Mark Andreesen discusses the decision to become an investor after starting tech companies and the differences between A16Z and other venture funds. He emphasizes the importance of founder CEOs and the need for a network to support them. A16Z has built an operating model that gives founders the ability to operate like professional CEOs. Andreesen also discusses the fundraising process and the importance of warm referrals and networking within the venture capital industry.

- The process of securing funding from venture capitalists (VCs) typically involves multiple meetings and presentations
- VC firms rely on the input of younger team members and value their connections with first-time founders
- The length of the process can vary depending on market conditions, with hot environments leading to quicker decisions and cold environments resulting in longer timelines
- The formal presentation to the full partnership of a VC firm is a significant milestone and a test of the founder's ability to sell their company
- References are crucial in evaluating the quality of an investor, and founders should seek both front door and back door references from people who have worked with the investor before
- The speaker recommends learning how to conduct reference checks as it is a valuable skill for evaluating investors and potential hires
- The speaker emphasizes the importance of studying history and recommends books on the origin stories of companies and figures such as Thomas Watson Sr., Bill Hewlett and Dave Packard, Edison, and Henry Ford.

- The speaker discusses the similarities between Detroit 100 years ago and Silicon Valley today, highlighting the history of companies like Ford Motor Company and the inventions of Leonardo da Vinci.
- They emphasize the importance of drawing lessons from history and using them as a mental toolkit for building new companies or movements.
- The speaker acknowledges the challenge of separating good advice from bad advice in the echo chamber of the valley.
- They believe that there is no silver bullet for success and that hard work and effort are necessary.
- In terms of the future of the startup ecosystem, there are two schools of thought: one predicting an imminent bubble and crash, and the other recognizing that certain things are working now, such as the internet, mobile, and social platforms.
- The speaker mentions several exciting clusters of activity, including AI, machine learning, deep learning, biology/healthcare/computer science intersection, and transportation.
- They admit that predicting the success of startups is difficult and that the specific combination of factors, including the right founder, idea, team, breakthrough, timing, market, and pricing model, is crucial.
- The speaker advises founders to embrace the feeling of being too late and too early, as great founders often feel this way. They believe that founders are usually too early to market rather than too late, and that being early is often a reason for failure.

- The speaker believes that investing in new technologies can be risky because sometimes the world is not ready for them yet.
- He gives the example of the iPad, which was similar to a previous product called the Newton, but failed because the necessary technologies were not in place at the time.
- The biggest risk for entrepreneurs is that their ideas may not be accepted by the market.
- If the speaker were 22 years old again, he would try to work for a successful and fast-growing company to learn and build his reputation.
- If he were 25, he would focus on building his network and reputation, and potentially come up with his own idea for a company.
- If he were 18 and going to college, he would study computer science and focus on either cryptocurrency, AI and machine learning, or the intersection of biology and NCS (genomics and synthetic biology).

- Mark Andreesen discusses the decision to become an investor after starting tech companies and the differences between A16Z and other venture funds.
- A16Z has built an operating model that gives founders the ability to operate like professional CEOs.
- The fundraising process involves multiple meetings and presentations, and warm referrals and networking are important.
- References are crucial in evaluating the quality of an investor.
- Andreesen emphasizes the importance of studying history and drawing lessons from it.
- The future of the startup ecosystem is uncertain, but there are exciting clusters of activity in AI, machine learning, healthcare, and transportation.
- The specific combination of factors is crucial for startup success.
- Founders should embrace the feeling of being too late or too early.
- Investing in new technologies can be risky if the world is not ready for them yet.
- The biggest risk for entrepreneurs is market acceptance of their ideas.
- Andreesen shares advice for different age groups on career paths and areas of study.

Okay, so up next we have a fireside chat with Mark Andreesen.

And I think maybe you're the only person who's been on stage, both as a founder and now as an investor.

But what I'd like you to kind of talk us through is how you came to the decision after starting a bunch of tech companies to become an investor.

There are a lot of venture funds that exist.

Yeah, so the big thing, we came up, Ben and I came up in the 90s in the industry.

And at that point, the good news is venture capital had professionalized, and so you had these great venture firms, Kleiner Perkins and Benchmark and Sequoia and others that had gotten really good at what they did.

Part of the professionalization was they had tilted very strongly away from founder CEOs and towards professional CEOs, And there were good reasons for that that we can discuss.

But our view of the industry is that not all, but many of the best companies in the industry are run by their founders for a long period of time.

So IBM, run by the Watson, 2 Watsons actually, father and son, Hewlett Packard, run by Hewlett and Packard for 50 years.

Many other examples, Microsoft, Oracle, many others.

And so the model had just kind of drifted away from that and the kind of default move became bring in a professional CEO.

So the basic thing is, well, there is what they would say, which is what they said to us at 1 point, which is, oh, so when are you guys going to hire a real CEO?

And so there's sort of the general version of that answer.

The specific thing, when they say professional CEO, generally they talk about somebody with a lot of business and a particular sales experience.

So somebody who's very comfortable with taking something that somebody has built, engineers have built in the lab, and then taking it out into the world.

And so it's everything raising money, marketing, sales, finance, all organization management, all the things involved in building the business and the company around the product.

And so we just have this idea that we sort of want to tilt things back a little bit.

Now, we're not religious about the founder-CEO, and there are a lot of founders who don't actually want to be the CEO or want to partner with a great CEO.

And then there are also founders who can't be the CEO.

And so there's sort of no, We always like to say there's no concept of CEO tenure, right?

And if you don't perform, by the way, it's not the VCs that are your problem.

But we did believe in the generalized model that founders are really important and that founder-CEO is a good model when you can have it.

And so just what we observed was there was not at that point a venture capital firm that really had developed an operating model around how to do that.

And so we decided to start our firm, and then we decided to really bear down on 2 things, which has been our big areas of focus for the last 7 years.

So 1 is all of our general partners have built and run companies before.

And so, we like to talk about the importance of having people on your board who have been through the struggle.

Ben and in his book, the hard thing about hard things.

He talks about the struggle being just all the stuff that goes wrong when you're trying to accomplish something big.

But it's just all the stuff that happens.

But to have somebody on your board who's really been through it.

And so all of our GPs by definition fit that criteria.

The other thing that we did, and this is a huge part of the firm for us today, is we built a whole operating model around basically, we call it giving the founder superpowers.

Give a founder who's not operated a business before the ability to operate like a professional CEO would be able to if they just walked in the door.

And a lot of that has to do with network.

And so the network of all the customers that you're going to sell to, the network of all the later on investors you're going to raise money from, the network of all the big industry companies that you have to work with, the network of all the reporters that you want to get your story out, the network of all the engineers that you need to recruit, the network of all the executives that you need to recruit, the network of all the regulators and policy makers that you need to deal with in a lot of these businesses.

And so we now have 85 full-time professionals in the firm that build and run these very large networks on behalf of the portfolio.

And so a founder works with us, Jeff Wu, the founder of NutriBox, described it as you plug into the matrix.

You just kind of instantaneously get this upgrade as a new CEO, or even an experienced CEO, You just get this big upgrade where all of a sudden you're plugged into the world at scale and that's working pretty well.

Did you think about this back in 2006, 2007 before the firm started?

Or did that evolve as you kind of built out the firm?

Yeah, so that's all evolved and we've had a whole bunch of people who joined the firm that have helped us figure this out and that run all these teams and networks for us that have really helped us advance our thinking.

But the core idea was there, sort of, A16Z was a startup.

And having done startups before, we were big fans of thinking it through and having a differentiated strategy.

And so we spent about a year and a half planning this out before we started the firm and these ideas were at the core of it.

So a lot of first-time founders in the audience and kind of raising money as we just did kind of pitch practice here, is a little bit of a black box.

What is the just very precise way that, you know, what's a process that you use to work with companies?

How do they get ahold of you and what actually happens after the first email?

Yeah, so I would really separate fundraising, and this has gotten a lot more complicated in the last few years in good ways.

I would separate fundraising of fundraising from angels, seed investors, accelerators, you know sort of accelerator rounds, pre-seed rounds, seed rounds, seed extension rounds, post-seed rounds.

And that's a process that the YC plugs you into, and Demo Day is organized around that.

And your friends who have had a startup will have been through that.

And that's a lot of what gets talked about.

Then there comes a time when you engage in a different kind of fundraise, and what I would call an institutional fundraise.

And I think that really starts with a formal series A, or anything equivalent to a formal series A.

It also applies, by the way, if you're gonna go try to raise money from a corporate investor, whatever, it's an institutional process.

You're dealing with somebody who's running a highly professionalized firm with real fiduciary responsibility back to their LPs.

Their firm, a lot of venture firms have been in business for 30, 40, 50 years.

There's a way of doing things and things just get more formal.

And so I think that's the first really important thing to think about.

And, you know, When we, and we're actually schizophrenic on this, because we do a lot at the seed level, and when we invest at the seed level, it's a lot like dealing with any other seed investor.

But when it's a 5 or 10 or $15 million A round, or B round, then things get more serious.

And so when you mean serious, so let's say I am raising that $10 million A round, and I give you an email and say, hey, and then I come in, and what happens?

Is it just a series of meetings, and then diligence, and then you have a big check like in those game shows?

Show up at your house when you're least expecting it.

So the first thing is how do you actually get in?

And so there's actually an argument that kind of plays out on this topic in the valley, which is the importance of what are called warm referrals or warm introductions.

And so the way that most of the top end venture capital firms work is, basically, they'll take you seriously if you come in introduced by somebody they've worked with before, and they won't take you seriously if you don't.

And there is an argument that plays out in the Valley, which is that that's sort of unfair and unreasonable.

And what about all these, you guys talk about all these founders all over the world, and why can't they have access the way the people who are already connected can?

The argument in favor of the warm referral is that it's the first test.

And it's the first test of the ability to basically network your way to the investor.

And basically the way the investor thinks about it is if you can't figure out a way to network your way to a VC firm, which is of course in the business of meeting founders, then you're unlikely to be able to network your way into hiring a great team or network your way into selling your product to customers.

And so, actually, I think that the role of the warm referral is misinterpreted.

I think you just view it as like it's the first test.

And so I think it's a test that you just want to pass.

You don't want to take any chances on that.

The good news is if you're connected to YC, if you're connected into the Valley Angel Seed Ecosystem, that's a very easy test to pass.

If you're not connected into YC, then, you know, the thing to do is to get to the Valley, right, or get into the network and get into YC.

YC has been a huge, like YC has really widened the aperture for founders to be able to plug into this process, and I think in a very healthy way.

So that's the first is the warm referral.

And, you know, so 1 theory is, and you'll hear this sometimes, is only ever talk to senior partners at the firms.

And don't waste any time with the more junior partners, the younger people in the firm, because they can't make the decision, pull the trigger.

The counter argument is that the senior partners at these firms make very few decisions from scratch.

The senior partners only get to invest in a few companies a year each, and they make very few of those decisions.

If they're gonna make a decision on their own without any work done by the junior people in the firm, it's probably gonna be somebody they've already worked with before.

So it's actually really hard from a sort of standing start to get just a straight yes from a senior partner.

So the thing that works better and the thing that I would do if I were, you know, 22, 25 again, I think there's a huge advantage to coming in with the junior people and get networked into the firm and spend a lot of time with the junior people understanding, number 1, just like pre-flighting, like how is this coming across?

Because they can read the minds of the senior partners.

They can tell you how these things are going to get received and they can help you.

And then also, we frankly, the senior partners at a firm like ours, look to the younger people a lot of like, okay, like what's interesting.

And we count on the younger people to stay very connected, especially to the first time founders.

And so I really encourage people to actually take, take the younger people in these firms seriously.

So from that, usually the process is a first meeting with 1 of, 1 of the, 1 of those folks, which might then lead to a second meeting with a broader group of those folks, maybe with 1 or 2 general partners.

So you kind of have this kind of wind-up kind of period, and you're kind of working through it.

And are we talking about days, weeks, months?

In a hot environment, it's, you know, days to weeks, because you as a VC, you assume that deals go down relatively quickly.

For the last several years, I think days to weeks has been the expectation.

I will tell you in the cold environments, in 2003, we're talking 6 months, 9 months, 12 months, VCs had nothing but time Because it was so hard for anybody to raise money for anything, you could just let these things play out for a long time.

We try to move in days to a small number of weeks.

Then the big event is to then progress through 1 or 2 or 3 meetings.

And then, and then the, the way you really know you're making progress is if you get invited to present to the full partnership.

And that's usually at most firms on Monday, Monday meeting.

And that's a formal, like that's a full on formal and that's like all the general partners at the firm are there.

We'll have like, sometimes we'll have 40 people in the room for that.

And people come in and it's like presented to the army, but like we get everybody.

And the founder actually just presents their company.

And, and so, and then this gets into another debate, which is like, okay, you know, you smart guys, like you go on and on about like creativity and all this stuff, Why do you want the founder to stand up there like an idiot for 50 minutes reading off of PowerPoint slides?

Why don't we, why didn't you do more research up front?

And Again, I think that's misinterpreted.

I think the formal presentation is another test, which is, as a founder, if you're not good enough at your job as a CEO to get up and present to an institutional investor for 60 minutes and sell them on your thing, like, we're easy.

Like, this is the thing I think misinterpreted.

Like, we love when somebody walks in and has a compelling pitch and we can give them a check.

In contrast, every other pitch you're ever gonna make is gonna be to somebody who's gonna be much worse than us.

Right, like, so customers, right, are gonna be like, you know, no, I'm not going to give you any money, like is their default position, right?

You know, engineers, you're going to try to recruit engineers, and they've got 20 other job offers, right?

And so why is your pitch going to be so much better than the other 20 startups, right?

And so again, I just, I view that as like, that's the second big test, which is can you successfully execute a formal pitch?

And then if that goes well, then generally you go into, if it's like super, super smoking hot, you could move to term sheet very quickly after that.

Usually it's a week or 2 of additional work to kind of have some more discussions, various people follow up, you kind of get into the process of the venture firm really trying to make sure they understand what you do.

You start to negotiate the term sheet, and then at some point you have the term sheet discussion.

So we see 2,000 startups a year that are warm referrals, and we can say yes at the institutional level for A's or B's.

We're 8, 9 general partners, and we're up in large fund size.

There are other top end firms that will say yes 3 or 4 or 5 times a year.

And so, by the way, on the 1 hand, that's very daunting, which is like, well, shit, that's 1%.

I can just tell you, on the other hand, it goes back to this concept of the tests.

It's not that hard to get good at this part.

And so I think it's worth the time to really understand and get good at how to get networked in and how to make that pitch.

Because if you're good at that, then like I said, when it comes time to go sell your product to a customer, when it comes time to go hire somebody, those same skills reapply in the exact same way.

And I think people should just, founders should just get good at that.

So there's a pretty big gap between an average engineer and a really great engineer, and there's ways to test that.

How do you know an investor is actually good if you're a founder and you're raising money for the first time, or you haven't raised much money?

So I think there's 5 key ways that a founder can know whether an investor is good.

And they are references, references, references, references, and references.

So the good news with the Valley is it's super-networked.

So, I'm the founder and I'm going to seed Fund B.

Do I just find people that have invested before?

Yeah, so there's sort of 2 different kinds of references.

There's so-called front door references, which is you just, you ask me, like, you know, who should I talk to?

And I'll give you a list of people who I hopefully know will say good things about me.

Then there's the back door references, right?

Which is usually where the value is, which is people who have worked with the investor before, other entrepreneurs, or people who have been at companies that that investor has funded.

Or by the way, for that matter, other investors.

The way a lot of VCs get reference checked is with the angels.

And so your angel investors, your seed investors, if you're in YC, the YC partners, other YC founders, the internet, Twitter, these discussions take place all over the place now.

So I think you just try to – it's just like anything else when you're evaluating people, is you just try to get to other people who have worked with them in the past.

I think that's a good thing to know how to do, because if you can reference check an investor, it also means you can reference check a candidate, right?

And I will just tell you, like, in the Valley, like, in the Valley, like, there is a way to hire great people.

And it involves references, references, references.

You, you just, everybody who's going to hire

That is like the double talk of This is not a good investor.

So it's all in the, it's all in the little tells.

So it's all in the, like, if somebody is good, they're like enthusiastic.

They're going to be pounding the table like this, this person's great.

Like if you can get them on their board, you're, you know, you're bored, you're lucky.

If you get anything other than that, right.

And it's, it's like the silences, like, you know, so what's a person like in board meetings?

And then there's like, the silence, and then there's like the breath, like, you know, and it's like, okay.

Or, you know, the other thing is that, you know, a lot of people don't want to say bad things about people even when nobody else is listening.

And so they'll say these lukewarm, I mean, my favorite is like, well, they're very punctual, right?

Even with the front door references, that's what you listen for.

But with the back door references, even still, that's what you listen for.

And even when it's people who you know really well, they still may not actually tell you the full thing.

And so you just want to test really carefully.

I just think it's an incredibly useful skill.

If you learn how to do it, you can basically test this out on investors, and it does matter for investors, but then what it also really matters is when you're hiring, especially executives later on.

Lots of founders, investors look up to you and your ideas.

And how do you make sure your ideas are actually, like, continue to be good?

So there's a sort of a classic cliche in the Valley, which is like, we don't respect history very much.

And a lot of people who visit the Valley for the first time, that's their impression.

Cause they, obviously people out, they've had this, I had this experience when I first came to the Valley.

It's like, I want to, okay, I want to see Silicon Valley.

I want to drive around and see Silicon Valley.

And it's like, good luck with that, right?

There's a security guard who won't let me in the office park.

And then, And then in the conversations, I mean, we're all about the future, right?

And so I think there's this natural tendency to assume that the past isn't very relevant.

And I actually think I should criticize a little bit, you know, there's sort of the Elon school of thought now, which is very strong in the valley, which is sort of think everything through from first principles, which has its huge strengths for sure, but it does kind of dismiss the idea that people who came before us had anything to teach us.

And my general view is that people who came before us had a harder time doing what they did than we do because the world was in a more immature state.

Like they didn't have all the, they didn't necessarily, you know, startups started before 50 years ago, they didn't have venture capital, right?

They didn't have, there's a lot of things, startups before 20 years ago didn't have the internet.

And so the people who were successful in the past, I think, were often better than we are because they had to be because it was harder.

In the tech industry, and I'll just recommend a few books.

So I think the origin stories of companies, IBM, there's a fantastic book about Thomas Watson Sr.

And if you think that Steve Jobs was rough on people, He had nothing on Thomas Watson Sr.

The book has transcripts of the executive staff meetings at IBM in the 1930s and 1940s.

Let's just say he was at absolute terror and built an extraordinary company.

He's a real role model, Not the terror part as much.

Michael Malone wrote a great book called Bill and Dave.

Talks about how HP got built over the course of 30 or 40 years by Bill and Dave.

I like what was called the Second Industrial Revolution a lot, where you got electricity and you got cars.

So there's a great Edison book called The Wizard of Menlo Park.

There's a great Ford book called I Invented the Modern Age.

And if you go back and read the history of cars, 100 years ago, Detroit 100 years ago was a lot like, was a lot more like Silicon Valley today than I think people even understand.

In fact, Henry Ford, like Ford Motor Company was not his first company, right?

And so there's all these very interesting backstories.

And then I think you can go back even further.

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Marc Andreessen at Startup School SV 2016