E155: Ben Horowitz: "The Classic VC Model Is Done”

Speaker 1 Today, we're excited to share an episode of Turpitine BC, a podcast about the art and science of building venture capital firms hosted by Eric Tornberg.

Speaker 1 Guests on the show include Vinod Khosla, Alfred Lynn, Sarah Tavil, Mike Maples, and more top GPs of the world's top venture firms.

Speaker 1 Unlike other shows in the space, Turpitine BC digs into the nuts and bolts of firm building, covering fund construction, governance, talent, strategy, and decision making.

Speaker 1 Up ahead is Eric's interview with Ben Horowitz, general partner and co-founder of Andreessen Horowitz.

Speaker 3 Ben, we were just talking off camera. There's some firms that are great for 10 years and then struggle.
There's some firms that are great for 30 years,

Speaker 3 multi-decades. What separates the firms who can do that and what enables them to be great?

Speaker 2 Yeah, I think it's a combination of

Speaker 2 kind of the lasting parts like the culture and then the parts that change like the leadership. And

Speaker 2 so, I think that

Speaker 2 if you just have a couple of smart investors,

Speaker 2 but no culture to speak of,

Speaker 2 then you're probably not going to do a great generational handoff. And that's probably 10 years.

Speaker 2 10 years is a pretty good run for an investor.

Speaker 2 Maybe you stretch that out.

Speaker 2 Then, if you can transition it, like Sequoia transitioned it from Don Valentine to

Speaker 2 Mike Moritz and Leone and Jen Goetz, and that worked,

Speaker 2 that transition worked well. So they were able to kind of take the original culture and build on it and kind of grow it

Speaker 2 20 years for the original guys, 20 years for the successors and that kind of thing. So that goes pretty well.

Speaker 3 You guys are not Spring Chickens almost 15 years. Yeah.
How do you think about it for your firm?

Speaker 2 Yeah, so we're a little different in that we are organized in such a way where

Speaker 2 it's not really like Mark and I can have like very significant contributions without picking the investments

Speaker 2 because you know we have I would just say more scale and more job functions at Andreessen Horowitz because we're kind of a product first and then a team of investors second whereas every other firm I think is the opposite product meaning

Speaker 2 the product to entrepreneurs.

Speaker 2 So like what are we offering is where we start, um, and then the team of investors is kind of goes with that, as opposed to we're a team of investors, and then like we'll uh

Speaker 2 figure out what our product is as we go. Um, so it's very kind of different orientation.

Speaker 3 I've always thought of why a combinator is another example of a product firm in the sense that you could replace a lot of the investors they have over time, and yet it still seems to work to some degree.

Speaker 2 I think that's right, like I think they're probably you know the closest analog to us kind of spiritually.

Speaker 3 Yeah. So they're spiritually close to you, but they're much earlier and they dominate kind of like company creation.

Speaker 3 Whereas you, you know, you do a lot of seed, of course, too, but you play at all all stages.

Speaker 3 Have you thought about going after that space like pretty hard? Or how have you thought about where you situate in the ecosystem?

Speaker 2 Yeah, you know, it's funny because

Speaker 2 we, Paul and us started,

Speaker 2 you know, around the same time. He started a little earlier.

Speaker 2 And, you know, we talked to him quite a bit during that phase when he was running Y Combinator out of his house with Jessica.

Speaker 2 And,

Speaker 2 you know, I have to say, we never really

Speaker 2 thought about kind of being Y Combinator.

Speaker 2 And I think, look, a lot of it has to do, you know, my philosophy of business is you have to start with, okay, what can you contribute that's going to be important in the world that nobody can do better than you?

Speaker 2 And, you know, for us, a big thing that we had done is we had scaled companies, built them to very large size. That wasn't really kind of Paul's experience,

Speaker 2 but he had thought super deeply about

Speaker 2 the very initial kind of part of it.

Speaker 2 So I think that was the right thing for him to do, and we did the right thing for us to do. And I think the world was better with us doing our thing and him doing his thing.

Speaker 2 But like, he's got a great business. Totally.

Speaker 3 And so you're a product and I don't know.

Speaker 2 Like he and his success.

Speaker 3 Totally.

Speaker 3 Most venture firms are a collection of investors.

Speaker 3 You're a collection of venture firms in some ways, where you have these distinct, you know,

Speaker 3 American dynamism and bio and crypto and games, these different practices.

Speaker 3 Should other firms think, are you guys ahead of a curve and other people, other firms will follow you? Talk about the evolution to that structure and why that made so much sense.

Speaker 2 Yeah, so it's interesting. So when we started the firm, there's a lot of conventional wisdom in venture capital.

Speaker 2 There are only 15 deals a year that are ever going to make it to $100 million.

Speaker 2 You know, it's a cottage industry

Speaker 2 done by like, you can only learn it through apprenticeship and all the lot of concepts,

Speaker 2 which

Speaker 2 I think were probably correct at the time. But

Speaker 2 the thing that we believed then, and Mark kind of encapsulated a piece he wrote in 2011 called Software is Eating the World, was the software industry was going to grow. a hundredfold.

Speaker 2 And so 15 companies is going to be 150 companies and like things were going to change. And so, in order to kind of be the preeminent venture capital firm, you were going to have to be a lot bigger.

Speaker 2 So, we kind of saw that from the outset. And so, we set ourselves up to be able to kind of organize, reorganize, evolve.

Speaker 4 And if you look at the firm now, what it is, is it's right, it's a collection of the original Andreessen Horowitz, where every market

Speaker 4 has a platform that's appropriate to that market and an investing team that is focused on that market. And I think that that's the future of venture capital.

Speaker 4 Like when we think about who's really an interesting competitor, it's the pure crypto firm, the pure games firm, the pure AI firm, more than the generalist firm that's trying to cover all of that with the old structure.

Speaker 4 I think that's going to be harder for them.

Speaker 5 Speaking of the future of venture, will venture firms consider going public or should they consider like a YC or like you guys or firms that achieve such a level of scale?

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Speaker 4 I hope to see you there. Yeah, so there's a real interesting alignment problem with going public if you're a venture capital firm, and it's as follows.

Speaker 4 So if you look at Apollo or, you know, Blackstone or any of these guys, private equity companies that have gone public,

Speaker 4 the public markets value them on their fee stream much more than on on their investment returns.

Speaker 4 I think that's a safer

Speaker 4 kind of alignment between the investors and the firms in private equity than it is in venture capital. I think in venture capital, that can get super dangerous because

Speaker 4 even at 100x, what it used to be, the entire venture capital market is not that big.

Speaker 4 And is, you know, like the amount of capital versus the amount of great ideas, like we already have more capital than great ideas.

Speaker 4 And as we saw, I think, with both SoftBank and Tiger Global, if you try to change

Speaker 4 that demand-supply imbalance, you just end up creating a mess.

Speaker 4 And so if you were public, you'd have a strong incentive to create a mess.

Speaker 5 Trevor Burrus, Jr.: Well, so they went big and created a mess, but you guys went as big in some ways, right? Your volume was very high, your

Speaker 5 funds raised is very high, you went big in a much better way.

Speaker 4 Would you display that? We didn't go $100 billion.

Speaker 4 And then I think Tiger was raising $12 billion a year. So they were bigger than us, just technically.
So, yeah, look, we've scaled to basically size our funds to the market opportunities.

Speaker 4 So the way we look at it is: look, in a two to three-year timeframe, how many

Speaker 4 great deals will we see in a category

Speaker 4 and then try to size the fund to basically cover that time period is kind of roughly how we do it. And that's certainly increased fund sizes, both fund sizes and the number of funds over the years.

Speaker 4 But it's still really contained compared to what you do if you were just scaling assets.

Speaker 4 I think it's still way smaller than what Apollo or Vista or somebody would do in that kind of business.

Speaker 4 So, yeah, so I think that misalignment is pretty tricky for venture capital to overcome. Like I haven't figured out a way where you would overcome that yet.

Speaker 5 Right. So a firm like a firm that stayed diligent, like a USV, or diligent on fund size,

Speaker 5 a benchmark or kind of stays at 500 or 250, respectively,

Speaker 5 they believe that they can get better multiples on that

Speaker 5 much smaller fund size. What do you believe that they don't believe that in terms of justify why Go so much bigger?

Speaker 4 Yes, I think the market's just gotten bigger. So I think the way to think about it is if you believe the market was fixed at 15 companies, then that's the exact right strategy.

Speaker 4 And we don't believe that. And I think that, you know, I'm not allowed to talk about our fund returns because we're an RIA, but

Speaker 4 if you look at our funds,

Speaker 4 I think our larger funds have at times way outperformed our smaller funds.

Speaker 4 And that's just kind of a function of,

Speaker 4 look, if there were 15 companies and now there's 150, then if you had a $400 million fund, then maybe you need a $4 billion fund

Speaker 4 to do the same deals.

Speaker 4 If you win the same percentage of them.

Speaker 4 And, you know, like, that's just a simple math. And I think that there are different beliefs.
I think Benchmark believes what they believe. We believe what we believe.

Speaker 4 And again, look, our mission isn't to,

Speaker 4 isn't necessarily fun turns, right?

Speaker 4 We have

Speaker 4 a mission to kind of help the best entrepreneurs in the world build the best companies that they can.

Speaker 4 And so,

Speaker 4 you know, we generally come at like the whole structure of what we do from that perspective.

Speaker 4 I think also like I could, we could all get much higher salaries if we didn't organize the firm the way we did.

Speaker 4 But you know, like our mission isn't to maximize the number of money per partner. Our mission is to kind of

Speaker 4 be the resource for building great technology companies. So it's just like a different point of view.

Speaker 5 And so how do you recruit such amazing partners if at other firms, because they don't have these resources, maybe they can get higher salaries or

Speaker 5 there's certain perks of being at one of those firms. How do you think about recruiting the best talent, Andrewson?

Speaker 4 Yeah, well, I think that

Speaker 4 people here,

Speaker 4 it's actually helpful that we kind of pay lower salaries to me because

Speaker 4 we get people who are on mission. Fair line.

Speaker 4 And, you know, like there's a lot that goes into that.

Speaker 4 For example, there's this kind of thing in venture capital that a lot of venture capitalists will say, well, spend all your time with your winners.

Speaker 4 We don't believe in that at all. Now, if you look at a spreadsheet, that's the exact right thing, right? Like, because the whatever three winners are going to produce all the returns.

Speaker 4 But the way we look at it is, you know, several one,

Speaker 4 we're not so confident that we know who the winners are for a long time.

Speaker 4 The other thing is that, you know, we kind of have the philosophy is, look, we knew the job was dangerous when we took it.

Speaker 4 If you're going to take us as your partner, we're going to be there till the bitter end.

Speaker 4 And like, that's, you know, having been very close to the bitter end myself from time to time, like, you really do need

Speaker 4 kind of support or at least somebody to talk to when you're in that situation. And

Speaker 4 because, you know, just from a competitive standpoint, our whole idea is that we sell on reputation.

Speaker 4 That's fundamentally important to our competitive advantage is to have the best reputation. So all those things kind of cause us to behave differently.

Speaker 4 And if you're not into that, if you're into the spreadsheet view of venture capital, then like you would hate that idea.

Speaker 4 So it actually works for us in that sense.

Speaker 5 And because you've spent the last decade plus building this brand reputation, there's lots of other things that you could do. You can get into things beyond venture, right?

Speaker 5 Different firms, you know, some firms get into sort of more public investing, get into wealth management, they get into other products that serve kind of adjacent customers or serve their customers in adjacent ways.

Speaker 5 How do you think about what makes sense to get into versus what doesn't make sense to get into, given that your brand enables these opportunities?

Speaker 4 Yeah, so our

Speaker 4 way to think about what we've done so far and what we'll do in the future is the customer is the founder for us. So we start with the founder and the initial promise is

Speaker 4 we're going to help you raise money. we're going to help you develop into a CEO, we're going to build you a network that's as good as Bob Iger's, we're going to

Speaker 4 help you train you into the job,

Speaker 4 and we're going to support you in every way that we can through our financial network to help you kind of build this company.

Speaker 4 And

Speaker 4 in our view, we'd like to extend that. through the founders entire life from the time they found the company to the time they become a philanthropist.

Speaker 4 And so anything in that realm,

Speaker 4 we feel like is, you know, kind of things that we ought to at least consider doing.

Speaker 4 And, you know, which ones we do in which order, we'll see, you know, depending on where the gaps in the market are and what makes sense for us.

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Speaker 5 The thing we've talked about off camera is that one thing that enables you to take such big swings or make these changes when the market changes is your unique approach to

Speaker 5 sort of governance or control. Why don't you talk about that relative to other venture firms?

Speaker 4 Yeah, it's interesting. It's kind of a concept that we got from a couple of people.
One was Herb Allen, who you know, I think, and then the other was Mark's father-in-law.

Speaker 4 And they both kind of gave us the same idea, which, so traditionally in venture capital, I think it looks a little like a law firm or, you know, kind of a lot of these partnership structures where you have shared economics economics and shared control.

Speaker 4 And like from a partner standpoint, there's a lot, that makes a lot of sense in a lot of ways. We have a different structure where we're shared economics, but we've kind of centralized control.

Speaker 4 And that enables us by not having shared control, we can change the structure of the firm very easily.

Speaker 4 And if you want to grow, like so, you know, if you want to go, you know, in an integrated way, like you could have,

Speaker 4 oh, that's the Chinese subsidiary or whatever, and that's a whole nother entity, and we talk to them, you know, once every six months.

Speaker 4 That's not what I'm talking about. But if you want to grow in an integrated way with a kind of single culture, single offering,

Speaker 4 then you have to be able to change the organizational structure, you know, as you get bigger.

Speaker 4 So, like, the structure that you had of 50 people is just not going to work at 500, and that's for any organization.

Speaker 4 But in order to do that, somebody's got to be able to make that decision with no politicking, no arguing, no, you know, like there'll be tears because whoever loses power is going to like be upset about it.

Speaker 4 But you have to be able to make those tough decisions to get to the structure that you need to be maximally effective. And that's just really hard to do, I think.

Speaker 4 I don't know how you would do it with shared control.

Speaker 5 Trevor Burrus, Jr.: Let's get back to the future of venture. Let's say we're having this conversation 10 years from now or 15 years from now.

Speaker 5 Does venture kind of look, does the trends that are happening now continue to happen where there's just this bifurcation?

Speaker 5 You know, multi-stage firms become even more multi-asset firms, they just get bigger and bigger and bigger, and this sort of solo GP or small specialists

Speaker 5 kind of this barbell. Do new models come into play, like venture studios really take off, or do emerging technology like Web3 or AI really change how venture works?

Speaker 5 Or say more about the future of venture.

Speaker 4 Yeah, no, like

Speaker 4 all possibilities. I mean, look, I think the kind of classical venture firm that is just like a collection of smart you know investors like I think that's probably run its course

Speaker 4 so I think you have to be like

Speaker 4 a top-end

Speaker 4 like serious brand that can marshal resources and money and

Speaker 4 considered smart money and people want to follow

Speaker 4 You know, I put us in that category, Sequoia.

Speaker 4 You know, there's that class of thing.

Speaker 4 And then there's people who are very specialized in a very kind of specific part of the market and know that network and have really great specific expertise, and they'd probably be more early stage, I would think.

Speaker 4 And those two things seem pretty solid, at least for the next five, ten years.

Speaker 4 Everything else, a little more questionable. I think, you know,

Speaker 4 with the studio model,

Speaker 4 to me, the big problem with that historically,

Speaker 4 and I think Bill Gross was

Speaker 4 probably the greatest practitioner of that historically,

Speaker 4 is that it's not an idea, it's an idea maze.

Speaker 4 And so

Speaker 4 it's very hard to run through the idea maze if it's not your idea. And so

Speaker 4 I think that tends to be problematic. That's kind of a little bit of a design for the head of the studio's lifestyle and kind of capabilities as opposed to what's going to make a great company.

Speaker 4 And so I don't know that that's ever going to work. And I thought Paul's genius was

Speaker 4 the ideas weren't his.

Speaker 4 And that was the difference between an incubator and an accelerator.

Speaker 4 And that, I think, just proved to be the right model. And the reason it's the right model is because whoever's building the company, it better be their idea.

Speaker 5 Yeah.

Speaker 5 When you identify an emerging trend, whether it's Web3, whether it's AI, whether it's companies that get big and it's really big, really fast in a certain, you know, during the pandemic, let's say, and

Speaker 5 some people are more prudent about it, some people are more bullish. And I put you guys more in the bullish camp.
Smart bullish, but bullish.

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Speaker 5 Is the logic there that, hey, not everything's going to work out, but the things that work just work so much that it just really makes sense to be extremely bullish?

Speaker 5 Or I guess when when you reflect on the past few years and things that you went really hard on, if you were to do versions of, again, going forward in the future, now this AI wave, of course, how do you think about riding trends and how hard to ride them?

Speaker 4 If you look at

Speaker 4 the history of technology, almost everything eventually worked.

Speaker 4 All the stuff, go back to 1999, 2001, all the dot-bombs.

Speaker 4 That's the dumbest ha ha ha, pets.com, how stupid. You know, like all that stuff, you know, and then diapers.com sells for $800 million later.

Speaker 4 It was just a little ahead of its time.

Speaker 4 And I think the beauty of venture capital is

Speaker 4 you can make the bet, and if you're too early, you can make the bet again. So for example, if the clean energy

Speaker 5 craze happened again, if you guys were around during that time, do you think you would have bet big there and just said, hey, we're 10 years earlier?

Speaker 4 Well, Well, that one is a little different in that that was like a politically motivated market, which is a different kind of a thing. I mean, I think so.
We're big believers in software.

Speaker 4 And if there's like a massive software breakthrough that has new applications or new models or these kinds of things, then we'd certainly be all on that.

Speaker 4 Anything like AI or crypto or, you know, or like, you know, what's going on in games, like we'd bet that every time. I think climate was a little different.

Speaker 4 It wasn't software, it was material sciences, which

Speaker 4 has a

Speaker 4 different market dynamic.

Speaker 4 So it's kind of like

Speaker 4 there eventually became a small number of auto companies.

Speaker 4 There never eventually became a small number of software companies, despite what Larry Ellison and all those guys said, that there were only going to be three software companies and all that thing.

Speaker 4 Because it's kind of like, it'd be like there's only going to be three novelists. It's a creative art form.
It's got a very big design space. And so,

Speaker 4 you know, we think there, you know, if there is like a big change in how you can write software, which AI is probably the biggest change we've ever had,

Speaker 4 that's going to,

Speaker 4 yes, that's going to produce things. And we would bet that all day, all the time, every day.
And I think that's also the kind of value of being able to evolve the firm is

Speaker 4 Look, people who knew smartphone network effects may not be the ones who really get AI, may not be the ones who really get crypto, et cetera.

Speaker 5 I know Mark is spending a bunch of time in AI right now.

Speaker 5 Talk about the AI strategy, or how you're approaching AI in terms of this both how you think about it from an investing perspective, but also does it change things at the firm more broadly?

Speaker 4 Yeah, well, like it does change things at the firm broadly.

Speaker 4 From an investing perspective, it's kind of like, oh my God, we have non-deterministic computing. Like, holy cow.

Speaker 4 You know, like, it's, it's a whole every problem we couldn't solve with deterministic computing is now for grabs. Yeah.
And that's

Speaker 4 like,

Speaker 4 you know, we've never seen anything like that. So

Speaker 4 from

Speaker 4 a firm perspective, I think, you know, we end up needing, okay, different expertise.

Speaker 4 We need

Speaker 4 kind of access to different networks. We need

Speaker 4 kind of different kind of help for entrepreneurs. Like it's amazing so many of the AI entrepreneurs are actually, they're not even engineers, they're like researchers.

Speaker 4 So, this is a totally different type of cat to be starting a company

Speaker 4 and

Speaker 4 what do they need to succeed and that kind of thing. So,

Speaker 4 it's a very big tidal wave kind of running through the firm and running through the industry. But we couldn't be more excited about it.

Speaker 5 I mean, the other thing is, like, we're in this phase where it's such a profound change that anything you do like will work at least for a while yeah and so it's kind of hard to pass on any deal in in that way so it's exciting thank you for listening to join our community and to make sure you do not miss any future episodes please click the follow button above to subscribe well and that was true also of of web3 for a moment when you when you uh when you think about web3 do you think hey it's just in a momentary lull partly you know sponsored by markets and developer activity is higher than ever or i've been struck just by how far ahead ai is uh of Web3 just in terms of use cases and products.

Speaker 5 And yet I've been ignoring AI up until the last year or so, and I was spending more time on Web3. Like, what did I, you know, was the financialization a distraction?

Speaker 5 Or I guess reflect on that a little bit, or what's your perspective on that?

Speaker 4 Yeah, so there's a few things. So, one is like

Speaker 4 AI happened overnight. Like, this AI model started in 1943.

Speaker 4 So, it was a long time coming.

Speaker 4 But it was that.

Speaker 4 Like, working really well. I think with crypto, it started like in earnest in 2008.

Speaker 4 Like that was the 1943 moment. So it's a lot younger than AI.
And like I think in fact, so and there have been

Speaker 4 kind of a variety of use cases.

Speaker 4 Some of them have been, so there's like this what we call Web3 and you know a new way to build networks that's fair and not like doesn't tend towards these like very dangerous monopolies that control all information and all these kinds of of things.

Speaker 4 But there's also kind of like a, because you can create money, there's a casino aspect

Speaker 4 which

Speaker 4 you know needs regulation.

Speaker 4 And we've been kind of working with the U.S. government to try and get the correct regulation.
And so in its current state, I would say there's two things. One is we need

Speaker 4 performance to improve a lot, you know, and kind of gas fees to lower and performance to improve so usability can improve and that kind of thing and that we're really on the verge of I mean like I think we're going to see a hundred X improvement of the kind of base infrastructure in the next turn in the next year so that's awesome

Speaker 4 the other thing though is the kind of regulatory regime and like what's possible and can we get clarity and so forth and we're working on that both kind of domestically and internationally

Speaker 4 but those are kind of things that in order to get very broad adoption that's going to have to overcome. Like AI is already getting broad adoption because

Speaker 4 like it works. Now the regulators are now moving in and

Speaker 4 very ironically, oddly, bizarrely talking about trying to ban open source, which is probably the safest thing that could possibly happen in AI because

Speaker 4 if AI is this all-powerful thing, then the last thing you want is it in the hands of one person or one company, like that would be

Speaker 4 and dangerous.

Speaker 4 Whereas if it's open source, universities can work on it, we can understand it, it can be deployed.

Speaker 4 I mean, like I often remind people, like the last nuclear bomb that was launched was when only we had the nukes.

Speaker 4 Like that, that's a dangerous world with one person having the nukes.

Speaker 5 And now everyone has nukes and a bunch of people have nukes and we haven't had

Speaker 4 any nuclear activity. And there's a very very specific reason for that because everybody's got nukes and nobody wants to get nuked.

Speaker 4 And I think that AI is you know, to the extent that AI is a super weapon,

Speaker 4 that will also be true there. And so if you believe that, then I think what you want is open source.
And I think if you want regulatory capture or monopoly for yourself, you want to shut that down.

Speaker 5 Aaron Powell, you mentioned earlier that you consider your peers as the best kind of specialist firms and you compete with those firms.

Speaker 5 Do you also see your peers or competitors, firms, other multi-asset firms that are not even inventory? Like as you get bigger and bigger AUM, you know,

Speaker 5 are there firms that you see yourself as veering into their space?

Speaker 4 It's funny because I've spent some time

Speaker 4 with both kind of the folks at like BlackRock and

Speaker 4 at Apollo, just trying to understand their structure and why they're public and these kinds of things. And I would say they are culturally,

Speaker 4 philosophically, operationally the opposite of us.

Speaker 4 So,

Speaker 4 like, they're very, very price focused, they're optimizers, They're, you know, efficiency experts.

Speaker 4 Well, like, we don't care about any of that. What we care about is, like, is it a real breakthrough and how big can we help make it? You know, can it win the market?

Speaker 4 Like, those are the things that drive us. So

Speaker 4 there's nothing about what they do that would make them good at what we do. And there's nothing about what we do that would make us good at what they do.

Speaker 4 So like, I think, you know, we'll never get into that realm.

Speaker 5 Yeah. And when people focus so much on returns, it also, it's important to think about just the LP product.

Speaker 5 Like my understanding of the soft bank thesis was that this is a place that an LP could plow a ton of capital and get some like consistent

Speaker 5 return. And there's not that many places where you could just plow all that capital into one place and get that kind of diversification.
Is that how you think?

Speaker 5 Like how do you think about the LP product that you're offering?

Speaker 4 We think about LPs differently.

Speaker 4 So we think about LPs, or the way we like to think about them is the same way a company would think about its VC. So

Speaker 4 one,

Speaker 4 so we're not building a product for them. We're building a product for founders.

Speaker 4 And

Speaker 4 they can invest in that product.

Speaker 4 And then there's a couple of things we think about there. One is

Speaker 4 we want to have the kind of investors that we want to be in business with for a very long time, so we choose them very carefully. And two, we want to treat them like investors.

Speaker 4 And I think, you know, sometimes

Speaker 4 venture capitalists make the mistake of not doing that,

Speaker 4 which, you know, what does that mean? It means, well, like, you shouldn't have them invest if you don't respect their opinion, aren't interested in what they have to say,

Speaker 4 don't want to keep them up to date on what you're doing. Like, then you're not treating them like investors if you don't do that.
And I think what we're going to find out in this kind of particular

Speaker 4 interest rate change environment is that the VCs who didn't treat their LPs like investors are going to be in for

Speaker 4 what that means in bad times.

Speaker 5 Aaron Ross Powell, does macro inform your

Speaker 5 firm strategy?

Speaker 4 No, like I think we've got to be very careful about that, in fact.

Speaker 4 So,

Speaker 4 one, macro, in our view, is highly unpredictable. Right.
So that's the first thing.

Speaker 4 And so we don't try to predict it.

Speaker 4 And then secondly,

Speaker 4 We have a 10-year horizon on exits. So if we invest in a company today, we're expecting it to come out in the environment in 2033.

Speaker 4 And so in 2033, the idea that we could predict that macroeconomic environment is like pretty absurd to me. Like even to talk about it sounds weird.

Speaker 4 So like getting caught up in that, I think is really dangerous. And we saw a lot of, so there were a lot of hedge funds that

Speaker 4 attempted to do venture capital in 2021.

Speaker 4 And I think all of them had massive reactions to the macroeconomic environment. I think that's really, really dangerous,

Speaker 4 particularly for the early stage stuff that they did where they're now,

Speaker 4 like, not only are they not doing the follow-ons, like they won't even return the call.

Speaker 4 And so you get into that kind of situation. It's like, that's not even smart for you.

Speaker 4 Like, you know, it's kind of like you're a bad person for not calling back somebody you invested in, but like, that's not even smart for you. Like, what are you doing?

Speaker 4 Like, you don't know what's going to happen in 2033. Right.

Speaker 5 Makes sense. When you started the firm, people like Michael Ovitz and others gave you advice on how to think about the firm in a different way based on the market at the time.

Speaker 5 I'm curious for the next Ben Horowitz and Mark Adriessen out there who are 20 years or 30 years younger, whatever, just starting out, but want to build the next A16Z, but they're identifying, you know, thinking at the market at looking at the market at 2023.

Speaker 5 Let's say they're coming to you guys for advice and you wanted to give them advice. How would you think about creating next A16Z

Speaker 5 starting in 2023, given where the market is today?

Speaker 4 There already is A16Z.

Speaker 5 That's the Uber forex is Uber.

Speaker 4 Now, if they wanted to create a Hollywood talent agency,

Speaker 4 then I would have plenty of advice for them, maybe.

Speaker 4 Fair enough.

Speaker 5 You've coined the term wartime CEO, peacetime CEO. I'm curious if we could think about

Speaker 5 wartime VC. Because right now it's a tough time in the markets, tough time to get a firm off the ground.

Speaker 5 People are more skeptical about venture. People are skeptical about tech more broadly.
It's an anti-time of anti-tech.

Speaker 5 What it's like to be a wartime VC or to be techno-optimist in a world that is increasingly pessimistic.

Speaker 4 Yeah, so like I think the biggest kind of

Speaker 4 war kind of issue that we have is actually probably with

Speaker 4 the regulatory environment and some of the ideas of the kind of current administration where they have become anti-innovation. And look, we've already seen

Speaker 4 a pretty large percentage of the crypto venture capital go overseas. So the idea that the United States would forfeit the Internet of Property Rights and Money

Speaker 4 at such an early stage in its life

Speaker 4 just feels so absurd. It doesn't even feel like America in that way.

Speaker 4 And

Speaker 4 the literally fake things that they're blaming it on, like, oh, crypto is funding fentanyl. I read that today.
I was like, what the hell are you talking about?

Speaker 4 It's like literally the most transparent form of payment that there is in the world. Like, more than visa, more than dollars, more than anything.
And like, for somebody, you know,

Speaker 4 a senator to come out and say some just completely something that she no doubt knows isn't true, you know, to kind of push innovation overseas is like that's a real wartime kind of situation for us in innovation land.

Speaker 4 I think we're seeing the same thing in AI. We certainly have, you know, struggles for a different reason and in bio and, you know, that kind of technology.

Speaker 4 But like, so just give you on bio, though, the FTC recently, you know, sued to break up a deal between a bio startup and a kind of big pharma company.

Speaker 4 Like, it's pretty impossible to do drug to fund drug development if there's no MA market. So to literally outlaw new science for health,

Speaker 4 new financial technology, new kind of property rights in the virtual world. is like a really

Speaker 4 hard stance for us to understand. So we are working with policymakers and trying to understand, okay,

Speaker 4 because it's not all like

Speaker 4 bananas, like some of it is,

Speaker 4 you know, certainly makes sense.

Speaker 4 But to kind of shape that for like a future that's prosperous for America is like a big effort from the firm, and we're working hard on that.

Speaker 4 But that feels like wartime. That feels like, okay, now we have an actual threat, existential threat to innovation in America.

Speaker 4 You know, in terms of being a tech optimist,

Speaker 4 I always like to go back to a quote from Andy Grove, which I absolutely love, which he said in the 90s,

Speaker 4 and somebody asked him, they said, Andy, is the microprocessor good or bad?

Speaker 4 And he said, well, that's not even the right question. That's like asking, is steel good or bad? It is.
And so it's our job to make it good.

Speaker 4 And that's a lot how I feel about kind of all these technologies is they are going to exist.

Speaker 4 Like, you cannot, you can't get rid of the wheel now, like it's over, like it's here. You can't get rid of AI now, it's over, it's here.
Like, you can't outlaw math.

Speaker 4 You can't, like, like the paper is already out there. Like, you're not going to stop it.
Like, the whole idea that you're going to stop people from doing it is just so crazy.

Speaker 4 So, then, the real question is, like, okay, what do we have to do to make it good and positive for society and so forth? And by the way, without new technologies, like,

Speaker 4 how are we going to deal with pandemics or climate change or any of the real

Speaker 4 issues facing the world? Like it's not even possible without technology. Like it's like lockdowns didn't work.
None of the policy stuff worked. You know what works? Pax Lovid.
That works.

Speaker 4 You have COVID, you take that, like you're good. That works.

Speaker 4 So we need technological solutions to these very, very daunting problems that we have with more and more populous Earth and all these kinds of things. So

Speaker 4 that's how we remained optimistic.

Speaker 5 Yeah. And maybe gearing towards closing here,

Speaker 5 as I mentioned to you, you guys have been very helpful to us, we're seeking to create this new kind of tech media company that's more driven by insiders, that has more of a pro-tech approach.

Speaker 5 What advice would you have for us or when you look at the kind of media ecosystem,

Speaker 5 what more do you want to see?

Speaker 4 Yeah, well, I think you're on like a really good track, which is, you know, what I want to see is, okay, I'm a young person and I want to understand where the world is going and what's happening and how I can get involved and make my contribution.

Speaker 4 What do I need to know? And I think that's, you know, like,

Speaker 4 how does AI work? What is this new computational model of the universe? How can I learn about it? How can I kind of push things forward?

Speaker 4 Which is like largely absent, I would say. I mean, I think you're walking into a vacuum, is the good news.

Speaker 4 But, you know, that when I was a kid, there used to be like Dr. Dobbs, you know, and Wired magazine was that way for a long time.
But, you know, now it's just like these

Speaker 4 weird, politically charged, you know,

Speaker 4 whatever criticisms of how things are run or how things are built or what they're going to do or every negative consequence of everything.

Speaker 4 You know, the internet had so many negative consequences, but like, I don't think, you know,

Speaker 4 if we got rid of it, then like if you're in Bangladesh, like you now have no access to any of the information that people in the rich world have. It's done amazingly great things.

Speaker 4 But like, yes, there's cybercrime. Yes, there's porn.
Yes, there's a lot of things that

Speaker 4 probably are not a general positive for society.

Speaker 5 I think people over abstracted from the

Speaker 5 Elizabeth Holmes or Theranos situation. Yeah.
Identified, hey, I could make a career. There's

Speaker 5 you know, finding more of these and there's got to be more of these. Thinking that over abstraction and another over

Speaker 5 abstraction was around

Speaker 5 sort of defending democracy

Speaker 5 because Facebook somehow

Speaker 5 people's minds contributed to Trump.

Speaker 4 Well, the funny thing was, like, if you go back to 2008, all the stories on how Obama got elected were Facebook. Like, he mastered Facebook.
He got elected on Facebook. Facebook's the greatest thing.

Speaker 4 It's making the world more democratic. Arab Spring.

Speaker 4 Wow, this is so awesome. And then Trump gets elected, and it's like, this is a threat to democracy.
We're all screwed. Got to shut down the social network.
So, you know, like it's it's interesting.

Speaker 4 You know, when things get political, they get very weird very fast, I think.

Speaker 5 And what's funny now, and we'll get to this closet, is AI is it's now coming from within the House in terms of some of the people who are most active are like within tech in terms of, and maybe it's regulatory capture, maybe it's somebody.

Speaker 4 I think it's regulatory capture.

Speaker 5 I mean, I think some people are true believers. It's either Google guy or like some people.

Speaker 4 Really, really.

Speaker 4 There are people who are genuinely worried about how powerful the technology is. And I think those are good worries.

Speaker 4 But the idea that the way you deal with a powerful technology is you put it in the hands of a few is the most craziest idea.

Speaker 4 Well, like, look, power in the hands of the few has never turned out well, right? Like, with the best intentions, right? People love Karl Marx's intentions, but Stalin, Pol Pot,

Speaker 4 you know, Mao, like, everybody died. That's what happened.
Everybody died. And like, all those guys didn't start out to be like singularly, uniquely evil people, but they had too much power.

Speaker 4 Because you take all the power of the private sector and put it in the hands of a few guys in the government, it doesn't matter what the political philosophy is, that's bad.

Speaker 4 And similarly, if you take all the power out of the industry and you put it with two companies, that's going to be bad. I can guarantee you that.

Speaker 4 Like, I don't know what else is going to be bad, but I know that's bad.

Speaker 5 I think it's a great place to wrap on the uplifting note of power to the people and decentralized power. Ben, thanks so much for coming on the podcast this week.

Speaker 4 Yeah, no, great, Eric. This is good.
And great luck and the best of luck. We're all excited about

Speaker 4 what you're doing and its impact on the world.

Speaker 1 Hey, everyone. Hope you enjoyed the Turpentine VC episode with Ben Horowitz.

Speaker 1 Make sure to subscribe to Turpentine VC at the link in the show notes, or search for Turpentine VC on Apple, Spotify, YouTube, or wherever you get your podcasts.