Host so scott kupor, what does a Venture Capitalist do . Guest so basically what we do is we provide money to companies that are trying to grow and hopefully become very Big Companies like facebook or google or apple someday. If were doing our jobs correctly we are helping them grow the company so we dont work in the businesses but hopefully we can provide introductions, help navigate new challenges as they go through the business. We like to think of ourselves as a money provider and hopefully a supporter. Host why cant a company such as the ones you describe just go to a bank and go through traditional avenues . Guest its a good question. Most of the businesses we invest in our very risky businesses that will lose money for a long time as Investment Business and banks are not in the business of doing that or taking risk of losing their capital. We are willing to take that risk. About half of what we invest in we will lose all our money in. Any bank of you that idea to would not be too excited. Host where does the original money come from that you give to these companies . Guest the way our business works is we go out and raise money from a couple different folks. University and tablets are big source of capital. Look at Stanford University or yale university, they have large comets and the invest to earn a return and that money goes to subsidize the cost of supporting the university. Large foundations, nonprofit organizations like a Ford Foundation is another example of investor of ours. Their time you think is way to drive up a very, very high rate of return. Theyre looking for us to generate Something Like 25 or 30 returns annually for their business and as part of a broad portfolio they will Venture Capital, stocks, bonds and this is the high risk but hopefully the high reward portion of their portfolio. Host whats a normal pitch like . Guest its fun. Its usually a few members of Founding Team who cant and and often they have just a powerpoint presentation. They have not often built a product at this point and its an opportunity for the entrepreneur to tell us about their vision for the company. How big can the Market Opportunity be . What could this look like if it gets there . Ultimately why is this team right team to go after that. Its a fun intellectual process by which we get to learn new interesting things and be able to make a decision about whether this is a team we should back for that particular opportunity. Host is vc unique to the tech world . Guest its definitely the case that not all Venture Backed Companies or Tech Companies but its also the case many of the companies that take Venture Capital are, in fact, Tech Companies. Its not unique but it does require a type of financing like venture, which is the willingness of someone to take a chance on something where the odds of success are extremely low and hopefully that works the payoffs are very, very high. In our business one or two companies will drive probably the lions share of returns we have, and the rest of the portfolio doesnt contribute that meaningfully. You have to of risk appetite. Host your new book is called secrets of sand hill road. Where is sand hill road and why is it significant . Guest sand hill road is in menlo park california which you would not otherwise know except for the fact a mile or two east down sand hill road is its more famous neighbor which is Stanford University. You can think of sand hill road as if a music fan, its music row in nashville or its wall street in new york. Its a bit of a mythical place where it happens to be a lot of Venture Capitals congregate but it studied genetics i exciting tritone about. It just happens be a confluence of lots of capital and lots of opportunity for entrepreneurs. Host why is it drab . Guest it looks like a bit of an Old Industrial park. Its land that has been owns its very beginning by Stanford University and there are not any fancy high highrises. Its a lot of twostory buildings. Maybe the urban zoning restrictions but also its just upstaged by much more famous neighbor which is Stanford University and maybe the university always at this intention make sure sand hill road was left there. Host you with the managing partner of Andreesen Horowitz, which is guest sorry, yes. We are a Venture Capital firm so we do the things we talked about earlier in the interview. We invest in very, very early stage Startup Companies and hope over time we can help them grow into large businesses. We are about a 10 billion business which means we praise the 10 billion over our history from the limited partners we talked about. Our job is to be on top of the most interesting things happening in tech and entrepreneurship and particularly those businesses that have software, a foundational component to them. Host what is the technical or legal explanation of what a limited partner is . Guest a limited partner is somebody whos an investor in a fund like ours and the Legal Definition means they are truly limited in the sense they dont have control over investments we make. They dont have control over if we sell those investments. They were essentially think of them as as a passive investor h is they give us money, we have an obligation to be a fiduciary and earned a good return for them but the decisions about what companies we invest in, when we choose to sell, those types of things are 100 that our purview. Host what is a typical day for you . Guest usually we will be seeing a couple different pitches on a date and that means we might have a couple hourlong meetings with entrepreneurs. We will be doing diligence. Someone women have met earlier and now getting close to thinking about a deal so well be digging into the business in greater detail to understand the product in more detail, maybe the financials in more detail. We also spent a lot of time building relationships. A huge part of this business is being wellconnected. Understanding what professors are doing at different universities that might be relevant, so we spent a lot of time on what we would call outbound relation development activities. Host what is your expertise that you bring to this position . Guest i been in tech for about 25 years. I was a baker in my early days in that i was at a start up company for about nine years that got sold the hewlettpackard. Now ive been in this business for ten years. I think whatever and is an appreciation for both the capital markets, the financing side but also appreciation for what it needs to be in a start up and go through the startup building process. I hope what that means is that only does it provide empathy and respect for the process but it also allows us to be better investors and more patient investors and understand and recognize these things just dont go up and to the right all the time. Starting a company a serious ups and downs and i think would bring it a discipline and host there is a product idea but it is often the case. At the early stages there is no product that is yet been built. What we are trying to understand from the entrepreneur is not necessarily what is the final product but tell us about the idea maze. How did you think of the idea, how do you believe its responsive to what the market needs are. We recognize companies will be called if it which means it will change over time as a get products in the market. We recognize thats part of the building process. We want somebody who is capable of discerning data points and being responsive to what the needs are for the market. Host what is your won loss record . Guest its funny we dont think of it that way. The honest answer is its pretty poor if you look at that weight which is we generally, out of 4050 of the things we invest in theres a polite way of content and paired capital which means we lose all our money. Typically 2030 you make a little money and a real difference between success or failure in this business is what happens with remaining ten tenr 20 of companies. Do they become a facebook or a google where you might make wifi, 90, 100 times your money . Thats the way this business works. The way we measure success is based upon total returns but those will be driven by a very, very small number of companies. Host if you are a 10 billion company you you had some successes. What is one you can tell us about . Guest share your we had some nice successes thought you get a great example. With company today called okta. We invested in that company for the first time back in 2009, one of our First Investments when we started the business and it was what we call a seed investment. We put about half a Million Dollars in to give the fad is an opportunity to build a friday and product. Over the years weve invested more money but it went public about a year and half ago and if you look at it today i think it is a ten, 12 billion market cap company. Thats an example weve been working with them from inception and the Founding Team just has done an incredible job in building of what is now a sustainable freestanding and very valuable business. Host i apologize if i miss this but what is it that okta does or makes . Guest sure. Okta is a software company. The way to think about what to do is if youre a business you might have lots of cloudbased applications which means applications you are not running under princes but are running in the cloud sleep might have gmail for example, for email. You might use salesforce. Com to help manage your sales force. You might have software used for marketing. All of those software is because they run the cloud ever use has to be able to log into those and have security controls around their ability to access those applications. What okta does is provide a single signon so instead of you having to know your password for all of applications you log into okta and okta directly manages your access and all those applications. Its a tool the i. T. Department we used to manage security in their shop and user access and administration. When we hire somebody, what application to be given access to it somebody lisa from how do we make sure we remove access. Its a tool to manage security. Host for those of us of a certain age, names like General Electric and ibm, ford, those names we familiar with. Where did the name okta come from . Guest its a very good question. I dont know the origin story of okta. I will look that up for it and drop you a note on it but but h i had the better answer. I think you stumped me. Host is Silicon Valley successful because of Venture Capital . Guest no. Silicon valley is successful because of entrepreneurs who built this misses his and are the risk it entails in building something that might have ten or 20 chance chance of success. Venture capital is an enabler of that activity. We are a financing source and hopefully we can add value to these companies that we shouldnt kid ourselves at the end end of the day. The innovation and Development Comes from, 99 from the hard work and the efforts of the entrepreneurs. Host what are the things one of the things you talk about in secrets of sand hill road is products or ideas are often quote ten years ahead of their time. What do you mean by that . Guest its funny, you see this recurring theme in Venture Capital which is businesses that didnt work, later will work. Let me give you a simple example. You may recall a Company Called web ban which is in the 9899 timeframe, trying to do Grocery Store delivery. The way they were doing it at the time the rebuilding massive warehouses in order to stock all the produce and all materials they needed and they would use vans literally as name implies to deliver that to people. It was a Wonderful Service for people but it was a very small Market Opportunity because the number of people who thought about the idea of Home Delivery for groceries or who are willing to use their computers at the time because of course cell phones didnt exist to do the ordering just wasnt that they can the company was not successful. If you fast for two today we are invested and recovery called insta cart which is basically doing the same again but executing it in a different way. They are executing with a workforce that is in many cases part of what we call the gig economy, mean people are independent contractors doing this. They are not staffing supermarkets themselves but their partnering, they will get access to produce. They have the benefit of the iphone revolution which now means a lot of things people would not otherwise done at the desktop theyre willing to do on your mobile phone. Those are examples where new Technology Actually can create a market and expand the market in a way that just couldnt exist any prior timeframe. Host when it comes to an insta card or okta, number one, do they go to other Venture Capitalists as well beside yourselves . Guest they do. The way this business works is people raise money in different rounds. Rounds typically correspond to kind of the scale and the filament of the company. Often people raise a first and a financing and that will last them 1824 months on average and then go raise another round of financing and if theyre doing well the valuation will be higher on that segment of financing. In general for each round of financing at the early stage that can be one major venture investor. If are lucky enough to have that opportunity we will be the major investor. When you get whatever subsequent rounds of financing its the case additional Venture Investors will now join every part of a company. We have an interesting relationship with our other Venture Capital firms in industry. Were partly competitors but many times were partnering with her other Venture Capital firms because we are investing alongside either an earlier round or later round of the same company. Host do you have a say so in other business operates during that first round of financing . Guest so the way our business works is we have a set of governance rights that typically are attached to the financial interest we invest in the company. Often we will sit on the board of the company so well have the right that a a board member hae to make decisions about whether the ceo is appropriate for the Business Strategy the company may be doing. We also tend to have stocks that allows us to vote for things like with the company raise more money or try to sell themselves . Those types of things we have seen the week dont govern them completely. The founders of the company and the other shareholders have votes as well but there is a balance of power that come from that type of government structure. Host do you have sayso in the company like okta fort insta card today now that your freestanding companies . Or have a pay back the money and you are gone . Guest they dont pay back their your money. The way the work is wheeled equity, stock in these companies. In the case of okta with the go public with an option to choose that stock and that that would make the return on our investment. We have one member of the board, our founder is on the board and our typical m. O. Is will stay on the board for some time after these companies go public but over time look to exit the board as the companies become more mature. Today early say in the company is is one of many Board Members and, of course, we on stock surges like any other stockholder we can vote through a proxy for other Corporate Activities that would require a type of boat. Host mr. Kupor, ben horwitz and Marc Andreessen are relative legends out there in Silicon Valley. Who are they . Guest Marc Andreessen people may remember was originally made the same as about of the Company Called netscape back in 1993 which was the First Company to commercialize the web browser. Netscape fame as it went public 1995 and heralded what many people believe as the first real Tech Revolution for the modern internet era the start in the early 90s. Marquez got out to be involved with other important companies. Hes on the board of facebook, was on the board of ebay and hewlettpackard. A very, very important in venture and now were lucky to have him as a partner of ours. Ben horwitz, got to know mark because he ran a number of the products on behalf of mark when he was at netscape and they became very Close Friends and colleagues to that. They started the company together in 1999 called loud cloud which many people probably have not heard about we were trying to build something that is akin to it Amazon Web Service does today. Take about as compute on demand. As we talk about it early with insta card, its a good example of a company that was a few years too early but now as a c with Amazon Web Service, a very successful idea. He was a cofounder and ceo of the business which was a successful business and then they decided decide to take thr entrepr