David Senra
00:14:17 · Scott Kupor
[00:14:17] S1: other night. Exactly. Yeah. And and Michael Dell was part of that too, but it's literally like we did essentially a buyout. Like, it was like a crazy thing to do. We we had just gone on the road and told all of our investors we're doing early stage venture investing. And we hinted, by the way, this this Skype thing was going. So like, we pretty much said it was gonna happen, but we couldn't say it was gonna happen because, you know, it hadn't been done yet, so it wasn't actually a surprise for LPs, but it was clearly very different than the strategy we had laid out. And so we did this thing and immediately, of course, everybody attacks us and says, these guys are crazy, what the hell are they doing? Doing a buyout, it'll never work. And there was all kinds of stuff at the time, if you go back and read the stuff, you'll see it. There was this big IP dispute with the original founders like Janus and Niklas and eBay about who actually owned the fundamental underlying IP. So And much people looked at buying Skype, but nobody could get comfortable because they're like, gee, if we buy it, what if Janus and Niklas come out of the woodwork and say they own it and so do you really own the IP? You know, Egon's genius was, let's actually figure out a way to work with these guys. So we actually, you know, our bids came together and we actually worked collaboratively with these guys as a way to moderate this IP question. But anyways, everyone's like, look, this is crazy. But the beauty of it, literally eighteen months later, sold to Microsoft for four times what we paid, like eighteen months before. And so the news cycles were just unbelievable. And look, part of this business is momentum begets momentum, right? Which is true of so many businesses. And so we were able to actually like raise our second fund well ahead of what we had planned doing in part because the Skype thing just worked out so well. We returned, you know, literally, you know, half our fund to our LPs within eighteen months, which, you know, these days is obviously completely unheard of and even back then was unheard of. And it just completely changed the narrative. We also had a company called Nicira, which was in the networking space, Martin Casado, if you know Martin is one of the partners there today. His company got sold to Cisco early on in the first one.
00:16:04 · Scott Kupor, David Senra
So we had these like very quick early wins, which basically, you know, potentially could have gone the other way, but they didn't, they went in our favor and they basically just dramatically accelerated the progress. And key to our business model, right, to do the Michael Ovitz business model, we had to have enough of a fee stream to be able to hire all these other non investing Yeah. People, And you know, Marc talked about this before, but like, you know, what Marc and Ben did, they were very magnanimous. The two of them didn't take, they took no salary right at the beginning of the company because they wanted to basically take, you know, as much of the fees as they could to give it to me to go hire other people, you know, to build this thing out. But, you know, we needed another, you know, in order to kind of continue that build out, the second fund gave us, you know, a, you know, stacking fee stream that allows us then to say, okay, now we can actually double down on the strategy. So it was one of these things where like, you know, we had early success. It was also 2009, right? So again, middle of the global financial crisis, you know, you know this, but like, you know, the Sequoia guys put out this, you know, RIP presentation. Have you seen it? [00:17:01] S0: Was RIP good times? RIP good
00:17:01 · David Senra, Scott Kupor
[00:17:01] S0: Was RIP good times? RIP good [00:17:03] S1: times, right? It's literally like the world's coming to an end. We're all gonna die. Sounds a little bit like today, actually, now that I'm saying it. No one will ever raise any money, like put all your money under under your mattress. And so like we were this shiny gold, you know, like object in 2009 when everyone else was hunkered down and worried about their portfolio companies. So we had this enormous advantage, which is we put a shingle out and we say, hey, like we're open for business. And every other venture firm and rightly so, I understand it. Like they have these enormous amount of portfolio companies that they were very worried about whether they would survive or not. So, so much of like all that early momentum accrued to our benefit, which enabled us then to go raise the second fund, which gave us the funding to build out the services strategy. And that really kind of compounded in a way that I don't think we expected. Marc and Ben may tell the story differently, which is they always knew they always knew it would be a success. And I'm certain, I believe that, right? I mean, guys are
00:17:50 · David Senra, Scott Kupor
[00:17:50] S0: entrepreneurs Obviously for they're entrepreneurs make self confident and they don't wake up thinking they're gonna lose, but they're always surprised. There's no fucking way if you build something that they're confident they're gonna succeed, but they can never predict a degree to which they do succeed. It's funny that you say that they would tell us, they might tell the story differently because one thing I love talking about Marc and it's obvious on that, if you watched the episode of him and I did together, is the amount of business history that's in that guy's head. It's unbelievable. It's like, I just like constantly prompting. And it's like, I don't tell people, you know this, like, we don't know what we're gonna talk about before we talk about this [00:18:21] S1: on a [00:18:21] S0: list of questions. I surely didn't say anything to him other than we're both psychopathically obsessed with business history, entrepreneurs, all sorts of stuff. Impossible not to have an interesting conversation. But I'm like, damn it, I should get Marc on. I want him to, like, instead of telling the history of other businesses, I should get the history of A16Z from him. Like why you're speaking.
00:18:37 · Scott Kupor
[00:18:37] S1: It's amazing. Yeah. And look, as you know, look, the guy is encyclopedic on so many things, but that's the... And that's the other thing, by the way, that he and Ben both were really, really smart about, which was... And and I I know he talked about this on your show, but just double down on it. This concept of marketing generally in the venture business. Right? So it was it was considered verboten to market in the venture capital business. I don't know why that was, and it was, I don't know, it was probably just, I think it's mostly historical reason, which was you didn't need to market because there was, in the old days, capital was scarce, right? So the source, the derivation of power for venture capital firms in like late seven... Know, late sixties, early seventies until, like, probably, like, close to 2 thousands was money was scarce. The VCs had the money. And so therefore, if you look at the balance of power, the VCs were up here and the entrepreneurs were down here. And that was sufficient. Right? And and a lot of great firms and many of which still exist today were incredible in that era. Right? That's, you know, obviously, Sequoia, you know, has been and continues to be incredible. But all the existing firms that you see there at the top of the game, like Sequoia, Excel, Greylock, even Benchmark, right, which was a spinout of Merrill Pickard. All these guys lived in that era, right? Where nobody marketed, I believe just in part because they didn't have to market, like you went to them because they had the money, you needed the money, that was what the marketing was. When we came along board, look, we didn't know anything and we didn't know anybody, and so part of like what Marc and Ben rightly said was just like we came out of the enterprise software business and we know like in the enterprise software business, just because you have a good product, nobody gives a shit if you don't actually tell them what it is, right? And so they're like, look, we got to go tell people who we are, what we stand for. And so we did, we told the story, which is, look, we're going do things differently. We're going to build this whole services part of our business. And we're going to market on that basis because what we didn't have to market on was we didn't have the, like the long history of a track record in the business, right?
00:20:18 · Scott Kupor, David Senra
So to this day, right, if you go to Sequoia, who's an amazing, you know, player in the space, if you go to their conference rooms, you'll see Cisco in the, you know, a poster of Cisco and Apple and, you know, Google and all these other things, like we had none of that, right? We had... Marc and Ben had done their own, you know, angel investing and of course the two of them had had success as entrepreneurs, but like we couldn't compete against that. So what they rightly did was they said, look, if we can't compete on what people are competing on today, we have to change the rules of the road and go compete on something else. And so they created this category was, okay, the new venture capital firm is going to be not just capital, but it's going be capital plus plus, right? It's going to be plus this whole network of people whose job it is to help the entrepreneur. It's in [00:20:56] S0: service of the entrepreneur.