Scott Kupor, Managing Partner of a16z on Building a lasting Venture Franchise

22:57And from an LP community perspective, people were thrilled to be able to get, you know, a lot of money back in a small fund early on. And so those things kind of, you know, that was kind of big inflection point number one, I think, for the business. I think the second thing that was in my mind that I'd probably point out, and we can talk more about the CEO change, was when we started to bring on kind of outside general partners. You know, we did that around the time of our second fund. It was kind of tail end of our first fund. We brought one of our also former Opsware people, John O 'Farrell on.

23:29And so while he was an outside person at the time. I don't count him as much as an outsider because he was already, you know, we knew John, you know, for many, many years. But it was kind of, you know, around Fund 2 where we brought on Peter Levine and Jeff Jordan and Scott Weiss, who Scott's no longer kind of with the firm. That was the kind of the next big inflection point was, okay, could we figure out a way to run a venture capital firm now with people who were high profile people who had been former CEOs and founders, had a ton of success throughout their careers? Could we coalesce that group around kind of this, let's call it this organizational governance structure that I mentioned, which is like, we look like a company, even though, for example, those three people had been CEOs in their own right.

24:08They were not the CEOs of this company at the end of the day. They were general partners. But at the end of the day, we had a corporate structure, essentially, that kind of had a different reporting structure and organizational piece to it. So I would say that was kind of the first, the second kind of big kind of change that we had to kind of understand was, how do you give people autonomy in a way that doesn't undermine kind of the broad governance of the company? How do you think about economic incentives? Broad brushes when you think about the economics of this business. We thought about it as a startup company, which is, you know, kind of from the beginning, the founders owned 100 % of the kind of carry pool.

24:41And the theory always was and has been and Mark and Ben have always stuck to this, that they will get diluted over time as we bring on new people, just like in a startup, you know, the founders get diluted as well. So thinking through those things from an organizational and a compensation incentives perspective was probably another really big inflection point for the business. And look, we didn't get it all right, to be completely honest at the time. But I think we ultimately found a way to make it work in the construct of being able to hire and recruit and retain really, really smart people who were domain experts, who also really understood and recognized the business model innovation we were trying to implement.

25:15So what do you think about some of the challenges along the way? Because the organization, it started with the three of you, it's you, Ben and Mark, and now it's north of 500 people. with any company, as you evolve, a lot of things change. The number of products, what you learn along the way, it's also the culture of the organization, which can be really difficult to manage over time. And there are so many cases where the culture of an organization is set forth really at the early days, but over time, it really needs to be closely managed to retain that culture. Talk to us a little bit about how you've been able to maintain culture and the things that you have learned along the way as you scale as an organization?

25:58So let me give you just a couple, at least topics on culture generally in the firm. So look, the foundational cultural value and goal in the organization is very simple. It's respect for entrepreneurs and the entrepreneurial process. And again, to some people, that may sound like motherhood and apple pie, but whenever we do orientation with people and we talk about it, like that is like the foundational thing, which is we recognize building companies is incredibly difficult. We also recognize, we try to recognize very healthily what is our role as a investor and a board member relative to kind of the hard work that entrepreneurs are doing.

26:30So, you know, we really want to make sure we understand that. And you've heard, you know, this has been reported on publicly, but we have some kind of tactics and heuristics to kind of maintain that front and center. So we have this idea of, you know, we fine people$10 a minute if you're late for an entrepreneur meeting, which is, you know, again, like in the scheme of things, obviously nobody's worried about$10. but it does actually create a nice way to reinforce that cultural value in a way that is very tangible and practical for people. And we've got lots of other values that are critical. We do business only in a first-class way.

27:03We take a very long-term view of relationships. So there's a number of things that are critical to the foundations of culture. So as we grew, I would say the key things that we really had to focus on, just like in any operating business, is exactly what you said, which is how do you maintain those? And in particular, how do you bring people on at a time where the business may already be having some success and people didn't realize kind of how you built that success over time and how critical kind of adherence to those cultural values was. One of the things we've always done is we've always had, you know, kind of a formal orientation for people in the firm, just like you would in any other operating company.

27:36And a key part of that is Ben does an hour long presentation with all new hires within typically, hopefully the first 30 days that they're onboarded, where we go through all the cultural values of the firm and help them understand that. And then that's followed by me doing a session with all the new hires around the why and how of our, why do we exist? How does our business work? You know, and how do those cultural values ultimately play out in our business? So kind of that's where you start. Second thing then is kind of as part of our review process, we do reviews for employees twice a year. In addition to performance against objectives, there is a section in the review around kind of adherence and, you know, support of cultural values.

28:14And then I mentioned to you earlier, we had an all hands today. Oftentimes, an all hands is an opportunity for Ben or Mark or anybody to kind of highlight some behavior of an individual or a group or members of the team that is also above and beyond somebody who's really demonstrated and illustrated kind of cultural values in the organization. So I think there's no easy answer to your question. It is like by far the most important thing. I say this all the time to our team members that, look, the crazy part about this business, as you know, is, look, we don't build anything, we don't manufacture anything, we don't sell a product.

28:46At the end of the day, all we sell is, you know, kind of our reputation, and, you know, our kind of concept of respect, and, you know, kind of broad cultural alignment with entrepreneurs. We've been lucky because we've, I think, done a good job on that. And therefore, we've had a positive network effect. But we're also extremely aware that if we screw that up, you can also have, you know, kind of the negative cycle and you can unravel the value of that network effect. So particularly, as you say, as we've grown to 500 people, like I would say the most critical and important thing we have to do is we've got to maintain consistency around those cultural values.

29:18And if we misstep in that area, I think it's extremely hard for us to maintain and ultimately kind of preserve the value of the business. With culture, it's one of those things that obviously you are taking these, you know, different efforts to maintain the culture, work with different people, We'll make sure everyone's rowing the same direction. But it's also something that's often tough to measure. Are there things tangibly that you use to be able to measure? Is that culture that you set up from the early days as the foundation of serving entrepreneurs, is it still the case across the org, especially now that you have so many different offices?

29:54There's not really a headquarters. People are working at home versus in the office all the time. How do you think about that? Yeah, so I think there's two aspects to it. So I do think there are metrics or tactics that we can track and follow that help us get a sense broadly as to what we're doing. So you may know this, but so we survey the concept of net promoter score, right? So we survey both entrepreneurs who we reject in the pitch process, so people who we don't fund. And then, of course, we also survey on a regular basis our engagement with people in the portfolio. So, for example, every time we do a talent engagement with a company, when that talent engagement closes out, they get a quick like transactional survey, which says, hey, you know, how did we do like what we've done better?

30:35And so there are things of that sort, at least that give you not perfect, but I would say like reasonable real time visibility into are we generally on track or are we not on track, basically. And so like those are things that I think you can do at least to help view that. So net promoting score, customer sat, whatever you want to call it, but something that kind of says, okay, basically, are we doing a good job generally or not? That's kind of one way to kind of view the organization. The other is, and this is where, again, I think the organizational components of this matter a lot, is you have to have managers and hire managers who understand that part of their job is to actually review objectives and performance of their individuals, but also to make sure that they are aware of and cognizant of behavior that's either becoming or unbecoming, quite frankly.

31:18And look, you know, obviously managers can't be in the room every time of the day, but we do rely on and we expect our managers and we expect other people in the firm also to kind of, you know, help, you know, quite frankly, make sure that we are adhering to those cultural values. So if somebody is not responsive on email, for example, which, you know, is another, that's another fine way to demonstrate respect for an entrepreneur is do you actually like respond to them in a timely manner? And do you, you know, do what you said you were going to do and follow through? Like, those are things that can be inspected, quite frankly, from a manager who's, you know, paying attention to their teams.

31:51Sometimes like in the early days, quite frankly, I would just like pick up the phone and call an entrepreneur randomly and say, hey, like, how are we doing? Like I saw you did this, you were interacting with this person. And look, that gets harder. And look, it's, you know, practically impossible today, just given the size of the organization. But I think it all goes to, again, this organizational question, which is, have you set up an organizational structure that allows you to kind of monitor and manage the objectives of the organization? And I think you just have to decide that culture is a core objective of the organization.

32:17And 99 % of the credit for this goes to Ben because, you know, he really thinks critically about this stuff and really recognized early on that, you know, kind of ultimately, if we don't have the culture that we think actually aligns with our business objectives, then, you know, we can be as smart as we think we are, but we're not going to be successful ultimately in this business. You touched on everything. So when I think about the organizational ethos that you're really running, and a lot of it is focused on serving the entrepreneur in a way that results in this high NPS. And I love the concept of NPS.

32:47The organization that I came from, First Republic before starting this new company, our main KPI was actually NPS. What do our clients say about us and are they referring us to other people because we've given them a good experience? And there's this overused concept and probably one that has so many different definitions of being founder-friendly. And I'd love to hear maybe the Andreessen view of what does it actually mean to be founder-friendly that then translates to high NPS? Yeah. So let me actually even start at the very beginning with that term, which is that is not a term that we ever use internally, nor that we want to use.

33:27And it's somehow somehow that term has been attached to us. But we don't use it because to us, founder friendly kind of has this connotation, at least in our mind that like, everything you do, you know, what's the right answer? You know, the customer is always right. There's another way to say it, which is and the way that we would describe it more is, as I mentioned, from a cultural perspective is respect for the entrepreneur and respect for the entrepreneurial process. as opposed to saying whatever the entrepreneur says is always right. And we always kind of align our business and our objectives around the entrepreneur.

33:55And so to me, I think how that translates is, which is distinct, I think, from founder friendly is look, we have an obligation and we should give feedback to founders if we see things that, you know, we want to talk about that are different. And that doesn't mean that we don't respect their process and respect what they're doing. In fact, I would argue giving feedback is an ultimate sign of respect because you actually, you know, you care enough to try to help people at least understand your point of view. And by the way, look, we're not, I don't want to pretend at all that we're right all the time or not.

34:22So it's not a question of like, who's right or wrong. But I do think respect for the entrepreneur means, yes, we want to do things that hopefully enable the entrepreneur to accomplish the goals that he or she has. But I think it also therefore has an obligation for us to say, hey, look, if we think we have input, I'll give you an example, you know, if I if they're interviewing for CFO candidates. And, you know, I get a bunch of feedback from the candidates that, hey, like, I didn't think the way the process was run was very good. Like, I think that's my responsibility. And I think that is respectful of me to give that feedback to the CEO and say, hey, look, this is what we're hearing.

34:54And, you know, either it's right or wrong, but like, you should know this stuff. I literally just got off the phone before this call with one of my CEOs. And he had sent me an email actually earlier in the week with some feedback that was constructive feedback that That was something that, you know, a couple of people on our team had done that he thought wasn't like perfectly, you know, in line with his expectations. And sometimes it's unpleasant to hear that, but, you know, that's great. I'm glad that we have that open, honest dialogue. So anyways, that's, I would, I would never use the word founder friendly.

35:22I would use the word again, respect for the entrepreneur and entrepreneur process. And can we build and design the firm around helping maximize the opportunity for a founder CEO to be able to grow into that long-term role and be able to achieve whatever it is that his or her vision of the company is. Like, again, I always laugh, at least when our name gets associated with that term, but that's, I think, the real encapsulation of it for us. When you think about all the different venture firms that have come to market, and I know you've counseled many of these early managers that are on a fund one and fund two, and we've both seen them.

35:55One of the things that they do struggle with, this concept of helping the entrepreneur in a way that still is supportive and is empathetic, but at the same time providing guidance and advice that might create a level of tension. And in the early days of starting, one of the concerns is if I keep doing that, founders may not say great things about me, therefore it might impact my ability to build network effects. What counsel would you give to somebody just starting off? Because with you providing with 20 years of experience, it's an easier thing for a founder to hear, but for somebody just starting off, it might have a very different overall impact.

36:33I would say two things. One is, I think that you do have to, in some way, maybe this is the wrong way to say it, but you have to, I think, earn the right to be able to give feedback. And I think the way you earn that right is either have you experienced something or do you have some knowledge? Can you do something in a way? So I do think it's hard. Obviously, it's hard if you are, you know, whatever, a brand new venture capitalist. And let's just take the most extreme example. Like, this is your first job. You've never done this before. I do think it's a little bit hard for you to give feedback to another entrepreneur just because, like, you know, you haven't had that set of kind of experiences.

37:06So, but I don't, I think the answer is not to like shy away from that and not do it, but I think it's to kind of really work on like, what's the delivery, how to think about it. I was having a conversation, this may be relevant. I was having a conversation with one of our, we call them deal partners. So, which are kind of, you know, people who are aspiring to be a general partner. He was observing at a board meeting and after the board meeting, he was kind of asking me and giving me, asked me some questions about how I was approaching it, why I was asking certain things. And we talked about a bunch of stuff, but I would say one of the tactical things that we talked about was, as opposed to like giving feedback directly or saying something controversial, can you ask a set of questions that at least kind of, you know, raise the issues and then causes the entrepreneur to at least think about those things and be responsive to them as opposed to saying, hey, look, I totally disagree with you.

37:51This doesn't make sense. You know, one way to do it is, look, have you thought about this? Or what if this piece of data said this? How would that change your mind? And so some of it, quite frankly, may just be practice and delivery on this stuff. But I do think the wrong answer is to just shy away from it. But I do think you have to, like, again, come at it from a position of either you have a point of view that you feel comfortable sharing and you have some, like, either background or experience that represents that point of view and or just thinking critically about the manner in which you provide that feedback.

38:21Look, at the end of the day, this business is very simple, which is we provide access to capital to entrepreneurs. And I don't know, 99 % of success at the end of the day is going to depend on whether those entrepreneurs can hire the right people and build the right product and do all those things. And so I want to be very clear to you. I certainly don't think I don't want to overstate by any stretch of the imagination, kind of the the role of the venture capitalist and the success of these things. Look, I think if you can kind of think of your job as if you can kind of politely nudge them in this direction or you can be a sounding board for things or you can do, it's very small, I think, maybe things along the way that you can do.

38:55I certainly think it'd be terrible for us to think of ourselves. And I certainly never think of ourselves as, look, if we're giving you product strategy, I say this to my CEOs all the time. Like, if you're coming to me for product strategy, like, you know, God help us both, basically, because like that's not a good place for us to be. So I think some of it also is, you know, maybe as a younger venture capitalist resisting the urge to think, you know, more about the business than does the entrepreneur and the set of people who literally do this for 80, 100 hours a week. And more kind of think about ways in which you can help either stretch their thinking or, you know, maybe help them see blind spots they may not see.

39:29But, you know, those types of constructive feedback, I think, can be very valuable. Yeah, I think that's great advice. And certainly it's also doing it in a very authentic way. where it really does fit your own sort of DNA and persona. I want to zoom out for a second and think about where we stand right now. You started your career in the mid-90s. I started a few years later than you. And now we've actually gone through three downturns, the dot-com, the GFC, and now what we've seen over the last 18 months. During that time, venture and tech went through this massive super cycle of mobile and cloud, which really enabled this Cambrian explosion of both startups and venture firms.

40:05And within the venture category, things have fragmented from just being a real monolith to institutionalization of seed, multi-strat platforms like yourself, crossover funds now playing within the private markets. And, you know, of course, the last year has seen interest rates rise, which has had a negative impact, both in terms of public valuations, private valuations, and also the overall funding, both of firms and for companies. What is the overall view you have right now? Because it's easy to conflate the role of innovation and the acceleration of innovation with the market cycles. But where are we today?

40:46And do you see any parallels from the past? Let me give you a massive caveat on everything I'll say, which is, you know, I have no idea how to forecast what this world is going to look like. And I also believe that, quite frankly, anybody who tells you they do doesn't understand their own limitations or is trying to kind of BS you. So I'm going to stay very far away from the forecast business because if you can forecast the macro, then I think that's a wonderful thing. But I certainly don't think I can do it. But look, here's my general view on the market is when I look at the micro side of the market, to me, like the thing that I watch is, okay, what is the pace of technological innovation?

41:20And then the other piece that I think about is I view ourselves as being in the talent business. I think our job is basically get in front of all the most interesting people who are doing something in and around, you know, kind of our broad software thesis. And let's listen to them and see what they have to say and be open-minded enough to kind of cause them to make us rethink assumptions we may have about the world. And when I look at those two things, like, I continue to be as optimistic as I've always been, like, I don't see any diminution in the number of like, smart people who want to try new things.

41:49I don't see a million people doing the exact same company and all this kind of B2 stuff, like the amount of inventiveness, like to me is just continues to be phenomenal. And look, we'll see where things like AI and web three and all these things go. But like, the pace of technological innovation and a platform shifts, again, I don't see anything that suggests any of those things are slowing down. So from the pure micro level, you know, look, I'm as excited about being in the tech universe as I've always been. And look, there was a time and, you know, you may remember this, there was a time in the dot com bus where those talent flows did change, right?

42:21There was a time period in the 01 to 03 period where, look, if you could get a job at Cisco or BEA at the time or Oracle, you know, people voted with their feet and said, I don't want to be in this startup ecosystem anymore. Like, I'm not comfortable starting companies. I'm not comfortable with the risk of equity. And so there was kind of, you know, a time period where there was that flight to quality. So we've certainly seen opposite environments than what we've seen today. I don't think we're there at all. And I certainly am very, you know, hopeful that we won't get there. But look, you know, if we saw that, then that would make me more concerned about kind of, you know, the viability, at least in the near term, of kind of the broader opportunity for entrepreneurship.

42:55So I don't worry about any of those things at all. It is the case, as you mentioned, which is, look, the financial environment has changed. The way people value companies has changed. As you also rightly put out, we've been through cycles before. And so it'll change again. And there will be another euphoria at some point in time. I don't know when it will be. But there'll be another 21 again, just like there was another 99 in 2000, just like there was, I don't know, what's the right, 2007 would probably be the closest analog. So we will all forget all the lessons that we're learning now in this business cycle.

43:26So look, I just think fundamentally the way we have to think about our business is, are we finding great entrepreneurs who are doing really interesting, innovative things that we believe can be really important, big, powerful companies over a 8, 10, 12, 15-year period? And as long as that math works, then look, we have to just be smart about managing through business cycles and recognizing and understanding that people are going to value things differently at different points in time. So that's kind of how I think about it. if we get new data that suggests differently, then I reserve the right to change my mind as, as, as Ben has always told me, uh, and I appreciate, um, you know, consistency is not a goal.

44:00The goal is to be right. And so if there's new data that tells us that we're wrong, uh, I don't care about being consistent. I'd much rather be right. But from everything I see again, like, uh, you know, I continue to be super excited about what the future holds and, um, look, we'll get through this business cycle. I have no doubt. And, you know, look, maybe the good news is there will be even better companies that come out of this because, you know, many of the companies now have lived through the idea that, you know, you can't just grow at all costs and you have to think about efficiency and all those great things.

44:27And I think that's actually not a bad thing, quite frankly. I agree with you too. And, you know, market cycles will always happen. I mean, human psychology is undefeated when it comes to both euphoria and then bus. And we'll get through this just as we have before. I think the one secular trend is the role of innovation in redefining how we all live and work. Last question I have for you is just thinking about your career now that's spanned about 25 years. If you were to go back until your 1996, freshly graduated, Scott, a single piece of career advice, what would it be? Yeah, I think the biggest mistake that I have made over time, and I try to help when I talk to people younger than me think about is two things.

45:06One is that I dramatically underestimated the value of networks and relationships in my own career development. The thing that I always like to say, which I did, unfortunately, was that extra hour that you spend in the library to get the A++ instead of the A plus on your exam versus going out to have coffee with somebody and, you know, meeting them. If I had to do my life all over again, like I would absolutely have done that. So to me, that is kind of thing number one. Thing number two, if you'll give me a second one, since you I know you only said one thing, but thing number two to me is I think I have systematically under, I have under risked my career, I guess is maybe the way I would say it.

45:42I get the pleasure of teaching students at the GSB once a year. And what I always tell them is look like you should think about your life as a venture capital investment, which is by going to the GSB or by doing all the things you've done, like you have capped out, you have capped your downside, the chances of you actually being on the street or not having some like, you know, reasonably good financial or professional life, life is like very, very low. And so the question now is like, how do you maximize the upside and upside doesn't necessarily need to be financial upside, it could be whatever you decide you want to do.

46:11That's the thing for me also that I feel like historically over time, I have not had, I have not understood and embraced risk probably in the way that I wish I had. And there's a better way to think about that stuff. Yeah, it goes to this concept of treating yourself as an enterprise or a startup where you're looking for non-linear growth in your career versus being completely linear. Scott, this has been a lot of fun. Really appreciate the great insights. It's great seeing you. And thanks again for being on the show. Great. Thanks, Samir, for having me. Really appreciate it. Thank you so much for listening to another episode of Venture Unlocked.

46:44We really hope you enjoyed our conversation with Scott. To learn more about him orientries in Horwitz, be sure to go to ventureunlocked.substack.com for detailed notes on the show, as well as my ongoing commentary about the world of venture capital. Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out. And don't forget to hit the subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.

47:27Thank you.