ultimate kind of thing in the story is a few years later, somehow I don't know how, but somehow the internal Yahoo deck on the acquisition got leaked and got published. So Yahoo's internal analysis at Facebook at that time. And Yahoo people were bullish on the company, which was why they offered to buy it.

5:39but they and everybody else radically underestimated the future growth company. Like it's just like this incredible low bound kind of estimate. And then not only did Facebook grow really fast, but they figured out target advertising. And then by the way, they went through the exact same crisis again, basically after they went public in 2012, they went public right as the transition from desktop to mobile was happening. It was really when the iPhone was getting critical and there was just this wall again in the press. This wall of negativity, which is, I mean, you read the articles the time and there's like, this is going to destroy Facebook because everybody knows that internet ads are based on the amount of screen real estate that you can sell.

6:12Like the ad rates literally are the number of pixels on the screen. And therefore logically because mobile screens are much smaller than desktop screens, the ad rates are going to shrink and that's going to be it. And the stock came out and shit the bet right out of the gate. And it was literally this argument of mobile ad opportunity was much less than the desktop ad. Opportunity, and what we know now today is that mobile met people were going to use this stuff far more. Yeah, all day long usage went way up. And then we learned that the targeting works, right? And everybody knows, say, I sort of obvious that company like Facebook is a trove of personal data that you can target as against, but at the time, it was not something that people believe would be the case.

6:43I often describe these companies, even the ones that come from the outside look that, like they're just like up them to the right the whole time. I always describe it as it's like a process of falling up the stairs. Yeah. Right. Because it's just when you think you've got everything figured out, like some weird issue basically pops up and you've got some new thing to prove and you've got some other thing. Yeah. Mark's one of the best who's ever lived and being able to work his way through every single thing that's come along. It's funny that we went from mobile ads won't work to organizations, you know, Justin Harris dedicated to stopping ads from working too well, basically.

7:11As it works so well, we have an epidemic of sort of, people using it so much, it's just so fun. But I would even heighten that. Within four years it went from the adjunct work at all too. They are literally mind control. Right. They are literally mind control. Right. You know, this is political ads specifically. And they can literally like put the whammy on people to vote for candidates who nobody would ever vote for. Have they not been mind control? Exactly. Right by the Facebook algorithm. And the whole thing the whole time was so weird because it's like, wow, like if the mind control works so well, like, why don't we have triple the ad rates on the Soviet toothpaste?

7:37Why does it only work for Trump? Yeah, exactly. $200 ,000 can ship the whole entire election. Yeah, right. Exactly. That's the thing. The Russians can spend, by the way, I think the result of it was, I think it was a result of $80 ,000 of ad spent in the Russian in the relevant period of the election. There was like a total of like 140 ,000, but during the actual rent of the election, it was $80 ,000. And so the theory was $80 ,000 of ads channeled into this magic mind control device. I'm a bank for the buck. Yeah, literally swung an election and Hillary Clinton spent $3 billion on it. Right? But the whole time we're just sitting there, I'm just sitting there just like, I can't even believe, like, it doesn't make any sense.

8:08I went to Hillary's first big speech after she lost as Stanford and she literally sat on stage. Donald Trump is only president today because Vladimir Putin had to Facebook and I'm like, I'm fired and Putin has. Thanks. What the after you're talking about. Anyway, and so literally it went from 2008 to, this is useless. To 2012, this is still useless. However, it does get some credit for the Arab Spring, right? And for getting Obama elected and there were lots of headlines at that time a social media saves democracy because of the Arab Spring and then to 2016 it's the evil mind controlling death machine.

8:38It turned out that the method that was supposedly used by the Russian Slash, you know, the Trump campaign to do the mind control, you know, basically like that method, I mean, we now know basically it never worked. Like the whole psychometric thing that they were doing, the Cambridge Analytica was supposedly doing. It's not something people do today. Like this is the other part of the narrative you were told to believe is it was magic mind control, but only for that election and then nobody ever tried it again. Exactly. Yeah. It's fascinating to imagine sort of alternative tech history, like what if Yahoo, actually been able to buy Facebook obviously that would have been a massive blow of Facebook.

9:05But sometimes it works the other way of maybe Snap should have sold to Facebook, maybe it would have been better for anyone else. It's just a fascinating to explore a sort of tech alternative. In my view, it's so hard to redo the counter -fascals because this is like the classic debate of sort of historians which is like how much this history got has like these big and personal trends, you know, these big kind of and personal forces, these tides or waves that swamp everything versus how much is based on sort of individual action. Yeah. And I just think these things are so contingent of endless stories like Nesca, we almost bought Yahoo, there was like a bit as spread between $3 million to $5 million.

9:31Oh, we got it. Yahoo, almost bought Google. And there was a very low price deal at the time. Netflix almost sold a blackbuster early on. Yeah. Every one of these companies that end up being global world -beater always says one of these stories of the path not taken. And so Uber and Lyft almost merged at one point. Yeah. Exactly. And so my view just having me through it, I mean, look, the forces means something. Like the smartphone was going to happen. There were going to be killer apps in the phone. There was going to be something like this. Somebody was going to do it. And like, I don't know, in the counter -factual Facebook but sold Yahoo and Yahoo, who let it language, somebody else probably would have figured it out.

10:00But in a sense, some of these things were bound to happen, but the specific companies involved is just that there are so many kind of twists and turns. It's so contingent on very specific people doing very specific things at each point. Totally. That I think is just extremely sensitive to the micro level decisions that are made along the way. Yeah, speaking of twists and turns, let's go back to the firm because the first fund is 300 million correct and we didn't have a sense for how big it would become. But you wrote software as it in the world you had a hypothesis that these companies were going to get bigger, there's going to be more of them.

10:29Take us through when you realized that scale was going to be a strategic asset for venture, and that the future venture was going to look like this barbell. Yeah, so I actually remember Jack Hversess and John Doer in the mid -90s, because KP was an investor in that escape at the time. When I was young, basically the model was very straightforward at the time, which was basically Series A, Series B. And there wasn't even a really seed that much in the mid -90s. It was mostly just raised like a venture A round, which would be like a three or four, five million dollar round, maybe six or seven if you were super ambitious.

10:55And then there'd be like a B -round of 20 or 30. And then there was what was called the Misening Round, which was the C -round. And that basically is the pre IPO round. And so you kind of raise a total of three rounds and maybe 30 or 40 million dollars. And then you go public. And then if you needed money, you would go public. Basically, there were no follow -on rounds after the C -round. And so you would go public. And you could go public in those days at like, it was sort of 50 million in revenue and then a 10X revenue multiple, a amount of $500 million market cap is the bar to go public. By the way, as an example, Amazon went public in 97, and I think it was $400 million valuation.

11:23So right in line with that model, Nescape similar in 95. And so Venture had this very specific role, but it was becoming clear even in the 90s that actually I think it was a conversation John had ahead about Cisco originally, which is just like some of these companies are really gonna rip. They're really gonna run. At the time, it was like if they're gonna run to a hundred billion, which at the time was like the big ceiling. It's just like, all right, like all of a sudden the Venture B round looks great. All of a sudden, by the way, the Mezzanine round looks great. Like maybe the VCs should basically just keep re -upping.

11:46Is it a mistake? If you can make as much absolute money investing $50 million in Cisco at their Series C as you could five in their series A, like in those days, it was like a big statement to say, maybe the venture firms should do that. And then, of course, it's become clear since then as the ceiling isn't 100 billion as much larger than that. It's much higher than that. And that's just a consequence of tech proliferating and becoming more important. So anyway, so we had that sense and some of that had started and Facebook actually was raising larger rounds at that point. Yeah. You know, DST, DST kind of redefines growth investing when they did the Facebook round.

12:15So basically this idea of sort of venture growth investing was starting to really materialize. And so we did define the firm right up front. We said we want to be stage agnostic. We want to be seed venture end growth. That was in the original pitch deck. It wasn't enough money to do a lot of growth investing, but we could start to get underway. Basically, our argument to the LPs was, look, it's not about being in a certain stage. It's about the total aggregate opportunity. If you're going to get into one of these world -beating companies, you can still do it at the BC or D, and you'll still have venture scale returns.

12:40And so, yeah, we define that right up front. And when did we figure out? Because our approach to sort of specialized funds is different than some of these other partnerships We're just all generalists, we're a small team, we all do everything. When did that model originate? What was that journey like? Yeah, so we started that way. So we started as generalists. And Ben and I had both worked in both consumer and enterprise, which are kind of the two big categories. At the time, it was basically consumer software VC, enterprise software VC, and then sort of bio -health tech. The older venture firms actually did both what they call digital or by T investing, software investing, and then they also did biotech.

13:09And actually a lot of those firms, they got internal divorces and spun their group soft because those industries at the time were going in different directions. But Ben and I had done consumer and enterprise. And so we just said, look, we'll just be a generalist firm, sort of modeled after the benchmark model. And a big part of this is just industry evolution, which is around the time we started the firm. It was also the time that I would say the tech industry fundamentally changed from primarily building tools to actually going directly into industry. So we call it full stack companies. And so I think the reason the generalist model worked well for as long as it did is because fundamentally a database company, a router company, a WordPress SIR company, an operating systems company, they're all fundamentally tools.

13:44And so they're different if they sell the consumer enterprise, but a router is a piece of software in a box. Chips are a little different, but a database and an operating system are similar. The technical challenge is the form of the company, the organizational model for the company is similar. We're processors and video games at the time, both got 50 bucks, both sold in a box on retail store shelves, kind of similar. And so the generalist model, I think, worked really well when the industry was at a earlier model. And then, 2009 -2010 was a pivot. We now know, which was the rise of Uber and Lyft, the rise of Airbnb, the rise of Tesla, the rise of SpaceX.

14:13The world beating companies of the 2010s, in many cases were companies that were full stack, direct insertion, and end markets. And then we therefore started investing in everything from these e -commerce marketplaces to these new kinds of defense companies. And then we decided to take on biotech because we thought biotech was becoming much more based on software and IT and data and AI. And then basically we realized, okay, the generalist model doesn't work anymore because each of those things now is actually a very deep domain in and of itself, with very specific domain knowledge. And then the specific problem that a generalist has is that a generalist consents heat, but a generalist has a very hard time getting into the specifics.

14:46And the reason the specifics really matter is because so much adventure, because the way venture works is if you invest in one company in a space, you can't invest in the other. If you pick the space correctly and invest in the wrong company, you're screwed, right? You can't fix your mistake. You can't then invest in a successful company because of the conflict issue. And so what we realized was the thing that was becoming very important in this new world was understanding deep in the vertical that was going on specifically for the purpose of being able to tell which company was actually the one that was most likely to win.

15:12And that's just really hard to do if you don't have domain knowledge. And so that catalyzed to this to verticalize. And then we did that in two steps. We did a partial verticalization early probably, I don't know, 2013 or something. And then by 2017, I think we did the full. Yeah. The one we have now. It's fascinating because 15, 20 years ago, things like Y Combinator were getting off the ground. And you were this yourself. People said there was an arbitrage around young technical founders and this idea that you could teach them the business elements and they could be successful. You don't need to go to MBA to be a successful founder.

15:41that's accurate. And yet today, maybe there's a similar arbitrage around domain experts, where the tech has gotten easier and it's easier to get things off the ground. And domain expertise values more and distribution is valued more maybe than it was 15 years ago. And maybe that's true on the founder side and on the investor side. Yeah, although at least until now, I think the question is whether AI is going to change this, but at least until now, it still was the case the founders also needed to be very deep in the tech. And even the founders that would go out and there was this wave of like design founders, right?

16:08And it's like, okay, that's great. They're good design founders. They're great. It just turns out the successful design founders are also very strong technologists. And they may be pretended sometimes that they weren't because they wanted the design cred. But like they turned out they were actually very deep and obstantive and interested. Yeah, these are been sober men and branches. These guys are like top and technical founders in addition to being great designers. And so yeah, like I would argue there's really no escape from deep domain knowledge. To your point, I think the question is, okay, if AI makes deep domain knowledge, it's certainly accessible to anybody.

16:32If you have O3 deep research or is equivalent at your fingertips and if you're a generalist or person wearing many hats, like, can I give you the depth when you need it? And I don't know. I'm excited to see people try that. It's a little bit like the debate happening around coding right now, which is, okay, is vibe coding a substitute for like actual coding, right? And sitting here today, like vibe coding is like super exciting for casual development, but at least right now, all of the really sharp technologists, I know don't think that you can vibe code a top end like software company today. But like the coding capabilities of these models are getting really good.

17:03And so the agents are starting to work. And so, you know, this sort of famous Dilbert, which is Dilbert's boss pitches Dilbert on there. You're going to go start a company together and the boss is like, I'm going to bring the idea and be the manager and you're going to do the coding. And Dilbert's like, and so what you're saying is you're going to contribute nothing. Right? And so does the existence of like really state of the R &A coding actually change that to Dilbert's boss all of a sudden, can they have the R &A write the code? Yeah. And then you get these very entertaining thought experiments.

17:26Are you just going to get really good writing code and then are you going to be able to have a non -technical person supervising a thousand AI coders? Yeah. Right. And out racing a top and technical person who's supervising 100 great coders is possible. We'll see. It's the era of the ideas guy. Yeah. Yeah. I want to talk about areas where we've chosen to play and areas where we haven't chosen to play. So let's look at internationally. We talked about how we, professionally, didn't enter China in ways that other firms did. Where US firm, American dynamism, Europe, when it's not shooting itself in the foot, regulation wise, they're increasing their defense spend.

17:58Could you imagine Europe dynamism? How have we thought about And I know there's big things on the horizon which we can't exactly get into right now, but how have we thought about internationally, historically, and how do you think about it? Well, for the good news is, the world is globalizing. There's incredible activity and interest all over the world. Like everywhere we go, people want to talk about tech. They want to learn about tech. Ben saw this more than me, but like when Ben wrote his book and went up to her, it didn't matter what country we went to, thousands of kids show up and they want to learn how to do this.

18:20And like the internet had a big impact there, which is every kid anywhere in the world now can watch theater tealtops and our podcast and everything else. And so I was like, global knowledge is way up, global enthusiasm Theism is way up, relevance to societies is way up. As you mentioned, defense, Europe needs to rearm. Presumably, they'd be better off rearming with the new systems as opposed to the old systems, drones forms instead of aircraft carriers, right, that kind of thing. We'll see. And then just the reality is just smart people all over the place. And so there's human capital everywhere.

18:46I think historians will look back and they'll just say, wow, the 21st century is really primitive society. They had all these smart people all over the world and they never figured out how to actually utilize them right there, figured out how to identify them. Use them and so the startup processes away, It especially gets more young people do ambitious things. So that's great. It's all fantastic. Against that is just this incredible drag by bad governments and bad policies. As you mentioned, Europe. Persisting shooting itself, not just in the foot, but in the other foot and in the ankle and in the knee and in the gut.