Marc Andreessen — AI, crypto, 1000 Elon Musks, regrets, vulnerabilities, & managerial revolution

Key Takeaways

a I might just append all that future apps might just be much more of a dialogue between computer and machine the very fundamental assumptions about how software gets built might just completely change we work with a lot of great Founders we also work with Elon and like he's still special I think the incumbent education system is trying to destroy itself I don't think there's any Prospect of nuclear fusion being legal in the U.S things that are basically the equivalent of I don't know baseball cards where there's no real good or service that's being created I would be entirely disagree with the premise of that question different religions and cultures they all tend to have like some underlying unease with a concept of money the concept of trade the concept of interest it's like Superstition it's like resentment but those things are the things that make economies work if Venture Capital ever gets snuffed and there's no more you know Tech startups or whatever like then at that point the economy is going to be 100 managerial and at that point there will be no innovation forever okay today I have the great pleasure of speaking with Mark and driesen which means for the first time on the podcast the guest and the host playback speed will actually match so Mark welcome to the lunar Society good morning and thank you for having me it's uh great to be here my pleasure so um have you been tempted anytime in the last 14 years to start a company not a16z but another company no it's uh I mean I mean we we have I mean so you know the short answer is we did so we you know we started our Venture firm uh in 2009 and so it's uh it's sort of given my you know my partner Ben and I a chance to kind of fully exercise our entrepreneurial Ambitions and energies uh to build this firm we're we're over 500 people now at the firm which is um you know small for a comp you know for a tech company but it's big for a venture capital firm um and so it's it's let us uh kind of fully get get all those urges up but there's no product where you think oh God this needs to exist and I should be the one to make it happen you know I I think a lot I mean we look at this kind of through the lens of like what would I what would I do if I were 23 again so I you know I have those ideas but um you know starting a company is really you know look starting a company is like a real commitment like it really changes your life um you know my favorite all-time quote on being a startup founder is from Sean Parker who says uh starting a company is like chewing glass uh eventually you start to like the taste of your own blood that quote always gives people like this I always get this queasy look you know on the on the face of people I'm talking to and I roll that quote out but like it really is I mean it's really intense um and so I always tell people you know whenever anybody asks me if they should start a company you know the answer is always no um because it's just it's such a just like gigantic like emotional irrational you know kind of thing to do like the implications of that decision is so profound in terms of how you live your life um that uh I um yeah I mean look there are plenty of great ideas and plenty of plenty of interesting things to do but the actual process is so difficult um it it gets romanticized a lot um and it's it's not romantic it's a very difficult thing to do um and so and I you know I did it I did it multiple times before so at least for now I I don't uh I don't revisit that but being a venture capitalist is not like that when you're in the 30th pitch of the day you're not wondering if shooting glass might not be more comfortable no it's different well so it's different well I'll just I'll tell you how I experienced it you know you know wired to respond to stress in different ways and I think there are people who are wired to be you know extremely productive and extreme you know actually get who get like very happy under extreme levels of stress um I I I have a different like I'm fine with stress I'm I'm in fact I I inclined towards it and I you know I you know if I don't have any I seek it out but like I don't cast a certain level I don't really enjoy it like it doesn't and it degrades the quality of my life not not improves it maybe you have an affinity for self torture but um and so it's it's the there's I mean look there's there's stress in everything you know um and there's there's stress in every profession and there's there's certainly stress of being an investor but it's a completely different kind of stress um because when you're a startup founder like it's all on you right it's it's like everything that happens is on you everything that goes wrong is on you like when there's an issue in the company a crisis in the company like it's on you to fix it like you're you know you're you're up at four in the morning like all the time like worrying about things um and just investors there's just a layer of buffer um you know we we have you know we have we have no end of problems and you know we have we help our portfolio companies as best we can with with all kinds of issues but like you know some crisis inside a company like it's not my company like it's not that everything not everything is my fault and so oh it's a uh it's a it's a more diffuse kind of stress uh and uh and honestly is easy to deal with got it yeah it makes sense but why did you stop your blog would you ever start it again so I write intermittently um you know I just um I I mean I stopped the original blog was like what 2007 to 2009 you know kind of thing um and then we started the firm and then that yeah that kind of uh you know it's like having a new baby that kind of soaked up all my time yeah um and then I you know I write intermittently and then I do you know I'm doing I do social media intermittently and you know basically it's just um you know part of it is I you know I have a lot to say in a lot that I'm interested in but also I you know I like to experiment with the new formats um and I like to um you know kind of you know like you know we do live in a fundamentally different world as a result of social media and the internet blogging and Twitter and all the rest of it so I I try to keep my hand in it experiment but um you know I kind of rotate I rotate both how I spend my time and rotate but I think you know make sense uh now before AWS deploying applications was probably the bottleneck on your software what is the biggest bottleneck today at what layer of abstraction do we need new tools yeah so I think literally sitting here today I think overwhelmingly it's it's the the impact AI is having on on coding right so like I think there's a real possibility that basically I think there's a possibility that basically every application category gets up ended in the next in the next five years like I think the the whole model of how applications get built across every domain I think it might just completely change because I I think you know the the old model without AI you know you you typically have like some sort of database you have some some sort of front end of the database you had forms um right you had you know these these sort of known user interaction models you know mobile apps and so forth um you you know we kind of got to a pretty good kind of shared understanding of how humans and machines communicate kind of in the windowing era and then in the mobile era in the web era um you know I think AI might just append all that and I think the future apps might just be much more of a dialogue between computer and machine um you know this either a text a text written dialogue or a spoken dialogue or some other form of dialogue and you know the the human is guiding the machine and what to do um and receiving real-time feedback and there's a there's a loop and then the machine just does what it does and it gives you the results I you know I think we're potentially on the front end of that I think that all might change um so the the the very fundamental assumptions about how software gets built I think might just um and so the the the yeah the tools on that are are at the very front end like there's an entirely new stack that needs to get built um to do that so that that's that's yeah that's that's that's probably the big thing is is there a reason though AI is not one of your focus areas or as far as I know you guys don't have an AI fund dedicated to the technology specifically Yeah so basically we look at it it's all of software right and so the the we look at it as like it is the core business so software is the core of the firm um you know we've you know we've been public on that for for a long time um you know the core fund the core Venture fund is the kind of core software fund um and then AI basically is the next is the next turn on software and so it's I view it kind of is the opposite of what you said it's sort of it is it is like the most integral thing that we're doing um the separate funds get created for the new areas like for the new areas that are like structurally different um in terms of like how Industries work um right um and so uh you know but but like AI is basically the future of software and so it's it's the future of the core of the firm got it got it um now let's talk a little bit about your past so you sold that's okay for 10 billion dollars but today Chrome has what like 2.7 billion users or something um and then opsware was sold for like 1.7 billion dollars um AWS is going to play make close to 100 billion in Revenue yearly um in in retrospect do you think if these companies had remained startups they would have ended up dominating these large markets yeah so I spent like virtually no time on the past the one thing I know about the past is I can't change it yeah um so I I spend virtually no time kind of revisiting revisiting old decisions I you know people I know who spend a lot of time revisiting old decisions like are less effective because they admire themselves in what ifs and counterfactuals um yeah I so I yeah I I really don't spending time on I really don't even really have theories on it um I guess the big thing I I would just say is um reality plays out in really complicated ways like and everything on paper is straightforward reality is very complicated messy the the technical way that I think about it is basically every startup is charting a path dependent course uh through a complex adaptive system um and and and and just and because of that like you know it's sort of this if you remember the the member read about this in the old days so people had this Obsession a while back with what's called you know chaos theory is sort of this thing of like okay we're used to thinking about like systems as if they're like deterministic you know so you start at Point a you end up at point B and you can do that over and over again right like you know whatever happens when you drop an apple out of a tree or whatever um you know in the real world like in the world of humans and you know eight billion people interacting and then trying to start companies that intersect in these markets and do all these complicated things and have all these employees it's just there's there's there's like random elements all over the place there's path dependence as a consequence you you run the same scenario start at Point a one time you end up point B one time you end up Point Z you know there's a million reasons why the the sort of you know Forks Branch or the the branches Fork uh and so you just can't like yeah I mean this is and it's always this is my advice to every founder who wants to revisit all decisions um is just like it's it's not a useful and productive thing to do the world is too complicated and messy um so you just you know you take whatever you whatever you know you take whatever skills you think you have and you just you do something new mm-hmm makes sense um our inventure capitalist part of the manager Elite so burdum says that the rise of the finance capitalist is a decisive phase in the managerial Revolution what would he think about Venture capitalists yeah so this this actually this this I actually think about a lot so um and I know you said everybody can Google it but I'll just I I just want to I will provide this just so this this makes sense so so James Bruno basically famously said there's basically two kinds of capitalism we call them both capitalism but they're actually very different how they operate there's the old model of capitalism which is Bourgeois capitalism and Bourgeois capitalism was the classic Model where the owner of the business right there was a person who by the way often put their name on the door right the Ford Motor Company right um right um and then and then that person owned the business right often 100 of the business um and then that person ran the business right and so this is this is sort of the classic you know this is these are the people that communist hated right this is like this is like the Bourgeois capitalist company owner Builder CEO right as sort of one person with it's very key with like a direct link right between ownership and control right the person who owns it controls it the person who controls it runs it like it's just it's just it's just a thing there's a proprietor of the business so that's that's that's that's the old model and then what he said basically is as of the middle of the 20th century most of the economy was transitioning and I think that transition has happened and has you know has basically now complete uh most of the economy transitions to a different mode of operating a different kind of capitalism called managerial capitalism the managerial capitalism you you basically you have a separation of ownership and and management so you have you have one set of you know think public company you have one set of owners you know who are like dispersed shareholders and there's like a million of them for a big company and who knows where they are and they're not paying attention to the company and they have no ability to run the company and like whatever um and then you've got a professional manager class and they they step in and they and they run the company and then what he said basically is there's a consequence of that the managers end up in control even though the managers don't own the company right even though their ownership's taking you know a lot of public companies the managers might own like one percent of the company but they end up in total control and then they can do whatever they want um and he and and he actually said look it doesn't even matter if you think this is good or bad or whatever it's just inevitable and it's inevitable because of scale and complexity right and so the the modern industrial and post-industrial organizations are going to end up being so big and so complex and so technical that you're going to need this professional managerial class to run them and it's just an inevitability but this is how it's going to go and so so I really think this is exactly what's played out um a a consequence of that that I think is pretty pretty obvious um is that managerial capitalism has a big advantage that Burnham identified which is the managers are often very good at running things at scale and we have these you know giant you know Industries and sectors of the economy and Healthcare and education all these things that are running at like you know giant levels of scale um you know which was new in the 20th century um but there's a correlate there's there's sort of a consequence of that which is managers don't build new things right they just they're not trained to do it they don't have the background to do it they don't have the personality to do it they don't have the temper to do it and they don't have the incentives to do it because they basically the the number one job if you're a manager is not to upside set the apple cart right you want to like stay in that job for as long as possible you want to get paid your annual comp for as long as possible and you don't want to do anything that would introduce risk and so managers can't and won't build new things and so specifically to your question the the role of startups like the role of entrepreneurial capitalism right is to basically bring back the old Bourgeois capitalist model enough right it now it's a rump effort because it's not most of the economy today but but bring back the older model of Bourgeois capitalism or what we call entrepreneurial capitalism like bring it back enough to at least be able to build new things right um and so basically what we do is we what we do basically is like we fund the new Bourgeois capitalists who we call Tech Founders and then there's basically two layers of of finance that basically enable basically Bourgeois capitalism to at least resurface a little bit within this managerial system Venture Capital does that at the point of inception and then private Equity does that at a point when a company needs to actually transform um and so I I view it as like we're an enabling agent for at least enough of a resumption of Bourgeois capitalism to be able to get new things built even if most of the companies that we built ultimately themselves end up being run you know in in the managerial model and that that's you know and as Brendan would say like that's just the way of the modern world like that that's just how it's going to work but you guys get like preferred chairs and board seats and rightfully so but wouldn't burn them look at this and say you guys are all like you know you're you're not the owners and you do have some amount of control over your companies yeah so he would say I think he would say that we're like a hybrid we're like a managerial entity that is in the business of catalyzing and supporting Bourgeois companies Bourgeois capitalist companies like I I think he would clearly identify the startups that we've we find I think he would view he's like oh yeah that's the old model but that's the old model of like Thomas Edison or Henry Ford or one of these guys you know you know you you could just draw like a straight line from Thomas Edison Henry Ford to like you know Steve Jobs and Larry Page and Mark Zuckerberg like you know that's that's that model that's you know it's a it's a Founder it's a CEO it's a it's at least a you know well they start out owning 100 you know they do have to raise money most of the time but like you know their Throwbacks like the modern tech Founders are Throwbacks to this this older model of of Bourgeois capitalism and I think he so he so I think you're right and that he would view us as a managerial entity but he would view us as a managerial entity that is in the business of causing new Bourgeois capitalist institutions to at least be created um and I think he would credit us with that and then and then I think he would say what I also said I think he would say is however Our Fate is that most of the companies that we fund and most of the founders that we back end up over time handing off control of their companies to a managerial class and so our our companies at the companies we fund when they get to scale they tend to get pulled into the managerial orbit right they tend to get pulled into the management goal Matrix which by the way is when they stop being able to build new things right which is what causes the smart and aggressive people at those companies to leave and then come back to us and raise money and start a new right Bourgeois capitalist company right and so so so basically like I view it as like I don't know the economy is like 99 managerial and if we can just keep the one percent of the old model alive we'll keep getting new things if the one percent by the way if we get snuff like Adventure Capital ever get snuffed it's outlawed or well whatever just fails right um you know and there there is no more Venture Capital there's no more you know Tech startups or whatever like then then at that point the economy is going to be 100 managerial and at that point there will be no innovation forever I think people might think they want that I don't think they actually want that I don't think we I don't think we want to live in that world and now will this trend towards managerialism also happen to a16z as it scales or are will it be immune like what happens to a system Z in five decades yeah so the so this this becomes you know at a certain point this becomes the succession problem right so so as long as Ben and I are running it like our determination is to kind of keep it as much in the Bourgeois model as possible and as you pointed out like literally it's like our names on the door you know like but you know Ben and I control Ben and I control the firm like you know there's no there's no you know there's no board like the firm doesn't have a board of directors like it's just it's just better me running it you know it's a private entity it's it's there are no outside shareholders um and so as long as Ben and I are running it and we're running it in the way that we're running it it will be as Bourgeois it will be in the Bourgeois model as much as as much as any as as any as any as any investment firm could be um you know someday you know there's the succession challenge this and I bring that up because like the the succession challenge is basically you know for for for for tech companies the succession point is usually sort of when that transformation happens right when it goes for being a Bourgeois in the Bourgeois model to being in the managerial model um and then this gets to sort of the philosophy of of succession in tech companies and the the general thing that happens there is that you know the the great and you see this over and over again with like the great founder CEOs when it comes time to hand it off there's basically two kinds of people that they could hand it off to you know they can hand it off to somebody like them right who's like a Mercurial you know idiosyncratic you know High disagreeableness you know ornery you know you know sort of you know entrepreneurial kind of personality right um you know somebody in their mold or they could hand it off to somebody who knows how to run things at scale almost always what they do is they hand it off to somebody who can run it at scale the reason they do that is actually two reasons there's the theoretical reason they do that which is it is at scale at that point and somebody does need to run it at scale and then the other is they often have what I call the long suffering number two um so they've got like you know if you've had like you know whatever um you know you've had like this like high octane you know kind of founder CEO who like breaks a lot of glass and then there's often like the number two there's like the Chief Operating Officer or something who's like the person who like fundamentally keeps the trains running on time and keeps everybody from quitting um and that long suffering number two has often been in that job for 10 or 15 years at that point and it's literally the long side is long-suffering like they've always been the underling and then it's like okay you know they've quote unquote they now deserve the chance to run the company themselves and that's the Handover now those Fighters often end up regretting that decision and in later years they will tell you boy I wish I had handed it off to this other person who was you know for maybe deeper in the organization who was maybe younger who was more like I am and maybe would have built me products and maybe that was a mistake but the fact that they do this over and over again to me illustrates why the Burnham theory is correct which is large complex organizations ultimately do end up getting run by managers in almost all cases again the only sort of upside the only sort of good you know I don't know good news the only optimistic kind of you know view on that is that it's the transition from these companies being Bourgeois capital in the Bourgeois capitalist model uh to the managerial model that creates the opportunity for the new generation of startups right like right because in the counter factual like if these companies remain Bourgeois capitalist companies for 100 years then they would be the companies to create all the new products and then you know we we wouldn't necessarily need to exist because those companies would just like do what the startups do they just build all the new stuff but because they won't do that in that model they they won't do that and they don't do that almost without exception you know therefore there's always the opportunity for the next new startup and and I and I think that's good like I think that that you know that that keeps the economy you know vital even in the face of this overwhelming you know Trend towards towards managerialism um now if you had a fund with a 100 Year lock-in what would you be able to invest in that you can invest in right now yeah so the thing with a longer you know so our our lock up now you know the base lock up for Venture is like 10 years and then we have the ability to kind of push that out you know we can kind of push that to 15 and then you know I think if we you know for really high quality companies we can push that to 20. um you know we haven't you know if we haven't been in business long enough to try to push it beyond that um so you know you know we'll see um you know the the question if you could push it to 100 years that you know the question is like is it really time that's the bottleneck right like are there like the implication of the question would be like are there more ambitious projects that would take longer that you would find that you're not funding because the time frame is too short and the problem with 100 the problem with 100 Year time frame or even a 50-year time frame or even a 20-year time frame is that new things don't tend to they don't tend to like go through a 20-year incubation phase in business and then come out the other end and be good like they basically what seems to happen is they need Milestones like they you know they need points of contact with reality but every every once in a while there will be a company a very special company will get funded with a Founder who's like look I'm going to do the long-term thing and then they kind of go into a tunnel you know for 10 or 15 years where they're building something and the theory is they're going to come out the other side like these have existed and these these do get funded you know generally they never come out with anything like they they just they they end up going they end up in their own tribe we call it they end up in their own private Idaho like they end up in their own internal World they don't have contact with reality they're not ever in the market they're not working with customers you know they just they start to become like basically bubbles of their of their of their own reality um and then you know they don't like look contact with the real world like contact with the real world is difficult like every single time like the real world is a pain in the butt um and you know to to to to like Mark to Market your views of like what you're doing with the reality of what like anybody's actually going to want to pay for like requires you to go expose yourself to that like it's really hard to do that in the abstract uh or to build a product that anybody's going to want to use um and so this thing where people go in a tunnel for 10 or 15 or 20 years like it doesn't go well I think 100 years would be an even more degenerate version of that like I just think they'd end up it would just it would end up you know kind of best case as kind of This unbounded research lab that maybe you would write papers and I don't know you know something maybe comes out the other end of the far future in the form of some open source thing or something but like they're not going to build an Enterprise that way um and so I I think having some level of contact with reality over the course of for sure the first like five to seven years is pretty important um the other question that I would that I would ask you know the other the other way to to uh to get a kind of your underlying underlying question the other the other thing would just be like what if you just had more zeros on the amount of money right and so what if instead of funding companies for 20 million dollars you could fund them for two billion dollars or 20 billion dollars right in other words you know maybe they would operate on the time frame of today's companies they'd operate on like whatever five or ten year time frame but you know you could you could fund them with 20 billion of venture financing instead of 20 million um you know I think that's a more interesting question um I think it's possible that there are you know pretty big you know fundamental things that could be built with larger amounts of money um in this kind of entrepreneurial model um you know everyone I mean look you get you know every once in a while you you do see you know you do see these like giant you know Tesla and spacex's two obvious examples like you know of these like world-changing things which you know took a lot of money and and then had had really big impact and so so maybe there's something there and maybe that's something that the Venture you know ecosystem should experiment with in the years ahead um so that I would be more focused on that as opposed to elongating the time but like what about basic research right so I think you've spoken about the uh dysfunctions of the academic Government research complex uh but like with the next internet the next thing that the Andreessen from 10 years from now is building on top of maybe there needs to be some sort of uh if the government effort is broken maybe you just need to bootstrap something yourself or have you considered that yeah so the strong version of this argument um uh is from a guy named Bill Janeway um and he was a legendary VC actually January is a great a great a great a wonderful guy if people haven't heard of him he's uh he's uh he was actually a was it a I think he was he was he's a PhD in economics yeah I think he's a student of a student of John Maynard Keynes um so he kind of comes from like a highly pedigreed like economic theory background and then he was a himself a legendary venture capitalist in his career he became a Hands-On investor at the firm warberg Pincus um and funded some really interesting companies um and and so he's he's one of these rare people who's both theoretical and practical um on this kind of question um and he wrote this book um uh which is I really recommend um uh and it's called doing capitalism and where he kind of goes through this question and and so the argument that he makes you know along the lines of what you're saying the argument that he makes is basically and it's a little bit of a I don't know it's a little bit of a pessimistic argument the argument he makes basically is if you look at the entire if you look at basically the history of professional Venture Capital which is now like a 60-year Journey basically you know it's or maybe even 50 years it's basically from the late 60s early 70s and in kind of modern form um he said basically the he said basically the the big category that's worked is is compute you know computer science um and then he said there's the the second category that's worked as biotech um and then he he said at least at the time of writing he said everything else didn't work um and so you know all the money that people poured into cleantech and you know like all these other you know areas um you know that Venture Capital has tried to fund you know they basically they're just from a return standpoint they just didn't work they just you just watched the capital you know you just burn the capital um and then and then what he says is and then he says is it's like uh the number when they run when he wrote the book you read the numbers and it's like basically computer science has worked twice as well as biotech or something like that right um and then what he said is what he said is this is a direct result of basically Federal research funding over the over the previous 50 years and so he said basically Venture what Venture what what computer science-based venture capital is able to do is it was able to productize 50 prior years of basic research in computer science right information science information Theory Communications Theory right um you know algorithms right all the stuff that was done in engineering schools you know basically from you know 1940 through like 1990 right um and so he said basically we are you know we we are productizing that that that's been the big thing right and then and then he said you know biotech where you know that that sector where productizing basically the the work that NIH right and others you know put into basic research in the biological sciences and he said you know that that was you know about half as much money um and maybe about like half as much time like like that work really started kicking in in the 60s and 70s a little bit later um and then he said look he said the problem is there are other sectors that have had these huge investments in basic research like they just you know there there has been no basic you know there's just not this huge backlog of like basic Research into like climate science or into you know take your pick of I don't know online content or like you know what whatever the other sectors are where people burn a lot of money um and so he says look he says if you want to predict the future Venture Capital you basically just look at where you know the previous 50 years of where research r d you know basic research has happened Federal research funding has happened um and he said and he and again his strong form of it is you know it's like there's no shortcuts on this right and so if you if you're trying to do venture capital in a sector that doesn't have this big basically uh you know kind of install base of basic research that's already happened like you're basically just building a windmills I think there's a lot to his argument I'm a little more optimistic about a broader spread of categories um a big reason I'm more optimistic about a broader set of categories is because I think computer science right in particular now applies across more categories right so this is this is sort of the underlying point of the software is the world thesis which is computer science used to be you know computers used to be just like an industry where just like people made in sold computers but now you can apply computer science into many other markets you know financial services and Healthcare and many many others where it can where it could be a disruptive force and so I I think there's a payoff to computer science and software for sure that can apply in the sectors I think maybe some of the biological science Sciences can be stretched uh into other sectors you know and then look there's a lot of smart people in the world you know there's Niche research efforts all over the place in many fields that are you know doing doing interesting work maybe there's you know maybe you don't get a giant industry out the other end in some new sector but maybe you get some very special companies you know doing special I mean you know like SpaceX like you know space is like a massive advance in Aeronautics it you know took advantage of a lot of Aeronautics r d you know it's not like there's some huge error not expense or industry but yeah you know there is a big winner um you know at least at least one and I think and I think more to come and so I'm a little bit more optimistic at open-minded um you know I think Bill would probably say that I'm naive mm-hmm um no but you mentioned earlier being able to write potentially nine or ten figure checks to these companies like SpaceX or Tesla uh who might require the capital to do something Grand last I checked you guys have 35 billion or something under management now do we need to add a few more zeros to that as well is that will a16z's out of assets under management just keep growing or will you cap it at some point so we we cap so we cap it you know as best we can right uh we we basically cap it to the opportunity set right and so basically our our entire model right and it's not a single you know it's maybe obvious but it's not a single chunk of money like it's broken into various strategies um and we apply different strategies to different sectors at different stages you know so it's decomposed you know we have like six you know primary investment groups internally so in the different stages and so that money's broken out in different ways but um yeah I mean look um you know I we we cap it as best we can to the opportunity set we always tell LPS the same thing which is we're not we're not trying to grow SS enter management like that's not a goal like we're we're to the best of our ability we're trying to maintain whatever return level we're maintaining you know we are trying to eat market share like we'd like to eat as much market share as possible and then we would like to go fully exploit the available opportunities we'd like to fund all you know we'd like to fund all the really good Founders we'd like to back you know all the interesting new spaces um you know but we're not what we wouldn't want to do is double SS enter Management in return for you know five percent lower returns or something like that like that that would be a bad trade for us um so to put another zero on that I think what we would need would be a theory but as I said I think we would need a theory on a different kind of venture capital model which would be basically trying to back much larger scale projects um and again I think there's a really big argument you could make this that's precisely what firms like R should be doing like there are these really big problems in the world and maybe we just need to be like much more aggressive uh about how we go at it and we just need you know and we need Founders who are more aggressive and then we need to back them with more money um look I think you can also argue like either that wouldn't work or we don't need it you know the the counter argument on the Tesla and SpaceX examples that I gave is that they didn't need it right they they they they raised money the old-fashioned way right they they raised money round by round in the existing Venture ecosystem um and so you know for whatever limitations you think the existing ecosystem has and maybe it's not ambitious enough or whatever like it did fun Tesla and SpaceX um and so you know maybe it works and then this goes to this underlying question right so the underlying question underneath all this basically is not the money part the underlying question is like how many great entrepreneurs are there right and then how many really big ideas are there for those entrepreneurs to go after right and then and then that goes you know one level deeper which is okay well like what makes a great entrepreneur are they born like are they trained right like what you know what made Elon Elon what would you need to do to get 10 more elons what would you need to do to get 100 more elons what would you need to do to make a thousand more elons right are they already out there and we just haven't found them yet could we grow them so you know could we grow them thanks you know um testosterone to the water supply yeah yeah or or do we need an entrepreneurial University that trains entrepreneurs right like it's just like a totally different thing like those are the underlying questions right like I think if you show me 10 more elons I'll figure out how to fund their companies I I can I can tell you like I we work with a lot of great Founders um and we also work with Elon and like he's still special like he's still highly he's still highly he's still highly unusual even even relative to the other great entrepreneurs uh let's talk about crypto for a second uh when you're investing in crypto projects how do you distinguish cases where there's some real new good or service that a new technology is enabling and cases where it's just uh speculation of some kind yeah so what we definitely don't do is the speculation side like we just we just don't do that and I I mean that very specifically which is like we're not like we're not running a hedge fund so what we do is we apply the classic Venture Capital 101 Playbook to crypto and we do that the exact same way that we do that with with every other Venture sector that we invest in which is to say we're trying to back basically you know new Ventures by the way in crypto that Venture might be a new company or it might be a new network right or it might be actually a hybrid of the two and we're completely agnostic as to as to which way that goes we actually we actually write our crypto term sheets where even when we're backing like a crypto C Corp we we always write in the term Sheets if they can flip it into being you know a tokenized network anytime they want to right and so we're so we we don't distinguish between you know companies and networks um but but we approach it with Adventure Venture Capital One Playbook which is like look we're looking for basically really sharp Founders um who have a you know a vision and the determination to go after it um that basically where there's some reason to believe that there's some sort of deep level of technological economic change happening which is what you need basically for a new startup to to wedge into a market um and then that there yeah that there's a there's a reason for it to exist like there's a market for what they're building and you know they're going to build a product and there's going to be an intersection between product and market and there's going to be a way to make money and you know kind of you know the the core Playbook we go into every event every crypto investment with the same time frame we go into Venture investing so we go in with you know at least a five to ten year time frame if not a 15 to 20 year time frame and so that's what we do the reason that's not necessarily the norm of crypto I think is basically an artifact of the fact that you know especially anything with crypto tokens like it there is this thing where they do tend to publicly float like a lot sooner than startup Equity floats right um and so you know these these if these let's say we're backing into crypto Network it goes ahead and like floats a token you know as sort of one of the first steps of what it does you know it has it has a liquid would you know thing you know years in advance of when a corresponding you know normal C Corp would this weird thing in behavioral economics where when something has a daily price signal and where you can trade it people tend to obsess on The Daily price signal and they tend to trade it too much um right and there's all this literature on this that kind of shows how this happens like it's part of The Human Experience like we can't help oursel like it's like moss to a flame we can't like if I can trade the stock every day I trade the stock every day right like like almost all almost every investor in almost every asset class trades too often uh in a way that damages their returns um and so and then as a consequence of that what's happened is a lot of the fur a lot of the investment firms that invest in crypto startups are actually hedge funds right they're they're structured as hedge funds right they they trade they have trading desks they trade frequently you know they have these what they have the equivalent of what's called a public book and hedge fund land they've got like you know these these crypto assets they're trading frequently and then they'll back a startup and then they'll trade that startups token just like they trade Bitcoin or ethereum or whatever but but in our view like that's the wrong way and then by the way there's a there's a there's a there's an incentive issue which is then they they pay you know they pay themselves on a hedge fund not only pay themselves annually right and so they're paying themselves annually based on the markup of projects that might still be years away from you know realization of of ultimate underlying value and then you you then there's this big issue you know of misalignment between them and their LPS um and so so that so anyway so that's all led to this thing where it basically just these new crypto projects the the the tokens are traded to aggressively they they just in our in our model they just shouldn't be they're not ready for that yet um and so so we we anchor hard on the Venture Capital model we treat these Investments the exact same way as if we're we're investing in metric Capital Equity we we basically Buy and Hold You know for as long as we can um and uh and and you know and try to get to the you know have a real focus on the underlying intrinsic value of the product and Technology that's being developed so in other words like yeah basically no specular like no if if like if by speculation you mean like daily trading or whatever trying to look at prices and charts and all that stuff like we don't that that would do or separately another category would be things that are basically the equivalent of I don't know baseball cards where there's no there's no real good or service that's being created said it is something that you know might you might think might be valuable in the future but not because like the GDP has gone up oh baseball cards are a totally valid good in service that's a misnomer like that that that's not yeah that that I think is a that I would entirely disagree with the premise of that question but are they going to raise median incomes or even slightly yeah yeah there are people who make yeah there are people who make their living on baseball cards right right um collect look art is a art is art has been a part of the economy for thousands of I mean art Art's one of the original things that people bought and sold right like it's it's it's art is Art Is Fundamental to any I mean any any kind of I mean would you really want to be part of an economy where they didn't value art but like that would be depressing yeah or like but there's a question of like do they value hard versus are they speculating on Art and then how much of the effort is being spent on speculating on the art uh versus creating the art well so this gets into this old kind of taboo right cultural taboo you know so this again this depends what you mean by speculation like if if what you mean by speculation is like obsessing on like daily price signals and like buying and selling and churning a portfolio right being like a day trader right like that kind of speculation that that that that's what I I think of speculation is like that's let's say that's the bad form of speculation like that's the not productive form if by speculation on the other hand you know you mean look there there are different kinds of things in the world that have different possible future values um and you know people are trying to estimate those future values and people are trying to figure out you know utility and they're trying to figure out aesthetic value right I mean look you just look at how that look at how the traditional Art Market works right like is somebody supporting a new contemporary artist speculating or not it's like you know es maybe you know from from one lens they are and maybe they're buying and selling paintings and maybe they're you know maybe they buy in and if it doesn't start going up in price they flip it and buy something else maybe the speculation but also maybe they're supporting a new Young artist right um and maybe they build a portfolio of of new uh you know a speculative portfolio of new Young Artists uh and as a consequence those artists can then afford you know they can get and get paid and they can afford to be full-time artists and then it turns out you know they're the next you know next Picasso um and so that kind of speculation I think is is good and healthy um and I think it's it's core to everything like I'd also say this like I don't know that there's I don't know that there's actually dividing line between that form of speculation speculation of what people call Investments because even when people make investments I mean you just look at the bond even just the institutional bond market I mean look U.S government debt right like people are today in the bond market trying to figure out what that's worth right because like as you know is the debt's really going to get raised like you know they're like even that's up for grabs right and so and that's and that's the that's not to me that's not speculation the bad sense that's a market working properly like people are trying to estimate you know people you know Ben Graham said right financial markets are both a voting machine and a weighing machine right and in the short term they tend to be a voting machine in the long run they tend to be a weighing machine what's the difference between a voting machine a weighing machine I mean I don't know some people would say they're very different maybe it's actually the same thing why do prices go up right because there are more buyers and sellers why do prices go down there are more sellers and buyers like the way markets work is you get individuals you know basically trying to make these estimations and then you get the collective effect and I I just there there's this there's this dirty interpretation of any kind of trading or any kind of basically people trying to you know do the voting and weighing process that I just you know I just think it's this it's this historical ancient taboo against like money you know it's like in the Bible like it's like you know Jesus kicking the money changers out of the temple right it's this you know this this old taboo against like charging interest on debt right you just have right we just have this fundamental you know different religions and cultures tend to have they all tend to have like some underlying unease right with a concept of money the concept of trade the concept of Interest right and I I just think it's like it's like Superstition it's like resentment you know it's like you know fear of the unknown but it it those things are the things that make economies work and so I'm I'm all in favor I I don't mean to get hung up on this but if you think of like something like the stock market or the bond market I mean fundamentally you can tell a story there where basically the reason what these uh you know stock Brokers or uh these hedge fund managers are doing is valuable is they're basically deciding where Capital should go should we be able to factory in Milwaukee should we build it in Toronto like where should it like fundamentally where should Capital go whereas what is the story there for like what is the nft helping uh allocate the capital towards like why is it why does it matter if the price is efficient there well because it's art I mean I mean let's just take the pure and look nft is a very general concept right nft is basically just like a form of digital ownership there are many kinds there will be many kinds of nfts in the future many of them will for example represent claims on a real underlying property right like I think a lot of real assets are going to get wrapped in nfts and so like nft is is a very broad technological mechanism but let's let's specifically take the form of nft that everybody likes to criticize which is like nft is like a creative you know basically a creative project a creative you know and an image or a character in a official universe or something like that like that you know the the parts that people like to beat on and I'm just saying like they're just art like that's just digital art right and so every criticism people make of that is the same criticism you would make of buying and selling paintings it would be the same buying and selling photographs right of buying and selling sculpture right like you know I mean I always like to really push this I always like to push this like what's the Mona Lisa worth if you I don't want to spoil the movie but you know the new Knives Out movie let's say the Mona Lisa plays a place that plays a role in the movie what's the Mona Lisa worth um right and and so one way of looking at the Mona Lisa is that it's worth the the cost of producing it right it's it's worth the the canvas and the paint right and you could you can create a completely identical reproduction of the Mona Lisa with you know like 25 bucks of canvas and paint so the Mona Lisa is worth 25 bucks or you could say the Mona Lisa is like a cultural artifact and as a cultural artifact it's worth you know probably a billion dollars or 10 billion dollars right and so and and like I bring this up specifically on your questions like okay what's the spread between like what explains the spread between 25 and like the 10 billion or whatever that would it would go out if it ever hit the market It's like because people care like because it's art because it's aesthetic because it's cultural right because it's it's it's it's it's part of what we've decided is is the cultural heritage of humanity the thing that makes like life worth living is that it's not just about like subsistence right is it there that we're going to have higher values and we're going to Value Aesthetics right do you see a difference between you know the funding the flying cars and the spacex's and Teslas versus but sure maybe it like improves a aesthetic Heritage of humanity but does one of them seem a different category than the other to you or is it basically is that all included the Venture stuff you're interested in I mean it's a little bit like saying you know should I should we fund a Thomas Edison or Beethoven right like like if push comes to shove and we can only find one of them we probably should find Edison in that Beethoven right like indoor lighting is probably more important than like music but like I don't want to live without Beethoven right like like and I don't want the world to like the point of the world this actually I think is a very important point the point of the world right the point of human like people have lots and lots of views in human existence there's lots and lots of people who are trying to figure out the point of human existence you know religions and philosophies and so forth but kind of what they all have in common is Right other than maybe Marxism what they all have in common is we're not just here to like get up in the morning work in a factory all day go home at night like you know be depressed and sad go to bed like we're not it's not we don't we're not just material right like whatever this is all about like it's it's not just about materiality there are higher aspirations and Higher Goals right and we create art we create literature we create paintings we create sculptures we create like Aesthetics like we create fashion right we create music we create you know like all of these things and you know fiction fiction like why does fiction exist like why is a fake story worth anything well because people it enhances your life to get like wrapped up in a fake story right it like makes your life better that these things exist like and you wouldn't want to live in a world you know imagine living in a world where there's no fiction because everybody's like oh you know the grinds are like oh Fiction's not useful like it's not real right it's like no like it it's great like I want to live in a world where there's special like I like nothing more at the end of the day than having a couple hours to be able to get outside of my own head and like watch a really good movie and like I don't want to live in a world where that doesn't happen as a consequence funding movies right is another example of what you're talking about is I think a thing that like really makes the world better so right and then and then look here's the other thing the world we live in actually is is the opposite I think of the world you're alluding to the the world we live in is not a world in which we have to choose between funding flying cars and funding nfts right or like in my example finding Edison versus funding Beethoven the world we live in is actually the opposite of that where we have a massive oversupply of capital and not nearly nothing to fund right just broadly and broadly in the world the the nature of the modern economy as we have at Ben Bernanke called the global savings client we've just got this like massive oversupply of capital that was generated by the last 200 years of economic activity and there is just and then there's only one Elon like there's just this massive Supply demandness imbalance between the amount of capital that basically needs to generate a return and then the actual number of like viable investable projects and great entrepreneurs to actually create those projects and so like if anything we don't I mean does it kind of say we we don't we certainly don't have enough flying car startups we also don't have enough art startups like we need more of all of this right and so that I don't think there's a trade-off I think it's actually we need we need more of all of it have we reached the end of history when it comes to how Venture Capital works so you know for decades there's like the you basically get equity in these early stage companies you invest more over rounds there's a 220 structure is that basically what Venture is going to look like in 50 years or what what's going to change so I think the the details will change and the details have changed a lot um and the details will change a lot and if you know if you go back to the late 60s early 70s like the details were different then um and then you know the details were different 20 years ago by the way they're changing again right now um in a bunch of ways um and so so the details will change um having said that I think there's a core kind of I don't know Prince there's there's a core activity that is there's a core activity that seems very fundamental um and the the term that um the term I use I brought from Tyler Tyler Cohen who's talked about this he he calls it project picking when you're doing new things right and by the way new things new tech startups by the way making new movies um publishing new books um you know creating new art right when you're doing something new there's this pattern that just repeats over and over again if you look back in history it's basically been the pattern for you know hundreds or thousands of years and it seems like it's still the pattern which is you're going to do something new it's going to be very risky it's going to be a very complex undertaking right like I said earlier it's going to be uh some very complicated effort that's going to involve a path dependent kind of journey through a complex adaptive system reality is going to be very fuzzy and messy um and you're going to have a very idiosyncratic set of people who you know start and run that project they're going to be highly disagreeable you know ordinary people uh because that's the kind of people who do new things um they're going to need to build something bigger than themselves right they're going to need to like assemble a team and like a whole effort they're going to run into all kinds of problems and issues along the way um and then there's just this role every time you see that pattern there's just this role where there's somebody in the background who's like okay this one not that one um this founder not that founder this Expedition not that expedition this movie not that movie right um and those people kind of play a judgment a taste role they play an endorsement branding marketing role um and then they often play a financing role right and then by the way they often are very Hands-On and they you know they try to then contribute to the success of the project the historical example of this I always use is that the current model of venture capital is actually very similar to how whaling Expeditions got funded 400 years ago um right to the point of like the the term that we actually have which is carried interest or carry which is sort of the profit sharing that the VCS get on a successful startup that term actually goes back to the whaling industry 400 years ago where the financiers of whaling uh Journeys like literally like out of like Moby Dick to go like hunt a whale and bring it's you know it's basically it's carcass back you know to land um uh the the carry was literally the percentage of the carried amount of wealth that the investors got it was called carry because it was literally the amount of whale that the ship could carry back um and so if you go back to how the whaling journey is off like the coast of Maine and like the 1600s are funded there were a group of what we you know they didn't call themselves Venture capitalists at that time but there were a group of basically you know capitalists um and they would sit you know in a Tavern or something and they would you know get pitches by whaling captains you know about you know and you can imagine the whaling happens right like I mean like whaling right wailing like a third of the whaling Journeys never came back right like a third of the time the boats got destroyed and everybody drowned right and so it's like okay I'm the captain who's going to be able to like not only go get the whale but like I'm gonna be able to keep my crew alive and by the way I have a strategy and a theory for where the whale is right and maybe one guy's like look I'm gonna go where everybody knows they're whales and other guy's gonna be like no that place is overfished I'm gonna go to some other place where nobody thinks there's a whale but I think there is um and then one guy's gonna say I'm better at assembling a crew than the other and the other one's like well no I don't even need the crew I just need like a bunch of like whatever grunts to like and I'm gonna do all the all the work um and then another guy might say you know I want a small fast boat another guy might say I want to you know a big Slow Boat right and so there's a there's a set of people like imagine in The Tavern at candlelight like at night like debating all this back and forth saying okay this captain on this journey not that captain on that journey and then and then putting the money behind it right to finance the thing and like that's what they did then that's still what we do right um and so so what I'm pretty confident about is there will be there will be there will be somebody like us who's doing that in 50 years 100 years 200 years it it will be something like that will it be called Venture Capital that I don't know you know will it be you know I don't know you know where will it be happening I don't know but um that seems like a very fundamental role yeah we have but will the public private distinction that exists now will that exist in 50 years that's really public and private market like companies right um you mean like companies going public yeah and just like the the fact like there's different rules for investing in both and you know just kind of a separate category is that going to exist yeah so that's already there's already Shades of Gray um so that I would say that's already dissolving uh you know it's there's very formal you know there's very formal kind of rules here but um you know there there's already shading that's that's taking place right and so in the last 20 years it's become much more common for especially later stage private companies to have their stocks actually trade right actually be you know let's say semi-liquid right and trading either through secondary exchanges or or you know tender offers or whatever and so like that that didn't used to happen right that that didn't happen really in the 1990s and then it started happening in the late 2000s and then you've got you know lots of people with different kinds of approaches to have different kinds of private markets and new kinds of private liquidity and so and then look you've got these new mechanisms you've got crypto tokens right you've got entirely new mechanisms as well you know kind of popping up representing you know kind of underlying value um and then you know you got your big you know arguments and debates all the time in public and with Regulators in the newspapers about what counts as you know this and you know who can invest and you know if you know this whole accredited investor thing right a lot of this is around quote-unquote protecting investors and then there's this concept of like high net worth investors should be allowed to take more risk because they can kind of bear you know the losses whereas kind of normal investors should not be allowed to invest in private companies but then there's a counter argument that says then you're cutting off growth investing as an opportunity for normal investors and you're making you know wealth inequality worse and so you know that that that debate will keep playing out um you know it'll it'll kind of fuzz a bit like I'd expect probably both sides will will moderate a little bit um you know so in other words public companies will get to be a little bit more um you know they'll probably get a little more liquid over time the definition of what it means to be public will probably broaden out you know the The Regulators will probably expect well I'll give you an example here's an interesting uh thing so um you can have this interesting case where you can take a company private but yet it's still effectively public because it has uh publicly uh traded um and then it ends up with like publicly filed financials on the bond side even though its stock is private right and so it's it's effectively our it's our effectively still public for the because of information disclosure and then the argument's like well if if you already have full information disclosure as a result of the bonus trading you might as well take the stock public again because you're not losing you know so anyway I I you know it'll fuzz out somewhere in there okay so there's a clear pipeline of successful Founders who then become Venture capitalists like yourself obviously um but I'm curious why the opposite is not more true right so if you're a venture capitalist you've seen dozens of companies go through hundreds of different problems and you would think that this which is a perfect position to kind of uh be a great entrepreneur so why don't more Venture capitalists become entrepreneurs yeah so I think the answer I think one is it's just harder like it's just it's it is harder to build a company like it just it flat out is like it's not easy to be a VC but it's harder to build a company um and it requires a level of personal commitment like people get to a point like successful Venture capitalists do get to a point in life where they start to become pretty comfortable um you know they make money and like you know they have like you know you know they start to kind of settle into a sort of Fairly nice way of living at some point in a lot of cases and so going back to the you know 2 A.M chewing glass um you know kind of thing um you know is maybe a little bit of a stretch for how they want to spend their time um so that's part of it I think the other part of it is look the activities are pretty different um you know the the way I describe it is actually starting and running a company is it's a full-on contact sport you know it's a hundred decisions a day um it's like uh give an example bias to action like anybody anybody who's running it running a company like you have to have a biased action like you have you're you're faced with 100 decisions a day you don't have definitive answers on any of them and you have to make this you have to actually act anyway because if you sit and analyze you know the world will pass you by right and so it's like what is it a good plan executed violently is much better than a great plan executed later right and so so it's just it's a mode of operating that basically it like rewards like aggression contact with reality constantly testing hypotheses screwing up a lot change changing your mind a lot you know revisiting things um you know uh just like it's you know it's it's it's you know thousands and thousands of like crazy real world variables all in a second um being an investor is different it's it's much more analytical clinical um outside in like the decision Cycles are much longer um you get a much longer period of time to think about what you should invest in you get a much longer period of time to figure out when you should sell um you know Eugene like I said you generally don't want to trade frequently like if I think if you're doing your job right so you actually want to take a long time to like really make the investment decisions and then make the ultimately the sale decisions um uh you know you you know VCS we help along the way you know when companies have uh you know kind of issues that they're in the middle of but like you know fundamentally it's like a much bigger level of watching observing learning thinking arguing um in the abstract um as opposed to day-to-day just like bloody combat um and so it's a different I don't know it's like you know honestly it's a little bit like why don't the great football broadcasters right uh you know go get on the field right and try being you know running back for a season yeah it's a little bit like that to be totally honest yeah yeah got it um how soon can you tell uh whether somebody will make for a good CEO of a large company specifically so can you tell us soon as you know that they've got like a new startup that they're pitching you or does it does it become more clear over time as they get more and more employees yeah well look sometimes they've done it before right so well okay so I guess I'd say this the the big thing with like being able to run things at scale there's actually a very big breakthrough that people either make or they don't make and then the very big breakthrough is whether they know how to manage managers right and so because the reason for that is like running a big company you don't have you know say you're running a company with a hundred thousand employees you don't have a hundred thousand direct reports right you still only have like eight or ten direct reports and then each of them have eight or ten direct reports then each of them have eight or ten direct reports and so even the CEOs are really big companies they're only really dealing with like eight or ten or twelve people on a daily basis like and so and so and and and and so the key breakthrough right and then and then how do you become trained as a manager the way you become trained as a manager initially is you manage a team of individual contributors right so I'm an engineering manager I I have eight you know or ten coders working for me and then the Breakthrough is can I am I trained on how to become a manager of managers right and and so if I if I'm if I'm early in my career the way I think about that as I start out as an individual contributor let's say an engineer I get trained on how to be a manager of individual contributors and that makes me an engineering manager and then if I get promoted to what they call engineering director which is one level up now I'm a director and now I'm managing a team of managers anybody who can make that jump now has a generalizable skill of being able to manage managers and then that what makes that skill so great is that skill can scale right because then you can get promoted VP of engineering now you have a team of directors who have teams and managers who have teams of ICS right and so forth and then at some point if you keep climbing that ladder at some point you get promoted to CEO and then you have a team of managers who are the executives of the company and then everything stands out from there and so if you can manage managers like at least in theory you have the basic skill and temperament required to be able to scale all the way up um you know then it becomes a question of like how much complexity can you deal with like can you learn enough about all the different domains of what it means to run a business you know are you going to enjoy being in the job and being on the hot seat like oh you know all kinds of those those questions um I think most of the people we back let's put it this way I think 100 percent of the people we back have the intelligence to do it um I think maybe half of them have the temperament to do it and then maybe half of those have the intelligence and the temperament and they really want to do it and by that I want to do it I mean 20 years from another they still want to be running their company right um and so um you know and enough of them where we get some success cases but you you but having said that like look as an entrepreneur you have to really want that like you you have to be smart enough and you have to have the temperament and you have to actually want to learn the skills um and not everybody is able to line those up got it got it managing the manager of evolution yeah exactly well that's the thing right well actually that's exactly right so right the the best case scenario is a Bourgeois capitalist entrepreneurial CEO managing a team of managers who are doing all the managerial stuff required of scale right like that's the best case scenario for a large modern organization right which is they're able to Heart The Best of Both Worlds they're able to harness the benefits of scale and they're able to still build new things you know the degenerate version of that right is a manager running a company right of basically like you know basically you know basically you know in theory people who can build new products but if the manager in the Burnham sense if the CEO is manager in the Burnham sense is running a team of people who want to build new products that company probably will not actually build new products those people will probably all even start their own companies yeah yeah now as unlikely as this may be just humored the hypothetical let's say a16z for the next uh 10 to 20 years has mediocre returns if you had to guess looking back what would be the most likely reason this might happen would it have to be some sort of macro headwind would it have to be uh betting on the wrong Tech sectors what would have to be so 20 years is a long enough time where it's probably not just a macroeconomic thing um right in the you know the cycle the Cycles play out you know the big macro Cycles seem to play out over like seven to ten year periods and so over 20 years you'd expect to kind of get two or three big Cycles through that um and so you'd expect to get you know at least some chance to you know make money and and harvest profits um so probably it wouldn't be a macro problem yeah I mean you could look you can imagine it like if we have like you know if the black plague return you know it's like it's like a real pandemic happens right by the way I'm now going to get you demonetized on Google because I'm going to reference pandemics but um I didn't have enough views to be monetized anyway so if there's a um you know I don't know if there's you know if something horrible happens then you could have you could be in a ditch for 20 years you know but but if if if if things continue kind of the way that they have for the last you know 50 years or 80 years like that there will be multiple cycles and there'll be a chance to make money for people who are who make good Investments um so it's probably not that um and then um and then there's like the micro there will be the micro explanation which is we just make that investment that's like we we invest the money but we just invest in the wrong companies and we we screw up um and that's of course always a possibility and probably the you know the most always the the kind of most likely downside case the other downside case is is I would it would build basically what I was mentioning earlier from Bill Janeway the other downside case would just be like um you know the there's just not enough technological change happening um right there's just they're they're like there there wasn't enough you know investment in basic research in the preceding 50 years in areas that actually paid off um there wasn't enough sort of therefore underlying technological change that provided an opportunity for new entrepreneurial you know innovation and you know the entrepreneurs you know started the companies and they tried to build products and we funded them and like it just for whatever reason like the the sectors in which everybody was operating just like didn't pay off um you know I'd say if we hit like I don't know five clean tech sectors in a row or something like that you know then the whole thing just doesn't work yeah I think that that's that that that would be that's the biggest that in a sense that's the scariest one because that's the one that's most out of our control uh you know that's like purely you know exogenous right like if we if you know we can't wish new science into existence um and so that that would be a scary one I don't think that's the case in fact I think quite possibly the opposite is happening but that that would be the the downside scenario how vulnerable is a16z to Any Given uh single Tech sector not working out whether it's because of technical um immaturity or whether a regulation or anything else but like if one if like your top sector doesn't work out how vulnerable is the whole form Innovation could just be outlined right um and and that is that's a real risk because Innovation is outlawed in big and important areas right like so you know you know nuclear there's you know that I always love meeting with new nuclear entrepreneurs because it's just like so obvious that they're you know we should have this big you know investment in clear energy and there's all these new designs but the nuclear Regulatory Commission has not authorized a new their design since its Inception nearly 50 years ago and so it's just illegal to build new nuclear right um in the U.S um by the way there's all these Fusion entrepreneurs that again they're like super Geniuses the products are great it looks fantastic I don't think there's any Prospect of nuclear fusion being legal in the U.S right I I just don't think I think it's just impossible can't be done um and so um you know maybe maybe it's just all Outlook um you know in which case look at a societal level we'll deserve the result but that would that would be a bummer for us and then like so yeah a little I don't know let's say crypto gets regulated or it's like just not ready yet or something like what happens to it doesn't be crypto specific but like what happens to a16z as a whole I mean does a whole firm carry on or yeah you know I mean look it's up to our LPS um right so it's you know we raise money on a cycle so it's you know our rlps have an option to recycle to not continue to invest um you know I just logically I think you know the the firm is somewhat Diversified now like as I said we have like six primary investment domains no and so at least in theory we have some diversification across categories um you know and so at least in theory we could like lose a category or two and like the firm you know the investment returns could still be good and the investors would still fund would still fund us you know the downside case from there would be that those categories are actually more correlated um you know than than I would than we would want them to be you know as a firm we have a big focus on software like we think software is a wedge across you know each of those each of those verticals you know maybe soft you know look maybe AI turns out whatever reason not to not to work or gets outlawed or something you know happens um or just by fundamentally makes economics worse or something um you know then you can imagine that hitting multiple sectors again I don't think that's going to happen but I guess it's a possibility yeah yeah yeah what did the old management of Twitter feel to see about the potential of the platform you know so first I guess I'd say it's I have a very hard time second guessing management teams um because like I said my belief is that like it's so easy it's so easy to criticize companies and teams from the outside it's so hard to run these companies there are always a thousand factors that you you are invisible from the outside that make it really hard to make decisions internally but by the way the histories and all this stuff are really always screwed up because you know what you almost always find right is that in the histories of the great companies you almost always find that there were moments early on where it was really tenuous and it could have easily gone the other way and like you know Netflix could have sold out to Blockbuster early on and Google could have sold out to Yahoo and we you know never would have even heard of those companies right and so you know I it's really really hard to second guess um I guess I just put it this way um I I just I've always I've always believed and I was the angel investor in Twitter back when it first got started um uh I just I've always believed the public graph is is something that should just be like just titanically valuable in the world right like the the the public follow graph the you know in the computer science terms Twitter it's what's called publish subscribe um the idea of a one-way public photograph um like that ought to be just like absolutely titanically valuable like that ought to be like the most valuable like intent you know loyalty brand signal in the world that ought to be like you know the most complete expression of what people care about in the world that ought to be the primary way that every creator of everything you know interacts with their customers and Their audience um you know that this ought to be where all the politics you know operates this ought to be where all of you know basically every creative profession operates it's about to be where you know a huge amount of economy operates um that's just such a like they they were always on to such a big idea um and then yeah and then you know like with with everything I said a question of like okay like what does that mean in terms of like what kind of product you could build around that and then you know how big ultimately you know can you get people to pay for it um but but yeah I've always viewed that like The Economic Opportunity around that core Innovation that they had is just much much larger than anybody has seen so far but how specifically do you monetize that graph oh I mean there's there's a gazillion ways I mean there's there's tons and tons of ways I was just Elon has talked about this publicly so it's not it's not spoiling anything but like look like Twitter is a promotional vehicle right for a lot of people who then like will provide you stuff on other on others you know that you know I'm just taking obvious example he's talked about his video right people create video they Market it on Twitter and then they monetize it on YouTube right like like what why right like why like why is that not happening you know musicians you know will have followings of you know 5 10 million people on Twitter they aren't selling concert tickets you know they ought to sell at concerts I actually first noticed this with um uh I I'm sure this was happening before but where it first came to mind was I don't remember uh Conan O'Brien um when he got famously fired from The Tonight Show uh he did this uh tour and I was like I was a fan of his so I was following him at the time um and so he did he did a live he did his first live tour uh his live live kind of Comedy Music Tour and he sold out the tour across I don't know whatever 40 cities he sold out the tour the tour in like two hours how did he do it well he just like put up on his Twitter account he said you know here's I'm going on the road here of the day it's like click here to buy tickets boom they all sold out now click here to buy tickets was not click here and buy tickets on Twitter right it was click here to buy tickets somewhere else but like why isn't every concert in the world why isn't every live event getting booked on Twitter it's just you know it's it like there's a lot of this kind of thing that just as elon's fine of saying it's not rocket science yeah yeah it's funny that a few Revolutions in the Middle East were organized in the same way that Conan O'Brien organized this tour just by posting it on Twitter so this is the thing this is the thing that got me so convinced on social media I think relatively early so even before the even before the Arab Spring so I I don't know if you remember you might be too young but I remember that there was this overwhelming critique of social media between like Inception and like 2001 to basically mainstreaming in like 2011 2012 there was like a decade where there was just this overwhelming critique from all the smart people as I like to say um that was basically this thing is useless like this thing is useless this is narcissism right this is just like pointless you know self ego stroking like narcissism nobody cares you know the cliche always was Twitter is where you go to learn where you know what you're you know what somebody's CAD had for breakfast who cares what your cat had for breakfast like nothing will ever come from any of this right um and then I remember like reading and you could you could pick up any newspaper at any any given day kind of through that period and you could read something like this and then I remember erdogan um when erdogan was consolidating control of turkey uh erdogan came out and he said um I think Twitter is the primary challenge uh to the survival of any political regime uh in in the modern world and I was like okay all the smart analysts all think this is worthless and then a guy who's actually trying to like keep control of a country is like this is my number one threat I mean like just the the spread right of what that meant right of what the outcomes were I was just like oh my God like and of course I you know my conclusion was erdogan is right you know and all the smart westerners are wrong and you know and and by the way you know quite honestly that's played out by the way quite honestly I think it's still early on like I think we're still we're still pretty early in the long Arc of social media um like we we're new I mean the the the high level thing here would be just like we're we're new we're you know the world in which five billion people are on the internet right is still only a decade or so old right so that's still really early right and then the world in which like five billion people are on social networks is like five years old right it's it's still like super early right and if you just look at the history of these transitions in the past like if you just look at like the printing presses as sort of a as a as a precedent example like it took 200 years right to fully play off the consequences of the printing press like we're still in the very early stages with these things yeah I I was like 10 in 2011 so I don't know if I would have personally I would like to think that I would have uh caught on if I was older but uh maybe not it's hard to know um but uh you know it is kind of interesting you are basically personally invested and I think every single major social media company but so it's interesting to get your thoughts on where that sector might go do you think the next 10 years will look like the last 10 years when it comes to Big Tech does it just keep becoming a bigger and bigger fraction of GDP but like without ever stuff yeah so as a fraction of GDP it's only going to go up um and yeah it's and it's just it's literally it is the process it is the process of sort of tech tech infusing itself into every sector um and that's I think that's just like an overwhelming Trend because it just it it there are better ways to do things there are things that are possible today that were not possible 10 years ago there were things there were things that will be possible five years now that are possible today um and so as from a sector standpoint the SEC the sector will will certainly rise as a percent um you know look that you know and you know I'm I'm you know putting my money my mouth is in the following statement like entrepreneurial capitalism will deliver most of that right you know a lot of that gain will be companies that were funded in the in the kind of venture capital you know kind of Silicon Valley kind of model for the basic reason we discussed which is you know that you do need to have that kind of throwback uh kind of Bourgeois capitalist model to do new things um you know incumbents generally are still very poor at at changing themselves in response to new technology for the reasons we've discussed um so so I think that process will continue to play out um another thing I would just highlight is the opportunity set for Tech is I think changing over time um in another interesting way um which is I think we've been good at going after the very Dynamic but small slices of GDP in the last 50 years and I think more and more now we're going to be going after the less Dynamic but much larger sectors of GDP so I think you know education Healthcare you know real estate Finance um you know law government right are really starting to come up for grabs they're very complicated markets and they're hard to function in and the startups it's harder to build the companies but the the payoff is potentially much bigger uh because those are such huge slices of GDP so the the shape of the industry will change a bit um over time but um you know look like you know what you know this is very basic like what is technology what is what is technology technology is a better way of doing things like at some point the better way of doing things is the way that people do things um at some point that does shift market share from people doing things the old way to people doing things the new way right but so if like you let's say you build like a better education system somehow the government is still going to be dumping trillions of dollars into the old education system or the old Healthcare System do you just kind of accept this as a lost cause that you know basically like 50 of GDP will just be wasted but we'll make the other 50 really good or like when you build the Alternatives could you just uh accept the loss of the existing system yeah so look let's take education is a great example like I I think the incumbent education system is trying to destroy itself right like I I think it's I think I think it is I think it and the people running it and the people finding it are trying to kill it right and they're kind of doing that every possible way they can right they're you know for yourself for K through 12 they're prioritizing the teachers over the students right which is just like the opposite of what any like properly run company would do right um at um you know at the at the University level like they are you know the the problems in the modern University are been well covered by other people you know they they have become a cartel um you know they you know the student loan you know the the you know what is it was it was it Stanford now has more admin Stanford now has more administrators than they have students right again so it's like you wouldn't no company would run that way there's like a positive Vision where you could turn that into the bloom two sigmas it's a single student for single administrator but I don't think that's what's happening yes yes that's correct you could you could and they're not that's right that's exactly right um and then look it's like you know look you see the federal student loan you know kind of crazy thing and by the way you know the universities are voluntarily shutting down use of admissions testing right they're shutting down sat act GRE they're very deliberately eliminating the intelligence signal right which is like a big part of the signal that employers kind of piggyback on top of um you know they they you know they're they become intensely politicized you know we now know by the way the replication crisis most of the research that happens these universities is fake right most of it's not real generating real research results we know that because it won't replicate um you know it's just like you've got these you know you've just got these you've just got these kind of increasingly disconnected you know kind of mentalities and and you know there's some set of people obviously who are going to keep going to these schools but you know it like a a a degree from a and then you just look at cost right so like a degree from a you know mainstream University that costs you know in 10 years a half million to a million dollars right that has no intelligence signal to attached to it anymore right where like most of the like classes are fake most of the degrees are fake most of the research is fake um right where they're like you know wrapped up in these political obsessions like it like that's probably not that's probably not the future of how employers are going to staff um that's probably not where people are actually going to learn valuable marketable skills right like that's like the last thing that they want us to like actually teach somebody like a marketable skill like that that's so that like teaching somebody marketable skill is so far down on the list of priorities at a university now it's like not even in the top 20. um and so you know like a lot of it is just their cartel like they operate as a cartel they run as a cartel it is a literal cartel like they run as a cartel because the and the cartels administered through the uh agencies the sort of quasi-governmental bodies that determine who gets access to federal student loan funding and and those bodies are staffed by the current University administrators right and so it's a so it's a self-governing cartel it's it's it's it does exactly what cartels do it's it's stagnating in in going crazy in a kind of in spectacular ways and so there is clearly going to there there is going to be an education Revolution like does that happen by the way does that happen today or five years or ten years I don't know right does it happen in the form of new in-person institutions versus internet-based I don't know um is it driven by you know new is it driven by us or is it driven by employers who just get fed up and they're like you know screw it like we're not going to live like this anymore and we're just gonna hire people in a totally different way that I don't know like there's lots and lots of questions about what's going to happen from here but like the the system is breaking like in really kind of fundamental in obvious ways and then you know Healthcare same thing right Healthcare it's just like healthcare is just very broadly like just outcomes on Health Care like it's almost it's extraordinarily difficult um to find any um uh it's extraordinary difficult to find positive outcomes in healthcare uh positive outcomes like it in other words like there's lots of activity in healthcare it's very hard to find anything that causes people to like live longer right or to like be healthier longer and then you know every once in a while there's like a successful form of cancer treatment or something but like there are all these analyzes that show like massive investment in like you know public support for health insurance and all these things and then it's just like Health outcomes basically don't move right um and so that there there's just like to the extent that people care at all about the reality of like their health um then they're they're going to have to be new ways of doing things and Tech is going to be the wedge into the market for people who have yeah yeah hopefully these Revolutions in education and Healthcare are not like healthcare itself where we're always 20 years away from cure to cancer and we're always you know 20 years away from making educational technological you've you've talked about how big Tech is 22 4X overstaffed in the best case I'm curious how our staff do you think venture capital is how many partners and Associates could we get let go and there really wouldn't be a difference in the performance of venture capital so Andy my friend Andy Ratcliffe who was a founder of Benchmark and teaches Venture Capital um at uh Stanford he his description of this is I think correct which he says venture capital is always overstaffed and overfunded um and his estimate is it's like it's like overstaffed and overfunded by like at least 80 percent of it is is over what it it's it's like overfunded by like a factor of five um it should probably be in other words there's probably 20 of the size that it is there should be 20 of the number of people there should be 20 of the number of funds there should be 20 the number of um uh the amount of money um and in his conclusion after watching this for a long time and analyzing it was it's basically a permanent like 5x over funding over Staffing um and it goes to what I referenced earlier which is the world we live in just has its massive balance of too much money chasing too few opportunities to invest the money productively um and so there's just too much money that needs long-run returns that looks to Venture as part of their asset allocation in the way that modern investors do asset allocation um and it's and and so the full version of this he describes is basically there's only ever been two uh models of institutional investment there's the old model institutional investment which has 60 40 stocks and bonds that kind of dominated the 20th century up until the 1970s and then there's What's called the Swenson model named after Dave Swanson who created the Yale Endowment in its modern form and that and that's the model that all the endowments and Foundations have today and increasingly The Sovereign wealth funds where they invest in alternative assets which means you know hedge funds Venture Capital real estate right um and uh you know things that aren't stocks and bonds um and so anybody following this once and model has an allocation of venture capital you know on average maybe that's four percent of their assets but four percent of the entire Global asset base is just a gigantic number and so and then and then hope you know it's like it's like somebody wants that it's like you know having a sixth marriage right it's like you know hope traffic over experience you know the thing you'll hear from LPS is every LP says they only invest in the top 10 Venture Capital funds and then every LP has a different list of who that is right and so so it's it's sort of this thing of like you know everybody and they all kind of know that the whole sector is overfunded but they all kind of know that they they suffer from a real um uh a lack of yeah where else is the money going to go yeah um and then um yeah and then look it's it's always possible like you never know like it's always possible that you'll have some great new fund um that's going to do spectacularly well that's because some great new sector that'll open up you know a huge advantage that Venture Capital has right is that it the long dated part of it right means that you you don't suffer the consequences of a bad venture capital investment like up up front right like so you get like a 10-year release on life um when you make a venture capital investment like you're not going to get judged for a long time yeah um and so I think that causes people probably to invest more in the sector probably than they should is winner's curse also a big component here where the guy who bids the most is the one who sets the price that can happen um at the early stages the best companies tend to raise at less than the optimal price because they want to because the signal of who invests is more more important than the absolute price and so almost every investment that we fund like at the series a stage they they could raise money I think at two to four times the price they raised from us um but they value the signal and I think that's also true of the right of the seed seed landscape and I think it's also still true in a lot of cases it's the series B level uh series C and Beyond it becomes much more of an efficient market again it's not it's not a full auction it's a little bit like your earlier question it's not it's not a it's not just it's not just money it's not well at least here's the theory it's not just money right it's not just a liquid you know it's not just a straight up Liquid Financial market like these are you know these are whaling Journeys right um and so uh and by the way like there's a much blunter answer to this question which is people who raise you know seed money and series a money from the the the high bidder often end up really regretting it because they end up raising for people who don't actually understand the nature of a whaling Journey uh or a tech startup and then they Panic um at the wrong times and they freak out um and the wrong investors can really screw up a company um and so at least historically there's a self-directing equilibrium that comes out of that where the best entrepreneurs understand that they want people on their team who really know what they're doing and they don't want to take chances that somebody is going to like freak out and try to shut the company down the first time something goes wrong got it but we'll see hey everybody I hope you enjoyed that episode just wanted to let you know that in order to help pay for the bills associated with this podcast I'm turning on paid subscriptions on my step stack at warcashpatel.com no important content on this podcast will ever be paywalled so please don't donate if you have to think twice before buying a cup of coffee but if you have the means and you've enjoyed this podcast or gotten some kind of value out of it I would really appreciate your support as always the most helpful thing you can do is just share the podcast send it to people you think might enjoy it put it in Twitter your group chats Etc just splits the world appreciate your listening I'll see you next time cheers [Music]