Things I’ve Learned From Marc Andreessen
25iq.com
25iq.com
I love that.
Aw, poor CEOs (I'm one)... Perhaps ask an ER nurse how her job compares.
The OP is yet another effort at 'understanding' venture capital investing. There's something strange here: At
http://avc.com/2013/02/venture-capital-returns/#disqus_threa...
that is, VC Fred Wilson's blog, is some data that shows that on average in the US, information technology venture capital returns in one word suck, that is, are really poor, bad, low, etc.
So, in trying to understand how venture capital investing works, at least on average we are trying to understand something that works poorly.
Below I explain how to do much better, but broadly that VCs struggle so much, as is clear in the OP, is from incongruous to absurd.
The OP is awash in some really bad news that shows that the VCs admit that, really, they don't much know what the heck they are doing and, instead, are reading tea leaves and then shooting in the dark; such nonsense is unnecessary.
Let's consider some quotes from the OP:
"even the top VCs write off half their deals."
Dumb. Each year a VC gets 3000 deals, looks carefully at maybe 200, invests in maybe 20, and 10 flop. Clearly something's seriously wrong here.
"And of course, you make all your money on successful and non-consensus."
That the good deals should be so difficult to evaluate that there should be no "consensus" is absurd. Sure, detecting the next SnapChat is difficult, but largely we should set aside such deals -- based on, what, starting a fad of teenage girls having fun being 'improper'. Instead it is possible to have plenty of deals that are fairly easy to evaluate.
"And let me translate ‘non-consensus’: in sort of practical terms, it translates to crazy. You are investing in things that look like they are just nuts.”
E.g., another SnapChat is that way, and that's why a VC should not take seriously such deals. E.g., someone comes out with a better version of the same basic idea, but maybe SnapChat is hurt by their installed base that becomes dragging a big anchor to responding.
But there are much better deals than SnapChat where nothing looks "crazy" or "nuts". Putting up with deals that are crazy or nuts is, well, crazy and nuts.
“The entire art of venture capital in our view is the big breakthrough for ideas. The nature of the big idea is that they are not that predictable.”
Yes, “The entire art ... is the big breakthrough for ideas"; the problem is that, flatly, VC (1) is working with "ideas", e.g., SnapChat, that are based on fads, etc. and, thus, are essentially impossible to evaluate and (2) VC doesn't understand what really good, "big breakthrough ... ideas" are, where to find them, and how to evaluate them. For the good, big breakthrough ideas, accurate evaluation is quite doable, and there is little that is' not "predictable”. VC doesn't understand (1) and (2), and I explain below.
“Most of the big breakthrough technologies/companies seem crazy at first: PCs, the internet, Bitcoin, Airbnb, Uber, 140 characters.. It has to be a radical product. It has to be something where, when people look at it, at first they say, ‘I don’t get it, I don’t understand it. I think it’s too weird, I think it’s too unusual.’”
“Most of the big breakthrough technologies/companies seem crazy at first" is only true because VC has been, to borrow from a movie, "digging in the wrong place".
“You want to have as much ‘prepared mind’ as you possibly can. And learn as much as you can about as many things, as much as you can. You want to enter as close as you can to a zen-like blank slate of perfect humility at the beginning of the meeting saying ‘teach me’…. We try really hard to be educated by the best entrepreneurs.”
Sorry, I have a serious background in how to "learn", and my experience is that VCs are quite poor at it and need to 'put on their game faces' and 'up their game' several notches from some very good sources, and some popular Silicon Valley coffee or sandwich shop is NOT such a source.
“You want to tilt into the really radical ideas… but by their nature you can’t predict what they will be.” “There will be certain points of time when everything collides together and reaches critical mass around a new concept or a new thing that ends up being hugely relevant to a high percentage of people or businesses. But it’s really really hard to predict those. I don’t believe anyone can.”
"Really radical" is fine, maybe often necessary, but, of course, not nearly sufficient; but it is just crucial to have ideas that can be evaluated accurately and to do the evaluations. For "really really hard to predict those", VCs are "digging in the wrong place". Instead, with good "breakthrough ideas", "really radical", provocative, shocking, "crazy", "nuts" that can be evaluated and that have a good evaluation, being able to "predict" is really, really easy.
“We are looking for a magic combination of courage and genius"
Looking for "magic"? Looking for magic went out of style back in the "Age of the Reason". Looking for magic is wandering and shooting in the dark. As I explain below, there is a way to find the light switch, turn it on, and see what's happening (thank you A. Wiles).
“The thing all the venture firms have in common is they did not invest in most of the great successful technology companies.”
There is a reason: VC has concentrated on deals, "digging in the wrong place", that are essentially impossible to evaluate. Instead, concentrate on deals that can be evaluated and, then, evaluate them. What deals are those? I explain below.
"The challenge in the field is all of the great VCs over the last 50 years, the thing that they all have in common, is they all failed to invest in most of the big winners."
Again, the VCs were "digging in the wrong place". Yes, even in that place sometimes there is some gold there, but that doesn't much help because the gold is in a form essentially impossible to recognize, that is, evaluate. So, dig in the right place where can recognize, evaluate, the gold that is there. The right place? I explain below.
The theme of the Andreessen remarks is wandering and shooting in the dark. But that is unnecessary.
(1) Problem. Pick a "big ass" problem where the first good or a much better solution will clearly be a 'must have', not merely a 'nice to have' and will be very valuable, in the sense of making money, the green kind. Note the "clearly". If pick a problem that does not satisfy "clearly", then try again. I didn't say that the success would be easy to do.
Part of the reason VC has been "digging in the wrong place" is that it tries to make money with small problems, where the solution is just 'nice to have' instead of 'must have'.
The ideal example of a 'big ass' problem, although not in information technology, would be a safe, effective, cheap one pill cure for any cancer. "Breakthrough"? Yup. "Crazy"? Sure; NIH has been throwing billions a year at that. But it would be a 'must have'; no question about 'product-market fit'. A 'must have' doesn't have any questions about 'product-market fit'. If looking at projects where the results have some doubt about 'must have' and likely need to work on 'product-market fit', then are looking at the wrong projects, are "digging in the wrong place".
Another fad for teenage girls does not qualify as a 'must have'. Yes, such a fad might make a $1 billion, but it is too difficult to evaluate. Instead, I mentioned "clearly" be a 'must have'. That is, it is crucial to be able to get a good evaluation early on, and nearly never can do that with fad products, as, indeed, the Andreessen remarks so clearly indicate.
(2) Solution. Find the needed solution. Often the solution will not be easy to find, but this need not concern VCs since they need look only at deals where a solution has already been found. If can't find the needed solution, then return to (1) and try again. A solution that is difficult to find can give a technological barrier to entry.
Q. Whatever you are working on, someone else has already done that.
A. Let's consider that: Take all the people who have done that. Then, except for rare ties, there must have been a first such person, and for them no one else had already done that. So, the claim is false. Sorry 'bout that. Instead, there really are things that are significantly and genuinely new.
Q. Then someone else can just reproduce the solution.
A. Some solutions are quite difficult to find, may be based on original work and/or advanced prerequisites understood by only a few people, implemented in software, secure inside a server farm, and, thus, provide a technological barrier to entry.
(3) Prove that really have a solution as described. When have such a proof early on, usually it is just on paper, especially for solutions in information technology. Is this possible? Yes, for nearly all of science and engineering on practical problems, it's routine and standard. It's how we build a new airplane engine, a new airplane, a new rocket, a new satellite, a new application of carbon fiber, etc.
(4) Evaluate the paper solution. Can this be done? In nearly all of applied science and engineering, such evaluations are standard and routine; it is insisted that such evaluations be done. No one puts up a new satellite with 'agile' techniques iteratively 'searching for product-market fit'. There's no counting on "magic". Fads of teenage girls are just irrelevant.
(5) Develop the solution.
(6) Deliver, sell the solution, the first good or much better "must have" solution.
Can these six steps be done? Sure; history shows that there's no doubt. Thankfully for US national security, the best examples are funded and exploited by the US DoD.
A great example was the SR-71: Problem: Get pictures of the USSR. Solution: An airplane that can fly at Mach 3+ at 80,000+ feet for 2000+ miles without refueling. Proposed essentially just on paper by Kelly Johnson and the Lockheed Skunk Works. The project passed evaluation and went ahead as planned.
Other examples: GPS and the earlier version by the US Navy -- proposed on the back of an envelop by some physicists at the JHU/APL, A seafloor, passive sonar array. The F-117 stealth plane; flew across Saddam's anti-aircraft artillery without a scratch; another Lockheed success. The Keyhole satellite, that is, a Hubble but aimed at earth.
Outside of the US DoD, the LHC; found the Higgs as planned. The WMAP satellite -- found the details in the 3 degree K background radiation as planned and got enough resolution to permit an estimate of the big bang 13.7 billion or so years ago.
These projects were evaluated essentially just on paper and worked as planned.
Generally such science and engineering has a much better batting average than VC. E.g., in each case, the SR-71, GPS, the LHC, WMAP, there was a problem that needed a 'must have' solution, such a solution, evaluation just on paper, and success. No "magic". No getting 3000 projects, looking carefully at 200, picking 20, and having 10 fail.
What should VC do? Sure: Stop "digging in the wrong place" and, instead, follow steps (1) - (6).
Will VCs get many such project proposals? Well, likely now they get more than they are willing or able to evaluate, but with interest in and success with such projects, they stand to get more such proposals. Considering how few VC projects pay off now, VCs don't need to get more than a few dozen good proposals each year. Digging in the right place doesn't require moving much dirt to get to a lot of gold.
Still, this link is well worth the few minutes it takes to read. His blog has a lot of "Things I've learned from" entries from various people.
And yet, not really. With the exception of RSA, American tech. companies are being hammered for the actions of NSA, not for their own "crimes". Even German companies obey German legal directives after all, and Vodafone made clear the other day the extent of government monitoring of networks around the world.
To the extent that Snowden has made clear the reality that government (and not just criminals) can take advantage of the jurisdictional problems of an open Internet, that's not the fault of the U.S. tech sector either. After all, some of the most successful NSA programs are really liaisons with European security agencies that run the actual intake work, not conspiracies with Silicon Valley.
The correct solution for Europe if they want to be free of the possibility of other nations (incl. the USA) doing targeted operations in their networks is to completely balkanize the Internet, which companies like Google and Facebook oppose for obvious reasons.
You can credit Snowden with revealing to the world the types of dangers inherent to an open Internet, but that very same set of revelations is a large part of what's harming the U.S. tech sector. You're right that people may have figured it out eventually, but nations and companies around the world tended to agree not to make too big an issue of it since the benefits of an open Internet were thought to outweigh the risks. But Snowden forced the issue.
The only true solution to the issues he raised, if you're a European citizen, cannot be left to voluntary compliance by the other nations of the world, especially since you can never certify compliance with that. You'd have to instead build out your own Facebook, your own Google, your own tech sector, just like Russia and China have done.
So credit Snowden with opening the eyes of Europe to that reality, but you can't eat your cake and have it too. We've seen region locking spread too far with just with RIAA/MPAA to want to see it infect the rest of the Internet, but that is the message Snowden is responsible for (even if it wasn't the message he meant to send).
One could just as well say that Andreessen's greatest allegiance is to money. So perhaps in that context Snowden is a traitor to Andreessen's cause.
And Snowden is a traitor to the US government, whose interests are pretty much the same as wealthy elites like Andreessen (to a first approximation). But not a traitor to the world or even just the US population.
You haven't made the case that the NSA's shenanigans are in any way "inherent" to the internet as currently designed and implemented. I would suggest that these phenomena are due far more directly to the current organization of the USA federal government, and to the oligopoly that exists in internet service in that country. I think we ought to give Cerf, Kahn, and Postel a pass on this one.
Not the NSA's shenanigans, the shenanigans of any properly resourced foreign (or domestic!) intelligence service. After all, the U.S. itself suffers the same problem in reverse from China and Russia and God only knows who else.
If there's anything I've learned from hacktivists, it's that if you leave your stuff on the open Internet it will be exploited eventually, the only question is who will be exploiting it.
The threat posed by the bad actors affiliated with the state to which I am subject is qualitatively different. Based on intended-private information that can be construed as unlawful or even vaguely against the national interest, they can take away the rest of my life. There's nothing proportional to that.
I suspect I also disagree with Andresseen on provision of comprehensive public healthcare (I am a product of the NHS) and gun control and many other political issues - all of which it is possible to have reasonable people disagree reasonably on.
Just because he holds a different view on this issue to most tech sector, does not make him a bozo. If anything, the potential danger Snowden has alerted us to is the ability of the Administration to shut down political discourse and disagreement through superior knowledge of our lives - ironically we should embrace statements like Andreesseens as something that can and should be openly discussed.
I personally find it difficult to believe that Snowden's revelations weren't already old news to the influential foreign business and political leaders that are the target of Andreessen's concern trolling. Snowden's sin was bringing the knowledge down the mountain to the rest of us.
And to be honest I think Chancellor Merkel, who by all definitions should be cynical as hell, was genuinely shocked by the Stasi like extent of PRISM et al. So I think Snowden did reveal, in convincing ways, that the NSA had gone far far beyond what many thought practical and most thought sane. No matter how cynical a business leader you might be a small part of you thought "everyone" did not really mean everyone till Snowden
There are some more views, that reveal racism, but lets leave it at that.
In this particular case, this ignorance reveals the view that mass surveillance is okay, whereas the author seems to miss that every nation that supports mass-surveillance is going towards a Nazi-Germany-like regime. Ever wondered why Germany is so adamant about privacy? Because they remember what happened when a certain entity gained too much control. The thing is, it's not a question if such mass control will be abused at some point. It's just a question of when, maybe in 5 years, maybe in 15, but it will inevitably be abused at some point. Americans don't get that, because they haven't been there.
Secondly, there are some issues about which people have valid disagreements. This is one of them. Come to think of it, much as I wish it wasn't, gay marriage is also such an issue in most places (though clearly not in Silicon Valley or in Hacker News).
Third, I don't understand how you made the leap from him thinking that Snowden is a traitor, to him thinking that mass surveillance is okay. Maybe he said other things I'm not aware of (seriously - correct me if I'm missing something). But thinking that Snowden is a traitor has nothing to do with views on mass surveillance.
Finally, you are taking an extremely absurd position where the world is entirely black and white - someone says one thing that you disagree with, clearly he thinks terrible things, clearly this invalidates anything he has to say, including on a subject on which he is very knowledgeable, and clearly he's not worth listening to.
That is not a good way to be part of a diverse society, and definitely not a good way to expand your horizons.
Presumably you mean that his moral judgement is suspect and therefore you won't follow his principles. That's fine, and I can respect that.
What I cannot agree with is that you can't learn anything from someone you disagree with. I think that's a terrible principle to have.
If you can't learn things from people you don't agree with then you are at risk of groupthink[1] at the very least.
As a specific example, William Churchill's leadership of the British Admiralty during the Gallipoli Campaign[2] in World War 2 was - in my view - completely immoral (as well as terrible ineffective). Indeed, his attitude towards the troops he sent to fight created one of the core national myths[3] of my country.
However to reject learning anything from Churchill because of that would deprive me of a lot.
One can learn a lot from Henry Ford about transforming industries. Does the fact that he had his newspapers publish anti-Semitic writings[4] mean we should ignore him completely?
Does Bill Gate's many ethical failings while building Microsoft into a monopoly mean we can't learn from how he structured his development teams during the browser wars (I didn't realize how ironic this example was until after I wrote it. Maybe Marc Andreessen could have learnt from him too..)
In business there are plenty of people with moral failing in one area or another.
In my view you are better sucking the marrow out of their teaching, and then viewing what they say through the lens of your own ethics.
[1] http://en.wikipedia.org/wiki/Groupthink
[2] http://en.wikipedia.org/wiki/Gallipoli_Campaign
[3] http://www.ozpolitic.com/forum/YaBB.pl?num=1398405363/61#61 (Sorry for the random forum link, but finding a better short summary of the "the English officers sent the Aussie Diggers to die while they stayed behind" thing is too hard right now.
[4] http://listverse.com/2010/02/12/10-terrible-bigots-in-modern...
Because of this, people won't be inspired by them anymore and their opinion doesn't have weight anymore, because now everybody knows they are not looking to make a difference in the world, they are only looking out for themselves and their own benefit.
Still have hopes for Ben, I've always admired a16z, but this really sucks
By all accounts, their treatment of founders is very ethical indeed (by Founders' standards), for example, and I wouldn't expect this to impact their credibility as knowledgable VCs at all.
In short, people are complicated, and applying well-earned admiration in one area to transitively enhance someone's reputation in another is clearly an all too common error (hence celebrity endorsements, etc.)
Film at 11.
If you could somehow invest in a startup "index", it would be great, but there really is no such thing (especially not for the VCs).
- 4,000 startups a year.
- 3,000 seen by a16z.
- 200 are "fundable."
- 15 of those generate 95% of returns.
That said, if you want an example of a seed fund with a pretty broad approach, take a look at the aptly-named 500 Startups.
Or do you think an alternate explanation might be more likely? Is it possible that you misunderstood something? Or is it possible that, if Marc is challenging this thesis of portfolio theory, he might be doing so from a place of great experience and be worth listening to?
He doesn't need to be above average there. Just like PG, he (mostly) invests in technology he actually comprehends, unlike some other delusionary VC from the investment banking world.