Interview With Marc Andreessen: Masters in Business (Audio)

was so much fun. I cannot begin to tell you what a delightful time I had. Mark Andresen of Andres and Horowitz, an absolute tour to force conversation about everything from valuation to psychological impact of market crashes too, are we or are we not in a bubble? The significance of of UH founders, and and how are you better off with somebody who has people skills um but isn't a technologist or a technologist who doesn't necessary fairly have the social skills? On and on. We covered so much

ground so quickly, absolutely fascinating. It was an incredible, incredible conversation. It's one of those things where you just say, how privileged am I to sit in a conference room, indeed the conference room where Andreason Horowitz gets pitched from various startups and have a ninety minute chat with someone with his just amazing understanding of where tech came from, where it is today, and where it's going. I could babble about this endlessly, but rather than gush, why don't we

just listen to the conversation with no further ado. My podcast conversation with Mark Andreson of andres In Horowitz. This is Masters in Business with Barry Ridholtz on Bloomberg Radio. My special guest today is Mark Andreason. He is the co founder and general partner of venture capital firm Andreson Harowitz. He comes with a storied background. He co created the Mosaic Internet browser, co founded Netscape, sold to a O L for a few billion dollars. Co founded loud Cloud,

also sold to HP for a few billion dollars. Crunch Base notes that Andreson Harowitz has over five hundred investments in three D one companies, a number of exits via I p O s and acquisitions. I could go on and on about his curricular vita, but really he speaks for himself, so let's jump right into this, Mark Andreason, welcome to Bloomberg Radio, and thank you for hosting us here. In Andrews and Harrowitz. I'm thrilled to be on him and it's great to have you here. The I love

your facilities. We we love all the artwork and everything here. It seems to be like a very civilized place to to work. It's like, I don't know said, being a venture capitalist is like being an airline pilot, long stretches of boardom followed by moments of sheer terror. We try to have a calm atmosphere that makes a lot of sense. Let's let's go back to the beginning. Your Your big idea in was that people would want internet access in

their homes. Now that's a given today we want internet access wherever we are seven But twenty five plus years ago that wasn't very obvious. What led you to say in I have an idea an Internet browser. Yes, I would say it was even beyond not obvious. It was

considered ridiculous. So the idea that basically it was well known in that the Internet was for academics and nerds, and that there was there was no use case for Mary people like it was just incomprehensible, like why would anybody, how would anybody even have the technical capability to even consider getting online, much less of anything that they could

do productively was their online. Um, I've since actually in your sense that actually learned a principle that I have generalized out that it explains what happened, which is what William Gibson, the science famous science fiction author wrote Neuromancer. It was a very influential book in our industry. He he says, his his line is the future is already here, it's just not evenly distributed yet. And there are many applications to that line. It's so it's such a fabulous insight.

And so the new ideas, this is something I've really come to believe, is the new ideas already exist. Uh, there are a few ideas that actually materialized out of thing air. They generally already exist somewhere, and they exist somewhere in a lab, right if they exist somewhere in a fringe group or in an underground movement or something like that. And so what happened here was and this this is the part that's just I think probably pure luck.

Um is I went to college at University of Illinois, which at that time was one of four universities in the country that had been funded by the government to be the hubs for what at the time was called the NSF net, which was what became the Internet. And so then there's there's a whole program developed in the eighties around supercomputers. And this is what you know when Elgar, when Elgar claimed credit for creating the Internet, this is what he was talking about, was the funding, UH for

for this program to wire these universities. And so we had on campus in the level of broadband that people have in their homes today. Um, and we had the use We saw the use cases. You saw everybody using all this stuff. Now it wasn't at the level of sophistication is today, but you could you could see that, you could see all the use cases. You can see

many people liked it. But the expectation was you had in college and then you would graduate and you would go off into life and you would just give it up. And that was the part where I was like, uh and s f NET was after darker NEET, but before full on internet for the public. Is that a fair explanation. Yeah,

that's right, So our DARPA. ARPA was known as ARPA, now known as DART, but funded a military network which was originally conceived as a way to do nuclear command and control in the event of bad things happening in the world. Therefore the importance of packet switching UM had to be able to respond even after you've been attacked by nuclear You've got a network with you know, it's a hundred nodes and then twenty of them get wiped out by attack, and you still have to have the

network has to still keep running. In traditional networks don't keep running, and at least in theory packets which networks can keep running. So so that was the that Then this is like fifty years ago they all figured this up out and then in the eighties that the idea got generalized out to the idea that civilian researchers should

be able to use this technology. UM. In particular, actually the government was funding these national supercomputer centers that were buying a super expensive supercomputers to put on four or five college campuses, and then they wanted to provide access to scientists from all over the country to be able to access those and so they trans basically took the template of our pendet, turned it into nsf net and allowed anybody to love with permission to log into those

computers have temporary time. You would have a few minutes or hours whatever it was. And and that's eventually where led to uh the full on internet. But let's let's talk about the other name and Andres and Harowitz Ben Harrowitz. You guys have been working together for a long time. Have you made that partnership work? And how did it really begin? Because if if what I've read is to be believed, some of it started out a little little rocky. Ben Ben took great delight in his book uh In

in describing the origins of the relationships. So um uh so at this point where an old married couple. Um, and so you know, I guess the good news is we can finish each other sentences. Bad news is we usually try to finish each each other's sences. So um, so, you know, we we've had a long running partnership and friendship for you know, for a very long time, now

twenty two years. I guess, um the origin of it actually, so he was he wasn't early he was one of the early guys actually to jump int an escape early on when it was when Escape was telerotical idea actually came over from Lotus, which at the time was this big important, you know, dominant software company eventually booked by IBM. Actually fun story by M. After he left, IBM bought Lotus for I think three and a half billion dollars at the time, which was a blockbuster deal in retrospect,

I'd spent three and a half billion dollars. They could have bought the entire Internet instead of Lotus. They could have bought every Internet company and every I s P and they could have owned the whole thing. So anyway, he saw the future. Not the first time ib AM missed a boat what is it and probably won't be the last big companies. Yeah that we all we all at some point tend to tend to do that. But um uh, he saw, you know, he I think, to

his great he saw the future. He saw he saw what was going to happen, I mean, even more clearly than a lot of other people who were involved back down, and so he jumped over um and then you know, an Escape was a was a very short right, but it was very intense. It was a pressure cooker, and so it was very easy to see internally who was high potential who wasn't UM, And so we had him on a very fast promotion path basically from the day

he joined. And I think had we potential? Is that that's the phrasey Yeah, high potential like UM, you know young? You know basically you're always trying these organizations to find the young managers who you think are going to be able to scale and grow and eventually become the leaders of the company. Right, And so I think that I think had had an escape stayed and we sold a company in had had we stayed independent, I think he would have ended up as the CEO at some point.

He was just still very young at that point. But it's just very clear how much but how smart he was, and how good of a leader he was, and how good his judgment was. UM. And so when we then after we saw the company, we then had the opportunity to start a new company, and we just we became clear that we wanted to work together. So let's talk about UM, Jim Clark, UM I became I always kind of knew who Jim Clark was. But then Michael Lewis is the new new thing is what really ted Jim

Clark for me? Um, what was that like, meaning, Jim Clark, how did you guys start to work together? Yeah, so Jim, that was again probably struck a luck in my career. Jim called me one day out of blue. Also a friend of his, an associate of his who he had worked with. So he had been the founder of this company called Silicon Graphics, which at the time had a reputation similar to Google's reputation today. It was considered the sort of the gold standard Silicon Valley company that all

the green engineers wanted to work for. It was very much this is when after the movie Terminator two came out and they were redefining this whole idea of three D special effects and they were reading it was just this kind of amazing moment for this company. But he he left for a variety of reasons, um, and decided he wanted to start a second company. Um. And so this is a little bit little bit like Larry Page leaving Google or Mark Zuckerberg leaving Facebook and saying I

need to start a new company. Um and then um, but he had hired everybody he knew who was smart, who he had ever worked with into Silicon Graphics, and so they weren't available to start a new company with him,

and so he literally needed fresh people. So he got together with a group of friends and basically made a list of p bowl who were in the industry who he had not yet worked with UM and he actually I was culminated at a list of about a dozen people who he approached at various stages and said, you know what, do you want to consider doing something together UM, which culminated in a big dinner in Palo Alto with

like the full dozen of us. And then at the end, at the end of the whole process, I was the only one left standing. Really, that's fascinating, by the way, it wasn't because necessarily I think he knocked some of the others out of the process, but also a lot of people they were just like they had jobs, they were committed, they weren't willing to take yet another leap. And this was a pretty also people forget like ninety

four we started escaping ninety four. It was very similar mood in the valley then to what happened ten years later after the dot com crash. It was a very dark time in the valley um. That valley had had a severe economic crash in one and was still kind

of in the Dould rooms at niny four. So the idea of a startup was considered kind of a radical thing and and potentially a dangerous thing from a career standpoint, And so it wasn't the most obvious thing in the world for people to leap into the into the new thing and so and then in contrast, I had just arrived out of college. I had nothing. I didn't think the lewis, you have no baggage, you were ready to go. So I always have this vision of the reason Netscape

led to this explosion of new technologies. At the time, Microsoft pretty much was the only game in town, and very often I just envisioned young guys with great ideas going to venture capitalists and and every pitch meeting someone ends up saying, what prevents Microsoft from building this into into their operating system? And if you didn't have an answer to that, thanks for coming by, see you later. And Netscape allowed everybody to say, hey, we could bypass

the operating system and do this online. Am I remotely close to the that early nineties understanding of of what who was then the dominant software player. Yeah, so strategically I think that's right and that that was a big effect. But I would say there was an equal kind of effect at the same time that was at least as important, which was unlocking the potential of the people in the valley.

So the most astonishing thing to me, um was I mean because because the Internet, like I said, the Internet stuff was not we started to escape like this was not considered like, oh yeah, this is a great idea. Most people like, Okay, this is nutty, Like everybody knows. It was common that everybody knows you can't make money

on the Internet. There's probably to do it. Commercial activity on the Internet was actually illegal until en right, it actually was not permitted, but because it was federally research that this is before the days of dot com. It was just dot edge you and yeah, but you could have do comment, you couldn't do any commerce, you couldn't be transactions. It was there was these called acceptable use limits because it was federally funded and they didn't they

hadn't legalized it yet. So um, we started to asking kind of right right as they switched it. So, but it was widely views Number one it's illegal. Um. And then number two, even if it were legal, people wouldn't want to do it because you can't trust the Internet. There's hackers and thieves and all this stuff and it's just not something. And then ordinary people just won't do this,

and so so it was very contintuitive. Um. Within a year, though, like with by when the sort of conventional wisdom, people started to get exposed to it and they started to have it in their lives and I started to say, oh wow, I actually like this and this this starts to making more sense. There was then this amazing flood of talent. We're all these incredibly sharp people in Silicon Valley who had worked on previous generation sub technology for

the previous twenty years. They turned out they were still here, right and so, and they were either at the older companies or they were just parked, you know, kind of on the beach, and all of a sudden there was a new thing and they just all showed up out of nowhere um. And so it was like this materialization of human capital and talent basically out of thin air.

And I was just astonished and say, these incredibly talented people coming in, engineers, marketers, salespeople, and then all that you know, all the other people you need to make a company go hr people and lawyers and all these people find its people. They just show up, and all of a sudden, you've got this company that's like fully up and running with all these people with all these skills and experiences that you didn't even I didn't even think was possible. Well did they. And this is the

magic of the valley. But I mean this is the people's side of the magic of the valley. As the human capital. Well that the people will flow into the next opportunity much more aggressively than then you'll find, I think,

anywhere else in the world. So when I when you say they just show up, in my mind's eye, you have Stanford, you have Berkeley, you have all these great universities nearby, cal Tech Um, you have a history of of companies going back to Fairchild, Semi can Doctor and what have you, plus a lot of defense and NASA related stuff, So you would you would envision it's almost like all the parts are are they're just waiting for

something to crystallize it and send everybody off. So I've always looked at this as this is kind of a magic one of the magic parts of the country, and Boston is similar, and d C is similar, and and now Seattle has it, and to a lesser degree, Portland's has that same sort of Once you get a critical mass of human capital, well all bets are off. Who knows where this goes? Although you seemingly have known where this was going to go before many other people in

some cases but not others. What was your So to get back to the original question about Michael Lewis's New New Thing, I assume you read the book. Did you enjoy it? Did it ring true? Uh? Do you recognize a lot of the characters and it even people you may may not necessarily know. I would say, you're captured a moment in time which is sort of the top

of the dot com bubble um. And then it captured a part of Jim's personality, which is the ability to kind of materialize new ideas out of thin air into existence. I don't think it captured, in fairness to Jim, I don't think it captured his depth as much as so that's hard to do if you're hard to do so just specifically Jim Jim, and the book tells a lot

of his life stories. He had very very interesting background but basically culminated ultimately in the Navy and so forth, but ultimately culminated in THEO had a PhD in computer science from the University of Utah, which was actually the creation origin point for a lot of than things in

our industry today. Actually, there was something special that happened University of Utah in the sixties and seventies, um and uh, basically all of computer graphics and video games and all this stuff and all the stuff that led to s g I. Ultimately it was all kind of conceived. The ideas were conceived actually Utah at that time. Pixar it all if you'd like trace Pixar back. It all flows back to this moment in time at the University of Utah. And so so anyways, say to PhD and CS and

then he went to Stanford. He's a professor at Stanford, right, and then he just decided he was the life of an academic was not. Academics don't have the largest yacht in the world, and he was building one of the largest sailing vessels. I think he wanted to play a little more than he wanted to teach or at least that's my take. Oh so this is part of the thing also that yeah he's so that that that and

becoming a big part of the book. Um, But I would then again, I would just say what was missed was when I worked with Jim and other people over to Jim will tell you like he goes just as deep as he goes broad like he is he is very deeply in the details of technology. He's not. He's not. The book makes it, I think, come across like he kind of glosses over the details and leads those to the other to other people. Uh we I did not find a big case like he's incredibly deep in technology.

He's an incredibly comprehensive thinker on all aspects of business. Like he he goes really really deep. It's just that's not quite as I don't know, not quite as sexy for the book, I guess. Um. And so yeah, it captured part of his personality, but it didn't capture the depth and the seriousness and the application and his role really as a primary inventor and inventor not just if ideas, but inventor of actual technologies and then also by the way,

as a recruiter. Um. He's one of the great all time people who can gather other people around them, and he's he's really good at painting a picture. Um, and he's because he's so deep the technology he carries tremendous. There's a lot of people who are promotional, right, a lot of people will show up and they'll say we're gonna do X, y Z. And the engineers will be like, well, you don't like what you know? Where did you go to school? Like what's your professional credential to be able

to have this concept? And why do you think we're just gonna do all this for you? Whereas a gym he's like, he's like an actual technology legend, right, who probably knows more about the topic than you do. Um. And so he paints the picture and then he gets buy in from people, you know, incredible amazing people. So and so there's just he he has a level of seriousness and capability that I think is just way beyond what what what what? Michael is able to paint that book.

So the Netscape I p O is something. So we went public. So we're in public eighteen months after founding. I remember that because I was a junior trader. I was the logo on the desk, and it was just a day of mayhem, and that really be started a run of technology and internet companies for the next few years.

What was that ride like? That had to be insane? Yeah, I know, it was crazy, like being shot out of a rocket, like and not just me, like the whole the whole value had that had that had that experience, and so it really was it was what you meant. It was the establishment of a new platform. It was the establishment of this kind of new front here. Um. It was the you know, the idea that all of a sudden, you there were these thousands of new businesses could get created on top. It was this idea, all

of a sudden, that people are connected. It's actually really striking. Um if you look. So the dot com crash right hit in two thousand, um, and then all these ideas that were viewed then as all the dot com ideas that were viewed as genius and NTE nedty eight were viewed as just complete lunacy and idiocy. And in two thousand com doesn't make any sense being the classic example, right. Um,

So it's actually really striking all those ideas are working today. UM, I can't think of a single idea from that era that's not working today. And the kicker to the pest dot com story is there's a company, Chewy that just comes out for three billion dollars right out of Florida, which is online pet food sales, like two weeks ago, right, and so even online pet food sales turns out to

be a gigantic and very successful business. And so basically the community, the community, the tech community, the Silicon Valley community, the global community that got connected to the internet very quickly between and call it actually came up with all the ideas, like they all people are very creative, and all of a sudden there was just like if you read you remember you remember there was a magazine back then called The Industry Standard, which became kind of the

defining kind of bible of the time. And if there was a period where if you read the Industry Standard after the crash, you're just like all these people were just all high, like this is just this is just nuts. If you read it today, it's like a direct forecast of what's actually happening, right, Like, all this stuff actually is happening, it's all working. So and so it was an amazing unleashing of talent and creativity and ideas interrupted by a very bad crash. Um, but it has sense.

All those ideas have sense, really come true. One of the things I'm always hearing about is how well this is. This is just like the dot com era. The valley is booming. This all ends badly. But when we this week, we've been in everywhere from Berkeley to Palo Alto to pleasant In to Mountain View, this looks to me much more like a robust economy. Then hey, this is completely unhinged and it's a train wreck waiting to happen. You live through the last version of the dot com bubble.

How is this time so different in nature? The obvious thing is a lot of these companies are actually making money. Some of them are making a lot of money. So um. In fact, now the accusation is they're making too much money, which is the criticism on the other side. So that just means they're efficient and productive. It doesn't mean anything is wrong exactly. So yes, from your from your lips

so um. So I guess I'd say, I guess I'd say the economist, actually, there's a theory actually in economics on this which they called the economists called the depression baby effect, which is basically it's based on it's been studies papers written about this. If your google, depression babies will pop up. UM investors who were in the stock

market nine ever went back into the stock market. Um. They stayed out of the stock market for the rest of their lives because proved definitively right that stocks are fundamentally unsafe. And if you look at the chart of it, literally from ninety nine, you don't get back to break even untill nineteen fifty four. It's twenty five years later. It's a full generation has to be one, grow up, get jobs and start investing in order for the market to get above exactly with no memory and the investors

that's exactly that. And then by the twenty five years exactly right. And then the other kicker is it takes another fifteen years after that to get another actual bubble. The next stock market bubble did not materialized until the late sixties. The full forty years, the hits a thousand, it's not over it for another sixteen years, quite quite amazing, exactly so. So, anyway, the point is, if you if you live through one of these scarring crashes, you get

psychologically marked, you get you get traumatized. And by the way that you there is everybody, right, It's not just the investors, it's also the people who follow the market. It's also people who write about the market. It's also people who work at the company's Everybody gets traumatized. And so we had it. We we haven't entire We had and have an entire generation of depression babies, including me right um in Silicon Valley who went through two thousand UM.

That's significant for a couple of reasons. One is just I would argue that right the narrative basically since two thousand four has been its bubble two point oh. I think exactly the opposite has been a it's been a long term bust. I think text talks have been undervalued sort consistently basically since two thousand two three, and even to this day are probably undervalued relative to where they

should be. Void. We come back to that. But then the other thing is happening is now finally enough time is passing. It's now we're coming you know, seventeen years since the crash, so now finally we're getting enough kids coming to the valley who don't have a memory of the crash. They don't have post crash traumatic They were like in fourth grade, right, and so they just they were like busy with legos, like they just it's not

a relevant concept. And so when and you get these weird conversations we find are selling these conversations where you're telling these cautionary tales right of what happened in nine and they just look at you like Grandpa, like you know, tell us about the model t like it's just an absurd kind of thing. And by the way, it's not that there's a good or a bad. It's just people

have different life experiences. But my point is like the balance is shifting well, and so and you just have you have this new generation of people in the valley are just like let's let's just go, let's go build things, like let's not be held back by the superstition of what happened. Let's go build new things. And then to

your point, like these things have worked. When we were building Netscape, the man maximum addressable market size for our company was Internet users that were most run dial up and worked to their desktop PCs, which were super slow and crewed compared to today and now was you know, you have three billion people with smartphones and mobile broad down in the world on its way to six billion, and so like this stuff is working like that, it

actually came true. The fascinating thing every time when the NASDAC regains its regained its two thousand peak not too long ago, people said, here we are, it's going to crash again, and and you look. I always look at those folks and say, well, wait a second, that was an infinite pe. You now have companies actually not just making money, but making boatloads of money. And it's fifteen

years later. So whatever the problems were, then, how do you just assume at this price level it's the same thing. Clearly something very different is going on today. So so sticking with that that point, when when you hear people saying Silicon Valley is in a bubble again, look at all these unicorns. Here comes the train wreck. Do you just kind of shrug to yourself? What's your reaction to that? So those have been the headlines for excuse me every

year since two thousand four. So two thousand four, so two.

They'll get it right eventually. You just keep saying the same thing over and over in the two thousand four, two thousand four, granted two thousand one to two thousand three were very bad, so fully granted two thousand four, there were two M and A events, Uh, Yahoo bought two companies million dollars each, Flicker and Delicious and those that launched that created the bubble two point on narrative, but in other words, like if anything at tech works

and if any company attack ever succeeds, it's therefore obviously evidence, right, and so that that's been the narrative the entire time. We and we've done we've we've done dex on this. We have dex on our website, like we've done detailed analytics on every aspect of the financial numbers and the

flows of money and the whole thing. And you go through the whole thing, and when you when you do the analysis, I think correctly, like just objectively correctly, it's just crystal clear how out of control everything got really between two thousand and how relatively plasmdate it's been. It's been ever since. Um. But it just just it's people, don't you know. It's the kind of thing people just have a very strong emotional resp It's a depression maybe effect.

People have an emotional response right starting sponses I got tricked once, I'm not gonna get tricked right, and so it's just it's led to that's continuous, in my view, underestimation of what's happening. Right, It's it's led to the opposite problem, which is people are really deeply if they were overestimating, overestimating what was happening in idea, they're underestimating it and they're still underestimating it today, which makes sense.

Everything is probably still undervalua, which makes sense if you come out after that experience and you are negatively tinged with that. G I got burned less time because valuations didn't make sense. Fast forward fifteen years. That doesn't leave these folks, So that permanently colors and they're you know, other related studies. People graduate college into a recession. It not only affects their earnings power over the course of

their lifetime, it affects their philosophical outlook. They are actually biased and expect recessions to occur more often than they actually do. It's um our wet wear is kind of deeply flawed. So you're a builder, um, you've you've created a couple of a couple of companies, including this one. In your mind's eye, Are you a founder, are you a venture capitalist or a little bit of both. So I think of myself as an engineer first, um, and everything else after that. And so it's kind of the core.

And then you never know how much of this is self delusion, of course, but um, I think my assumption is we're all self del and you and occasionally if you glimpse a little reality, fantastic and they either work for you or they don't. So no, I was trained as an engine I was always had sort of an engineering mindset, and I was trained as an engineer, training at a great engineering school, and so I just I always few my I'm just trying to figure out how

things work and then try how to make them work better. Um. And I'm far more interested in figuring that out than in trying to draw value judgments on them, were trying to have other you know, kinds of debates around them. And so um uh that's just been you know, the core of the thing. And so that to the extent that my companies have worked, it's because they built products

that people wanted. Um. To the extent that this you know that this firm works is because we're going we're finding those products and the people who build those products early um and betting on them. And so it's it's

sort of engineering as the core discipline. And then and then we we we are lucky enough, in my view, to live in a system in which you know that that rewards that skill in the sense of people can build things, right, people can build things, are encouraged to build things, that culturally encouraged to build things, and those things might be new products, but those things also might be new companies. Back in two thousand eleven, you wrote

a fascinating screed called Software is Eating the World. Not only did it end up becoming a meme that when fairly viral, it turned out you were not just a little bit right, you were very right. Tell us about what motivated you to to put that those words on paper. Yes, it was a two part at Towns. One was to explain what was actually happening, and actually a lot of

it was actually against the bubble narrative. The bubble the new bubble narrative was so strong at that point that I wanted to articulate a view of what was happening that was not just this is all a bunch of a bunch of hot air, so partially explanatory but also also an attempt to forecast UM. And specifically in the piece, I sort of lay out a forecast for the future UM in three parts UM, which I think is the part that kind of remains the section that remains provocative today.

The three parts maybe recap them quickly so so so part one is UM. Every product or service UM that can become software will become software UM. And there's a

long conversation we can have. That's that's the big theme of what's happening in Silicon Valley right now, I think is that we're we're we are now going after entire industries that used to be dominated by by just like retail, retail storefronts or numbers or so is this applification or is this just the move to pure solf were Appification is the consumer experience, right, which is there everything that can be experienced as an app? If you can if you want you know, you need, You want a mortgage,

it should be an app. Right, you want life insurance, it should be an app. You want to order pizza, it should be an app. Like every everything should just happen through that, through that front end. But but it's deeper than the app because it's the complete back it's all the back end systems of software that may make the economy ultimately work. So so so Part one, every every every product or service that can become software will um Part two therefore, every company that makes those products

or services has to and will become a software company. Right, So companies will become more and more defined by building software, just like solic valley companies already like that, selict companies or software companies first that then get good at things like sales and marketing. Right, Whereas in the rest of the economy you have a lot of companies that are good at sales and marketing that are trying to bolt

on software. But sitting here ten years from now, all these companies are gonna be software companies first because they're gonna have to be fascinating form of the product. And then the third sort of most either provocative, arrogant you know, or delusional. Uh principle is therefore, in any industry, in the long run, uh, the winning company will be the best software company. Right, So whoever is the best? Is

that really all? That? So the question the follow up question is how much push pushed back did your original writing get and are you still getting pushed back on that? That third part of it, Well, the third one is very third one is very provocative. Let me give an example, but it's pretty it follows logically. It's if you believe in deductive reasoning, it makes sense. Well, let's let's pick up particularly provocative example. Cars. Right, Um, yeah, so car cars.

Obviously cars, there's a lot more software cars, and there was ten twenty years ago. Everybody knows that. It's a step further to say that in ten years, the winning car company is going to be the car the car company that makes the best software. Right. There's no existing legacy car company in the world today that would say that that's the case. Right. They would all say that they are best at making cars, and that the software

is a component that goes in the cars. But the whole point of being a car company to be great at engineering the actual physical automobile to steal and the rubber and this all the safety systems and then the whole thing. Well, but if you believe self autonomous vehicles are coming, that software exactly right, and so that that would be our thesis is that no, it's actually going to happen is the value will flow to the software layer. The the entire experience of being in a car will

be defined by the software. And then at the limit, whichever company that makes cars or makes the intellectual property that goes into cars, whichever of those creates the best software will will then be the winning company, and we'll get the majority of the value, right and including ultimately majority. So so what you really define describing is the iPhone. This is manufactured in China. I believe they make about

five dollars pro phone building it together. And then this little comple you may know them, they're up the street and Cupertino Apple is the one that captures not only all the value from the iPhone, but pretty much all of the profits from the entire or the profits from the entire mobile universe. Is that the same basic concept is in an iPhone model for everything else, including automobiles.

So in general, yes, like so that that's that's the implication, right, And that's the exact analogy by the way that the car company, the car industry is grappling with right now, which is you as you know and phones you used to have these companies like Nokia and Rim and others that made phones and feud software is just this kind of add on the top of the hardware. But the hardware I'm not that old. I don't really remember those um.

And so you know when when you look like car CEOs now they're they're all thinking like they're working on this, the new generation of car CEOs. They're they're working hard, and they're spending a lot of time out here, and they spend a lot of time with us, and they're

they're they're working hard on it. But literally the way they frame that question is we we we existing car company do not want to be the noive cars like and so that that Nokia of cars, that analogy is very front and center and in there thinking now at one level of detail later or lower than that. Um. You know, the iPhone is a particular success of vertical integration. UM so Apple. If Apple does that, you know, they don't manufacture every component in it, but they assemble the

whole thing hardware, software together. Sometimes the winner is vertically integrated. There are other times in other industries and PCs were like this. The other example, which it's is horizontal in structure and so the the other outcome is you'll have, for example, Microsoft of cars right where you'll have the software layer that that actually ends up and they actually in that model they instead of making the car, that winning company might just sell it software to all the

car companies. But then it's like the relationship that Microsoft end up having with all the PC companies right where the PC companies did all the work of actually making the PC and Microsoft got all the money. And so the victory for the best software company could go either vertical or horizontal, and that that varies a lot, but the consist I believe the consistent theme will be the

company with the best software will exactly your point. They'll end up getting most of the profits so and have the strategic control, right, they'll they'll be able to dictate the future of the industry, but by virtually the fact that they control the software. So that naturally leads to the question is Tesla an electric car manufacturer or is SLA a software company that happens to make a pretty

good looking car as well? That's right, So this is the thing if you squint with and by the way, I mean, Ellen is deservedly a legend, and so nothing I'm about to say should be interpreted as a criticism of Ellen, but just from a historic sweep of history standpoint, if you squint at Tesla one way, it looks like Apple circa two thousand, you know, seven two eight, where they release the iPhone. They just haven't sold very money yet, but they're gonna sell a ton and they're going to

be the vertical winner alli Apple. Another way of looking at Tesla is you know their Apple in two with McIntosh, and yes they're integrated hardware. Software is good, but other people are going to come up with software as well. And then there are many other people who make cars, and so you know, the whole thing may just you know, they may set the model mode for what other people end up doing much higher scale. And I think that's the big question on Tesla is like, is which way

is that tip? Obviously Elon is highly determined to make sure that he owns the whole stack, and to your point, he's incredibly focused on software like he's he is like Tesla is deeply deeply immersed in the details, not just by the way of the software that obviously runs the car, but for example, power management is a big at that's just sort of a secret sort of advantage that Tesla people and talk about that much is they buy the batteries from somebody else, but they write the software that

manages the power, which is a big part of getting the range and the ludicrous mode and the ludicrous mode um and then um. And then they're also he's now deeply involved in right building, making sure that Tesla. He's gonna try to Tesla be the best self driving car, which is entirely a software exercise. Um. And so he's on it, like he's he's pushing very hard. He's and then he's the other car companies are all in, you know, more or less reactive mode to what he catches. He

definitely has the lead right now. But that said, the other car companies a trying to figure this out. And we now have an entire wave of new automotive software companies in Silicon Valley. Right, there's I don't know, there's dozens on its way to hundreds of highly capable founders and engineers building new kinds of autonomous software for cars, by the way, vehicles of all different side shape and description,

air vehicles, ground vehicles, water vehicles. Right, So there's there's a revolution of foot of which Tesla is an important part, but it's also become much broader now quite fascinating in um in the yearly. I keep coming back to that era when venture capitalists with funding startups, people had to go out and buy their own servers. They have engineers to manage that and build that, and there was a giant infrastructure. It would take tens of millions of dollars

just to open a company. Today that stuff is, if not free, will certainly very cheap with Amazon cloud services and a whole huge infrastructure. So if you want to launch a company today, it doesn't take ten million dollars just to open the doors. You could really do things on the cheap. How does that shift in infrastructure change your job as a venture capitalist when you're looking at companies, what do they really need? Do we really need to give people million dollars at a bob when they could

start for a few thousand dollars. So that's exactly right, that's exactly what's happened, and we think about that in economic terms. It's a very rapid inflation of of input costs, which is dramatic. It's like the inflation input the input costs for a startup in economic term deflated by a factor of like a thousand. That's amazing, which is amazing, Right, It's it's hard to actually find a historical precedent for

that happening. We're used to cost ten million dollars just to launch and now you could do it for a few grand. Yeah, yeah, we yeah, we routinely get you know, we'll get three or four kids in here. The entire their entire CAPEX, the entire company is their laptops, right, It's that's that's all they happen, and they're good to go.

That's it, They're good to go. Everything else is like yeah, no, it's a hundred a hundred dollar bill of this month on their m X for their for their Amazon Cloud services to launch the thing and see if it works. And so that's that's a dramatic step change. Like that's that's huge. I mean, it's very hard to find any any, any precedent for that, which is a big reason why a lot of so much energy has come back to

the valley. So as a VC, what that results in is that the Darwinian process of running experiments to surface the good ideas and the good companies is now happening at much higher scale and at a much faster pace, right, and so it's a VC it's this is amazing. So it's it's not just the pace of acceleration. The second ary of ittive is increasing. Well, so it's it's accelerating at a faster and faster rate. Yeah. Well, the number one, it's just a sheer number of ideas that can explore.

It can be explored has gone way up, right, because there's elasticity. The less it costs to test new idea, the more new ideas will get short and more people will try to test new ideas. And then right, the second is it's just so much faster now, it's just the speed to get to market is just so much. How do you deal with that? How do you sift through a near infinite amount of really fantastic and interesting ideas.

So that's that's the business. And so that the day to day businesses we we see we see evaluate two thousand referred qualified startups a year every year, So that that's the day job here is to sort and sift and filter through the two thousand, and of those of two thousand, how many do you end up doing now you also do something unusual. You do sort of angel funding at a very modest level and then broader funding for for more I guess we would say developed or

advanced companies. So out of those two thousand that get reviewed, what does it break down to right now, it's about the thirty a year, thirty year, thirty a year out of two thousand. Yeah, and I could go through in detail, but exactly where, but like that's basically the way. It's a little bit more than one percent. By the way, I should also say these are two thousand that are referred, right, so these these are sent to us. There's some connectivity to people we know. So I can give you an

elevator pitch. Now. Well, now, now now that you're here, in fact, you're in, you're in the room, give me, give me a few minutes. I'll think up of business models. This is the this is the actual room for that. So, um so two thousand a year, um and and and and then the other side of it is it's not just right that. The whole thing with this is it's not just is it a good idea a good product,

it's also who are the people? Right, because these are people at the end of the day, these are people businesses, and so honestly, most of what we're doing is evaluating people. So that was always a question that I find intriguing. Very often these ideas come along, there's no patents on them. There's almost something in the ether where a lot of people get very similar ideas. How often do we see

four or five different companies in the same space. Hey, there's Uber and Lift, and there's Pandora, and go down the list, and every time you look at a concept, it looks like a lot of people have said, hey,

you know it would be cool right about now. How do you figure out who has not just the best idea, but the best way to execute did When you're dealing with some really young, inexperienced technologists who very often have no business experience either just out of grad school, sometimes dropping out of college, that sounds like a near impossible decision making process. So we call this the volcano movie problem.

There there's never just one movie about volcanoes. There's two or three or four or five there or two giants. There's never just one. There's never two killer there's never just one killer media movies, there's got to be too. So yeah, so that's a that's the thing. And these ideas, yeah, they come in waves, um, and so that's exactly what happened.

So the thing that we try to go I mean, there's a lot of different lenses you apply to when you're evaluating people, but one of the ones we really dig into hard to try to pull kind of what we call kind of the real founders away from the people who just like think they have an idea and how to try something. So the concept we call the idea mazeh One of our partners, Crystallized, wrote a paper on a biology front of us and called the idea maze.

And so the idea maze is it appears on the surface, look, this is a cute idea, like and by the way,

lots of people have this idea. The real founder, the really good ones, what you find is they have thought about the problem so deeply and for so long that they have worked their way through the logic maze of how to try the idea and what they're going to try next if it doesn't work, and what the implications would be if they learn something, and who are the people they need to bring into the company, and how do they segment the market, and how do they go

acquire the customers and so all these details. It's it's the convert it's all the topics and sort of that you don't cover in the first hour of the meeting, but you cover in the subsequent five hours when you go really deep right with them. And the really good founders tend to all have in common is they've been all the way through the idea mays on their own

before they come in and talk to a VC. So there is not ideally, in the best case, there's not a question that we can ask them in the meeting in the first six hours of discussion that they haven't already not only have they already thought of the ques, they've already figured out the answer for themselves. Right. In fact, you actually get to the point with a really good really sharpens to the point where they get frustrated because they're like, why why is this not all obvious to you?

People like this, Why are you asking me all these stupid questions? I figured this out two years ago, Like I already know the like and it should be self evidence yourself at everybody, because they figured the whole thing out. As as contrasted by the way to the ones who

haven't done that. If if somebody's only put you know, ten or twenty hours and are thinking through something and they just decided to put together a pitch, it becomes crystal clear because you get eight or ten or twelve questions in and they stop being able to answer the questions. Now you just they start making they start making up

the you know, start making up the answers. So you just revealed this, so you would all concern that people would come in and say, Okay, now I have all my ducks lined up, and Mark isn't gonna throw me off my pitch. Well, they try to trick us already, So if they haven't been through the idea as they try to convince this, they have been, but they just start making up the answers, and you can you can flash that out like you can figure that you can if there's part about it and parts content like they

just can't back up their answers. It's like like this is how it's a little bit like how police do interrogations. So the way people believe if you're get ever getting interrogateted by a company thinks he what he just does is he just the questions get more and more detailed. Oh, you were your alibi as you were out seeing a movie that night. Okay, well what movie? You know? Well, what was the opening scene? Right? Well, what you know, what was the plot twist at the end? You know, well,

what kind of what snack? Did you have your popcorn? Or did you have salt in your popcorn or not? Just go deeper and deeper and deeper and deeper until you finally freak out because you can't like make up all these people. So it's it's it's the same kind

of thing. And so the reason why I say it so openly is it would be good for us if more founders actually went through the full idea mas like, it would be great for us if more founders came in here having thought much more deeply about what they're doing. And this is part of the pop where the popular narrative startups is probably a little bit problem at the popular narrative startups is it's like the popular narrative and

invention is that these are somehow Eureka moments. It's this sudden flash of brilliance and you know, you're just you're just you know. And by the way, these companies all these origin myths like oh, I was just a kid doing this and this idea came to me and like loan behold boom Facebook, right, And that's not at all how it works, right, It's it's this incredibly deep and elaborate process of thinking, uh and work that actually leads

to these things happening. And so I think for people to be if more founders understand the concept of the idea MAS and they set the bar higher for themselves and the level of thought they'll put in their ideas, then I think we benefit from that. What could your future hold more than you think? Because at Merrill Lynch we work with you to create a strategy built around your priorities. Visit mL dot com and learn more about Merrill Lynch than affiliate Bank of America. Merrill Lynch makes

available products and services offered by Merrill Lynch. Pierce, Feder and Smith Incorporated, a register broth for dealer. Remember s I PC. We talked about some of the unicorns before we talked about this ends badly. I'm gonna I'm gonna skip those questions. Let let me before I get to Facebook, let me I have to ask a question. I love

the show Silicon Valley. I know that, uh, Mike Judge and Alec Burg have described you as an unofficial writing consultant to this, So tell us about your experience with the show. And I have to I'm a fan of Portlandia, and having been to Portland's several times, I came away with the impression that, oh, this isn't a sitcom, it's a documentary. How true is that for? For Silicon Fact's

my understanding, Portlandia is literally true? Right? It certainly feels that way to put a camera in for a normal nor Yes, exactly, Silicon Valley is exact same way. So so and all I have to confess I've still only seen the season get Out. I haven't seen yet. It's so hilarious. I know, I'm sure it is. I just the first season was so perfect, just gonna stop. I just I couldn't. I don't know. I've just had a

mental block. Um, I haven't seen the one from the most recent one this Sunday, and people are telling me it's just so hilarious and over the time funnies and it just rings. Especially being out here, It's like, oh, okay, I recognize him. It rings really true. Do you have a get feedback from people saying, hey, what are you doing to us? Excuse me? Like Mark, you're kind of making us look silly. What are you doing from who? Exactly?

Random people? People you know, other vcs, other founders, other other because there are very few people come out of the show with their reputation. And so that's the thing I can't call. I can't comment past I can't comment past the first season. I will say the first season was perfect, and I will tell you so that the secret of that show, at least the secret of the first season, which I consider a work of art. Ums.

I Judge himself started his career as a chip engineering in Silicon Valley, UM and if you if you meet him at actually it's it's not what you'd expect. Like he's one of the lead, you know, the leading creative comedy geniuses of our era, the creator of all these you know, Pavis and Butthead and all these things, and which is fascinating because he started out so wildly overbroad idiocracy, and you work your way down the list, and as he seems to have gotten older and maybe his artistic

vision matured, it went from insane to overbroad to slapstick too. Oh, this is mildly a parody and somewhat of cinema verity, although I think he'd Idiocracy was also a documentary. Um, I was a documentary, but five years ahead of his time, right, exactly right, and so um and so he just he has a very precise um uh. He has a very precise understanding actually how things work here, more so than I think people would think. Um, and so it comes across and then and then his you know, his partners

are also geniuses, and so it comes across. So that's good. I would also say, for people who haven't seen it, Halt and Catch Fire, uh in a completely different, hundred eighty degree different movies. It's a dramatic. It's a drama. There's no Halt and Catch Fire fire. It's not funny at all. It's it's a it's a very serious show. Halton. Catch Fire is a show on AMC that's I think in its third season now. Um. It is a period piece.

Unlike the Silic Value is HBO, Silicon Value is current Time Fires a period peace set in the early eighties

at the birth of the PC. UM. But it's the story basically, it's the it's a fictionalized story of the creation of the company Compact and then the birth of the PC industry and the birth of the PC clone industry at a time when IBM was by far the dominant company in the industry right and and so it's a but it's a very um it's a spookily accurate portrayal of what a startup is actually like, and it's

actually really funny. The critics of the show in the first season, it was getting criticized for being too melodramatic, like this is all too superheated and too emotional, and I'm thinking, nope, this is It's like they put a camera in a startup like this, this is what they're actually like. Everybody would like to And this is also part of the thing we see all the time is everybody wants to pretend that startups are fun, and it

turns out start ups are no fun. No, it's a lot of work, a lot of work, and it is a stomach churning process um of being told no by everybody and being told your idea is stupid and it's just not stop. Just you just feel like as a start every started founding, they just feel like they're under assault. All that, it's all and catch fired as a very

good job capturing the other side of that. What what about, um, the incubators like hy Combinator or back Monity, What about those where all right, this is a little more founder friendly environment with a little more support and a little less um of of that negative CASTI gade that you were referring to. Yeah, so they're they're fantastic, Like they're they're fantastic. They've been usually additive to the to the valley. UM. The big thing that why Combinator and other firms like

it are doing is they're bringing people in earlier. UM. And so write the path once upon a time, I mean I was maybe an exception of this, but the path once upon a time was you go work, you know, in a real job for five or ten or fifteen years and your real experience before you try one of these things, because you need to build the skill set. UM. Basically, what why see basically viewed is almost like the fifth year of college or something where they have they have

ability to pull in you know, kids. A lot cases are people who just haven't been exposed to startups and able to They basically try to spin them up much more quickly in their careers. They talk openly about this, right, it's like it's it's it's sort of the new career path, um so. And then it as part it's also part of this increased our winnie and kind of feeding frenzy

that we're talking about. So as long as we throw enough competitors gladigators into the ring, will end up with that many more survivors that potentially can can be something one day. Yeah, and I suspect I think, you know, part of the impact that these things have are the companies that come out of them, you know, out of the programs. I suspect the long run effects positive effects will be even bigger sort of the second, third, fourth generation. Right.

So it's it's you know, the the y C Finnders this year, right, the ice Finders got don't a hundred and fifty companies in the batch right now or something like that, Like, you know, some of them is gonna succeed, a lot of them are going to fail. But to me, that's almost beside the point because it's all the people in those companies. It's three people who are working on those companies, and then what those people are gonna do not just this year, but five years from now, ten

years from now. And so these people are being set up on a career path um where they should be able to do amazing things years from now. One of the nice things about Silicon all his failure isn't considered a mark of shame. It's so this this startup blew up, and that startup didn't make it, and we killed this, but we pivoted this one. And you know, sometimes the

fifth or six time is a draw. Yeah, that's right, and so you get you get the Yeah, the first startup doesn't work, you do you do get more swings at the bat, and you do get and by the way, you get different experiences like your if your first up doesn't work, it's very often it ends in it's called an aquahier where you end up getting sold a big company, or you just or some people just go and get a job just to recover from the trauma of going through a start up work. But then you get skills, right,

so then you have you have your startup experience. You have now a experience maybe working at a great you know, growth company where you're learning how that stuff works. When it when it's actually running at scale, right, and then five tenures and you start to learn how to manage people and you sort of pick up these skills and then you go start another company, right, And so there's there is a sort of repeated swings at the bat

um kind of effect that happens. And I think that these incubators just give people basically an early swing at the bat that maybe otherwise didn't exist. Coming up, we continue our conversation with Mark andreeson discussing the unique structure of Andrew Uson Horowitz. I'm Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. My extra

special guest today is Mark Andreason. He is the co founder and general partner of the venture capital firm Andrews and Horowitz. He co created the Mosaic Internet browser, co founded Netscape, and has done more things over the past decade or two than most of us will do in our lifestyle entire lifespans. Let's talk a little bit about the firm we're sitting in, which is quite lovely. It is a very relaxing zen vibe heerre um with the

blonde wood and the just generally soothing atmosphere. Not what you imagine when you think up think of the startup community and and Silophone Valley. Tell us how you structured the firm and what was the thinking behind it? Yeah, so the big thing. So we're trying to create, We're trying to work with founders to create something out of nothing. Right, and so at the time we invest in most companies,

there's not a lot there. And then the path is going to be a five, ten, fifteen year path to get to you know, to get to something important and significant. So you're really playing a very long game. It's not two years. Hey, we've got to start looking for an exit. Yeah, it's it's my friend and friends at CNBC, right, have

the show Fast Money, and I'm always pitching them. It's like you need the car market needs slow money, right, and the slow money should be on every day and every day it should just be right, you know, well, what's happened today that matters? And the answer is yeah, nothing, Um, you know, what's what's going on? You know? Not much? Okay, I'll see tomorrow, right and so and and and you know they start looking the start ups are working incredibly hard.

Like the startups, you know, there's all kinds of activity at the startups. But the investors, say the vcs who freak out on a daily, weekly, monthly basis with these companies like burn themselves to a crisp, like because stuff these companies to cast. And so we go into it just knowing it's gonna be with every company is going to be this long running journey, and it just takes time.

It takes at least five years to build something that has real value, and it takes at least ten years to build something that's going to endure for long, you know, for for for another ten years after that, and so it's it's just to be this this, this, this long thing. And then I mentioned earlier like so much of this people like we we like to I think, brag on like how good we are I thinking about the ideas and the technical and stuff, and then we do spend

a lot of time on that stuff. But I think a lot of it is partnering with really high potential people. In a lot of cases, you know, to your point, like don't have that much experience at the time they start their companies UM or or even people with more career experience who haven't done a startup before, right where there's a whole new set of things they have to learn, and then we try to work and help them, you know,

grow and become better. Uh and and and you know, develop the skills that they need to build important companies um and so the whole firm is kind of engineered around those ideas. Right. So, as an example, we will never back a startup if we think it's outcome is it's going to get bought. Like every once in a while. It's really like if there's a slide in the dock that says excess strategy, you don't get bought by Google in three years like for ten X, like we won't.

We won't find the company spent a lot of time on that. But like we're we're know, you want to create a company that worst case scenario exists on its own for the foreseeable decades in the future, and if someone happens to acquire them, great, But that's not the target.

That's the kicker, as the companies that actually get bought are the ones that don't have to get bought, the ones that actually could have stood on their own because those are the ones that actually value that value, right exactly. So that's the twist on the whole thing. But so we're we're always backing these companies with and these people with an eye towards long run independence, developing something of of deepen enduring value. UM. So one is just the timeframe, Um,

that's important part. A second part is how we coach and mentor and work with the founders and the team that the founders built around them, And that has to do with our how we how we s left general partners for our firm with the people who make the pull the trigger investments and go on the boards. Um. And there is all our our big claim to fame there is all of our general partners are former founders

and our CEOs of tech startups. And so when we go on a board, it's always the case with us that you're sitting with somebody who has been through the same situation that you're in right now and has had to make the difficult decision and has had to live with the consequences of that decision, right. And so it's just it's a grounding in the in the advice and the guidance that you get that I think just goes

deeper than you know. And there by the way, there are great vcs who have no operating experience or little operating experience, and some of them are actually very very good investors. But there's there's just so much in that intimate relationship with the founder and with the with the team that I think benefits from having the credibility from having actually been you guys. You guys also do something unique in that every partner is on every investment, as

opposed to you do software, you do semi conductor. I'll do this. Every partner participates in every investment. Is that an accurate statement? So we do that. There is there's always a single GP on the board, so there's somebody who's focused on you. But then the way the firm ist structured is everybody shares equally in the in the

results of that. So we so basically we've just there's a lot of things we've done in the firm to design the firm to be a zero politics environment, to be so what you discover what you do rowe politics and environe your politics environment with respect to how the entrepreneurs, I mean, I can Garantie. We've ruled out all politics in the firm. I'm just saying, as far as the founder's experience, that they should never run into for a second, it shouldn't be this guy in the firm likes this,

but this guy is fighting against fighting again. So what you often find in a lot of entry capital firms since they present as united front and then there's a tremendous amount of in fighting this taking place. It's by the way, it's the same thing you see and like you'll see on on Wall Street, a lot like whis just for example, there's just a battle for the there's a battle for the profits, like there's a battle for the carry. And so for me to get more money,

somebody else is to get less money. And that least to this weird adverse thing where I actually want the other guys deals to fail because then I'll have more negotiating leverage in my comp you know, discussion or there will be a battle between who wins the deal, right the maybe the entrepreneur starts the conversation with one GP, but maybe the entrepreneur really would rather have another GP with the more relevant skill set right in the same firm on their board, sure, and a lot of firms

that that starts World War three. Internally, at our firm, everybody's fine with that. Another thing, a little twist that we have. We don't have a promotion path in the firm to general partner UM. So the way most other firms are structured as they have young people in the

firm who get promoted up the rights over time. But it's a competitive process, right, So you'll have twenty junior people who are competing for you know, six sort of UM junior g P slots who are competing for two g two senior GP slots of course ten or fifteen years, and so they're in a constant knife fight with each other, right because they're it's just like had a law firm.

I was gonna say, it sounds like the big big Wall Street or park Ev and you law firms where it's just a blood bath and when they make the announcements of partners, there's a handful of happy people and a lot of other people getting their resumes together and it's no fun for anyone. And so when that struck,

that's exactly right. So when that structure works well, that leads to a very brutally Darwinian effective eat what you kill environment where you're you're breeding for you're basically breeding sharks for maximum infectiveness. The problem is, as a client of one of those firms, you get caught crosswise in the politics right, and you do not get you basically only get access to the people who have the direction sentive to help you in the firm. You don't get

access to the rest of the firm. And that's the typical experience that founders have with vcs, which is they get promised the resources of the firm, they get what they get in practice is one person that seems really counterproductive. It's very kind of productive and and in our come by the way, a lot of our work with companies is working with our companies to help them resolve these kinds of issues with the other vcs. So because you're you guys are also co investors with other other ventures.

So we just don't and again, like this may work for other firms, we just decided to take a different mentality where we don't have that kind of you ever get caught in the kind of crossbar because it doesn't exist. Um, so that's a big thing. And then the other big thing that we do is a firm um is, we do believe deeply in the idea that the founders not in every case, but in a lot of cases, really should be able to if they're if they want to, and if they're able to do it, they should they

should run their own companies. And we could have a long conversation about that. Um. The other thing that we do is we really try to help arm up the founders who don't have a lot of deep business experience with all of the connectivity the network access that the professional CEOs will tend to have. So so the technical found technical founder starts a company right, and then you know, big part of it is are I think, just gonna be good at managing and leading, which is where the

GP relationship is really critical mentoring. Do you find that very often engineers and people with that sort of technical skill set, um, the stereotype is they're socially awkward. They lack the usual skill set that a CEO typically has. Yeah, so that is often the case. But also the reverse is often the case, which is the highly social you know, the CEO is had of central casting have you know, the the great hair and the you know, brilliant smiles, and the great, you know, just the great in front

of the crowd. They often not always, but they often lack the technical grounding to determine the direction of a technology company. And so and again like these are these are stereotypes, and they're overly broad, but they are patterns. There is some truth to it. Started in this case. And so so what we're now everything, I would say the the kicker everything adventure is on an exception basis, right, and so by definition we're not looking for the pattern,

we're looking for the exception. And so we're looking for the to your point, the very particular technical founder, who, by the way, may start out without a lot of these social skills, and may start out without really knowing how to deal with customers, or may start out not really knowing how to manage people or hire people. And then we're trying and if they're willing and able to learn, we will then put a lot of effort into helping

them become great at those things. By the way, it's the same astray on the other side when it comes time some of our companies we do end up with professional CEOs, and then we look for the professional CEO. Is that not only have that skill, but also then go deep on products and technology, and so you're and and and those are both exceptions like those are these

are not on both sides, these are rare people. So so it makes me wonder is it easy to take someone who has the technical skills and teach them to be a CEO, because it sounds like gets challenging to take a CEO and say, by the way, on the side, we want you to get your you know, your ms in in computer science over at Stanford at night, that

that doesn't seem like your first breakthrough product. At the same time, the same time, I would think it's easier to teach the inexperienced, unskilled but really sophisticated technology technologist

the people skills then vice versa. So in the tech industry, we firmly believe exactly what you said from the general pattern as we want to find the great technical founder and helping become a great CEO, and that then, exactly at your point, that's easier than finding a great CEO and trying to turn them into a great product technology visionary.

And I think the history of our industry confirms this, like nine out of ten roughly of the big successful tech companies in the last frankly hundred years have been run by their founders for a long periods of time for this reason, starting with you Litt Packard and Intel and you know many many many others you know now today Facebook and Google, right, um, And so that's the thing now because it's easier though doesn't mean it's easy, right, So you know, it is a real like for these

people to learning um. You know, for for an engineer who has not managed a large organization before to learn how to do that, like that's a big thing that they really have. They have to really want to do it, and some of them just simply don't. And then you pair them up with somebody who them come up with a pair configuration where they can work with somebody who can help them with that UM. And then some of

them just simply can't write. They just hit the wall where it's just not something that they're going to be able to do. And so that there there, there in lies the difficulty of implementing the theory. But that's that's that's our that's what we do. So so two things

immediately come to mind when you bring that up. The first is you have Larry and surgery, who are technologists who eventually UM partner up with with their chairman, Eric Schmidt, who who basically brings them along and teaches them how to be c e O S or co c e O S or what if we want to call them. But the other example that leaps to minds is Marcus Zuckerberg and Facebook. So let's let's talk about that for a moment. You're a friend of his, you're a mentor.

Tell us how that relationship came about and how how have you helped Zuckerberg become one of the leading CEOs in the world. So, first of all, I should disclaim most credit on this, which is Mark has done most of this on Zone. He has been advised and helped along the way by a lot of people. So I'm not I'm not going to take any sort of giant, giant credit on this one. Um I did that. I did get to I did get to see it, and you know I was I did get to be in

the room for a fair amount of it. So um So I met Mark through Peter tele after he first invested in the company, and this was when Facebook was four or five people sitting in bean bags. UM in Palo alto uh in an office with very colorful graffiti on the walls in the very early days. Um, and it was just crystal clear from the start. I mean it was not I don't think clear that Facebook was going to become you know, the heam come because just how how often does that ever happen? And how how

can you actually predict that? Do you want you want me to go through the list of how often that's happened with you? Or should we save that for a later segment? Not not very not very freaking often. I can tell you that. So um so uh. I will say, like, it was very clear from the beginning that Mark was a I call him a learning machine. Um, he just siphons in information. And then this this goes to what I mentioned earlier. It's it's it's it's technical founders. It's both. Um,

it's both can they do it? But also do they want to do it? And a big part of that for both of those is can they learn? And by the way, there there are people who just simply hit the wall where they just do not want to learn anymore, Like and we've all dealt with people like that where say they're impervious to new information, right, because they've deliberately set themselves up where it's like any new information at this point would be a threat. And so I'm just

I'm done. They tap out and finished. They just they piked like they just peeked in terms of everything that they're ever going to know and absorbed like that's just the way that they've decided to live their lives. And so to do what Mark has done, you need to be these that opposite of that. You need to just constantly be pulling in new information until actually curious devouring whatever comes cross every possible topic that you can imagine

it's going to be relevant to what you're doing. And so Mark, Mark has just been the way I think Marcus, he's the most systematic person I think I've ever worked with it, just pulling it and just extracting the information. Um. And that was true when he was really young, right and was not well known, um and he was very determined to go get the information from people who knew.

And then it's it's only magnified out as he's grown and by the way he continue know he's out on this tour right now, you know, touring all fifty states, like from Mark standpoint that there's all kinds of speculation on that. But from Mark standpoint, the whole purpose of that is learning, not that he's running for president when he turns he's where he swears not, but yes, whole when he talks about that, like when you talked about that with us, when he said he's gonna go do

it's all I'm gonna go learn. I'm gonna go learn about the Country'm gonna learn about every state. I'm gonna learn about people who aren't like me, and and so and for me. So for me, it was not surprising in the sense of it's completely consistent with how he operates. And I think this is an area in which he is a much He's a real role model on this, Like I I really think, like I think a lot of founders like look at Mark and they try to drive like how do I get good at I don't know,

viral marketing or data da whatever product? He just wants to take it all. I think if more people just look at Mark and said, how do I learn like that, they would be much better. You're on the board of directors of Facebook. What's the reaction when the CEO and founder says, hey, guys, I'm going around the country. I'm gonna go to all fifty states because I think people have interesting things to say and I want to learn. Is there eyebrows raised or it's like, oh, that's just

Mark being Mark. Go ahead, yeah, I mean Mark, Mark does things like that. Mart Market. Is My point is Mark has always stretched himself like he stretches. He comes up with a quest every year, goes at his question quest, the quest. A couple of years ago, I remember he was learning some obscure language if memories, sir, I don't remember what it was. Mandarin Mandarin right, well, not so obscure, but a complex, uh language. So he does a quest

every year and just basically keeps learning, keeps learning. He's been doing this is if you know, I don't know for ten years now or something. It's it's and so there's been through a variety of things, and he talks about this. He's very open about this um and so you know, he just he just goes out in siphons. And so he's a guy. He's a guy who's literally able to learn from some of the most you know, experience and accomplish people in the world on certain topics.

But you know, spend a day on a farm not far from where I grew up in Wisconsin and dow to milk cows like and he's just as far and he's happy to do that. He's absolutely so he's living the life he always wants to live. I just want to just suck everything I can possibly into my head as as rapidly as I possibly can. Well, that's pretty fascinating. Um, let's keep going about the deal days you do. I want to talk about some some more of the combination

angel investing late stage. So you do deal days, and and how many people will the firm see in a given day or week when those are running well, we have, like I said, we do about two thousand a year total. So there's a whole funnel in the whole system, and there's a lot of people in the firm who meet companies the whole process of kind of distilling the information.

So it's you know, it's dozens of week you know, kind of across the firm, and then we see pitches on usually Monday and Thursday, or Monday Monday Thursday generally, UM, and as the GP team and that's you know, I don't know, Monday, it was five this week on Thursday, I think there's two or three more. Um, and this is every week, so there's occasional vacations and stuff, but pretty much you're running through three hundred, four hundred pitches.

The GPS will see everything the way. These are called the all GP pitches, and so these are ones where everybody's in the room, um, and then many others. There's many others that happened during the week where one or two or three GPS might see them. Right, So it's a giant fun It shrinks down and down until and out of those let's call it three hundred a year, you're looking at ten percent, very very seriously. Yeah, that's

about right. And when you decide to do an investment in them, are these usually angel fifty thousand dollar rounds or these much more substantial rounds or both. Yeah, So we don't really do the fifty anymore. We used to do more of those when we got started, but we don't do those as we tend to get much more. We tend to kind of go all in or not. So that I could go through that, but like that, why not we work, well, why all in? Why not? Well we'll get to three other investors and will hedge

our bets and go in partially. Well, there's still so there's there a couple of couple of reasons. UM. One is just the level of one is just an economic thing, which is for us to be the opportunity. So there's costs and then there's opportunity costs. And there's always opportunity costs on our time and on our ability. How many companies gonna work with? Is it more of the time or the money. It's it's more of the time. It's

more the opportunity costs. It's every deal, every deal and we do fills a slot that can't be then filled by you know, another hundred deals that you might have done instead. And right, so there's a big there's a there's always there were any deal you do a big risk that you're for closing some other deal that much better, and so you have to just think very hard about it. And right, it's it's it's it's time um. And then

UM that that that's a big part of it. UM. Then there's also just the economics of it UM, which is just as a consequence of that, when when you have a hit, like how much of it you actually own actually really drives your returns um. And so we have a responsibility to our parall piece to try to you know, really have the the hits pay off um. And then part of it is just a full engagement model,

like we really don't like giving up. We really don't like we don't you know, there there are venture firms that if your company is not going well, they just they'll mysteriously vanage on the visa website like they just never get talked, they get dropped down the memory hole. Um. And uh, we don't tend to do that. We're just and it comes from the fact we've all been founders and CEO is like, we just we don't tend to give up. Um, you know what it's like when you're

on the receiving end of unreturned phone calls. That is right, yeah, and so and and my view is like our we make our money on the ones that work, and we probably I think make our reputations and the ones that don't. That's a fascinating line right there, because the math behind venture investing is, look, when you go out and buy stocks in the market, fifty of them will do nothing, thirty of them will work, and uh, ten of them will be disasters, and a handful them will work really well.

The odds are far more daunting with venture investing. It's it's almost ten x that you have and I think you've you've written this elsewhere. You'll make a hundred investments and fifty of them just crash. Okay, But it's the one or two at the top of the pyramid that pay for the other for the whole thing, right exactly. And that's actually roughly the math. So yeah, So fifty in top tier venture capital, top descile venture capital across forty years of data on this, which we have access

to a couple different ways. Um, basically half the deal's good news is it's not a temper cent success, right, it's a fifty percent success right right, So it's not as bad as some people think. But it is a fifty percent success right, meaning it's a fifty percent failure, right um. And then meaning fifty percent failure meaning zero return on that half about about about half of the go to zero and then and then the other half returns between zero and one x. They return, recover some capital,

but not all they message capital. And then the sort of that third quartile of sort of fifty, they return you know, one to three x and then it's basically the upper quartile that returns sort of you know, god Welling returns three x plus. And then if you and some of the three x plus is a lot more plus than So that's the good the good news. The bad news is, yeah, you do get that. You you do get the ones where you lose one x pretty frequently.

The good news is they if they, if they work, they can make a thousand x right, and so you and then the LP. This is the great thing about kind of the venture ecosystem. The LPs don't care. So for example, in the data, they don't care how you make the money just as on as you do. So that in the data, for example, the top performing venture from strike out more often called the baby Ruth effect,

the top performing firms have more zeros. Right, they're swinging, they're only swinging for home runs and so and by definition in venture, if you're only swinging for home runs, you're taking more risk on crazier ideas. Makes sense, and it's like it's like you know, the famously they're they're

Google Fund. It was the fund that Google and it had segue right and Segway was a legendary disaster, and you know, out all this negative publicity and you know they guess what they lost one x their money in segue right, guess how much money they made on Google right, right?

And so so. So the good news on it is we we and this is something that we're The US in particular has a real edge on this, I think is we we have a base of limited partners institutional investors in the US that deeply understand that this is how it works. And so when we have one that goes to zero, they don't call us up and yell at us and complain there is They're like, yeah, that's the cost of doing business. Um. And in fact, we've had helpings ask us why we actually don't have more failures?

Like are you taking enough risk? Really, what they want to know is, okay, of the companies that are working, how well are they working? And and we call this to how high is up? Question? How high is high is up? How big could they get? Right? And then if and then literally, Alan venture, if you came back, if you were lucky enough in venture to come back every year with one big, giant home run, and all the rest are failures, they'd be totally happy like so,

so they would not complain about that at all. And of course it's very, very different than how the rest of Wall Street operates, no doubt. Do you run into every time time there's that thousand X do you run into How many times do people say, well, this is the next Facebook? No, please stop saying that, do you do? You sort of end up in that mode where whatever was working, Hey, let me explain to you why our company is the next X, y Z. Do these cliches

begin to make you crazy? Yeah, they do. Well, they're they're a tip. They usually the really great founders tend not to say that. I hope people are listening to all these suggestions. This is gonna be a how to pitch. Indrees and Horowitz don't go there without having heard all these suggestions from this guy named Mark Andres. And I would imagine that at a certain point you halfway through a pitch, do you look at each other and like,

all right, we're done with this. Every once in a while, everyone, I will say every once in a while, um, but um, but I will say this, um. The privilege of the job is that these are two thousand of the smartest people in the world in the remains in which they're operating, who we get to do with every year, and so the other that we we learned so much and even the deals we're not gonna we're not gonna do it.

There's something we've just made a mistake and we've seen a pitch that we shouldn't seen because we're never going to do the deal for some reason. Um, and there's you know, a dozen reasons why that could be the case. Um. We generally, you generally learned just a lot of contextual information about what's happening in that in that industry because these people have to get to that point. They've all thought these things through. Really back to the idea amazing

that we're talking about. So that's that's what you just learned. You learn and that it's and by the way, once your experience that it's just a fire hose of it's just the smartest people in the world coming in and spending an hour telling you everything they know, like it's an amazing how how that was a question? Next question is how big of a strategic advantage is getting first looks at at two thousand of the smartest people in the world. Yeah. Yeah, I think that's a big part

of it. And I mean, and that's why I'm so I've sort of become kind of semi legendary sort of optimist. Um. It's really hard, I think, to be pessimistic in this job, because you do see all these incredibly fired up people with all these incredibly vivid and brilliant ideas, um, and you you just you get a sense of the productive capacity of capitalism, of the intel rustial pursuits. By the way, it's hard to be too negative when you're looking at

the most optimistic inventions in in the universe. And by the way, also the output of the great research universities, like so much of what we do is building you mentioned earlier, so much of what we do is building off and what happens to Stanford and M I. T in Berkeley and all these other schools, and it's just crystal clear, like how amazing they are. So you know, so that it's just this that that that's that's cut sort of the psychic payoff from the job is the

ability to do that. And then it just also i think, just becomes clear like there are contra all that, you know, the headlines are just all relentless negative these days, there are a lot of smart people in the world. There are a lot of people have a lot of energy in the world who want to legitimately want to build

new things. Um. It's very exciting and increasingly not just here, right, not just in Silicon Valley, not just in the US, not just in the West, all over the world, right, And and so that that's the other side of it, is this, this culture of entrepreneurship is really spreading, um. And you know, we're gonna benefit from that in the sense of more opportunities, but I think the entire world

is going to benefit from that. So your focus mostly here on the West Coast, primarily Silicon Valley, you're not looking at China, You're not looking at India. Is that a fair uh servation. So all of our companies want to be multinationals, and all of our companies want to operate on the ground in all these countries, and all of our companies hire a huge number of immigrants, and so our our companies by definition, will end up with

a lot of Chinese immigrant, Indian immigrant. And then by the way, a lot of them are actually built offices on the ground. A bunch of companies with offices in China building up big presences indeed these other countries. UM, so we're heavily exposed to the sort of knowledge flow and talent that way. UM, we do I guess that though we do think venture capital is a craft, there is a craft to the business UM and it's it's a lot of it's the relationship with the board, the

board members, and the founders and the team UM. And so there's a local dynamic to it. UM. The number of venture firms that have successfully figured out how to operate in multiple geographies and stay world class, it's a very short list, most of the most most generally that doesn't work. And so we we've just we've made a decision at least for the time being, to try to

be really good in Silicon Valley. So, by the way, we do fund companies outside the valley, but just on on an exception basis, like they have to be super special. So we do have some of those. So you you focus mostly local. Your you're a software absolutist, no clean tech, no rocket ships, no electric cars. Is that still true? It's it's software and software only, so software at the core. So the rule of the rule is software at the core, so there has to be We just think there's a

particular magic around software. There's a particular magic around how you can create things with software. Right. It's it's it's I call alchemy, like you type on a keyboard and then things happen in the real world like that. That's an amazing process. There's there's just kind of huge intellectual leverage there, and then as a consequence, there is huge economic leverage, right, which is there's likes to say capital,

software is the labor that creates capital. Software is labor that Okay, It's the closest thing to magic will ever have. It's like typing on the keyboard is like casting a spell and then something happens, Right, It's like, you know, that's the lift. Lift Guys they type software and then all of a sudden, real people are being taken on a real rise in real cars, like just by magic,

Like just the software just caused that to happen. And so we are looking for that kind of software leverage, the sort of software magic in every company, scalable, magical and the ability to convert labor into capital. And then as a consequence, but as a consequence of that, our companies do end up doing all kinds of different things. And so we have some companies that sell software. We have some companies that provide softwares a service. We have

some companies that provide apps. We have some companies that are making hardware. We have some companies that are going after new new healthcare pursuits and biology, material science like there. There's lots of software is becoming so intertwined with the world that there are lots of ways to now use it, to go to leverage it in a different spaces, and so are The range of companies that were funding is broader than ever, but they all have software at the core,

software at the core. Um I started out this segment talking about the firm. There's a couple of things I have to ask about the firm because I'm fascinated to buy it. So you used to blog at p Marca, and let me remind you that I warned you to pace yourself, young man. You're gonna burn yourself out. I don't know if you remember that. And and you tweet fairly actively. I know we're on hiatus now and you podcast.

You guys have a podcast room at this doesn't sound like it's the typical forms of communication for the old line venture capital front. I mean, everybody has a website and there's sort of this interesting, Hey, here are all the things we oops, we passed on that we shouldn't have. It's sort of this, UM, I guess we could call it humility or attempt at humility. Your distult is very different. Here.

Tell me about the thinking behind that. Yeah, so we're just we're trying to teach, like with yourselves, kind of has been fundamentally lucky to have seen a lot of these things, mentioning these things were trying to teach. We think it's by the way to our benefit to teach, because if more people know how to do this, then there's more companies for us to fund and people for

us to work with. UM. And then part of it is just look, I think technology has gotten very important in the world, much more than it used to be, and so UM and it's complex and it's hard to understand, and so I think and it's hard to understand from the outside UM, and so a big part of just what we're trying to do is to tell the story of what's happening, not just in our firm, but tell the story of what's happening in the industry and what's

happening with all these companies and with the aplications of all these technologies. So you mentioned our podcast series. So I get no credit for that. Our partners here, UM, our partners here have done all the work on that. But it's become like I would say, shockingly amazingly important and influential among people who care about how technologies affect. The level of response we've gotten to that has been like an order magnitude beyond what I would have ever

thought was possible. UM. And the amazing thing is a couple of years ago people saying, well, podcast is all but over. I just read last week Reid Hoffman of LinkedIn is now hosting a podcast. So this is a technology that a is not going away as a form of communication. What is the benefit to the firm of being able to go out and tell a story that might not be Hey, here's why you should use injuries

and Harrowitz. It's never that overt it's always here's some interesting things happening in the world of technology you should know about. Here's what's happening. A lot of people care about I was thinking, a lot of people care about this stuff. A lot of people care about the implications. A lot of people, by the way, are in a position to affect the world, and regulators and journalists and

people at big companies, um. And so we're trying to get to all the people who are decision makers, you know, you know, the constituents and the entire ecosystem that have to cope with the consequences of technological change. Trying to get to those folks. We're trying to pull more people into the industry. Right, if more people all over the world have a sense of what's happening, then they can

they can decide they might want to participate. We're trying to help people up level of their skills, become more knowledgeable about these things. And we I mean, we obviously benefit from all that, but just more broadly, like I think this is the topic of our time. It's absolutely absolutely fascinating. All right, So we're almost at a time there's a ton of questions that didn't get to, including the speed round. But what I really want to do is get to the standard questions. So how many minutes

can we go over two minutes? That's gonna be tough alright. So so, by the way, if I forget to um say this, thank you so much for being so generous with your time and and and going through such thoughtful, detailed answers. These these really been been fascinating. I have ten favorite questions. I'm going to just go through a two or three of them really quickly. Tell us something about your background that most people don't know. Probably big one. I grew up in the roal Midwest. I grew up

in Trump Country. You did, yes, absolutely, And has that affected your output on on the world at all? Your outlook? Yeah? Absolutely. Early mentors Jim Clark, Jim Barksdale, um with the two big ones and say, very complimentary personalities that work together very well, but also starkly different in their skill sets and orientations. And I learned a lot for both of them. The question I get from listeners more than anyone asked

your guests what their favorite books are? Favorite books? So I have three quick nominations, and I'm getting getting the hook here, uh Port Charlie's Almanac, The Companion Speeches. I think it's tremendous. Um um. Extreme Ownership has been a favorite recent book. A guy named Jocko Willink is a former Navy seal commander UM, one of the stream ownership streame Ownership Um one of the best books on leadership I've ever I've ever read in a tremendous by the

Way word story book as well. UM. And then what is the Man? There are so many there's a brand new book. O Roberts of Pulsky has a new book I've just started on human behavior of his magna Opus on human behavior. He's the great evolutionary theorist. And so that would probably be the third one that that's the new one, but it looks very exciting. And then our final question, what is it that you know about technology and venture capital investing today that you wish you knew

five plus years ago when you were first starting out. Oh, there are no bad ideas. There are only early ideas. No bad ideas, just earlier ideas happen. It'll all happen. I've become convinced now it'll all happen. Every smart person who comes in here with a crazy idea, it's all going to happen. At some point, they all happen. It's just a question to win. We have been speaking with Mark Andreason of Andrews and Horowitz. UH. If you enjoy this conversation, be sure and check out all our other

such chats. You can find them on SoundCloud, Apple iTunes and Bloomberg dot com. I would be remiss if I did not thank our hosts, Mark Andreason and the crew here at Andreason Horowitz, as well as Mike Batnick, who is my head of research and help put these stans together. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I'm Barry Ridholts.

You're listening to Masters and Business on Bloomberg Radio. Our world is always moving, so with Merrill Lynch you can get access to financial guidance online, in person or through the app. Visit mL dot com and learn more about Merrill Lynch. An affiliated Bank of America. Mery Lynch makes available products and services offered by Merrill Lynch Pierce Federan Smith Incorporated or Registered Broker Dealer Member s I PC