Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Ben Horowitz
[00:00:00] S0: $500 million or something. [00:00:00] S1: A billion, you get to go public, or something like that. And you're kind of small if you don't have that. You kind of need a lot more out of the private markets than VCs are built to do. That's one of the things we have to think about. Another one is the companies in the portfolio, they'd leave you at $100 million in revenue. They're going public. They're out to the races. Well, that's not true anymore. What do you need when you get to be $200 million, $300 million in revenue? Well, you need to be multi-product. You need to be multi-channel. You need to be multi-geography. So as a venture firm, we need to help them. As a venture industry, we need to help them do that. "How do I get to Japan? How do I get to South America?" Most venture firms don't provide much along those lines. So we have to step up to those ideas if we're going to have companies in the portfolio at that stage. [00:00:00] S0: Do you hope that over time, your firm and maybe some others like it that have become these big institutions in venture, go on to be sort of like the Blackstone, Apollo-type companies that are big, publicly traded, enduring businesses?
· Ben Horowitz
[00:00:00] S1: We are about the creation of new technology companies. A big, huge wave among venture capitalists is private equity AI roll-ups. It's a good business idea. Just like the spreadsheet created the original private equity business, AI is creating a new private equity business where you can buy any existing company, optimize it with AI, and it'll be more valuable. That's a good idea. It's a good thing to invest in. It's not something we're going to do for two reasons. One, it's like the cultural opposite of who we are. So we're about building new things, growth, believing in the entrepreneur. Price doesn't even matter. As long as the thing succeeds, you're going to do well. Private equity is entry price is key. I had a great dinner with Marc Rowan, who's a super genius, runs Apollo. And he was like, "Entry price, entry price, entry price." We think about it, but it's not first and foremost. Thinking about containing costs and this and that and the other, that's just not what a good venture capital frame of mind is. Culturally, I didn't want to mix those two things. But more than that, like, I just didn't want to be in a business where the way you make money is you figure out how to optimize an existing thing and lay off people and that kind of thing. So we're about new technology companies, building the future, taking things forward. And I'll leave that to the other smart guys in the industry.
· Patrick O'Shaughnessy, Ben Horowitz
[00:00:00] S0: What, if any, trade-offs feel like they might exist at this scale as you continue to scale? As you consider all these different people you're trying to serve well – the investors internally, the LPs, the founders – nothing's perfect. What are the trade-offs to the path that you've chosen? [00:00:00] S1: With any scale of organization, you really have to overpay attention to culture, or the culture will drift. We probably spend more work on that than any venture capital firm. I'm like, you're not allowed to join unless you sign the culture document. I spend an hour with every single employee teaching them the culture. We really try to enforce it hard when we can. We have pretty good consistency, but that is hard to maintain as you grow. [00:00:00] S0: Can you teach me more about culture? You've written a book about it. You've studied some very interesting cultures that you wrote about in the book. If you had to teach a seminar or something on what a culture is in the first place, and then how to design one, given what you do and who you are? And then how to make sure people live by it.
· Ben Horowitz
[00:00:00] S1: Let me give you a small but probably the most important insight, which is from Bushido, the Way of the Warrior from the Samurai. A culture is not a set of ideas. It's a set of actions. If you define your culture as a kind of set of ideas – integrity, do the right thing, we have each other's backs, or any corporate values – it's actually just a bunch of fucking platitudes. It doesn't mean anything. The culture has to be defined in terms of the exact behavior that you want that support that idea. What do you have to do to actually be that thing that you want it to be? It's the little things. How responsive are you to your colleagues? What's the SLA on returning a Slack message or an email? Do you show up to meetings on time? Not everybody has those ideas, but if you want that idea, you've got to manifest it through something else. We have an idea about, "You have to respect the entrepreneur." Well, what is that behavior? Well, like, one, you can't ever be fucking late to a meeting with an entrepreneur. I used to fine people $10 a minute in the beginning of the firm to reinforce it. And then you have to get back to an entrepreneur. If you say no, you have to say no. You have to explain why you're not investing. And we're going to survey that entrepreneur after you say no to make sure that you said no and that they had a good experience. That's a behavior. If you try to make yourself look good by making an entrepreneur look bad, you're fired. You get on X and say, "Oh, he's selling dollars for 85 cents." No, no, no. No, no, no, no. We're dream builders. We're not dream killers. Fuck that. If somebody wants to do something larger than themselves… build a company, make the world a better place, we're for that. We don't give a fuck what the idea is. Or if Sequoia funded them or whatever, we'd love that. That's who we are. And so the behavior is the culture, is the actual thing, and that gets you the idea, as opposed to the idea and then figure out how you're going to behave. That's probably the main thing on culture.
· Patrick O'Shaughnessy
[00:00:00] S0: Can you say more about the influence your dad had on you? You mentioned that lesson of "nothing's fair" or "life isn't fair." Tell me about your dad.
· Ben Horowitz
[00:00:00] S1: He was what's known as a red diaper baby. My grandparents were communists. They went to secret meetings. They had cards. My grandfather was fired during the McCarthy era from being a junior high school teacher for being a communist. And he grew up a communist and he started out on the left. He was editor of a very famous New Left magazine called Ramparts Magazine, which he was editor of. And he was involved in the Black Panthers with Huey Newton and, you know, in the Oakland chapter, Eldridge Cleaver. Dropped out of politics and he reemerged eight years later on the right. He really understood the ills of communism and socialism, which helped me a lot. One of the things that he said to me that always stuck with me, he's like, "Son, go to the library. Pick any book on socialism. There's hundreds of books. And in that book, I guarantee you, you will find page upon page, chapter upon chapter of how to divide the wealth. You will not find a single sentence on how to create wealth." And I was like, "Oh, wow, that's not a very good system, is it?" I learned a lot about systems thinking from that. He wasn't this new age father. In the old days, your father, they wouldn't even talk to you until you got to be like 12. And you get these little snippets of wisdom. And one of the ones I actually put in The Hard Thing About Hard Things, but I had three kids. I was young and I remember it was like 102 degrees. The air conditioner was broken. The kids were going crazy. Like one of them poured a whole bottle of apple juice, like a gallon of apple juice into the rug and apple juice is steaming out of the carpet. But I'm just sitting there, I was looking like I was going to die. And my father looks at me and he goes, "Son, you know what's cheap?" I said, "What?" He goes, "Flowers are cheap." I said, "Okay." He said, "You know what's expensive?" I said, "No, what?" He said, "Divorce." He had been married four times. So he knew what he was talking about.