Marc Andreessen on Evaluating Founders and AI's Consumer Surplus

I'm competing with myself. Life just gets a lot simpler if you just assume everything is your own fault. Everybody's kind of feeling tense and nervous and anxious and, you know, fearful and so forth. But everybody's pretending they're not feeling that way. I think every time we passed on a promising venture company over price, I think it's been a mistake. There's nothing that we're missing today that we could solve by going public. The tech industry is more centralised in Silicon Valley than it has been in its entire existence. This entire labour displacement thing is 100% incorrect. It's completely wrong. Essentially, every large company is overstaffed. I think a lot of them are overstaffed by 75%. Venture Capital has a counterintuitive problem. Experience can make you worse at the job. The investor who lost money in a category five years ago carries that scar into every new meeting, even when the next great company shows up in the same space. Mark Andreessen calls this "the scalded stove phenomenon" and argues that the mistake of omission, passing on the next Google, far outweighs the mistake of commission. The conversation spans what separates great founders from credentialed ones, while AI is reconsentrating the tech industry in a 20-mile radius of Silicon Valley, and how something close to 99% of AI's economic value will accrue not to the company's building it, but to the billions of people using it. In this episode, originally airing on the 20-minute VC, Harry Stebeng speaks with Mark Andreessen, co-founder of A16Z. I started 20 VC as an 18-year-old in a Benjamin London with no money and I didn't know a single VC. I wrote down the names of three great investors at the time who I dreamed of having on the show. One of those names was Mark Andreessen. It has taken me 10 years, it has taken me 3,000 shows, but finally today, I'm so proud to have Mark Andreessen on the show. The man who has built one of the greatest firms of our time, they manage over $90 billion and have invested in some of the most generational companies. This was a very special one for me and I hope you enjoy the episode. You have now arrived at your destination. Mark, you probably don't know this, but I started this show when I was 18 years old and you were one of three names that I wanted to have on the show back in 2015. I have to admit, I've ticked off the other two and so I'm a bit worried that I'm going to have to stop after doing this show, but I'm so touched that you agreed to join me, so thank you for joining me. Good, I'm thrilled to be here. Now, I was running listening to every show that you've done before and you recently said that you don't introspect. Introspection is potentially overrated. I really struggled with this because I thought we learned from mistakes and I valued experience in that way. Can you help me understand the lack of value placed on introspection and do we not learn from mistakes? You know, we do learn from mistakes, but the problem is learning from mistakes sometimes is good and sometimes it's bad. Right? And if you just talk business for a moment, like in the venture mindset, this is a very big problem. There's a founder version of mistake, there's a venture version of mistake. The founder version of mistake is if a founder starts a company in a category and the founder doesn't work, the founder is then emotionally angry at that category for the rest of his life and will not acknowledge when there's something that's going to work in that category. And I've just seen that like over and over and over again. And that's fine because most founders go on to do other things and that's fine and good and it generally doesn't damage them from a business standpoint. Inventure the same thing happens. If you invest in a category or if you invest in a kind of company or you invest in a kind of founder then it doesn't go well. It's extremely easy to learn from the mistake. Right? And to basically say, all right, I touched that hot stove. I'm never doing it again. And then, you know, you can tell me what happens next, right? Which is the next thing shows up in pattern matches and it's the thing that you should invest in and you have the chance to invest in. But you touch this scalded stove and you know, you're learning from your mistakes. Right? You're doing the responsible thing and so you don't do it. And so I think there's something that's particularly pernicious about learning from your mistakes inventure capital. And then I think that's also somewhat true about life. You get married multiple times as they say it's the triumph of hope of experience. Like I think probably you want hope to triumph over experience in that domain. And I think there's a lot of other domains of life in which that's probably true. I totally understand what you're saying when, especially when you say about, hey, it's easy to lose money in a satchel and then think the satchel by nature is cursed or it's so difficult. You call me money in healthcare. You call me money in ice. I'm old enough to remember internet search. Like you can't make money in internet search. Like the internet search companies in the 1990s didn't network out well. When you are guiding conversation, when you are guiding partners, how do you ensure that they have a fresh mind with every new company and every new investment and are not plagued by the downsides that bluntly lost money before? Yeah. So by the way, just the other example, by the way, is AI. AI was a tremendously good way to lose a lot of money inventure capital from 1945 to 2017. I mean, look, when I was getting my computer, I used to grade the late 80s like AI was like the one field that you knew would never succeed. Like they had actually been an investment boom for an 80s and it failed. And everybody, including all the computer scientists were like, yeah, this field is dead. And that happened like five times over the course of AI over the last 80 years. And so like, you know, again, another great example. So, so like I think a couple of things in terms of how we run our firm, how you run a firm like this. So one is, as you well know, there are two categories of mistakes, right? There's the mistake of commission and there's the mistake of omission or there's a mistake of cost and there's the mistake of opportunity cost. And so of course, the mistake of cost is you invest $10 million in a startup, it fails, you lose the money that's bad. The mistake of omission is you don't invest in Google and you lose $100 billion of opportunity cost, right? And so, of course, venture is like the most polarized possible economic field in which this is true. And by the way, if you're running a bond business or something, you know, debt, debt business or something, you know, where you can't lose money or the whole thing doesn't work, then obviously you can't run in this kind of model. In that case, you better learn from your mistakes. But in venture, I think you're always much more worried about the mistake of omission than you were about the mistake of commission. And then to your question, like I think in a lot of ways, that's the key thing that Ben and I do at this point in our lives and in our roles at the firm is, you know, we're not like micromanaging the investment decisions at the firm and we have, I think, spectacular, you know, senior partners and junior partners that are doing a great job of that. And we're in the room for it and so forth. But like we're generally not advocating for against a deal. But what we are trying to do is to get everybody to constantly have this, let's say risk forward, worry about the mistake of omission over the mistake of commission mindset. This anti scalded stove phenomenon. You know, we just routinely remind people like, yeah, you're emotional about this because if you're bad experience three years ago or six years ago, or 10 years ago, just like let that go, you no longer have to pay for that sin and you're completely liberated to be able to kind of let that emotion fade into the distance and be able to focus on the opportunity in front of you. My biggest regret or omission experience is one of your companies, actually, it's 11 laps. We could have invested at the seed round, but we would have only got 1% mark. And naturally as an emerging manager, I thought it was important to retain the high ownership model I promised my LPs. How do you reflect or advise me on when to break the rules versus when to maintain doing what I said I would do? So, you know, quite honestly, it's the simplest answer in the world and it's the hardest answer in the world. And it's the answer that I think every great investor ends up resolving to 30 years in. Frankly, I actually had this discussion actually with Arthur Rock, you know, he's sort of virtually the creator of a modern venture capital. And he actually, he actually wrote a paper on this topic and I'll just give you his conclusion, which is also my conclusion. Arthur Rock for people don't know. He invested in Apple and Intel right in the seed rounds. And like in many, many other great companies for like 30 years was that he would have been a better venture investor had he fed all of the business plans and pitched X straight into the shredder upon receiving them. And if he had spent 100% of his time on the resume. And I think that's basically right, which is the great founders will, you know, basically buy you a enormous upside that may break rules in all kinds of directions and may break precedent in all kinds of directions. And the world's best business plan executed by a mediocre team will almost certainly get by a great team. Let me say having said that this sounds easy. Of course, why is that hard is because it's somewhat technological, right? Because we define great founders as the ones that it outcomes. And so, it's a lot easier after the fact to be able to say, oh, yeah, you know, Steve's house is a great founder when you look at the success of Apple. But nevertheless, I think that is the answer, which is when you have special people, you should back them almost, you know, basically are almost without consideration of other factors. And when you don't, you shouldn't at the end of the day, that simply is the core thing. How do you think about detecting greatness in founders when your benchmark is founders at late stage or when they're great, you obviously have been on the border face with many years with Zuck and seeing him at a later stage as well as an early stage. I spend my time interviewing public companies CEOs all the time, Mark. I'm so used to really fine tune Daniel Egg. When I meet a seed founder that's rough and unpollished, of course, they don't seem as good. How do you think about that challenge in projecting earlier and seeing if they're good, given how much time you spend with perfection? I'll just say, look, I think people have different takes on this. My personal formula is basically as follows, which is you need high IQ as table stakes. Like you just need somebody who's like incredibly smart. My basic test is if I have my notebook open and they're talking, am I like running out lots of notes or not? And if I'm running out lots of notes and I'm learning from them, then like that, that indicates that their level of intelligence and some of the other attributes that we'll talk about. But indicates clearly that they're very smart. But I think that's table stakes. I think just intelligence, there are many people who are very smart, who are just grinders or just the clerk mentality. I'm going to put me in the back office somewhere or doing research or something and I'm never going to build something. That's fine, but IQ is not enough. I think the second thing you need really is what my partner Ben calls courage, which is basically an absolute determination to succeed and to be able to confront problems directly and to be able to basically pound through anything. And there's various kinds of ways to phrase this. But I think the Navy Seals have the term embrace the suck. So there's something to that. I always like to say, I want the founder who leaves a founder shaped hole in any brick wall that he runs into. Like a cartoon character. If it is when they run off a mountain and they keep running, I didn't even see this. There's suspended midair for a moment and they hold up the sign and it says oops. My favorite one actually of that is there was some one of the little kid characters in it at one point, little, I don't know, little pig or something. Did the thing and he goes out over the cliff and he's hanging in the middle and he helps up the slide and he says, "I'm a second grade, they haven't taught us about gravity yet." (laughing) Which by the way, of course, this also happens in startups. - Are we talking to him? - He told me to build a parachute on the way down. (laughing) - Yeah, exactly, yeah, that sounds great. Get out your knitting needle and get going. And so, and then I think the third thing is sort of IQ plus courage. And then I think it's something and this is kind of courage, but I would describe it as like, I don't know, something fundamental, it's like drive, ambition, occasionally quote, it's will to power, it's sort of this determination. Because courage could just be, I'm gonna solve problems and like that, I would argue that's not enough and Ben might say that that's not what he means, but it's not just solving problems. There's something about ambition. And the world being what it is, that ambition, a lot of people express that is like ambition, it changes the world, it proves the world, humanity, I think stuff's so great. I think those founders are great. I think those missions are often very compelling at attracting lots of smart people. I think that's great, but I do think there's a more fundamental ambition, which is I want to build something of my own. That really demonstrate what I can do. And I have a very primal drive to do that. And it gets kind of, you know, people cast moral dispersions on it and they call it greed or whatever, so people don't want to talk about that. And it's not, I'm not even talking about the money component. I'm talking about like, I want to build something. And then what I find on that, that one in particular, well actually number two and three, you don't necessarily see them on the resume, but like you can generally see them in the background. And I think if you spend enough time, you know, with people you can get a sense of like, okay, you know, was their entire life basically a sequence of basically things being handed to them. And then, you know, sort of credential achievement, you know, which is, which is a lot of what kind of we see in the sort of a lead workplace. Or do you have somebody where it's like, oh, when they were 14, they built this, when they were 17, they built that, when they were 20, they did this. And you know, whether that's building a product or a technology or a company or a, you know, and art or like whatever it is, you know, sort of this primal drive to create. Do you find drive through pain the most contributing fat into two success? - I mean, the full version of the theory, it's all the great founders are broken in some way, right? And so they've got, you know, and they get into kind of psychoanalysis quickly, but you get into the kind of broken home, you know, or Steve Jobs being adopted or whatever. And you kind of have all these stories. And you know, the metaphor is like when the, when the bone breaks, it either doesn't heal or when it heals, you know, it's stronger. And so you're trying to get people who are kind of responding to kind of childhood pains or kind of overachievement. And I think there's something to that. And in particular, I think what there is to that, that is really important. I haven't talked about it. Like you need some reason to get out of bed in the morning. This not just I have a job or it's not just, I don't want to embarrass myself or it's not just, I want to be responsible. You have to have like a primal reason when things are really, really bad. When the shit really hits the fan. And you're just miserable. And like you dread checking your email and you just simply like do not want to know like what the new bad news is 'cause there's so much bad news that you just can't even cope with what you have. Like you need a very, very, very primal reason to get out of bed and continue to fight that way. And so I think there is something about, you know, maybe trauma in the background that explains it. Having said that, some of the best founders in history have no trace of trauma in their background that I can tell. And I'll just give you two examples. Zuckerberg is one who grew up in a classic upper middle class New Jersey household very close to this parents and his family. And then Bill Gates, his father was a lion of Seattle establishments and he went to all the best, prep schools and Harvard. And again, as far as I know, had a perfectly great childhood. People who knew both of those guys in their teenage years said like these are driven guys. You know, it's very core to their origin stories. And so like you just, you have to, you have to be open to the idea that some people are just born that way. What's your primal reason today for continuing to build Andreson with the ferocity and ambition that you still have? Well, of course, that would require introspection. So I don't know if I'm going to be able to elegant be backing into it. OK. I don't know if I'm going to give you a great answer that I tell you what I tell myself is, at this point, I tell myself is I'm competing with myself. I am trying to figure out how to be the best possible version of what I can be and what I can do. And so the way I think about it, basically, is like, OK, how good? Did you read, I was at Jackal Willings book, Extreme Ownership? Did you ever come across that? I love Jokko Willing. I also listened to his motivational talk when I go to the gym. Brilliant. 100%. And you know his thing on Extreme Ownership, right? So the thing for people who haven't heard his thing on Extreme Ownership is just famous Navy CEO commander, very accomplished guy. And the kind of guy, people would happily follow into battle or would be a great CEO or great founder, that kind of personality. And he has this thing he says Extreme Ownership. And he says, look, life just gets a lot simpler. If you just assume everything is your own fault. And it's just like, oh, I don't know. Whatever, whatever, this LP didn't invest or this founder didn't take my money or whatever. It's like, OK, it's my fault. It's not his fault. It's my fault. Clearly, I didn't do a good enough job. Clearly, I can do better. And then basically his argument is it gets you kind of productively focused on improvement. And so I founded that-- put it this way. When I'm in my own head and I'm mad about somebody doing something that I don't like, the number one stress relieving thing I can do is I can say, oh, that's my fault. Right? Because then it gives me ownership of the problem. And it gives me something that I can do. And then by the way, it also drains away resentment. It means that I'm not resentful and angry at somebody else. Because I'm just like, OK, I'll just improve myself on that. So I operate in that psychology as much as I can. I try to maintain that psychology. I do that. By the way, I recommended a band when that book came out. I fell in love with it. And I recommended a band. I said, we need to send this to all of our founders and teach this. And he's like, Mark, you're out of your mind. Like, our founders already have the problem where they take too much of the weight of the world in themselves. They're already miserable half the time. We don't need to settle them with more of that. But I think there's something very powerful in that. It also has the enormous advantage of it. It becomes an intrinsic motivation over an extrinsic motivation. So it's not a motivation to put points on a board. It's not a motivation to achieve a certain worth. It's not a motivation to whatever being some league table, to win some prize, these sort of external markers. Because the problem with all the external markers and successes, it's the-- are you going to get up in the morning when it really, really sucks? Like, the extrinsic motivations don't do that. You need something intrinsic. And for me, that's the intrinsic motivation, which is like, I know I can do this better. You said that you're competing with yourself. Do you feel your best version of yourself today? I think my best version of myself got relative to all my prior versions of myself. But I'm still far short of what I would like to be. So I know many, many areas of improvement. What's the biggest one that you'd like to change? Oh, I mean, that means there's like-- I don't know, there's probably like 100. So I'll give you an example. I have a strength in reliability, which is like an emotional. The advantage of emotion is like, when I commit, I deeply commit, then I fall in love with things, and I become incredibly determined. And I'll kind of go very long lengths out of a sense of emotion or love. You know, the negative is, you know, I will get emotional. And I've spent a lot of time. And people in Novi will tell you, I've spent a lot of time trying to not-- it was, say, negatively emotional in meetings. Do you care what people say about you? It's something I'm trying to work on. But I still desperately care. I want to see Mark, and it desperately upsats me when I read bad things. So I have a bunch of friends in the entertainment business who I look at, and I say, like, there's no way I could possibly do what you do, which is like, make myself vulnerable on an 80-foot screen that way. And they're like, yeah, that's the hard part. And then I always ask, do you read your own reviews? Like, do you read what people say about you? And they all basically say the exact same thing, which is they say, I tell everybody I don't. And then, of course, I do. Right. So it's very hard to avoid that. I do think, don't read the comments. It's generally a very good life guideline. But by the way, I was, say, YouTube comments have gotten much better. So maybe your YouTube comments are productive now. But I think in general, don't read the comments is helpful. I mean, it's really hard. I mean, everybody's human. I think it's really hard when somebody like is cursing you out or calling you, saying horrible things. But it's very hard for that not to stick. I would say I'm pretty happy not paying attention to that. Are you aware of this point of the concept of the meme of retarded maxing? If I'm totally honest, I've seen it on like every comment of our thread where I said, oh, I've got Mark coming on the show. And everyone's like, ask Mark about retarded maxing. Ask Mark about retarded maxing. And honestly, as far as Mark, I'm just like, OK, get back to my normal research because I presume retarded maxing is not politically correct. And I shouldn't ask it. But you brought up retarded maxing. So no. So first of all, first of all, retarded maxing is totally politically correct because retarded is no longer-- I mean, we have now 18 other terms that apply to people who are like, you know, developmentally disabled. And so retarded, it now means something completely different. And it turns out what it means, specifically in the context of retarded maxing. Well, let me explain why I came across this. So the internet meme machine is just absolutely spectacular. I think like the process of cultural evolution of internet memes is like absolutely amazing. I think the whole like clavicular, the terms that we're mainstreaming. And obviously, there's many internet meme examples. But one of my favorite websites in life is KnowYourMeme.com. The conference, the catalog of memes. And so like the cultural evolution of what's happening online, I just think is incredible and wonderful in so many ways. And then I got in this dust up online a couple of weeks ago in the introspection that you mentioned. And then a friend of mine sent me this thing. And he said, oh, he's like, oh, here's your answer. He's like, you're retarded maxing. And I said, I'm what? And he said, oh, watch these videos. And there's this guy we can link to who's on YouTube, who has basically, I don't know, 100 videos in retarded maxing. And he's like my new life coach. You know, I haven't met him, but from a distance. And it's basically just like retarded. It's just like, OK, fine. Like, go to work. Do a good job. Come home. It's fine. Start a company. It succeeds. It fails. It's fine. Have too much eat one night at dinner. It's fine. Go to the gym. Don't cut your reps. It's fine. You know, ask a girl if she wants to go out with you. She says, no, it's fine. Right. And so it's the simpler form of the extreme ownership. Or it's the form of it that basically I've said, maybe another form of it that says, I don't need to take all this in on myself. I can just let it go. The thing that I love about the internet, Mark, is there is some guy who is doing these retarded maxing videos who now has Mark Andres and as one of his biggest fans. And you're just like, how great is that? They're incredible. Well, it's like 130 minute videos about retarded maxing. And you would think that after the first two minutes, he'd kind of covered it. Oh, no, I'm going to catalog. But no. And by the way, they're all hysterical. They're all absolutely fantastic. And it's literally like him on his porch in the middle of nowhere with like a cigar. And it's like, I have a heart. It's just absolutely absolutely spectacular. And so anyway, like I do think there's some something to that, which is like, okay, back to your original question, it's just like, okay, like, in addition to all the emotional pain that life has already put on us, or that we've already put on ourselves, you know, and by the way, you know, a lot of it legitimately so for the things that we actually do to other people and so forth, but it's just like, okay, how much are we going to torture ourselves? And you know, there's something about modern culture, modern Western culture or something, where we become like very guilt oriented and very, you know, very into like self-legilation and very into, because of the hair shirts, you know, just like we wear these metaphorical garments that just are like tremendously painful. And so it's just like, all right, like, maybe there's a point at which like some of that is helpful to like correct bad behaviors, but, you know, it's clearly gone way too far and people get like way too down the rabbit hole in this and it becomes very disabling. And I, you know, you probably know a lot of people who are like that. So the way I think about it is like inherently what you, you know, what you do, what I do, what, you know, venture startups like, look, these are high risk operations, right? And, you know, sometimes they go right, but they go wrong in a thousand ways before they go right. And then even then they may not work. So the nature of the beast is like just like tremendous variability and pressure. By the way, another thing I always thought about a lot as a founder and I really see this now as a VC is that in particular founders have a very hard time ever finding anybody they can confide in. As a founder, you feel like if you admit that you have an issue, like you're being a bad leader, right? 'Cause you're showing a crack in the armor and if your people pick that up, they're gonna lose confidence in you. Or if word gets around that like you're second guessing yourself or that your thing isn't going well or that you don't have total confidence in it, then it'll, you know, the all of a sudden investors won't want to invest and candidates won't want to join. And so there's this need as somebody, you know, if you're gonna lead one of these things, you have to do it with such a brave face. And then, you know, kind of, you know, that was good call. It's a metaphor, sort of that, you know, the duck looks totally placid above water and then it's paddling furiously underwater. And so I just think like in particular, founders have a very hard time finding anybody that they can actually confide in. And then what happens is I think everybody individually has an inaccurate view of what everybody else is feeling. 'Cause I think in practice, everybody's kind of feeling, you know, very tense and nervous and anxious and, you know, fearful and so forth. But everybody thinks everybody else is doing great. Everybody else thinks they're the only one that's like making the smiles at the party. And so I think it's like incredibly important to be able to have an internal psychological mechanism to be able to deal with that and not have that overwhelming. And I, at least this week, my nomination is returned back soon. - You can kill me, you can tell me, I don't wanna ask that. I remember I did a show with Orlando Bravo and it basically turned into a therapy session and then he kind of came my adopted father, gave me a lot of advice. What am I scared of? I'm scared that I'll be Macauley Culkin, Mark. Do you remember home alone? - Yeah. - Yeah, do you ever know when he was young and then I say, oh yeah, what's he doing now? Oh, kind of no one knows. I have nightmares about being Macauley Culkin, a venture. What do you scared of? To me, you're the great Mark Andreessen of Andreessen Horace. You want nothing to be scared of. - Yeah, I mean, I've been through kind of every version of this myself. There's a famous F-Scott Fitzgerald line where he said, in the 1920s where he said, you know, author of the Great Gatsby and he said, there are no second acts in American lives. You get one shot and that's it. And fortunately, I think like he was very, very, very, deeply wrong about that. And I think he was definitely wrong about that for American lives. And I think he was generally wrong about that for lives, at least elsewhere in the West. Maybe a little bit less so in Europe, but I think still more than not. Anyway, the point being like, I mean, look, somebody wants to tell me there are two great stories. Oh, the glory of it, know the shame of it. And so, oh, the glory of it is like the story of great success. Oh, the shame of it is the story of like great disaster. But then the even better version of it is, oh, the glory of it, followed by, oh, the shame of it, followed by, oh, the glory of it, right? And so the recovery. And, you know, getting back up in your feet and then reachieving and rebuilding. And so, you know, I don't know, I think as long as you're still alive, and as long as you've conducted yourself in a way that, you know, you haven't, you know, brought, you know, some sort of fundamental like legal issue on your head or something like that. I think generally, at least in our world, I think, I think second-fanses are actually available for a lot of people. And by the way, of course, a lot of the great success stories have this in their background as you know, including Steve Jobs himself. You mentioned the nature of the beast that being our business. I've been a student of the business, hence reading so much of your writing for years. When we look forward, how do you think about the future of venture? Is it as simple as go big or go home? Obviously, we see Andres and be so big now. - So I believe, and when we try to run the firm this way, I believe the core of the business is a permanent state of affairs. The core of the business is a release stage. The core of the business is a founder or a small founding team with a dream and a clean sheet of paper, ideally a garage, although these days, you know, it's hard to keep the kids in the garage, so maybe they haven't, you know, a house or an office. - Very expensive and hollow out in market. - Okay, it is a not cheap garage. - Fellow degrades are indeed expensive, yes. But you look, a couple of kids in a dream and a clean sheet of paper and then first money in and then, you know, the first two years, that is the core of the business. Like that really fundamentally is the core of the business. A metaphor we use all the time at the firm, it's like, it's start of suddenly baking a cake. If you bake the cake and you leave the sugar out of the cake, you can't pour sugar out of the cake afterwards and fix your mistake, right? Sugar has to go in the cake. That first two years is when you're baking the cake, like that first two years, when you're really figuring out what the formula is of what you're doing and what the product is and what the company is and what the business is and what the culture is and who the team is. Like those decisions are like absolutely fundamental. And if you get those right as a founder, like the payoff from that will go for decades. And if you get those wrong, like even if your company succeeds, you're gonna live with those sins forever. They're gonna extrapolate out. And so like that's it. Like that is the core of the business. And like many great companies, you know, later on bringing lots of other partners and growth stage investors and, you know, and other people of the team and build boards and it's fantastic and it's great. But, you know, there really is no substitute for that kind of inception point, you know, that early moment. There's no substitute for being the investor that does that. And then, you know, as you know, like the investor who's engaged with the company at that stage, it often becomes the key advisor to those founders for the rest of the company's life. 'Cause you build this incredible emotional bond and then you have like complete context on why all the decisions got made and you remember how it first started. I think there's just no substitute for the early stage. And I think like a firm like ours, this is what I always tell our folks, like look, at the end of the day, the early stage business has to work. If the early stage business works, we have option value in doing all this other stuff, but that always is the core of the business. To what extent is the late stage fund a function of executing on the omissions of the early stage fund? So it's basically, I think it's in two parts. So part of it is, yes, fixing the mistakes of omission, fixing the mistakes and becoming partners later. And look, that can work really well. Those can be very good investments. You know, and we do get very close to some of those founders. You know, but again, it's not, you know, they always at that point have somebody early on who they're very close to. So, you know, we do see the difference there. And then look, the other part of it is doubling, you know, doubling down, you know, doubling down to the companies that are working or growing. And I would just say on that, you know, look, part of that's just economics, which is if you have the chance to do that, you know, you should do that as a professional investor. But there's another really fundamental thing where we decided to go so big in growth on that front, which is, this is less true now, but you know, 10 years ago, 15 years ago, these companies would raise money from venture investors, and then they would get to a certain point, and then they would raise money from a completely different kind of investor that was not tech-centric. And then they would all of a sudden end up in the situation where they had, you know, it's a conflict between investment and mentality. Is it a fundamental conflict on the cap table over things like, you know, level of risk, level of reinvestment, you know, how fast they should go public when if they should sell the company, do they need to replace the founder, bring in a professional CEO, you know, do the extent you bring in non-tech mentality, non, whatever you wanna call it, Silicon Valley mentality, growth stage investors, you do set yourself up for like, you're not gonna get a different set of pressures. And so, one of the things we wanted to be able to do is to be able to, you know, with our founders that have the chance to build something really great. Like, we wanna be able to be their partner across, you know, potentially every round that they do. And then as a consequence of that, they can basically preserve our mentality on their cap table for longer and longer and longer. And I think that that works pretty well. - Is it possible to literally, I love what you said there, 'cause I love the beauty crossman style of venture, but is it literally possible to care about a $5 million seed check when you have $15 billion that you raise at once? - Yes, and it is. And the reason for that twofold, one is just the conceptual kind of reasons that I described. But the other is just on pure economics, it is. Because as you know, the upside on the $5 million check is every bit as big as the upside on a $500 million growth investment. And this is what someone usual about venture. If I make a $5 million seed investment and I nail it, I can make $10 billion on that, $100 billion on that. If I make a $500 million growth investment and I nail it, I can make $10 billion or $100 billion on it. You see what I'm saying? It's the same upside. - Debuy the entry price doesn't matter because we're gonna have $100 billion companies. Like I just see the round inflation across every round. It makes my life harder with the greatest of respects, large funds, make my life harder because you have a different cost of capital. Do you buy the, I have a $100 billion, the enterprise doesn't matter, or do you think differently? - Yeah, so look, the enterprise definitely matters in particular as you go, in particular as the company grows in size. And by the way, it matters for a couple of reasons. And this is a lesson that gets like relearned over and over again, and we'll be learning many times in the future which is the old down Valentine thing which I do think is correct, which is more companies die from indigestion than from starvation. Overfunding is actually very dangerous to the operations of a company. By the way, this is the one piece of startup advice that I think is like tremendously grounded in reality for which everybody has many examples in the past. No founder ever listens to it. My track record of ever convincing any founder on this point I think is zero, but I will keep trying. - It's not flattering. - Oh, I want to give you money. Okay, you think I'm brilliant. - Okay. - Yeah, and then they come up with 18 reasons why and then they, you know, I'll really push them on and they're like, "Well, we're gonna have a lock box, so we're gonna put the money." It's like, no, you're not. Like. - I've never had the lock box. - Nobody's ever seen it. - Nobody's ever seen the lock box. Nobody ever does lock box. So, so back to your question, I would just say look, I think I come back to high valuation a second, but I think there's a actual core fundamental linked things very important, which is the amount of money. Overfunding is actually just as dangerous and more dangerous underfunding. Number one. And then number two, look, the problem with these high valuations is like, "Okay, God help you if you need to clear the bar next time and you can't. Every round sets a post, it sets a threshold, a hurdle for being able to raise the future." And like, and you know, this is something that people learn every cycle, you know, kind of for the first time in a hard way. No new investor wants to do a down-round in anybody else's company. If you put the investor hat on and you're like, "I'm gonna go do a down-round in this company because I'm gonna be the hero and see you next time." save the company or whatever, because it raised you high last time and now I'm going to do the rational investment. Like, everybody's just going to hate me. Like the employees are going to hate me, the other investors are going to hate me, right? The founders are going to end up hating me. So nobody ever does a down-round in somebody else's company. And so setting these posts high is intrinsically a problem. Once again, I would say this is advice that generally people completely disregard. There are problems like that in the system now and there will be more problems in the future. Having said that, I will tell you at least on the venture side, growth is a little bit different on the venture side. Have the best companies been the most expansive? I think the underlying question, and tell me if you agree with this, the underlying question is the question of diamonds and the rough. Is that right? Whenever I've done a good deal, it's never worked out. That's right. So, okay, so here's another thing we see in the firm, which is don't ever do diamonds and the rough only do diamonds. So this is another thing. This is actually an investor ego thing, I think, which is you basically say, wow, I'm the investor that's going to go find the thing that nobody else knows about. Another form of this would be like, all these other investors are herd animals. They're all just copycatting each other and like, I'm the one who's going to be different. I'm going to go do the thing nobody else can think of. By the way, Peter Teal does that really well. Nobody else does that well. There's a lot of people. And you'll probably not pete Teal. I mean, spend a lot of time with Peter. I would say I am not Peter Teal. Yes, and you the listener probably are not as well. But this way, maybe I could say this, especially if you go online, there's a tremendous amount of VCs are stupid. They're herd animals. They're blind. They're consensus seeking. They're heat driven. They only do the obvious thing. They don't appreciate, you know, knew you often get this from you know, they don't appreciate my special thing. Having said that, the general pattern is, you know, and this is like nine out of ten times, or I would even say probably 99 out of a hundred times, which is like, if it's got merit to be investible for venture, there are a lot of really smart and hungry VCs out there. And they are working extremely hard to sniff these things out. And it's their full-time job, but it's all they do. Yeah, I think it's really unusual to have the diamond in the rough. And usually if it's the diamond in the rough, it usually means two things. It basically means number one. It means a company that's like offside in some fundamental reason. It's in the wrong place, right? Or it was like structured wrong. If there's a reason why it's the diamond in the rough that actually ends up becoming a big problem, you know, the example people use, which I think is legitimate, which I think there was a point when Uber was available for investment by anybody on angel list. It's like, yeah, every once in a while there's one of those. Yeah, look, there's a reason, you know this. There's a reason where if you just look at the great outcomes and venture over the last 50 years, if you just rank the outcomes, it's just like it's the same names over and over again. You know, and it rotates, you know, every decade or so, there's some rotation in the names. In other words, you have diamond in the rough is you have a founder who fundamentally is just too ornery to just do things the obvious way. And they're just like hyper-disagreeable. And they're just like, ah, and these are often the founders that like have all these theories about how venture is terrible and awful in these VCs are all evil. And they're like very focused on like terms and control and like all this stuff. And it's just, and they kind of alienate. And so then, and then by the time you meet them, it's just like they've alienated like six of the mainstream entrepreneurs and now they're the diamond in the rough. And it's like, and then again, it's like, okay, every once in a while one of those is going to succeed. But like, I'm not sure I would want that to be my business. Do you need to like the founders you invest in more? So I say no. Opinions vary. You know, I said earlier, I'm emotional both in good and bad ways. Like, you do end up getting very close to people. And you do end up wanting to have a high level of trust. And it certainly helps if you like each other and trust each other and so forth. But like, I would just say on the other hand, like some of the best founders in history and, you know, look, I give you example, I've for example, in the distant past, they were not very likeable people. And a lot of, you know, by the way, the same thing is true of many of the great artists. It's many of the great filmmakers, many of the great literary geniuses, many of the great philosophers, many of the great political leaders. There's a lot of cases where these people are like not likeable. So I say no, you don't because I think like if you're trying to fulfill your personal emotional needs at work, like I think that's a very fundamental problem and you shouldn't try to do that. It's a hairy estimate quote. If you need a friend, get a dog. Or another version of this is, you know, say do not bring your whole self to work. Like whatever you do, do not bring your whole self to work. Like if you show up in your professional and you're great to deal with and you're very productive and you add value in every engagement that you do. And if that's true for you, as if you see, and you're working with the founder and your never friends and you just like have a great working relationship and, you know, and the company in the later years, whatever sells or whatever, and you never talk to each other again. Like I've seen that work many times and I think it's totally fine. Mark, do you want to take Andrews and public? It's the question that came up time and time again. But when you look at the machine that's been built, would you like to take it public? There's nothing that we're missing today that we could, we could solve by going public. By the way, it's also increasingly true of a lot of the companies, right? So we both invest in. And so I don't think so. I mean, I would never rule, I would never rule anything out. We have, you know, Ben and I have run public companies before. Ben's been the CEO of a public company before. And so, you know, we know what that entails. My funny version of this story, so when we first started a 16z, we went around and we met with a lot of the top VCs at the time. This is in 2009, 2008, 2009. And kind of pitched them on what we were doing and got a variety of very interesting feedback. And some of them became very, you know, very helpful to us and really helped us. But we got some very interesting feedback. And one legendary VCs, he told us at the time, he said, the thing you're going to hate the most about being a VC is you're going to hate the LPs. They are just like the worst people in the world. And he gave us what we call the mushroom talk, which is he said, you need to treat LPs like mushrooms, which is you put them in a cardboard box, you put the lid in the cardboard box, you put the box under the bed and you don't open it for two years. And we said, okay, you know, that's one mentality. And then we said, well, wait a minute, we've been running public companies for the last 15 years. We've been dealing with hedge fund managers. Say what you will about LPs, like whatever you think, at least when you walk in the room, you know, they're not short, you're stock. If you want to deal with like, peeing in the ass investors, go public. And so, and of course, what we found is our LPs have been incredible. Like, our LPs have been like incredibly supportive. They've been incredible partners. We obviously tried to treat them as partners, but you know, it's just been an incredibly productive relationship that, you know, and as you know, like the best LPs understand, they understand venture, they understand the time horizon, they understand the risk, you know, aspects that we were talking about earlier. And they've given us license to do a tremendous number of things, you know, that have been very risky of which, you know, some have worked and some haven't. And so it's been an incredibly productive partnership. And so I just go all through that to say like, I can imagine venture firms going public. I think you'd have to have a real theory on the value that you would get and you would have to really sign up for what it really takes to run a public company these days. Which I would just say like public company CEOs have a very hard job. If you were a betting man, who would go public for a standard, more general catalyst? That's a good question. I haven't actually talked to him on to about that. He is certainly, uh, so say this, he's certainly building a firm that could go public. I don't, but I don't know whether he would or not. Interesting. How big a chat do you have to write as an alpete to get in the meeting with Mark Andreessen? Oh, you would shut that question to my head of IR. Um, fair enough. It was, it was a press. I was just intrigued. I was like, it's actually, it's actually, I think the same answer is your, your question about you care about the five million dollar investment. There are certain alpies that are really, really smart. Uh, and then specifically there are certain alpies that are very influential in the LP community. They are not necessarily the same alpies as the ones who write the biggest track. And so I, I said, say that publishing, get an answer, but there are certain alpies where I would own 100% me with them independent checks. Those, those are the great, are the really great ones. What product do you not have in the Andreessen suite today that you would most like to have? The two that we've kicked around for a long time are public equity on the one hand and then credit on the other hand. I think there's really good reasons to do both. And then there's issues with both issues specifically with respect to running, doing them inside of intro firm. And so we've, we've never kind of hit the catalyst moment where we've pulled the trigger on either one, but those would probably be the two nominations. If I were asking you about diamonds in the rough, I would say that I'm in Europe. And so location can help you find diamonds in the rough. Do you think you have to be in San Francisco today or Silicon Valley today? If you're building an AI company. So let me start by saying I wish that we could decentralize tech. You know, I come across as a Silicon Valley partisan a lot in Northern California partisan. I should, by the way, note, I didn't grow up here. You know, I'm an immigrant, you know, internally in the US immigrant to California. By the way, I haven't left, which is, you know, I'm going to my army. And I got lost. Why has he moved to Miami? I'm like, I just he moved to Miami. My research tells me no, but some fuck, okay. Maybe he's done a surge. No, I'm a California. I'm a California. I'm very dug in to California. And so like, look, I am very keenly, I am not a Silicon Valley partisan in the sense of like, I think everything should be in Silicon Valley or I think it'd be good if everything was in Silicon Valley. Like, I don't believe that. And I am a very, very keen student of all the issues in Silicon Valley. And I could spend a long time taking you through them. You probably know them already. But like Silicon Valley has real issues as a place, including, by the way, just like practical issues, cost, cost of living, cost of housing, cost transportation commutes. Like, then you get into politics and it's a whole nother can parade a horrible. And so like, there are a lot of issues. And then, you know, look, San Francisco proper, there are a lot of issues. Like, it, you know, it's a city that 100% does not want to grow. It's a city for which like the voters on average do not want business to be there. You know, it's a city that's, you know, has real issues for, you know, quality of life and so forth. And so like, I would love to see the industry spread throughout the US and that spread throughout the world. I would love to see that. I was very optimistic about that happening in, you know, 2020, 2021. I thought COVID was obvious or horrible. But the sudden phenomenon of video conferencing and then, you know, Slack and then virtual workplace and, you know, all the hybrid and all these new methods, you know, management methods and technologies that were brought to bear to help companies, you know, decentralized and run from home. I was blown away in 2020 that like the banking system didn't collapse, the stock market didn't collapse. Then it turned out you could just like put all these companies online and they could just keep running. The Valley didn't collapse. In fact, a lot of Valley companies grew a lot. And so I was very enthusiastic between 2020 and let's say 2023 that we had cracked the code on how to finally get away from the geographic constraints of Silicon Valley. I think in the last two years, I think that that process has like whiplash reversed in an incredible way. And I think the tech industry has more central license to Silicon Valley than it has been in its entire existence. And I think it's AI very specifically. And I think, you know, something very close to 100% of the quality AI companies are in California and specifically in a 20 mile radius of where I'm sitting right now. There are exceptions and 11 labs. Of course, one of the big exceptions in Black Forest labs and you know, we have a whole bunch that we're very proud of, Mr. All. There are definitely exceptions, but like man, you know. If you look at just like the value creation numbers, and if you look at the talent base, and if you look at the flow of where people are going, for a better or for worse, this isn't going to be California. And so I just think in practice, this region is going to be more central than it's been. In the next decade, it'll be more central than it's been in the last few years. - You mentioned the multitude of problems that are in the valley and kind of kind of more generally. When you look at the state of play in the US state, are you more optimistic today, or are you less optimistic today? - I'm a lot more optimistic than I was two years ago, and I'm a lot less optimistic than I was 20 years ago. There is something magical in the American, I know which one to call it, just all character, psyche. Quite honestly, a lot of it is the inflow of people from all over the world. And a lot of that is the great European system of here over the last 400 years. There's something about having a country that is this big and this powerful, and this kind of, let's say, lucky and blessed in its geographics, and its natural resources and size and scale and all the rest of it, that nevertheless is incredibly dynamic and has risk taking at the Corvitz DNA and a willingness and a history of throwing the harpoon at really big bets in extremely aggressive ways. And there's just something amazing about that. And you always kind of worry, or at least I was kind of worried that that's diminishing and this term managerialism use a lot. But it's always kind of worried that everything's just becoming managerial, everything's becoming bureaucratic, everything's becoming stale. And there's certainly lots of aspects of the US in which that's true. But having said that, it's like when the new thing appears, like there's something in the American just all that like jumps out at it like crazy, like throws the harpoon unbelievably hard. And it's exactly what we're seeing in AI right now. It's actually a thing that's, I think even really under-discussed, the level of enthusiasm, capital concentration, the level of determination in the part, Elon's terrified presentation the other night, right? It's just like you watched that thing, my jaws on the floor, right? I'm just like, I cannot believe. And look, I spend all day with like these incredibly like competent people with all these great ambitions and I get to work with Elon on some things. But I watched that thing and I just like my jaws on the floor at the scope of the ambition. And the honest truth is, Elon would say there's only one place in the world where that could be achieved, that could be accomplished and achieved. It's here. You know, there's only one place in the world where Elon would be able to do what Elon has done over the course of the last 30 years. You know, thank God that he came here to do it. And oh my God, like that's amazing, you know, what the AI companies are doing, I think the big AI lab is absolutely amazing what the mega, what Nvidia is doing is absolutely amazing. There's just something to that. I understand why a lot of other parts of the world don't want that. You know, young Mark would be like, this is crazy, why doesn't everybody see this, why is everybody do this? Obviously, it's not all pure upside. Like there is, the American character I think is rougher than a lot of other countries, a lot of other cultures. And so that, you know, there are definitely pros and cons to it. Do you worry about the inequality that was seeing in terms of wealth and inequality? I didn't feel, to me, it feels like it's greater than this ever been. I think we're seeing wealth created in technology lodging this ever been, obviously. Do you worry about that wealth inequality? Yeah. So to start with, it's definitely not greater than a severed bend. And we know that because we know history. And we know the national mode of history for thousands of years was like, there's a strong man, like, and we call him the king or the prince, right? Or the whatever tribal leader and like, he has all the stuff. And then there are the serfs. And then they just like work the fields and they don't have any stuff. God forbid, you know, then, you know, typically human history then there are the slaves. And they also don't have any stuff or any rights. And so the, I would say the long run state of human history has been like a much greater, more profound level of inequality than anything under capitalism. And so it's the number one I would challenge to promise the question. And then too is like, look, you, you, you, I mean, you know the debate, the debate about inequality always is, would you rather live in a society that has a faster level of aggregate growth in a generally rising standards living across the board, but with greater inequality? Or would you rather live in a society which has lower standard of living, lower growth or maybe even no growth or declining growth in which things are more equal? And like I said, like I look, I have a lot of European friends who say like, look, Mark, you don't understand like for a normal person living in Spain is like much better living in the US because like the baseline is just like much more secure. And I, and I buy that and I think that's probably true. Having said that, like if you want the country that is going to go to the moon and build AI and all the rest of the stuff that is happening here, of course you're going to have a dispersion of outcomes. I think if you look at the economic growth rate itself, it actually tells you a lot. Just as an example, there are a bunch of European countries now that are either flat or shrinking. - Do you worry about the future of Europe? When you look at that flat, we're thinking growth rate for many European countries. - Do you worry about it? - Yeah, so I would say I am a tremendously, tremendously pro-European. I am like pro-European, I'm a very core, like I'm an Anglo-File and a Franco-File and a, you know, a Germanophile. I love all these countries. I love all these people. I think it's absolutely, you know, every country in Europe I think has made like fundamental contributions to civilization. I think the human capital in Europe is just like absolutely amazing. You'll hate what I'm about to say, but one of my things, the first is I say, we should back every single European founder who moves to the US, like we should just reflexively say yes. - I just, I 100% agree with that. I think the nation would agree with that too. - Yeah, exactly. And right, that's a combination of two things, right? That's a combination of the raw level of talent. And by the way, the great education system and like everything else that goes with that, you know, which Europe has a lot, you know, and then coupled with again, if the move to the US indicates a willingness to seek risk and throw things up in the air, you know, to go after a greater level of achievement. And so I would love to see Europe flourish. I would love to see Europe be a full scale, like every bit as dynamic and exciting as the US is in all these fronts. I would love to see AI in Europe be a huge thing. I would love to see London. You know, obviously London has already played a key role with DeepMind and you know, 11 Labs is heavily based there now. - If I were to make you head of the mark, what would you change about Europe? You can change anything as a magic wand to incite growth and ambition in a way that would allow us to seek new levels of achievement. - I have had this conversation many times. So I've over the course of 30 years been visited by lots of, you know, heads of state, senior officials, you know, people working on different kinds of, you know, commissions setting this kind of thing and so forth. And basically the conversation's always the same. I don't know, good news or bad news. The conversation's always the same, you know, which is we really want a Silicon Valley, you know, kind of phenomenon and location X. And then I say, well, okay, then do ABC, you know, DEF, you're here are the things that you do to do it. And then they say, well, what if we can't do those things? - You could not, no, no, no, no, no, no, no, no, no, no. Yeah, clearly we can't do those things, but there must be some other set of things we can do. - You have an option B. - Exactly. Well, and this is the thing is you and I think every one of our listeners can fill in exactly what, you know, ABC, DEF are. By the way, you know, as you know, Mario Draghi just did this, right, he just like wrote, you know, the Draghi report two years ago, he just did this. He just studied the issue. And everything's in that, you know, just read that report, do those things. And you'll notice what's not happening as any of those things. - When you think about all the people that you've met who have been heads of state or in positions of political power, which one were you most compelled to feel you wanted to invest with, work with, they would, you'd want to work with them. - So I will say, like in the last five years, it's the heads of, I would say in particular, UAE, Saudi, Qatar, Kuwait, there is something really special happening in those countries. I find there's a lot of very talented people, politicians, European politicians, heads of state, former heads of state, where when you get them in private, they know everything. They know what needs to be done. You just pick a topic and they know what, again, it's almost like the policy discussions have been had so many times that we kind of know all the answers already. It's just we either like or we don't like the answers. And it's just definitely right, of course. We like or don't like the consequences of the answers. We don't like the trade-offs. But like, I think there's a lot of people who like, no, like, okay, there is a formula. There are a set of things to be done. And it could be on this question of having a tech industry or it could be on some other pressing issue, fiscal, whatever, whatever the issue is. And they kind of know what it is. And then they kind of explain, here's why we can't do that. And then they kind of go back and then they kind of go out in public and they kind of kind of kind of have pretend that they don't know what the answer is. And so I don't know whether that's, I don't know whether the view of that is encouraging or I guess the encouraging thing is, I think the intelligence level is probably higher than it looks. The discouraging thing is, you know, the courage part of it is probably not quite there. And then they get unallotted and then the cycle starts again. (laughing) - Well, so there is this, I don't know, I'm just talking geopolitics the whole time, but there is this really fascinating, as you know, the big difference, the American constitutional system versus the European kind of parliamentary system. There is this thing where when an American president becomes deeply unpopular, he sinks down to like 40% of what we're reading. When a European politician becomes a popular, he gets down to like 6%. - Yeah. - They start at 40. That's a good point. - That's a good point. - He just knows type straight to 6. And so I don't know, I always look at that and I'm kind of like, wow, if you know that your default path is to go from 40 to 6, like maybe it's time to try something different. - We did have a prime minister, Mark, who once the whole nation was betting on whether, I think it was a potato would last longer than her in office or not. And it was a legitimate prediction mark at place, a potato. And by the way, it was live streamed. We needed proof of death of potato. (laughing) - Yes, so there we go. We brought up kind of the future of Europe and whether you need to be in Silicon Valley because of AI, when I look forward to how this plays out, when you project forward, does the gains in AI look like AWS in terms of infrastructure dominance? What does it look like the internet in terms of application value dispersion? - The question that I answered before of like concentration in Silicon Valley is like, the main line companies building AI, Google and open AI and athropic and meta and XAI and Silicon Valley, right? So that's true for sure. But I think there's a second phase to it, which again, I'm very excited about. And the second phase, which relates to your new question, the second phase is, I think the benefits of AI, the power of AI diffuses out globally. Two degree people are really not expecting. And furthermore, I think that's already happening. And I think, this is also an answer by the way, to your inequality question, because the sort of assumption always is, well, sure. Clearly the biggest companies in the world will have access to the best technology or the rich people will have access to the best technology or whatever like that. And it's actually quite striking if you look at AI. I think it's the most hyper-democratic, small-d democratic technology I think we've ever seen. And it follows kind of the internet and follows smartphones in this, which is why I'm pretty confident this is what's going to happen. I think it's already happening, which is the best AI in the world is the app that you download on your iPhone off the app store. The best AI in the world is OpenAI or whatever whichever one it is of the 3, 4, 5 that are really in the race. You download that app. That's the best AI. By the way, you're in a quality point. You're probably going to have to pay 20 bucks for it. And if you really use it a lot, you're going to have to pay 200 bucks for it. But by the way, the free ones are pretty good now. And by the way, Google gives away a lot of AI value for free. And Microsoft is starting to do that. And others are doing that as well. But the best AI in the world is the consumerized version that's available to everybody. And so I think there's a part two to our earlier conversation, which is I think people all over the world. I mean, it's already happening because these apps now are about to cross a billion users and they're growing fast. And so we're not having any years away from 5 billion people in the world having AI, running on 5 billion people who have smartphones and internet access. And so I think that's such a hyper democratization of the technology. And so I think the use of AI, the consumer benefit, the business benefit, the economic benefit, I think that has the potential to be decentralized to a radical degree. I guess the question is really to what extent do we feel it is a just assessment that the models will move into the application layer and a road value. You know, we saw obviously anthropic announce security update. I'm using that as an example because it's ridiculous in my eyes. And our security update and crowds striking crowd flat tank eight nine percent. Obviously, it's not threatening crowds striking power flat today. Did you think the core models, AI, open AI, for example, will move continuously into the application layer and consume more and more of the value chain? Yeah. So a couple of things. So one is there's a bigger phenomenon, which is what I was heading towards in my earlier answer. So there's a bigger, there's actually an even bigger phenomenon than that. And there's actually a paper on this. Maybe we can link to it and it uses the term, the Schumpeterian economics. The Schumpeter is the kind of, you know, the economist who kind of developed the theory of creative destruction. And this economist basically goes through it says there's constant or Schumpeterian economics, Schumpeterian gains and the idea of it basically is and he does this whole analysis for a whole bunch of different technologies. And basically when there's a new fundamental technology, whether it's electricity or steam power or computers or the internet or smartphones or, you know, AI, what actually ends up happening is like something close to 99% of the economic value arrives in the market not in the form of economic benefit to the companies that make the thing, but rather to the customers. And the economist called this consumer surplus. Consumer surplus is all of the benefits that the consumers are getting that they're not actually that they're not fully paying for. The way this analysis basically works is if you look at the total amount of economic value creation, for example, downstream of the internet, something like 99% of that occurred to the users of the internet, not the companies that built the internet. Same thing with the smartphone, right? Who gets the economic value of the smartphone? Everybody in the world who uses a smartphone to become more productive in their life or in their business gets 99% of the value from the smartphone, Apple and Google get 1% of the value from the smartphone. I think AI is the exact, I think it's already that way. I think it's going to be exactly the same way. It might even be greater than that. It might be 99.9999% of the value of AI is going to accrue to the users, not to the companies that make the AI. That's like such a larger economic force. That's such a larger amount of value. It's just like extending out into the world that like I said, it's almost like dark matter. It's like everybody's going to experience that in their own life and in their own business that they run and everything that they build, wherever they are in the world and they're using AI. Nobody's ever going to really like Kelly that upper get credit for it. But if you do the analysis, it's going to turn out where that's like overwhelming where the gains are. Your question is basically a question of then fighting for like the 1% that stays captured in the AI industry itself, which is a very important question. Of course, essential to what we mean. Well, I guess actually the question is, does that whole economic theory change when we believe that we will see the labor being eaten? And actually software spend is no longer software spend. It moves into human labor spend in which case the TAMs explode and we have bigger companies than we could ever have, but a Harvey of the world actually eats a large part of legal work and junior lawyers. Does the TAM explode and how do we feel about that? Yeah. So you have friends, I'm sure, who were great coders before AI. I don't know, using AI for coding. What's the thing that they'll report? They're far more productive. Are they working fewer, more or fewer hours than before? More. Yeah. So this entire labor displacement thing is 100% incorrect. It's classic zero-sum economics. It's the lump of labor fallacy. It happens over and over and over again. It's always been wrong. It's going to be wrong again. You can leave it to mediocre people. And I know that sounds very judgmental and horrible, but most social media managers mark a crap. I'm getting in trouble for this not you. A crap. If you get a social media tool that is AI-driven and can replace an average social media manager for AT&T, surely you'd do it. And I'll say this to be insulting, but it's the classic Marxist analysis, which is there's a certain amount of work to be done. And neither the machines do it or the humans do it. So surely those jobs go away. The answer has to be, and this is what technology's always done, and this is what AI is going to do, and this is why I went through the long description that I did of the hyper-democrization of AI. Every single one of those people who's a social media manager today now has AI. They all have AI. They all have AI or they're about to have AI. And they're going to have it at their fingertips. And if they want to, and then anything that they want to do in their life, in their career, in their profession, in their job for the rest of time, they're going to be able to use AI to do those things. They're going to be able to use AI to become a better version of themselves. They're going to be able to use AI to be able to learn new skills. They're going to be able to use AI to become more productive at work. They're going to use AI to be able to not do a lot of the grunt work they're doing today so that they can do higher value work. And then now I'm just talking classical economics, which is just the other side from Marxism. Classical economics says that the actual function, the actual economic function of technology and this includes AI. And the actual function is to raise productivity and specifically to raise marginal productivity of the individual worker. And again, this has happened many, many times. You take an individual worker who used to write a pencil of paper and you give them a typewriter and then they used to write it in a typewriter and then you give them a word processor and then they used to do hand accounting and now you give them a spreadsheet and and and and. By the way, social media manager, a job that didn't exist before the internet technology actually creates this job. Maybe I'm a European communist model. But then why are we seeing layoffs? Why are we seeing layoffs everywhere? Why is every CEO meeting saying, oh, we're flat, had count, or we're reducing? Oh, that's very easy. So number one, interest rates. You know, so interest rates interest rates were at zero and then interest rates went from zero to 5% at record speed like three years ago. Every big company had to replan all of their financial, all their cost capital went up five points like they all had to completely replan financials. And then number two is they all over hired during COVID. The hiring bench, the companies went on in COVID was just like wild, right? And it was the combination of the two. Because it was the interest rates going to zero during COVID and then it was just the complete loss of discipline at all these companies when they went virtual. And when employees just became a icon on a screen. And they just, you know, because like, yeah, just like go higher, like tons more of them. And so specifically what you have happening right now is you have essentially every large company is overstaffed. We could debate how much it's at least overstaffed by 25%. I think most large companies overstaffed by 50%. And now they all have the silver bullet excuse, right? Ah, it's AI. Well, I know this for a fact because number one, I talked to them. But number two, I know this for a fact because AI until like literally until like December was not actually good enough to do any of the jobs that they're actually cutting. And so it like it just can't have any. So the other thing is people look at the hiring rate for new hires and they look at, you know, at the spike in how hard it is for new college grads to get new jobs. And again, people peg that on AI. But I think that's actually two things. Number one is, of course, the companies that over hired and over invested and I have to bring down their spend and their head count, obviously they're not going to hire very many people. So that's part of it. And then the other is, you know, one might make the observation that maybe the skill set of a lot of college graduates over the last decade doesn't necessarily match to the job market. And that's a very uncomfortable conversation for people to have. But I think that that also has, if you talk to any employer, they'll immediately tell you that. Kind of one for you do a quick fire. You are probably the best copy riser of all time. It is time to build American dynamism, software's eating the world. I picture you in this kind of musky room, kind of American countryside, billowing out as you come up with these titles. What is your copy writing process? It's the combination of rough frustration. It's the amount of the room. The amount of the room. I'm sysm of my imagination, but keep going. It's about, it's about, it's about, it's exploding phenomenon. It's basically always when I just literally can't take it anymore. People are thinking the wrong thing. Somebody's saying something wrong on the internet. You know, that kind of extrapolated up. So it's when I just think like there's a fundamental misperception in the world, and it's just not correct. And then of course I have a sufficiently good to be able to say I can correct that. And so it's usually that basically everything you mentioned, the actual drafting in every case has been like two hours. It's just like, it's just rip it and go. But it's because I spent the preceding two years getting increasingly frustrated. I don't know about you. Do you have an internal monologue? Do you talk to yourself in your head? Are you kidding me all the time, especially when I run? Yeah, exactly. Right. And so what happened, you're probably like this too. And then I just argue with myself all the time. And so by the time I write, I've been arguing with myself in my own head for two years and trying to figure out what the good arguments are. And then it just all kind of comes. You just did. I just like dropping on the page. I ask Doug Leone this, but I'm intrigued because you have the same challenge. The weight of your voice is so significant. How do you ensure that people will fight back when the weight is as great as it is? So number one, it's it's it's it's it's nice. There's an upside to it. I don't want to lose the upside. I do like the upside to it. But yeah, look, the very specific form of that is I think, well, so there's actually maybe you could say two problems. There's the giving advice part. And then there's actually the just asking questions part, which is also a problem because people will interpret the questions as as advice or directives. I just think you have to like the way I think about it is if I'm if I'm dealing with one of my partners at the firm or if I'm dealing with one of our portfolio CEOs, I just have to be really careful to say, look, I'm not. I don't know what the right thing to do here is. I don't have the information that you have. I don't believe I can dictate, you know, what this is. Do you remember the concept of the? of an in-flight magazine, does that ring a bell? - No, but Tommy. - So in the old days before phones and tablets, when you took an airline flight, there was an airline being a magazine from the airline in the pocket of the seat. That's what everybody would kind of sit there and read if they didn't bring anything. So it'd be like the Southwest Airlines in-flight magazine. And then the pejorative was like, adventure, it was basically board members who gave advice by way of in-flight magazine, which is they flew in for the board meeting, they read the magazine, the magazine said, "Java's gonna be a big thing." And so they said, "What's our job of strategy?" - Right, or for every other new thing that came along. And maybe the current version of that is whatever, whatever I read on XS today or whatever I saw on a YouTube video or whatever, right? Or in the newspaper. You do have to be like really, really careful, I think, as you get more senior in this field, be really careful both in your firm and also with founders. God forbid, telling them what to do, A, be suggesting what they do, which is sort of the same as telling them what to do, which is dangerous. And then see, even just asking questions, you know, becomes very dangerous 'cause they interpret the questions. And so you just, I think you just have to acknowledge that up front and bend over backwards and kind of say, look, you know, this is genuinely not what I'm trying to do. And I'm just gonna ask questions and do that. Generally, the way that plays out like in our firm is like I said earlier, like Ben and I almost never weigh in on a direct way on an investment that one of our partners is working on. And the reason is just 'cause like we don't want that warping effect to take place. And specifically because we know we lack the knowledge to be able to do that. And so, and then particularly, maybe obvious, but doing that in public is particularly dangerous, right? If there are other people around, and then there's like perceived social pressure. And so if we're gonna have like a difficult conversation or somebody or we're gonna really question something, it's, you know, we have to take it one on one and have to be very careful in how often we do that. - We're gonna do a quick fire round and we're gonna start with an easy one. Adam Neiman and Flow was a controversial deal. Why did you do it? What was the thinking behind it? - So at the height of the, we work meltdown. When it was in the newspaper every single day and you know, kind of, you know, reaching its end point. I talked to a friend of mine who is one of the legends of the real estate world who I won't name, but is a very, very credible and very famous real estate guy. He said, look, he's like whatever people say about this whole thing, he said, look, there are only two people in the history of the world who have built brands, built compelling brands where people care about the brand, care about the name and the building for Kemer for real estate and the history of the entire world. And he said, one of them is the president of the United States and the other is Adam Neiman. And so he said, people need to understand like, yeah, this is not like whatever it's going, this one's going sideways now, but like this guy is like a generational or all-time talent in that industry and doing that. And of course, not just the brand, but like the value proposition, like the thing that's underneath that, that really stuck with me, right? 'Cause then that was up against the absolute wall of negativity, right at the time where people, we're just tripping all of themselves to just say the worst possible things they could about the guy. And then yeah, and then we got to know him after that. And as you know, like we came, Thorillic convinced, your reinforced our view that he was a generational talent tonight. And I think, yeah, we feel very strongly that that is the case. We're very happy with that investment. What was the most controversial deal, almost disagreed upon deal internally from your memory? - I don't think we've individual deals that are really controversial internally, 'cause we, we could, so the deal we kinda make with all of our investing partners is they all get to go out in the lab and do the things that other people are gonna think are dumb. They don't generally, like back by each other on that. The bigger issue I think is probably more, and I put this more on Ben and me than anybody else, but it's just like, okay, what are the kinds of investments that we do? What sectors are in and out of the strike zone? Oh, I'll give you an example. I mean, the most straightforward example is the deal we didn't do, what we did on is the Anderl Series A, which was just sort of obvious that it was gonna be special. And, you know, Palmer, we had worked with Palmer in Oculus, and it was just, you know, and his colleagues were clearly very capable, and it was just kind of obvious that, you know, there was something, you know, very special, but it was just like, they would say like the politics, the cultural elements of that at the time when it first came around. I would say we got scared off in a way that I very much regret. And so you'll notice that like we are now extremely enthusiastic investors in defense tech, and in, you know, things involving law enforcement, national security, public safety. 100% we would not make that same mistake again. And so I think it has to do with us, Ashley, you see what I'm saying? It's like, it's risk taking at the conceptual level beyond the level of an individual company. And then, like I said, it's generally better me when we screwed that up. - You sit down with your kids, and you can tell them one thing that you think would make them the most proud about what you've done, but would that one thing be? - You know, it's impact on the world, and it's in the form of what I described earlier with the, you know, the economic idea of consumers or plus, but conceptually, it's just like, wow, like stuff that I worked on or built or helped build is something that's really like, it's all over the world and people all over the world are using it and it's been tremendously, you know, on that tremendously beneficial. I think that's one, and then look, the other, the other that I think rises in importance over time is just the number of people that hopefully I've been able to have a positive impact on. So, you know, the number of people who I've been able to, you know, help or support or help get through hard times or teach different things to, who've been on, you know, gotten on to be very successful. And I think it's time's passing. It's more of that second category. Penaltrow one, what was the most memorable first founder meeting you've ever had? Not the best found or anything like that, just the most memorable first founder meeting. First meeting with Mark Zuckerberg. It was amazing. It's Mark's like 19 or whatever. And it was Mark and Sean Parker. And I knew Sean a little bit, but not well, and I'd never met Mark before. And Sean talked the entire time. Sean literally talked the entire time. It was just talking my element at every idea. It was just absolutely amazing. And Mark, like, didn't talk and Sean, so Sean I basically talked the whole time and Mark sat and listened. And I walked away and I was just like, wow, that was really weird. And I was like, one of two things has happened here. Like, either he's completely unsuited for the job. 'Cause like he literally doesn't talk. Or he's like listening and absorbing everything that people are saying around. And he's got to be on a vertical learning curve like crazy. 'Cause he doesn't have the ego need to just like say things. He can, he can just like absorb. And of course it turned out to be number two, which is, you know, and I've talked about this before. Like he's just on this incredible learning curve and has been his entire life in the most like amazing way. But yeah, I would say that one. I've never told that story before, but that was memorable. The second meeting, the second meeting of Adam and Detok. And by the way, and by the way, everything Sean said was right and it was all genius. Final one, you've been an incredible entrepreneur. You've been a great investor. And you're also an amazing firm builder. If I were to push you and one of the greats and ventures submitted this one, but I can't tell you who it was, if I were to push you on which one you're most like to be remembered for in history, what would it be? Yeah, I think I'm entrepreneur. I, I, I, and you know, Ben and I are lucky and that we've been able to, you know, A16Z itself has been an entrepreneurial project. And so, yeah, I would, I would, if I could choose, that would definitely be the one. Mark, I cannot thank you enough doing this. I was at 10 years, I wanted to do this. So thank you so much for joining me. Awesome. Thank you. I really enjoyed it. The questions are fantastic. I look, and you've been doing an incredible job. So I also really appreciate the chance. (upbeat music) Thanks for listening to this episode of the A16Z podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or a review, and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify, follow us on X, A16Z, and subscribe to our substack at a16z.substack.com. Thanks again for listening, and I'll see you in the next episode. This information is for educational purposes only, and is not a recommendation to buy, hold, or sell any investment or financial product. This podcast has been produced by a third party, and may include pay promotional advertisements, other company references, and individuals unaffiliated with A16Z. Such advertisements, companies, and individuals are not endorsed by AH Capital Management LLC, A16Z, or any of its affiliates. Information is from source's deep reliable on the date of publication, but A16Z does not guarantee its accuracy. (upbeat music) [BLANK_AUDIO]