In our very risky businesses that could lose money for a long period of time as they go into business. Banks, unfortunately, our not in the business of doing that. We are willing to take that risk. Half of what we invest in, we will lose all of our money. Any bank will not be too excited about that venture. Host where does the original money come from you give to the companies . Scarlet we go out and raise money for my couple of different folks. University endowments are a big source of capital. If you look at Stanford University or yearly university, they have endowments, and that money goes to help subsidize the cost of the university. Large foundations, nonprofit foundations, like the ford foundation, for example. Or these companies are doing is trying to use venture as a way to drive a high rate of return in their portfolio. They are looking for us to generate Something Like 25 or 35 returns for their business. They have a large portfolio that might have stocks and bonds, and this is a highrisk, high reward portion of the portfolio. Host what is a normal pitch like . Scarlet it is fun. Scott it is fun. A few members come in. Often they have just a powerpoint presentation. They have not built a product. It is an opportunity for the entrepreneur to tell us about their expansive vision for their company. How big of a Market Opportunity can it be . And ultimately, why is this team the right team to go after that . So it is a very fun, quite frankly, intellectual process by which we can learn you things and then ultimately make the. Ecision unique to the tech world . Scott many of the companies that take Venture Capital are tech companies. It does require a type of financing like venture. Which is the willingness of somebody to take a chance on something where the odds of success are extremely low. Hopefully, if it works, the payoffs are very high. Or twobusiness, one companies will drive the lion share of the success we have. The others might not. You have to have that level of Risk Appetite in this business. Host your new book is called secrets of sandhill road. Road, and whyill is it significant . Scott it is in menlo park, california. You wouldnt know about it except for the fact that a mile or two east, is a more famous neighbor, Stanford University. You can think of it, if you are a music fan, nashville. Wall street in new york. It is a bit of a mythical place where it just happens to be the a lot of the Venture Capitalists congregate. It is in that exciting to write home about, it is just a lot of drab story buildings. It happens to be a place with lots of capital and opportunity. It looks like a bit of an Old Industrial park. It is land that has been owned since the beginning. Host why is it drab . There are not any highrises there. A lot of twostory buildings. I think partly there may have been zoning restrictions that caused it, but it is also upstaged that its much more famous neighbor, Stanford University. Maybe the university always had the intention to make sure it was left there. Host you are the managing horowitz,ndrees which is scott we are a Venture Capital firm. We invest in early stage startup companies. Hope that over time we can help them grow into very large businesses. We are a 10 billion business. That means we have raised about 10 billion in our history from the limited partners would have talked about. Again, our job is to be on top of all the things happening in tech and in entrepreneurship, particularly those businesses that have software as a component of them. Host what is the technical or legal explanation of what a limited partner is . Scott a limited partner is someone who is an investor in a fund like ours. They are truly limited in the sense that they dont have the control over the investments we make or when or if we sell those investments. Essentially think of them as a passive investor, which is, they give us money, we have an butgation over that money, to choose which companies we invest in, those things are 100 in our purview. Host what is a typical day for you . Scott usually we will be seeing a couple of different pitches. A couple hourlong meetings with entrepreneurs. If we are working on deals, we will often be doing diligence. Someone we may have met earlier, now getting closer to making a deal, so we will be digging into their business, to understand their project in more detail, their financials in more detail. We spend a lot of building relationships. A huge part of this business is being wellconnected into the entrepreneurial ecosystem, understanding what professors are doing at different might beies that relevant to our companies. So we spend a lot of time on what we call outbound relations. Host what is the expertise you bring to this position . Scott i have been in tech for about 25 years. I was a banker in my early days, then i owned a Startup Company for nine years but ultimately got sold to hewlettpackard. I think what i bring is an appreciation for Capital Markets and the financial side of businesses, and also an appreciation for what it means to be a startup and go through the Company Building process. That means that not only does it provide empathy and respect for the process, i think it allows us to be more better and patient investors and recognize and understand that these things dont always go right all the time. Starting a company is a series of ups and downs, and i think we bring this up into the process. Often there is not a product that is not associated , right . Itch what we are trying to understand from the entrepreneur is not necessarily what is the final product, but tell us about the idea. How did you think of the idea . How does it respond to the market needs . Give it, they will change over time as they get products into the market, and we recognize that as part of the Company Building process. We want somebody capable of this earning the data points from the market and being responsive to the needs of the market as they build their product. Host what is your winloss record . Scott you know, it is funny. We dont actually think of it that way. The honest answer is it is poor. About, that 40 to 50 of the things we invest in, we have a polite way of calling them impaired capital. Which means we lose our money. 2030 we make a little money. The difference between success and failure in this business is, what happens to the remaining 10 or 20 of those companies . Do they become a google or facebook in which you may make 10 times or 20 times your money . This business is based on total returns. But those small number of returns will be driven by a very small number of companies. If you are a 10 billion company, you have had successes. What is one you can tell us about . Scott so we have had some nice successes, i will give you a good example, we have a public , inany today called okta the Enterprise Security spacep we invested in. It for the first time in 2009. It was one of our very first investments. We put about a half 1 million in two the two founders to build out the idea and your product. Over the years, we invested more money as did other Venture Capital firms. It went public about a half a year ago. If you look at it today, it is about a 10 billion or 12 billion market cap company. That is an example we have been working with them from inception. The Founding Team has done an incredible job in building up a sustainable, freestanding, and valuable business. Host i apologize if i missed this. What is it that okta does or makes . Is a software company. If you are a business, you might have cloudbased applications you are not running on your premises but you are running in the cloud. You might have gmail for email. You might use salesforce. Com to manage your salesforce. Another software used for marketing. All of those software, because they run in the cloud, every user has to be able to look into those and they should have security controls. Does is provide a single signon for all those applications. So instead of having a different password for each application you log into okta, which officially manages all the applications. It is a tool they will use to manage security. User access and administration. Somebody, what applications do we give them access to . When they leave the firm, how do we manage their access . It is a tool used to manage a variety of applications. Host for those of us of a certain age, names like general electric, ibm, ford, those are the names we are used to. Where did the name okta come from . Scott it is a good question. I will look that up for you. I will look that up for you. Host is Silicon Valley successful because of Venture Capital . Scott no, Silicon Valley is successful because of entrepreneurs who are willing to take the kind of risk the business entails in building something that might have a 10 or 20 chance of success. Venture capital is really an enabler of that ventur activity. We can add value to the companies, but we shouldnt kid ourselves, at the end of the day, the innovation comes from hard work and efforts put in by entrepreneurs. Host one of the things you talk about in secrets of sandhill road is that products of ideas are often 10 years ahead of their time. What do you mean by that . Scott it is funny, you see this recurring theme in Venture Capital, investors that didnt work out some point in time will work better later time. There was a company for example, they were trying to do grocery delivery, the company was called web van. They were tilting massive warehouses and then they would use vans literally to deliver that to people. It was a Wonderful Service for people, but it was just a very opportunity, because the number of people who thought of the idea of Home Delivery for groceries or willing to use their computers, because of course, cell phones did not exist to do that ordering, it was not the time. The company was not successful. Now today, we have a company art which isc executing the same idea in the same way. Independentng contractors, they are not staffing supermarkets, they are partnering with supermarkets to get access to the produce. And then of course, there is the iphone revolution. A lot of things people would not have otherwise done on their desktop, they are willing to do on their mobile phone. It is a new technology. Bacon expanded market in a way that did not exist in an earlier time frame. Host when it comes to an instacart, do they go to other Venture Capitalists as well . Scott they raise money in different rounds. Often people will raise a first round of financing. That will last them 1824 months on average. Then they will go raise another round of financing. If they are doing well, the evaluation will be higher on that second round of financing. Stageeral, at the early there tends to be one major investor. If we are lucky enough to have that opportunity, we will be the major investor. When they go into subsequent rounds of financing, it is usually the case that another investors will be part of the company. We have an interesting relationship with our other Venture Capitalists. We are partly competitors. There are certainly deals and rounds that we will compete against, but many times, we are partnering with other Venture Capital firms because we are investing either in earlier rounds or later rounds in the same company. Host do you have a say so and in how the business operates during the first round of financing . Scott so there we are business works is we have a set of typically rights that are adjust to the financial interest when we invest in the company. Often we will sit on the board of a company, we will have their rights and duties that a board member might have make the decisions about whether the ceo is appropriate for the business or the strategy. We also tend to have stock that allows us to vote for things like, is the Company Going to raise more money or try to sell themselves . Those types of things, we have a say in. We dont govern them completely, obviously, the founders and shareholders have a voice as well, but there is a balance of power that comes from that type of governing structure. Host do you have a say so in a instacartke okta or today now that they are a Public Company . Your they pay back investment and they are gone . Own shares in those company. Case, our founder, ben horowitz is on the board. Is that we stay on the board for a period of time after the, companies go public and then exit when the companies become more mature. Just likeown stocks any other stockholder, and we can vote through a proxy for other Corporate Activities that would require a vote. , ben horowitzor and mark are legends there is Silicon Valley. Who are they . Andreesen originally made his fortune in a Company Called netscape. The company went public in 1995 and heralded what many people believe as the first real Tech Revolution for the modern internet era that started in the early 1990s. He has gone on to be involved in other important companies, he is on the board of facebook, ebay and hewlettpackard, a very now went investor, and are lucky to have him as a partner. Then horowitz got to know mark because he worked at netscape and ran a number of products on behalf of mark and they became Close Friends and colleagues. They eventually started a company in 1999 called loud cloud, which many have not heard of. Essentially, think about it as like a computeondemand. Cart example, insta it is a company that was a few years too early. So then was the cofounder of the business. Arcn in 2009, he and m decided to take their skill set and become Venture Capitalists. Netscape exist today . Scott netscape was sold to aol in 1988, and the netscape browser, their main product, really does not exist. Today the main browsers people are using today are Google Chrome or the apple safari browser. Most of those browsers or their progeny to the early netscape days. Host one of the realities and criticisms of Silicon Valley entrepreneurship today is that investors or entrepreneurs will come in with a product that they are hoping will be sold to a Larger Company or a Larger Company will buy the product so there is less competition. Least in our experience and how we think about investing, we are actually not interested in backing founders and companies where the goal is to try to sell the company. The reality is that does happen many times, in fact, the about 80 of the excess in our business, when a company is exiting, happen through acquisition. Wenta company starts, we to believe at least that they are going after an opportunity big enough, and that their product is enough to support a standalone company. Acquisitions do in fact happen. I dont think about those generally as anticompetitive in the sense that we have never, you know, we continue to see new innovations constantly happening in this business. But it is certainly the case that sometimes Larger Companies will acquire these large businesses, but often, there is another Company Behind them going after another segment of the market. None of that has actually had an impact on the rate of new company formation. We are privileged to see all kinds of new opportunities still happening. Host is the work culture of Silicon Valley something you have to get used to . Scott i think so. It is a hardcharging culture, no doubt. People are working very hard. People have very high dreams and aspirations for what they are trying to build. It does mean that some people probably spend more hours in the office then maybe people would otherwise like to. It is a very Competitive Labor market, and i mean that in a positive way. There are different opportunities. Job mobility is extremely high. It also puts our real premium on culture within a company, which is, if the ceos and the Management Team doesnt do a good job of setting a right culture and helping people who want to achieve a normal worklife balance due so, there are so many opportunities for mobility, that it does keep a market in check. Host can you pitch an idea on to a Venture Capitalist on sandhill road if you live in fort wayne, indiana or louisville, kentucky . Scott that is a great question. One of the things we have seen in the u. S. Is that the Venture Business is still very geographically concentrated. New york, california, boston, makeup Something Like 70 of Venture Capital dollars that are invested every year. The answer is certainly, you cant. We are very interested in talking to entrepreneurs. Often in those local markets, the earlystage capital called seed capital typically will come from the local markets. Then, if they dont have larger firms beyond that, you will see those Companies Come out to either new york, boston, l. A. , other places where there are finesentration of larger for the next round. Scott in your book, you talk about the fact that both microsoft and facebook were vcfunded companies and the differences in return for those companies. Scott this was an interesting phenomena that happened in our business. The average time it takes from founding to going public has basically doub