Uncapped #38 | Ben Horowitz from a16z

26:49Those are relationships that we have that will introduce you to somebody and like maybe they'll fit, maybe they won't and so forth. But like that's a kind of very specific thing. How about your view on like board seats and board membership and like how important that is? and maybe to like put like bookends on what people out there will believe. You've got some that are like, our selling point is we don't take a board seat. We'll leave you alone. We don't, we're not going to do anything. You've got some that are sort of like, you know, breathlessly talking about this, you know, spiritual connection between the board member and the founder.

27:21And there's a lot there. Like, where do you fall in this? How do you think about what like the board member should be? I probably don't believe in the spiritual connection. I was sort of maybe embellishing a little bit, but you know what I'm talking about. So first of all, boards are important. for founders. So like the idea that you're going to run without a board, um, after you've like given equity to employees and sold equity to people who are not you is the most dangerous fucking idea in the world. Because if you know anything about securities laws, the only protection you have a CEO from going to jail or getting personally sued is that you run material ideas through the board.

28:02That's massive protection. Like if I go, well, I want to give a, you know, 2 % grant to this person in the company, you have to realize your fiduciary to like the rest of the company that you're diluting is in question right there. Just that. If you run that by the board, it's all good. You're completely protected. No problem. If you just make that on your own, somebody wants to sue you they're going to win like you really have very little defense at that point so the idea that like you're not going to have a board is a bad idea like i i think any once you start um not owning the company 100 you got to have a board they're like that's just how it goes you know we went back and forth on this like okay how much does like the board actually help the company and i would say so there's a couple of interesting things so the y combinator people actually said, it must've been around like 2015, 2016, they came to us and they were like, we did like an analysis of all our companies who had boards and didn't.

29:08And the ones that didn't have boards all failed. Like they didn't do well. Like as a cohort, the ones with boards did much better. Now like that, there's confounding factors, right? But in their view, the other thing was like, just in observing the companies, the rhythm of having to tell somebody outside of the company what you're doing every three months or every two months. Creates internal pressure. It's very valuable. It's just like a good organizing principle to keep yourself on track. So I believe in that. And then I do think certain kinds of board members can be very, very impactful at different points in the company.

29:45Just with myself, like right now, if Ali kicked me off the board at Databricks, I'm not sure that like they would do much worse. Like I honestly don't. However, there were times, for example, the Series C, I led the Series A, NEA led the Series B. Nobody would do the Series C of that company. Pete Sonsini and I led that one too. NEA and us led the C in addition to the B and the A. If I'm not on the board, I don't think there's any way that's happening. So that's like an existential issue. Second thing, you know, they had an offer to buy the company for like, I think it would have netted out to about$4 billion in 2018, 2019, something like that.

30:30And had I not been on the board, I think they would have sold. That's a big deal. And I think Ali would say they would have sold. And so like they're worth, you know, they're raising now over$100 billion. So that's like a real value. and so to say that like oh all right we're gonna do you a favor and not be on your board like because look when you're in a company all you think about all day is a company yeah you don't have perspective so if there's somebody who can help you think through things and has perspective that can be worth the whole thing right like so so it's not a it's not a nothing i think it's not a i've seen board members and that had no value the whole time they're on the board like that happens all the time for sure like so i don't want to overstate well there's also um there's two types of sort of ways to be impactful there's there's sort of like these high value moments that are these discrete crisp situations that you can say x was going to happen and i made y happen and y was better or whatever and then there's sort of the like daily engagement type of board member who's talking all the time and you know interviewing candidates that you know the CEO is upset about something, it's somebody to talk to, et cetera.

31:40Do you think that that kind is actually less valuable in some ways? Or do you think that they're like, do you think about those similarly, differently? So there's the board and the work of the board, which is governance number one, as I kind of alluded to in the beginning. And then there's kind of certain points and certain things where board members can really matter. You know, I think most of the work that I do is more, you know, like I'll have, yeah, well, I'll have a monthly call with a CEO just to talk through the things that they get stuck on. Like the things, what's causing you to hesitate?

32:16Does this work only at this point or earlier in your career did you need to do more of the like daily higher, you know, higher engagement model stuff? And only now can you do the, this version? Nah, like I think that. part of what I'm getting at actually is I think there's this idea in venture that you can only be on like eight boards before you collapse and then I was like talking to Martine who's like on all these incredible companies the founders say he's awesome and he's on like way more than eight or ten boards or whatever yeah so okay so I think that if you're the board member and you don't have a platform yes then you're the investor then eight is probably right yeah but if you have a platform then when they go hey I need to meet a customer I need to like help with recruiting.

32:59I need to like deal with this policy issue. I need to talk to like Gavin Newsom. I need to deal with, then Martin's not doing that, right? Like, like we have a whole platform that does that. And, and so he can scale and just do the thing he does and do it very effectively. And then he works extremely hard and all that kind of thing. So like, I think it's different, you know, if you have a platform or if you don't, because if, if it's on you to do, to be the BD guy, the recruiting guy, the policy guy, the governance guy and so forth. You can't work on that many. Yeah, those guys are, that's a special, God bless those VCs and so forth.

33:39But we don't ask you to do that on our thing. And I don't think it's necessary. And look, I think for the work I do, which is helping people think through how they run the company, how they think about a business deal or this and that and the other, like that daily frequency, I think can be destructive to the development of the CEO. The CEO kind of ends up having to stand alone because that like ultimately they're going to stand alone. Like no matter, you know, like you get advice, you get friends, you have people and stick you, but you have to have such high conviction in your own opinion to make these very, very difficult decisions.

34:17Like, okay, we got to do a layoff or we're going to do this or we're going to, you know, change the direction of the company that like you don't want the CEO looking to somebody from the outside to make a decision like that because a person from the outside does not have the correct context, the amount of knowledge required to make such an important decision. And so you want the person from the outside really it to be advice like, let me tilt this this way so you can look at it from that angle and this and that and the third, but not like, what should we do, Ben? you know like it's it's how how should i think about this is a much better question the last question on this um i just want to sort of hear how your thinking has evolved you guys came out early like i guess 2009 with this idea that like media and brand are a big deal and i think in many ways i don't know exactly because i didn't graduate until 2011 but it seems to me like in those years this was like not what was happening versus like now obviously everybody kind of knows it yeah have you evolved your thinking like from 2009 to now like are you do you think it basically played out just like you thought do you think it's even more important has it have you changed your idea of like what type of brand and media and so on matters yeah yeah yeah so look i think um the original idea was very simple which is vcs didn't market themselves um it was some kind of like code and VC land.

35:45And we're like, well, since we're new and nobody knows who we are, like, and that's what we know how to do, where people build companies, we'll kind of market it. And we did, and we did a good job of it. And that kind of got us ahead. The world has changed. The world of media is completely different than when we started. When we started everything, I mean, there were blogs and stuff, and we had blogs and that kind of thing. But the primary way people got information was through the press, for sure. And the rules of the press are, and the laws of physics of the indirect channel going through the press are completely different than the laws of physics of going direct.

36:29The very fixed number of channels that matter, very fixed format that you can have a quote or a short five-minute interview segment where they're like hitting you with questions that you don't want to answer and all that kind of thing. And then the brands were all companies, you know, Ford, GM, this, that. The indirect world is completely upside down from that. There's unlimited channels. There's unlimited formats. You can tell the longest or the shortest story you want to. It's no problem. And then the brands are mostly people, right? Like, is it Palantir? Is it Alex Karp? Is it Elon? Or is it X?

37:06Is it, you know, like these, you know, is it Jensen or is it NVIDIA? So you can't really have a brand that's completely independent of the people behind the brand. And so I think the way that we're approaching the market now is, this is why we brought on Eric Thornburg. And what he's building is a completely new marketing model for us. We're not, everything is there because the laws of physics are different. So you have to build a whole new system. And look, I think that what's happened with the other VCs is because they were late to copy us, they're still in the old world, by and large. And they have some light shots at the new world, but they're going to have to do a lot of changing.

37:52It's also the kind of thing, I think, where if you don't internally get what it's all about, you can't just replicate people's activities. I feel like this is one of those things where you have to understand the underlying physics of how it's working. No, that's exactly right. You know, the ethos of it, it's like very culturally different. Like you're no longer thinking about what you shouldn't say. Like so much of the old world is what can I not say? How do I avoid answering that question? How do I give the talking point? Like there are no talking points in this world. Totally. You know, like I'm just talking shit.

38:23And that's better. And if you like offend somebody a little bit, it's like so be it. Yeah. Yeah. Like, I mean, just get on the air tomorrow. The next minute, just like it's a flood, flood the zone. Like that's the answer to a gaffe is flood the zone, not don't make the gaffe. Yeah, exactly. Never apologize, flood the zone. Yeah. Does anything land as well as podcasts right now? I feel like you guys have like had an amazing growth in your podcasting, obviously. And it's like I watch a lot of them and they were good. And I'm doing one. And like, it seems to me like there is some thing going on where people have like lost their attention and ability to read.

38:57And so we've all just decided, well, we'll just put out videos and stuff. yeah i think podcasts are definitely working the best right now i mean like do people read blogs still change people do read blogs if you have one that really hits um i mean actually we just uh there's a couple of really great ones that we came out one one was um you know there is why there's no god video model and like that kind of justine wrote that yeah the good ones are good i feel like the um the long tail slop ones are not worth doing really yeah Yeah, the right blog every day idea. I don't think that works anymore.

39:31Where it used to, I think, just to like have more content and surface area probably did work like 15 years ago. Yeah, it was like kind of like the daily habit. But I think that now people would rather, it's like, oh, I can do a podcast and exercise, you know, like in that kind of thing, which is like, that's a big advantage. Yeah, it's a big advantage. Now with 11 Labs Reader, you can just throw it into the 11 Labs Reader. What works besides podcasts? Well, I actually think blogs and social media. still work pretty well. I think that, you know, with podcasts, you have to be state of the art and how you think about clips and all those kinds of things as well.

40:06The podcast has to be very interesting to the targeted audience, which is, I think one of the things that has been best for me as an audience member is, you know, if you watch the news, it's almost impossible, right? Like it's without throwing a chair at it, no matter who you are, because it's like, what the fuck level are they trying to reach a human being? Like, they really think they're going to trick me with that, like, fake positioning on, like, oh, well, da-da-da-da. Like, I asked them the question this way, so now everybody's going to hate Trump or everybody's going to like Trump. It's like, no, I'm not an idiot.

40:42Like, you know, whereas a podcast, if I'm listening to the podcaster that's marketing to my level of understanding of the world, then I'm going to enjoy the whole thing, which is such a breakthrough in media to me yes for me at least to enjoy a conversation i'm watching i need to trust both the asker and the answerer or it just doesn't feel quite right right it drives me nuts on the news when you know something about it too and you know it's just wrong yeah and then they're going off and everyone's posting about it makes me crazy it's so bananas yeah yeah and well i mean and particularly by the way everything in the regular media on ai is so whack bro you So like you're talking about these threats that are imaginary and then you are just ignoring the fact that like on current course and speed, we're going to have 10 million Chinese robots in the U.S.

41:32with backdoors to China. Like that's going to be an actual real problem. Yeah. You know, like just in terms of leverage in the next trade negotiation. It's tough because a lot, I mean, in many ways, structurally, I think traditional media gets a lot off. I do think there's a lot of very good journalists at these publications who like see truth and like want to be right and like get it correct and all of that stuff. So I like I think like a year ago, I found myself just like so frustrated with traditional media. And then over the last year, I think I've like engaged with like a bunch of, I think, like very honest, good journalists.

42:05Yeah, there are definitely there. There are definitely real journalists out there, even at publications who, you know, we in tech really don't like. And I think there's a role for it. Yeah. Like there is a role for like the New York Times, Wall Street Journal that don't, you know, are not attached to like a firm, even though I think both are good. It's just like I still think it hasn't found its way yet. The whole thing. And we did it to them to some extent, right? Like so when tech broke the media monopolies, so they are coming from the standpoint of, you know, we don't even care about the economics of it because the economics are going to be there.

42:38And so we're going to have these, we're going to create these ideals around journalism and around truth and all the news that's fit to print and, you know, like democracy dies in the darkness or whatever the crazy, you know, taglines they have are. And so they set themselves a standard, very high standard. And then all of a sudden they're in a like an existential financial crisis and they have to get to an audience. and now they're going, well, going to a broad audience is just way too hard and way too expensive. So I'm just going to market to people who are on the left. And so then I got to be an activist.

43:15And so then all this stuff that I said before is all bullshit now. That's a hard puzzle. And I think that a lot of the best journalists kind of predated that change and kind of grew up with, you know, in that, with those ethics that like, oh no, I've got to be objective. I have to find the real story. I have to tell the real story, but that's not the business model anymore. So how do you reconcile that? I think like right now people are kind of coming out of the fever of that change and going, okay, are we going to be an activist or are we going to be a journalist? And we'll see how it plays out, but it's going to be interesting.

43:50It's kind of interesting because like, I think Eric's amazing. You guys are now growing to a place where you have the resources to like bring people like Eric on to build like a big thing. at some point as your firm grows even more, you're going to have the resources to like, really, you know, you're going to have more resources than the New York Times at some point. It'll just be an interesting thing to watch. Yeah, yeah. Yeah, no, it's, well, it's... Shout out to Eric hiring like a thousand people. This will be great. Yeah, yeah, yeah. No, he is, he's hiring a lot of people. But there, you know, like the thing about Eric's team that's so amazing is it's a combination of people who lived in the old world.

44:22Yeah. And then very young people who only have lived in the new world. Well, I imagine a lot of people who might have otherwise wanted to work at like the Wall Street Journal or something like that, who might like give Eric a call. No, definitely. I mean, I think that they think in a way he's got more access to more interesting people and certainly the audience is building. So that could be. Thinking about your sort of firm's growth, I want to ask you sort of a question both on like the strongest version of let's call it big venture. I know it's not quite the right thing because I think it's a very negative sounding word, but whatever.

44:57Good venture. Good venture. Yeah, instead of big, good venture. So actually, let's start there. Obviously, you've raised like, you know, a big new fund. I think, you know, I'm guessing your view is over time, this could grow much more. What are the laws of physics on the size of how big venture firms can get and still be productive? The biggest limit is the market. So how many great new technology entrepreneurs are there to fund? Look, there's already more money in the venture capital market than there are kind of great entrepreneurs with great ideas. But if you're number one, that's fine. Like, because like, we'll just get the deals anyway, and it's no problem.

45:35If you ask me, well, why don't we raise$100 billion? Like, that's the main limit. because it would be hard to generate a return on$100 billion in venture capital, probably given the size of the market in 2020. Basically, you're saying the companies won't be big enough. Well, I think there just won't be enough of them. I think that's the most likely, would be the most likely scale challenge for us. At least with the team that we've built, when we look at the markets that we're in, it's hard to see our way to an order of magnitude more money. But, you know, that could change. But I'd say that's the current kind of number one limiter.

46:13I think the limiter on most funds or most firms is not the limiter that we have. So for most firms, the limiter is they can't kind of have that many effective partners. Cooperating. Yeah, cooperating. There's two fundamental reasons for that. One is structure. So most venture capital firms are shared economics, shared control structures. And if you have shared control, you very likely can't reorganize effectively. So in order to scale, you have to be able to change the org structure. Like it's just kind of fundamental to scale. You're saying you need to periodically update. Like every few years, you might need to do a reorg.

46:56Yeah, yeah. Just, you know, like if you double in size, anybody who runs a company, you double in size, It's like you have to look at the org structure and see if it still works, if the communication paths are still right, if there's too much conflict, all that kind of thing. The side effect of reorganizing is you redistribute power. And so people who had power lose power and people who didn't have power get power. Like it's just that that's what it is. And if you're voting on that, the chance of you getting that right is zero. because having done many reorgs in my career, when a reorganization happens, people always do, everybody does the local optimization other than the CEO.

47:32And so if the CEO gives into the needs of the people and makes it democratic, then you're done. Like that's never going to work. So I think it's very hard. I don't know how you could ever get to like our size with shared control. It'd be very tough. The other thing you need is you do need a leader who can deal with that kind of scale in terms of making those decisions and running the firm. And most VCs don't have people of that kind of operational caliber like some do, but it's pretty rare. And if they do, they're often not in charge. So we have like, those are the two advantages that have led us.

48:17I mean, we're only 16 years old. Like most of the firms we compete with are much older than that. But those issues have enabled us to get bigger is basically the situation. And basically your view is being big in venture makes everything better because you can scale people like Martine and Chris. You can have more access to more power. You have a bigger brand. You can lend to founders. And basically, your view, I am assuming from everything you've shared and just how you're running the firm is the bigger you get, actually, it's possible the better per dollar that you might be able to do. I think so.

48:49I mean, I think that it's kind of, I mean, like, you know, we've got a 16-year track record. We just raised$15 billion. Like, I think the product to investors is kind of speaks for itself. But, look, I think in venture capital, just generally, the way you, there's kind of two parts to getting good returns, like picking the right deal and winning it. I think it turns out that winning it is a much bigger percentage of that equation than people like in VC world like to give credit for because they like to think of themselves as such super genius. Oh, I saw Facebook early. That's a real thing. But, you know, if you can't win it, then you're still never going to have good returns.

49:32And so being able to win kind of automatically, I would say, gets you to the top tier of returns. And then, you know, picking kind of moves you up that list. You're saying you could be a roughly random picker or an average picker, let's say, and a great winner. And that's going to get better returns than the inverse. Yes, for sure. At all stages. Yeah, I think at all stages. And it also kind of, they kind of, it's a little self-fulfilling in that if you can win, then the best pickers want to join you. It's like as an investor, like why does Martine work here? You know, why does Chris Dixon work here?

50:10Because it makes it easier to win. Yeah, because like they want their best ideas. They want to actually be in the deals they want to be in. Yeah. Right? Like if you're an investor and you go, hey, I think that's the future. I think that's the greatest entrepreneur I've met. and you can't invest in it. Like that's very frustrating. So then you end up, the winners get the best investors over time, I think. It's an interesting thing because I was talking to somebody recently that it's actually really rare for a venture firm to have two, what you would consider like generationally good investors, like almost never happens.

50:45And then it's like ridiculously rare to have three. And like, if you have three, then you're like, you know, Sequoia and Dresden basically. Why is it so hard to get many at one place? Like, it just seems so uncommon. And it seems like, I don't know, is that a function of winning ability? Or is that a function of picking ability? Like, what is it that makes it so hard? Like, why don't you and Sequoia just end up with, like, everybody? Well, I think that there just aren't that many generationally good, right? By definition, right? Like, if you're generational, then there's only, like, one of you or two of you.

51:14Okay, but let's say, like, top 50 or something. Yeah, whatever. Yeah. Yeah, no, look, I think that, one, I mean, like, some of it's historical, right? Like once you get the nice thing about VC economically, if you run one is carry vests. And so like if you made a bunch of good investments somewhere, like to start your career, you generally want to stay. I'd say the other thing, at least for us, is there's a lot of, or there's great investors that we could probably recruit from other firms, but we're so different culturally than the rest of the VC world that we've had a lot of trouble getting people to stick here who have worked at other firms.

51:57it's just the mentality is so different um and not to say that their way is wrong or our way is wrong but it's different enough that like we can't import them you know they're not willing to assimilate we're not willing to change it's that kind of thing yeah could you give your best articulation or best steel man of like the counter to this idea of venture scaling like if you had to defend the view of like a, you know, I've had Peter at Benchmark or Josh at First Round, to some extent, you know, Sequoia, you know, has said there's limitations. What is sort of, in your mind, if you had to give the best version of the argument for like, why a venture doesn't scale or why small is better in any way, like, could you give that narration?

52:42Yeah. I mean, I think that there are kind of configurations where that is true, right? Like, So, you know, as I said, look, if you have shared control, you just can't get past a certain size before it becomes some chaotic, crazy democracy, which like democracies are great for like if you've got 350 million people, but like they're not good if you're a venture capital firm. It's just not good, at least in terms of scale. It's not going to work. It's fine if you don't scale. The second thing is if you have like 20 people on an investing team, I don't think that works because I don't think that's a conversation anymore.

53:18And so much of investing is about like you're trying to find the truth, right? Like you're working every day, you know, these conversations and you're talking to entrepreneurs and you're talking to all the references and you're talking to customers and you're understanding the technology and this and that. And you're having this long, long running conversation about like, okay, what is true? Like, is there going to be a God model or does like, can I like take a little model and post strain it with my own data and beat the piss out of open AI? Like, what's the answer to that question long term?

53:48What's the answer to that question today? Like, we've got to get it to that. How do you have that conversation with 20 people? Like, it's very hard. So I think that if you're configured in that kind of way, then being large is dangerous, I think, very dangerous. So, you know, there are reasons if you don't have the ability to scale in a way that makes you, like our investing teams all look like small VCs. I mean, like so Martine's team or Chris's team or Alex's team, they all look like a little VC. Right. So in some ways, I'm all for that model. I'm just doing it in a context where you have a platform and a brand that can be helpful to entrepreneurs more so than just having a person.

54:36Yeah, it makes sense. I guess maybe to wrap, I think one of the other tenants, at least when you got started, which I think is still roughly a tenant today, that I think is core, was you really believed in hiring ex-founders, CEOs. I'm sure you've hired some people who are not, but for the most part, it seems like you're highly concerned. Yeah, very concentrated. At least, you know, it seems like a lot of the DNA is rooted in that, at least. Yeah. Why has that been like important to you? Yeah. So, you know, when we started the firm, like a big idea that we had, and I would say this idea mostly came from me was that venture capital was disappointing as a product for an entrepreneur.

55:14The reason like, I know we had a very hard time building like cloud, cloud apps were, although it ended reasonably well. It's just like a very, very difficult to build a company, like excruciatingly difficult. And there's all these components to it and all these things you have to learn. And then things go wrong that are completely out of your control, like the dot-com crash or, you know, that kind of thing. Venture capital firms kind of give you the money and then put a very smart person on your board and give you some advice. And that was like it. And so we always thought, wow, a much better product would be, give me the network to be confident and the advice I need to run this fucking thing.

55:55Really early on, the way we thought about that was, okay, some experience required to be on your board. You have to have done this thing before to advise me. Don't just send me somebody who doesn't know how to do that. So that was the original idea. That idea turned out to be somewhat right, but not entirely right. So the problem with the way we did it is some founder CEOs are good at being founder CEOs, but not good at explaining what the hell it was they did. And then they may also not be that interested in investing like they were at running something, right? Like it's a little bit of if you've, there's a feeling you have if you have a thousand people working for you or whatever, that you're never going to achieve as an investor.

56:39Like, that's just like that. That's not that. Yeah. It's a different thing. You know, we made kind of the adjustment. We're like, okay, like, yes, advice on how to run the company is important. But like, you know, and that's when I was like, okay, so I'll write some books that explain it. And then you can talk to me. Who knows how to explain that? But we're not going to, everybody in the firm is not going to have to be that. That was, I think, a very important adjustment for us. Would you write another book? uh well if i have another thing that i think i understand that people don't understand like i won't do it uh to be like popular or make money you don't want to write a book to make some more money no although that book does well you know the hard thing about hard things is a very uh good selling i give away all the money for it but it's um it does well yeah yeah cool all right ben i'm gonna let you go thanks a bunch for doing this this was great yeah all right awesome