On the unpredictable nature of company building:
We are 100% confident every time we make the investment that it is going to be a big company. We are wrong a lot of the time. These companies are very contingent. There is a lot of path dependence in this system. There is a lot of twists and turns along the way.
On founding A16Z:
We felt it was time to go back to the well and build a firm that was built by founders who understood the process more deeply.
[David’s Note: Bob Noyce (founder of Intel) had a similar motivation. From the book The Man Behind The Microchip: Robert Noyce And The Invention of Silicon Valley: “When he left daily management at Intel in 1975, he turned his attention to the next generation of high-tech entrepreneurs. This is how he met Steve Jobs. This is how he came to serve on the boards of a half dozen startup companies and informally provide seed money to many more. He did not think that all these companies would succeed—but he strongly believed that by investing, he was doing his part, as he put it, to “restock the stream I’ve fished from.”]
Max Levchin (founder of Affrim) on Marc Andreessen:
There are plenty of very smart people in Silicon Valley. Marc is among the very very few that are just on a different level of intellectual capacity. He is always giddily optimistic. He is one of these people you go to to talk to you about your problems and you come out thinking “Wow. Actually, I have it so great.”
We are trying to do the moons shots. Every once in a while we will have rockets blow up on the launchpad.
What is the likelihood that you would back someone who has never founded a company before?
If they have never founded a company before, and if they just have a plan, it is very unlikely that they raise top-end venture capital. However once in a while, you get someone who has never done it before— but they have already built the product. The classic example of this is Facebook. Mark Zuckerberg had already built Facebook at Harvard by the time he started the company. I was an example of this. I had already built the Mosaic browser by the time I started Netscape. Google is another example. The Google guys had built the search engine at Stanford. If you have already built the product then you have a calling card to raise money because you already have something real. The best thing to do as a first-time founder is to build a product.
Some of the best deals in history have been passed on by a very large number of people. Uber was passed on by a very large number of venture capital firms. Uber was actually available to be invested in on Angellist where anyone with a checkbook could invest.
It is fundamentally a game of outliers. The money is made on the aberrations. So you want to be generally open-minded and humble about what all these signals mean.
Markets are almost always larger than you think:
A lot of what is happening is the markets have gotten bigger. You have this gigantic addressable market for these companies. You have 5 billion people on the planet with smartphones that are networked together. We have tech companies worth more than a trillion dollars which was inconceivable when I started in the industry. It was an impossible thing to visualize.
It is possible there is another cyclical boom and bust cycle. Our plan would be to just keep going.
The venture capital world has been booming. Why?
Two possibilities. We have gotten carried away again. We have gotten ahead of ourselves again like we did in the late 90s and things are too hot. The other possibility is our society is going through a real technological transformation.
On how A16Z views cryptocurrency:
Cryptocurrency is a little like the parable of the Blind men and the elephant. People touch it from different sides and people get distracted and carried away and energized on these different topics. We view it as a fundamental technological breakthrough. It is the ability for people and software to form trust relationships in an untrusted environment. Money is one application. But there are many other applications that people are going to be able to do with this technology.
How come the inventor of Bitcoin hasn’t surfaced publicly?
This is one of the most amazing things I have ever seen in my life. Most people, when they invent something this profound, they don’t realize how important it is at the time they invent it. Whoever invented this thing knew the importance of it at the very beginning, and such they knew it was important to hide their identity. It is like Babe Ruth calling a home run. It is amazing that they did that. It is doubly amazing that they have been able to maintain the secret all this time.
What is the best investment advice you have ever received?
Warren Buffett probably. Put all your eggs in one basket and watch that basket. Really know what you are doing. Deeply understand what you are invested in.
What is the most common investment mistake you observe?
It is the opposite of that. It’s people who read about something in the paper or see something on tv and take a flyer without deeply understanding it.
If I gave you $100,000 what would you do with it?
Put it in an S&P 500 index fund. Don’t get fancy.
What mistake have you made that in hindsight you wish you hadn’t made in the investing world?
For most forms of investing the mistakes are the investments you make where you lose money. In our world, it’s the investments you don’t make. If I make an investment I can lose 1x. But if I don’t make the investment, and it goes up 1000x, then I have to read about it every day for the next 30 years and think about all the money I didn’t make that I could have made. All my mistakes were not making the investment.
On the downside and upside of being a venture capitalist:
The downside of venture is you don’t get to run the companies. You are a backseat driver. You aren’t the person doing all the work who gets to take all the credit. The advantage is you get to see all the new things. So you get a front-row seat at an amazing show of all these incredible people with all these new ideas. That ends up being a pretty valuable part of it.
Full interview here (YouTube)
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—David