The Twenty Minute VCa16z GP Martin Casado: How I Went from Engineer to VC; Lessons from Chris Dixon | 20VC #956
EVERY SPOKEN WORD
140 min read · 28,061 words- 0:00 – 1:41
Who is Martin Casado?
- HSHarry Stebbings
Martine, I've referenced the shit out of you, as we've just been talking about.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
I'm so excited for this show. (laughs) So thank you so much for joining me today.
- MCMartin Casado
No, I'm just delighted, absolutely.
- HSHarry Stebbings
That is very kind of you. But I wanna start with a little bit of context. So, you know, you're at v- A- Andreessen today and I wanna start with, in your words, how did you make your way to be a GP at Andreessen today? Before we dive in.
- MCMartin Casado
Well, the quick story is, um, (clears throat) I'm a failed physicist. (laughs) So in undergrad, I did computational physics, worked at a national lab. Decided that computer systems are much more accessible, and so I moved into systems, ended up doing a PhD at Stanford. Started a company based on the research. Ben Horowitz joined my board. Uh, this is, by the way, this was in, you know, I started the company in 2007. So 2008 was the Great Recession, almost went out of business. Marc and Ben saved the company. We ended up selling that, um, about four years later to VMware. Uh, I ran that business for a while. And then, you know, I decided that I'm super in love with innovation. I love startups, I love infrastructure and systems. I spent 10 years doing the operating thing, built a billion-dollar business, and it was time to kind of move to a different abstraction level. And so I joined and I just focused on infrastructure at Andreessen Horowitz. So that is the crooked path I took. (laughs)
- HSHarry Stebbings
Oh my God. I, I, w- w- ... You know what I love? That, that, there is this weird correlation between the more successful someone is, the shorter their intro is.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
And the least successful they are, the longer it is.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
And that was so succinct. Um, I, I want to ask you-
- MCMartin Casado
Okay.
- HSHarry Stebbings
... you mentioned the incredible
- 1:41 – 3:54
How did you time as an operator impact you as an investor?
- HSHarry Stebbings
operating career there. How do you think that operating career impacted your investor mindset, say, positively, first?
- MCMartin Casado
So I've just, I've had multiple boards. I've done two companies and I've had multiple board. And, and, and in my experience, you kinda have three types of board members. I think the, the mean board member, the median, the, the, the average board member, you know, they, they're investors. They've seen a lot of stuff. They'll roll up their sleeves, they'll help, you know, recruit or whatever. Um, but otherwise, they're just not close enough to product market fit to add much value, you know? And so, like, they'll say the things, they're polite, they're nice people. You know, they're, they're kinda net neutral, right? I think this is the-
- HSHarry Stebbings
Mm-hmm.
- MCMartin Casado
... the average board member. I think, unfortunately, the next most common board member is the frustrated operator. And so they've kind of ... think they're an operator, you know, maybe were an exec in a large company, you know, maybe had a small exit or whatever, and they, they really want to kinda backseat drive the company. Um, and I've definitely dealt very directly with those. And they can be incredibly disruptive, just because they don't realize that it's, you know, (laughs) it's not their company. Uh, and then, you know, periodically, you get like a pretty phenomenal board member. Like for me, that was Ben Horowitz, which, you know, listen, had a huge exit, spent 11 years, you know, re- really kind of learning a craft, but also kinda getting it out of the system. Um, and so I- I'll say, uh, I'll say a couple of things. For, on the investment side, I don't know if operating helps or not. Like, I don't know if it helps you pick. I don't know if it helps you close. (laughs) I don't know. Like, I don't know how to answer that. Probably not, it probably hurts more than helps. Um, but on the operating side, if you can realize it's not your own company, you end up having seen a lot of stuff and having a, a deep level of empathy that unless like basically, you know, you had to pay payroll out of your bank account, which I had to do, unless you almost, you know, shut down the company multiple times, which I had to do, unless you had to go begging for money about 50 times, like I had to do, (laughs) unless you, like, you know, almost sold the company then didn't sell the company and almost get fired by your board, like I had to do, um, you know, it's hard to have that kind of level of, of empathy, and also just understanding. And so I think for that, you know, it's useful. But I just wanna caveat it, like y- you know, hopefully you did your run and it's out of your system. Otherwise, you can be disruptive.
- HSHarry Stebbings
I, I, I totally agree with you in, in terms of (laughs) kind of doing your run. Can I ask, I spoke to so many of your founders and partners before and they said Martine is on so many boards.
- 3:54 – 7:50
Do VCs actually work?
- HSHarry Stebbings
- MCMartin Casado
Yeah.
- HSHarry Stebbings
Um, how do you manage your board load, Martine?
- MCMartin Casado
Well, there's a few things to, to, to consider here. So the first one is, like, I honestly don't know what VCs do with their days. I mean, you know, it's just wild how many don't work in evenings or are gone on Fridays or don't work over a wee- it's just unbelie- over weekends. I just don't know what they do. I mean, you know, I, if you step off of having a, a ... You know, listen, I grew a, I grew a business from basically zero to 600 million globally. I mean, I was working 100 hours a week and I was flying all over the place and, like, (laughs) you know, that's what I spent 10 years doing.
- HSHarry Stebbings
Mm-hmm.
- MCMartin Casado
And so it just turns out there's a ton of time in the week. So, I think one thing is, is like, listen, I mean, you know, if you put in the time, there's an o- awful lot of time in the day. And even if you're on a lot of boards, it's nothing, nothing compared to running, you know, a 4,000-person team to hundreds of millions of run rate in, in, in, in my experience. The second thing is I'm very lucky at Andreessen Horowitz to work with basically the best, you know, junior partner team on the planet. Like, many of them could be GPs at other firms, and they know their areas very, very well. And so they're tremendous help. And I literally couldn't do what I do without them. So I think a lot of the times I get credit unfairly for the work that my team did. Like, they're, like, like for example, you know, Jennifer Lee is way better than I am at, you know, data. And Matt Bernstein's way better than I am at AI, right? And so I've just got this phenomenal team. And I'll say one more thing, which is, listen, I'm pretty good at recruiting. I've recruited a lot of people. Uh, I'm pretty good at sales, I've sold a lot of stuff. Um, but I'm not nearly as good at recruiting as Jeff Stump who's our executive recruiter, (laughs) you know? And I'm not really nearly as good at sales as Brad Kern. And listen, I've done a lot of marketing, but, uh, I'm not nearly as good at marketing at market. And so I think part of the Andreessen model which is so effective is we really have, like, the industry-best people that pitch in at stuff, or often it's the GPs that are doing it. And so, you know, I think it's a combination of, you know, you work hard, like, like you, Harry. I mean, I have, I don't think ... Listen, I've done a lot of podcasts. I've never in my life had somebody be so thorough. Like, you're just so clearly good at what you do and you put in the fucking time. And like, it's what you should do. And you should work in the evenings and you should work on weekends. And if you don't, like I, like I just don't think you deserve to be investing in these companies. You just don't. And then you surround yourself with great, great people. And so ...
- HSHarry Stebbings
... I, I, I-
- MCMartin Casado
Put in the time. (laughs)
- HSHarry Stebbings
... I, I have so- I ha- I have so many LPs in that are like, "We're worried about your time," and I'm like, "I don't know what VCs do." I run a media company with many people-
- MCMartin Casado
Yeah, yeah.
- HSHarry Stebbings
... and a venture... Fuck, like, I- I'm- I'm- I need to learn golf is my lesson. Um.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
(laughs)
- MCMartin Casado
Oh, can I- can I- can I- can I actually follow on that? 'Cause I love this. Uh, here's another thing which is, what I do in my spare time, I'm just being very honest, like my- I- like my first, uh, you know, love is infrastructure and systems. It sounds like a weird and nerdy thing to say, but I love it. I just absolutely love it. And I love how it intersects with finance, uh, especially when it comes to the adoption of new technology and everything else. And so, I mean, for those that are listening, I mean, I even started a Discord with Tim Chen, you know, and it's a b- like there's 1,200 people on there, a- and I'm there all the time, and we literally talk about infrastructure because this is what I want to do. And so, like, listen, I- I- you know, if I wasn't, you know, in a board meeting, I would be wanting to talk about this stuff anyways. And so, I know so many VCs, right? I mean, I'm in the middle of the ecosystem, and like, you know, you go and, you know, you talk about a bunch of stuff, but it's almost never technology. (laughs) It's almost never category creation, and it's almost never how do you position marketing, it's always like, "Oh, what's the new company? What's the new lead?" Which I'm much, much less interested in that, and much, much more interested in, like, what's going on. So I also just think that my- my interest levels are- are much more aligned with kind of what startups should be thinking about.
- HSHarry Stebbings
Can I ask, you know, you me- we mentioned time there, and- and some elements of like, we don't know how venture investors do their time, I- many of your founders asked this one, which
- 7:50 – 12:02
Where does Martin think the Venture model is broken?
- HSHarry Stebbings
was, where does Martin think the venture model is broken?
- MCMartin Casado
Well, here's a- s- a- a- a pretty interesting observation, and I think it's, uh, actually twofold. So, the first one is, you know, the whole market for private capital and technology two decades ago was about a 50th the size it is now. A 50th. (laughs) A- and- and the technology was much less mature, right? Um, you know, it was so much more fringe. And if you go forward to today, I mean, the market's enormous, um, and then I actually think you can view software technologies m- more like you'd view a mature industry, like say, real estate or something, where you can be, you know, a bit more thoughtful about the placing money, it's kind of less random in outcome, et cetera. And yet, we have this model that we use for investing where it's, you know, investors are basically generalists and they, you know, deploy monies and they don't scale out and et cetera, that was born in this earlier year, um, and, you know, I think that we can now think of venture much more like a mature market investment, and, you know, be, you know, have portfolio synergies, scale up thesis, be very, very specialized and still be able to deploy a lot of money, have multiple products in venture, everything from seed through public through debt. I mean, I just think that like, listen, I mean, at the end of the day, I think that venture believes in innovation, and we're very tech positive, um, and I think that we should be running Wall Street, not the finance people that don't believe in any of these things. (laughs) So I think, like, where venture's broken is it's time to- it's time to grow up.
- HSHarry Stebbings
So what does that actually mean in reality? 'Cause that was gonna be one of my questions, 'cause I've heard you say-
- MCMartin Casado
Yeah.
- HSHarry Stebbings
... before that really, the winners in venture are scale ups, are the ones who scale, is your Andreesens of the world, who, who enjoy the benefits of scale. Why, and what does that mean for like grow up for venture?
- MCMartin Casado
Well, let's, well, yes, let- let- let's, so I actually think it's not the winners that are scale up, I actually think it's a barbell. I think that, you know, either you're operating at scale, and you know, you can help a company everywhere from seed through public. I think that's one end, um, and- and let's- we'll talk about that, 'cause that's your specific question. I think, or there's a lot of alpha in- in relatively niche plays, right? Like, you're just focused in a certain area or a certain stage, and you build out operating around that. So I think both of those. So boutiques will continue to fare very, very well, and I think, you know, the- the ones that scale will continue to do very, very well. I think it's in between where it's kind of a little bit more difficult, 'cause you've got pressure on either side of these. So what does it mean to scale up? So he- here's the way I think about it. You know, if you're a founder building a company, you're gonna need pools of capital, right?
- HSHarry Stebbings
Mm-hmm.
- MCMartin Casado
And today, the largest pools of capital either come from public markets, which they don't care about innovation clearly, having (laughs) been in a public company, they just want, like, repeatable earnings. Or you can get it from large debt providers. They don't care about innovation, (laughs) they just want to get their money back. Or you can get it from large- large financiers like private equity. They clearly don't care about innovation, they'd much rather fire people to get efficiencies than do innovation, right? And so- so, you know, eventually you graduate to pools of capital. They just don't care about innovation. And so, you know, tech investing, VC has always been in the early stage where you're like, you know, listen, we dream with the founders and we believe in, you know, building new things and- and adding value, and then all of a sudden the quote unquote, you know, finance, you know- you know, big, you know, boys and girls come in and then basically say, "Okay, now everything's just a spreadsheet." And so I- I believe tech has matured to the point that you can scale tech innovative investing for the lifecycle of a company. So why is it that these billions of dollars are being deployed by people that just honestly wanna fire people for no reason? (laughs) You know? I think-
- HSHarry Stebbings
So- so what- what does that look like? Does that look like, you know, tech innovation investors in public markets? Is that post-going public?
- MCMartin Casado
Oh, I think it's everything. I mean, that's- that's the whole point, right?
- 12:02 – 15:40
VCs Goals vs. PE Goals
- MCMartin Casado
It's like, you know, if, you know, it's- it's the entire lifecycle of a company. I think one way to think is step back, think about the entire financial industry, everything from like private equity to the big banks to venture capital, et cetera. And if you pull a dollar at random from that pool, right? So it's quite likely that that dollar is gonna come from, you know, a large bank or private equity or whatever, and like, what is their goal? Well, let me tell you, it's not innovation. (laughs) It's just not, you know? It's- it's predictable returns, it's arbitrage, it sh- it shorts, it's all of this other stuff. And like kind of the top of the value chain...... is, is, is, is this cohort of people that, that, you know, they, they, they're, they're not interested in, in, in building companies and backing founders. Like, it's funny, I mean, I, I remember speaking with a private equity person, I'm like, "Ah," you know, I was just talking to myself, I'm like, "You know what?" You know, we were just having a conversation, idle conversation, like, "You know what? You know, if, if there's a public company and, like, the founder's still running it, I'm bullish. Just 'cause it's the founders, and founders can weather transitions and they can weather market transformations." Like, look at Reid Hastings, look at Jensen, like, founders are amazing. And this PE guy, it was like I was speaking Greek. He's like, "Why do you care if the founder's running it?" (laughs) I'm like, "It's the fucking founder, man. This is the person that made the magic to begin with. It's the person that has the credibility." Like, that's everything. And so, my, my, my, my, my point is, here is, you know, I want a future where if you pull a dollar of random finance, that dollar is given by somebody that believes innovation is good and believes (laughs) in founding teams and believes that you can continue to scale capital deployment far beyond just, like, Series C or whatever.
- HSHarry Stebbings
Can I dive in and, and kind of pose some more pertinent-
- MCMartin Casado
(laughs)
- HSHarry Stebbings
... questions which is, like, okay, if we think about financing a company C to, you know, po- post-IPO-
- MCMartin Casado
Yeah.
- HSHarry Stebbings
... one thing I don't like about having multi-stage investors where I'm on boards is the founders-
- MCMartin Casado
Yeah.
- HSHarry Stebbings
... continuously having to sell. They don't bring the truth to the board with Martin, because they want you to lead the next round as well. And so they continuously have to bring this veil of truth-
- MCMartin Casado
Yeah.
- HSHarry Stebbings
... 'cause they're selling for the next round whilst you're already in.
- MCMartin Casado
Yeah.
- HSHarry Stebbings
How do you think about that and respond to that as a problem that you face?
- MCMartin Casado
Well, I think that would indicate a really broken relationship between the board member, uh, and the founder. Um, so in all of these cases with multi-stages, the actual investment board member is aligned to a, a fund. And so, for example, if you graduate from Seed to Venture or Venture to Growth, it's an entirely different team that's making a decision. And so, the board member's very, very aligned with the founder when it comes to the next raise. And so, for example, I focus primarily on, you know, Seeds, As, and Bs. Sometimes our growth fund decides that it does the deal, and, and I've been there pitching them too. (laughs) So, like, I'm very much aligned, you know, I mean, because, you know, I, I think it's great when investment goes in. And so I, I think, um, a, a, a situation where the company is reliant on one person to make all of the decisions is, is not healthy, um, but certainly to, you know, have a partnership where they can have access to pools of capital, um, through the life of the company is positive.
- HSHarry Stebbings
I, I get that and I like that in terms of the segmented decision-making across vehicles. The next question that I have is, like, if we think about returns, ch- ... we both know that small funds generate great returns. When you see this explosion of capital within these scale-up vehicles and going, as you said, through,
- 15:40 – 17:53
Why VCs Should Run Wall Street
- HSHarry Stebbings
in, even to public markets-
- MCMartin Casado
Sure.
- HSHarry Stebbings
... do, do you not worry that we're gonna see a denigration of venture returns to PE-like returns with the maturation of the industry?
- MCMartin Casado
Well, I think this is just a bundling question, which is, I think you create funds for different risk buckets and you provide LPs exposure to that. Like, debt will never get the same return as equity, and early stage will ne- ... won't get the same as late stage. And so you've got just different variances on all of these. So the way I ... And you know what's interesting? Uh, this is probably why, um, you know, I, I would be a horrible financial investor, just horrible, is, like, I, I don't even really care strictly about thinking on returns. Like, that's not what I maximize. And here, here, here's the way that I view it, which is very simple, which is, listen, I, I, I strongly believe technology is a good. I think it solves problem, I think it adds value, I think it creates productivity. I mean, I think if you look at, at any graph on kind of, like, human betterment, (laughs) which is, like, you know, infant mortality (laughs) or, you know, how long we live or, you know, the number of diseases we have or whatever, I mean, this is just correlated with technical advancement. So I think, you know, technology is a, a general good. Anybody that's building, you know, technology that weathers the Darwinistic ecosystem of economics is gonna be adding value. And so, I view this asset class as investing in an index of the top innovators, you know, uh, in the world, and that's, you know, a very productive asset. And so my mental model is, is for anybody that wants exposure to the top software innovators in the world that are adding value, you know, I want to provide an opportunity for them to have exposure to them, and I wanna help those set of top innovators. Now, what happens specifically about the returns is a question on macro and all sorts of other stuff, but I guarantee you a lot of value is gonna accrue there. There's historically a ton of value is gonna accrue there, right? And so I like to think it much more of an index across innovation and much less specifically about, you know, like, you give me a dollar, I'm gonna kind of make this one dollar go up or down by taking, exploiting every aspect that I can of a market.
- HSHarry Stebbings
I'm really just going for it, but you're very open and wonderful-
- MCMartin Casado
(laughs)
- HSHarry Stebbings
... and a human, so I'm gonna be too. Um, if there was a criticism
- 17:53 – 20:16
Price Sensitivity
- HSHarry Stebbings
... not a criticism, but, you know, just a thought about some of your investing, it's that you're not so price sensitive, Martin. Um, my question is, and, you know, you've paid some high prices, um, a question for you, h- ... do you think that's a fair summary, and how do you reflect on your own price sensitivity given what you just said there?
- MCMartin Casado
Well, well na- name it. Name ones where I, I wasn't price sensitive.
- HSHarry Stebbings
I th- I-
- MCMartin Casado
So I think, I think pretty much every single deal that I can relac- recollect, uh, I've been on the low end. Like, the mar- the market's the market, but if you actually look at any independent investment that I do, i- I, I can't think of one, uh, maybe there is one, but in the ... I'm normally on the low end as far as prices that go in.
- HSHarry Stebbings
Uh, uh, is price a big factor in your consideration? Like, do you think you're price sensitive?
- MCMartin Casado
I think the market is the market.... meaning, but, but I want to be very honest. I, I think people say things like this, but they, they either don't have data (laughs) or they just don't know what they're talking about. So, so I would like to put you on the spot. Name a deal where it seems like I overpaid. So, for example, I've never done any of these billion dollar Bs. I've never done, you know, some strange non-competitive deal where it's an outsized price. Normally, in any competitive deal that you've seen, um, I'm almost always on the low end. And so actually, if, I think if you went through the portfolio, your conclusion would be very, very different.
- HSHarry Stebbings
What was your entry price for DBT?
- MCMartin Casado
It was low. These aren't public numbers so I can't talk about it, but it was, it was, it was, it was quite low.
- HSHarry Stebbings
It was low. No, I, I, I, that one-
- MCMartin Casado
I did, I did, I did, I did the series A.
- HSHarry Stebbings
Yeah. Well done. (laughs)
- NANarrator
Okay.
- HSHarry Stebbings
Bra- Browns round was less low. (laughs)
- MCMartin Casado
Yeah, I mean, like I, so, n- I've done ... No, no, I think maybe people say, I, I, y- (laughs) a lot of people say a lot of things in this industry, and I tend to try and not focus. You know, it's so funny how many rumors I hear about myself. It's (laughs) it's like this constant set of rumors which I tend to ignore. Um, (laughs) I will say many of the companies I've, I'm in have hit great prices, and I'm very, very happy for them to do it. That doesn't mean that I (laughs) I priced them up. These are two very different things.
- HSHarry Stebbings
How do you, how do you think about your own investing style today? You know, you, a- as we said, you've invested in, you know, a generational, you know, the last five years have indexed some of the best
- 20:16 – 22:31
Has your investing style changed over the years?
- HSHarry Stebbings
enterprise companies. Has your investing style changed over the years?
- MCMartin Casado
So, so my philo- yeah, for sure, and my philosophy has changed a lot. And I'll, I'll, I'll tell you, it's gonna sound really simple, but it's kinda the deepest truth that I've learned in this job. And a- again, it's gonna sound really simple, but, um, which is, I used to have the hubris to believe that if a, if a company walked in, I could look at the company and I could determine if it's a good investment or not. And you think, well, of course you do, that's the job. And, and I've decided that's a totally underdetermined problem. And by underdetermined, there's just way more variables than equations, right, like mathematically. And if any company walks in, I haven't a clue if it's a good investment or not, with a few exceptions. For example, i- y- this is, I'm talking about the early stage here. The late stage, sure, you know. Um, or if it's a second time founder, it's probably good, right? So like, with, with, with, you know, but like, you know, like first time founder, you know, new space, category creation, like, I mean, who knows, right? On the other hand, and this is, this is this obvious unlock that I, I've had mentally, if I meet five companies, I can probably tell you which one of those five has a better chance than the others. Not to any level of certainty, but like, there's a bit of alpha there, there's a bit of judgment there, so I think that's a much more determined problem. And so I've stopped actually being in the oracle game. Like, you know, I just don't wanna, you know, in any given investment, like listen, who am I to second guess these founders who are doing amazing things? Like, I don't wanna be in that position, and like, who am I to say something's not gonna work? I don't wanna be in that position. And so more and more, what I love to do is I just take a space, and I just study the shit out of it. I just, like, it's my favorite thing to do anyways, I'm gonna do it anyways. I'm just gonna fucking learn about databases and backends and frontends and, you know, it's what I did my PhD in and I love it, and like, that's what I'll be doing u- and then, and then from there, you know, see which one of that cohort I think, you know, is most in line with that. And I think that's actually a decidable problem.
- HSHarry Stebbings
I, I, so that's fascinating that you say that, 'cause I spoke to Angela Stranger on your team before. You mentioned that I spoke to many people. Um, and she told me that the process that you go through is incredible for each kind of examination that you do. Can you, is that, is there a process that you engage in for each kind of examination? How do you approach a new topic and approach that learning
- 22:31 – 24:05
Lessons from Chris Dixon
- HSHarry Stebbings
and discovery phase?
- MCMartin Casado
Well, you know what's, you know, another big kind of learning, and I, I got this one f- from Chris Dixon, who I actually think is probably the, the most thoughtful in- investor on the planet, I really do, and probably the smartest. I think the founder network is just more intuitive and smarter and more prescient than any other network. And by that, I mean like, if smart founders are going to do something, there's something probably interesting there, right? I don't care if VCs think it's interesting, and I don't care if analysts thinks it's interesting, and I don't care if Twitter thinks it's interesting. I care if smart founders think it's interesting. And so I, you know, I, I, I look to see where founders are going, and if they're, kinda few of them, really smart ones are looking at an area, then I get very interested in the area. And then, you know, and then I do what I love. Like, listen, I am an awkward, nerdy dude, right? Like, (laughs) like I'm not, like, like ... I think a lot of VCs like to go out and network, like I like to sit at home and chat on Discord about like databases, right? And so like, and then I really like to try and understand what's going on. Now, now, now one thing that is I think a product of my past is like I'm, I'm, I'm much more interested in how technologies hit markets, like how markets adopt 'em, how do you do category creation, how you do messaging. Like, for example, when Ali Ghodsi, you know, the CEO of Databricks, and I have dinner, we almost always just talk about like category creation and building out go-to-market. From a technology standpoint, it's actually a very, very interesting problem, and it's, it's one that's not talked about enough. And so I just spend a lot of time trying to understand like, you know, how the market's evolving, what are the macro trends, who are the players, what's involved, et cetera, and I try and go very deep. And then based on that, you know, then we try and make, you know, decisions that we think are
- 24:05 – 32:05
Category Creation
- MCMartin Casado
smart decisions in a space.
- HSHarry Stebbings
I mean, this is my job. You say, you know, go-to-market applied to category creation isn't talked about enough. What do you think should be talked about within GTM and category creation that isn't being talked about?
- MCMartin Casado
Well, can you name a good resource for category creation?
- HSHarry Stebbings
No. No, not like a centralized...
- MCMartin Casado
P- How 'bout, how 'bout a decent one? I'm le- let me tell you, it's not Play Bigger. (laughs)
- HSHarry Stebbings
No. I can't. I, I mean, like-
- MCMartin Casado
Where would, where would, where would you go read about category creation? Let's l- let's say you're a new infrastructure company like me. So like, listen, I, I was very, very heavily involved in the creation of software-defined network and network virtualization. Like, you know, I spent 10 years like, I call it market annealing, just hammering the shit out of a market, just fucking beating on the market for years until it comes around. Like, this isn't, like selling into an existing market's easy, man. Like the annealing you've gotta do to soften up a market for categorization is hard. Where would you even start to read about that? Like who, who, who?
- HSHarry Stebbings
... I think you learn-
- MCMartin Casado
Name a blog or a Twitter post, or...
- HSHarry Stebbings
I, I, I think what I would advise is that you learn from people who've done it before.
- MCMartin Casado
Exactly.
- HSHarry Stebbings
And so I would advise a one-to-one conversation and dialogue with someone who's done it before.
- MCMartin Casado
100%. It's just something that hasn't really hit, you know. Like, there is no crossing the chasm for category creation, really. For the types of technologies I'm interested in, it's, it's, it's, it's as important as the product development, and it's as tricky and it's as hard and whatever, and so I just think it's a very, very interesting space.
- HSHarry Stebbings
How do you think about market timing with regards to category creation? 'Cause like the one thing that worries me is that the market can kind of continuously stay irrational for longer than a company can stay solvent, especially on the adoption side and the innovation side. And so how do you think about the importance of market timing?
- MCMartin Casado
You know, it's kind of interesting. Like, uh, have you ever played the, uh, I'm gonna go, well, it's gonna sound like a tangent but then I'm gonna come back to your question, which is, have you ever played, you know, Go, or do you know about the game Go?
- HSHarry Stebbings
Yeah, yeah, of course.
- MCMartin Casado
Yeah. So the state space is so stupidly large, um, that, um, you know, you read these kind of books about Go, and like there are these kind of koans, like these almost aphorisms that are kind of like very helpful but none of them are very definitive (laughs) , you know. It's like, "Oh, stay away from density," you know, like these things which actually they turn to be like very useful (laughs) , but like, you know, they're just... So I think that there's some koans that you can say about market timing that are useful. But again, I'm not trying to be definitive at all, I just want to make the point that this, this state space is so enormous and it's so underdetermined, right? So a few things. So for one, I think working against a macro trend is just brutal. And so forget timing, it's like, listen, if like, if, if, if a market is shrinking, if a trend is moving away from you, while there's still market and opportunity there, if like the first derivative is negative, you're just in a really tough spot. Um, does that make sense? And so like-
- HSHarry Stebbings
Right.
- MCMartin Casado
... I, I would say, independent on like specific timing, just make sure, like (laughs) , you know... You know, the second one is, um, you know, there's varying degrees of market readiness, and I think this is just more correlated with the amount of, of effort that you as a startup need to do to, to establish yourself, right? Like, so for example, if I am selling into an existing market with something that's ten times faster, like the amount, like the timing question is not really a question. Like, you know, it, like, it's easier to sell, like, y- y- it ends up being kind of questions around like churn and pricing pressure and stuff like that, right?
- HSHarry Stebbings
Mm-hmm.
- MCMartin Casado
Just because the category already exists. When it comes to ca- to category creation, you know, I think that companies that really put in the time will carve out a niche. And then the question (laughs) is, is more like what's the staying power of the company and how much money do you want to invest in like the, you know, go-to-market death march of a new category? And you can. Uh, I mean, listen, I know of companies that through just absolutely sheer will built markets. And it wasn't timing, it was just sheer fucking will, but they spent a decade doing it. So I would say make sure you're trend aligned, realize that like if you're in a new market, the amount of work you're gonna have to do to kind of, again, I call it market annealing, but like, you know, make the market pliable is going to be commensurate with your speed. And then hopefully things unlock, but, you know. I, I, I believe you can death march to a public company without the market ever actually unlocking.
- HSHarry Stebbings
I, I, the thing that I think is fascinating is like the state of storytelling today is, I think, pretty poor, um, and I think in market creation and category creation, it's more important than ever. How do you feel about the importance of storytelling on the founder perspective with regards to category creation?
- MCMartin Casado
So I think it's very, very important, and not just for educating the market but even like leading a team.
- HSHarry Stebbings
Yeah.
- MCMartin Casado
Um, I would say the two best people on this who both should write books are McJannet and Steve Mullaney. Uh, so Dave McJannet is CEO of Hashi.
- HSHarry Stebbings
Mm-hmm.
- MCMartin Casado
Steve Mullaney, he's, uh, CEO of Aviatrix. Both come from marketing, product marketing backgrounds, both are like iconic world-class CEOs. And what they'll tell you, and it, I think is exactly right, is, you know, it's very important at some point in time to like, you know, kick everybody out of the room, sit there for three days, and then write down the very lucid, very description vision of the company, like why it matters and what you're doing, in a way that you deeply believe, in a way that outlines the future and outlines kind of the why together. It doesn't have to be the path, just the future. And then you use that to kind of drive everything about the company from like recruiting, to culture setting, to, you know, early sales, to marketing, to speaking to a- analysts, et cetera. And so I do think that in, in early categories it is just a crucial exercise to do.
- HSHarry Stebbings
Can I ask you, when we sit and look at, you know, many companies today, some in your portfolio, some not in your portfolio, creating amazing categories with incredible innovative technology, and with a change of funding environment suddenly they're being told cut burn, cut costs, and that naturally impacts one's ability to expel a mission, to tell stories through events, to really project the category forward. How do you advise them who are in the process of creating a category but also being told to cut burn and reduce spend?
- MCMartin Casado
I don't think that these things are at odds. I think, I think that's a bit of a false dichotomy. So-
- HSHarry Stebbings
Okay.
- 32:05 – 37:05
Cutting Costs & Layoffs
- MCMartin Casado
capital contract about how you run your business.
- HSHarry Stebbings
How many of your companies have y- had, have you had to do re-plans on?
- MCMartin Casado
Um, I th- I th- listen, I think in this market, if there's a company that's not doing a re-plan, they're probably negligent (laughs) . Like, I mean, minimally. So, so normally in downturns, you move to scenario planning. And so the recommendation I'd give any founder is if you see this dramatic shi- this much of a dramatic shift in the macro, you should sit down and you should create a median, bear, and bull case plan, and you should at least do the exercise. You don't have to enact it, but you should at least do the exercise.
- HSHarry Stebbings
Can I just dive in? W- what i- what does a median, a bear, and a bull look like in terms of how you adjust dependent on each? I'm just, I'm learning from you here.
- MCMartin Casado
Right. So, so, right, so, so... No, no, no, no, no. No, no, no, there's a... You know, it's just funny, it's been a long time since... So (laughs) I cut my teeth in 2000... You know, I started my company in 2007, like, you know, a year in, 2008 happened and I was like, "Oh shit, fucking nuclear winter, end of the world." I, like I, you know, I literally paid for, like, salary out of my bank account. Like, I couldn't raise money. Like, you know, obvi- so, you know, it was horrible. I, I, I had the same team of 10 people for three years. Like, you know, I just thought we were just, you know... Anyway. So, so, like, I, I, I deeply appreciate and I empathize with what founders are going through on this. But I also think a lot of this skill set has been lost 'cause it's been a long time since we've seen them, a reset this large. So what I'm saying is the following, is, okay, so you created a plan probably, you know, in Q4 of 2021, a- assuming some level of growth, right? Now, what I think companies should have done and in Q2 is being like, "Oh shit, the world has changed." And, you know, you know, "We may not be able to raise for, you know, let's say three years and, you know, our top line might go down by 20% and our, you know, so now what do we do?" And so what I would do is do a bear case of like, what do you think the maximum impact of the top line is gonna be? And then, as a result, revenue. A median case, which is probably, you know, uh, normally you do kind of, you know, look at, at public companies or other cohorts to see how they're being impacted, and you do that for a median case. And then you do a bull case which is like, let's assume, you know, like, nothing changes. Do we do the same thing or, or are stuff... Like, are we gonna be like, recession accretive so that our, our business accelerates for whatever reason? And then you can do a bull plan. But at least you have to go to scenario planning so you have done in the exact work. So like, if it turns out that like, you totally whiff a quarter, like you do a 50% quarter, 40% quarter, you have everything planned out exactly how you'll respond to that. That's what I mean.
- HSHarry Stebbings
I, I totally get you. In terms of the response plan, I have a lot of founders say to me, "Layoffs, I hear that I need to do them and I, I'm told ne- you know, do them, do them hard, and do them once. But I don't know what's gonna happen. I don't know what the right amount is." How do you advise founders on like, layoff strategies? And you've been through it in 2007, 2008, I'm sure. Like, how do you advise them on this challenge now?
- MCMartin Casado
So, I, I tend to be very top-down in, on these sorts of things. You know, the goal is to keep the company solvent and, and successful. You know, protect common and, and as many of the employees as possible. And so, I think the right approach is to create an operating plan given the current economic environment and ask the question, is like, "What is the right company in order to do that, given whatever risk profile that you're comfortable with as a board?" And like, bo- boards are very different. Some boards are like, "Hey, listen, to hell with it. You know, this is a time to build, like, let's go ahead and accelerate into it." Like, I, I 100% work with companies that are like, "This is amazing. Fuck it, man. We're, now we're gonna win." Like, it's like, "Hire," you know, pull out the machetes, like (laughs) , you know, like, you know, we're going to war type thing, right? So it's, the, the level of response is all over, but like, you know, you have to force discussion in the board. The board has to be aligned. I do think you have to do a top-down re-planning of what is the right posture for the company. And then everything falls out of that. And it, it may or may not be layoffs, you know (laughs) ? You know, it, it could be all sorts of stuff, right? I mean, you know, you could decide to like, you know, reduce cloud contracts or, or whatever. But like again, like the top-down plan is everything. What... You know, I do definitely sit on boards or I, I know board members where like, they have these knee-jerk reactions of, "We have to cut by 40%." And you're like, "Why?" (laughs) You know? So it's kind of funny. It's, it's very funny if like an investor board member like tells a company, "Well, we have to cut by 40%." You know? And then, and then you're like, "Okay, well why?" It's not like they've like put together an operating plan, right? There's just like this kind of like number (laughs) . And so I think everything needs to flow from an actual plan (laughs) . So it's like-
- HSHarry Stebbings
Right.
- MCMartin Casado
... at the same time you're asking a founder to create an operating plan as well as like asking for a cut. It makes absolutely no sense. Like, come up with a plan, then figure out what's the right thing to do.
- HSHarry Stebbings
I want growth and I want cuts, please. Uh-
- MCMartin Casado
Uh, that's right (laughs) .
- HSHarry Stebbings
(laughs) Right now. Thank you, Martin. Uh, can I ask you about, you mentioned that, you know, that, that board interaction. You have a- an incredible young team behind you and like working with you.
- 37:05 – 40:39
Advice for Young Board Members
- HSHarry Stebbings
In terms of your advice to young board members, how do you advise them, having been both founder and now obviously investor and board member with both? How do you advise them on being the best board member they can be?
- MCMartin Casado
I think the failure mode, and listen, I, so I, I've made some mistakes early in my career for sure as a board member, and this is even prior to being an investor, right? Like, after, you know, I sold my company, a lot of people asked me to be an advisor and a board member, and I just dramatically overfit my experience, just dramatically early on, and that was a real mistake. And listen, like, we all mature and grow, um, and that's something that I realized that I did. And what's kind of annoying about this is it used to drive me fucking nuts when other people did it to me (laughs) , you know? So I'd be like, "Oh," like, "I, you know, I built this billion-dollar business," you know? Like, "I had hundreds of millions in, in, uh-"
- HSHarry Stebbings
When, when, when you say-
- MCMartin Casado
"... whatever."
- HSHarry Stebbings
... you overfit your experience, you mean you saw it in your company and you overlaid it on top of this company and thought it was the same?
- MCMartin Casado
Well, there's, there's two... Yeah, sorry. So there's two, there's, there's, there's two things that I did wrong that I see a lot of, uh, a lot of ex-operators do wrong as board members. One of them is I would provide guidance as if I was the one running the company.
- HSHarry Stebbings
Hmm.
- MCMartin Casado
And I've got my own way of doing things and it's, you know, uniquely mine for all of its quirks and idiosyncrasies. And so, you know, i- i- it's actually, you know, this is a huge, um, trap that investors can do. It's like, "Well, this is what I would do." Like, "Why aren't you doing this?" Like (laughs) it's not their way. So that's one. And the second one is, yeah, I mean, like, listen, I, I, I happen to have a great experience i- in, you know, in the company that I, I built, but that's just one path. And so early on, you know, I, I, I didn't have the deep board experience that I have now, and so I'd just kind of draw from that, uh, for my intuition. And so I, you know, I, I think the best junior board members that I know don't try to be helpful with advice. They try to be helpful by, like, doing stuff that only VCs can do and companies, like, can't do. So what I, I, even, like, I had my own team, I said, "Listen, don't tell him how to run their company." Like, don't tell him, you know, you know, a strategy around open source. Don't tell... You know, like, like u- unless you really, really know, don't. What you should do is, like, you spend every fucking day researching this space. You know all the competitors, you know the people, like, you've come up with a thesis. Like, no founder has the time to do that. Like, they don't have the time that you have just taking in meetings. Like, you know, synthesize that information, provide them with data and input for making decisions, but, like, don't, like, try and tell them how you build a company with them, though. That's their job. And so having myself, like, had that b- uh, as a failure mode early on, like, I do think that everybody could use this. And, and I do think it's, it's worth noting that we always make fun of junior partners, which I think is a mistake, 'cause, uh, as an industry, we, we really undervalue junior VC partners. I think they're, I think they're fantastic, they're hugely valuable, but we always make fun of them 'cause like, "Oh, you're a PM in some crappy company, you're giving advice." I think that, that particular criticism is very valid. Um, but what I think we do under appreciate is how much w- w- these people know a- about markets. It tends to be far more often than the founders in the companies themselves, and I think that that's something that if you're an early investor, you should just lean on.
- HSHarry Stebbings
I, I, I totally agree with you in terms of, like, the denigration of junior partners in a lot of ways. Uh, in terms of the junior partners, the team you have behind you, how do you make decisions as a team in your team, and how do you reflect on that? Is it good, bad? What could be improved?
- MCMartin Casado
Yeah. Um...
- HSHarry Stebbings
(laughs)
- MCMartin Casado
Did you, did you ever, did you ever, did you ever read, um, Only the Paranoid Survive by Andy Grove?
- HSHarry Stebbings
Yeah. Yeah, totally.
- MCMartin Casado
One of my favorite takeaways... I, I, I've got, I've got, I've got so many,
- 40:39 – 45:26
How to Make Decisions as a Team
- MCMartin Casado
like, um, I've got so many kind of anecdotes on this specific question, and so I'm gonna g- I'm gonna give you two. A- a- um, and they're gonna sound a little bit tangential, but I actually believe this to be the case, which is when you've got massively complicated under-determined systems that c- consider a bunch of variables, like, how do you systematically make a decision, right? Like, who fucking knows? I don't know. Nobody knows. Um, so I think Andy... Uh, so there's, there's two people that I think said something very enlightening. One of them was Andy Grove, he basically says, "For any hard decision, the only way you can get to the bottom of it is lots of vigorous debate." Uh, and I think he's, I think he's dead right. Like, and, and you have to have it over days, like literally, like days or weeks or months, and you haven't had that, like, you're just being kind of reactive. Like, you really need to explore this. And so, I mean, I mean, I, I'm so blessed to work with the best team on the planet. I'm so lucky to have this team. And, like, basically all we do is talk about (laughs) infra. Like, uh, that's all we talk about. And I think that over time, we end up with a pretty kind of even view on these types of things. Um, and we tend- we actually tend to make decisions as a group. Um, I mean, it's another thing, I think, for all of your listeners to understand, um, you know, junior partners have a lot of pull. It's not like, you know, like I make decisions and, and they don't. Like, they have a lot of pull. Sorry, you, you were gonna...
- HSHarry Stebbings
So I, I, I have two questions for you.
- MCMartin Casado
Yeah.
- HSHarry Stebbings
One, I agree with you in terms of the rigorous debate, but-
- MCMartin Casado
Yeah.
- HSHarry Stebbings
... deals and great deals move fast. You don't have the luxury of having two weeks of debate time.
- MCMartin Casado
Uh, great, great, great, great, great. That's a great question. There-
- HSHarry Stebbings
How do you deal with time comp- Yeah.
- MCMartin Casado
Great, great, great. That's a great question. So, um, the majority of, of, of my t- time and, and my team's time is actually mapping out spaces. And so if a deal's going down very quickly and we don't jump on it, the number one reason is we just haven't done the work. I, you know (laughs) , this is why I appreciate you so much, Harry, I just, I just so appreciate you and I so respect what you do, which is I, I, I think that the only thing you can't game in investing is the work. You can game anything else. You can game heat dynamics, you can game num- like, you can gain everything. You can just game it. But you can't game, like, somebody spending, doing the work and meeting with all the companies and understanding. Um, and so, like, o- our method i- you know, i- it doesn't happen at, at, at deal time typically.
- HSHarry Stebbings
Okay. So it doesn't happen at deal time, got you. It happens then before. You then have to create a culture where they can say, "Martine, I hear you. I know that you feel this way, but I disagree with you."
- MCMartin Casado
Oh, yeah.
- HSHarry Stebbings
It's hard to create a culture of safety when bluntly you are a very seasoned operator, you've seen it, done it before. How do you create an environment of safety where all young people can feel they can challenge you and have debate?
- MCMartin Casado
Well, the good news is I'm wrong all the time. (laughs) So I think that helps. Like, being a, being a very faulty (laughs) hu- human being that often, you know... Like, literally is just wrong, you know, constantly, I think is (laughs) is part of it. I mean, here's another thing that I think that we actually got wrong early on in the firm that I think we, that we got, we, we, we, we fixed which is, early on junior partners were very, very junior and they'd kinda come and go and the tenure was two to three years, um, and so you didn't really have a common vernacular. And, and now a lot of the, the team members I work with, we've been working together for four years, and it's just a different level of communication, um, you know, and a different level of, of trust. And so I, I think I've really enjoyed that. But, you know, I, I, I will say, uh, it's probably something that I should watch, um, because I can be pretty opinionated. Um, uh, and by the way, I don't think it's nearly as acute in venture as it is in operating. In operating it's a real problem (laughs) where you just kinda surround yourself with people that just basically agree with you all the time. And so, you know, I, I, I think t- listen, the bottom line is it's something that you need to be aware of. I mean, I think in, I think, you know, if, if you're actually having a discussion then people need to have an opinion, otherwise there is no discussion, so if you force discussion, something will come out. I do think everybody, including myself, should keep this top of mind. I think it's a great question.
- HSHarry Stebbings
Can I ask... So I, I totally agree with you and I, I, I... If you don't have an opinion, you're fucking boring to me. (laughs)
- MCMartin Casado
Right? (laughs)
- HSHarry Stebbings
I'm sorry. It's kinda more of a... Yeah, it's quite, "Oh, right, you have no opinion? Oh, great."
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Um, but, but my question to you is, how do you retain mental plasticity? 'Cause I often have an opinion based on a historical data point which could be front end databases don't make money because no one fucking pays for them-
- MCMartin Casado
Yeah. Yeah.
- HSHarry Stebbings
... and it's, it's wrong. Markets change, markets move. I... And so how do you retain plasticity with time?
- MCMartin Casado
Yeah. Yeah, you know, I think that... So there, there's this interesting question
- 45:26 – 47:12
Do Engineers Make Good Investors?
- MCMartin Casado
of, like, you know, do operators make good investors? I think-
- HSHarry Stebbings
Mm-hmm.
- MCMartin Casado
... that you gotta rework a lot of brain damage on the operator's side. I think that there's another interesting question is do engineers make good investors? And I think, um, I th- I think that this gets to the heart of your question which is, I mean, listen, the, the first decade of my career, 20 to 30, I mean, I, I wrote papers and I wrote code, like... (laughs) Like, that was 20 to 30, right? And when you're an engineer, especially in systems, like I, you know, so I was like the blue collar type engineer, right? Like, I, I, like, built a, you know, built systems, I didn't do theory or anything like that. And in systems, like, you go through techniques that work, like, there's a few things that work. Like, caching works. Like, distributed consensus works. And you don't do things that have historically not worked. And so bad ideas, this is even on my Twitter feed, like, bad ideas just tend to stay very bad. Um, and so, like, you kind of just stick with a few good ideas, like, that's the method in systems. Um, and, and that just doesn't, doesn't work for investing. I mean, the reality is many companies that work end up, you know, working, you know, after three or four iterations. I mean, like Google very famously, the third generation of search. You know, Facebook, the third generation of social networking. And I, I will tell you, my biggest, you know, lesson in this is just talking to Marc Andreessen. Um, you know, I'll just say, I've known Ben and Marc, they invested in my company, like, literally, you know, you know how I, I met Ben is I tried to hire him as my CEO. (laughs) You know, he left HP and do you know what he told me? He's like, "I'm too rich." (laughs) Yes, I've known these guys for a long time but, like, you know, to meet people that really dream about the future and really dream about technology and really care and, like, really believe and, like, are on the fringe and, like, whatever, I mean, I, I just think that that's the right view, is this kind of, like, positive futurism view. Uh, and not the curmudgeonly engineering view which, which is I came from, and
- 47:12 – 49:44
Tourist VCs
- MCMartin Casado
so...
- HSHarry Stebbings
Okay, I- I'm just going for it now. I have-
- MCMartin Casado
Hmm?
- HSHarry Stebbings
... a problem with the tourist VC which are the ones that go to the events, do all the panels, put all the pictures on Twitter and LinkedIn. And, like, I loved venture 12 years ago when I first saw it in the social network which, like it or not, was my first exposure to it, but I just feel we have this, like, a, a different class of VC now where it's not that love of innovation, where it's not that love of working with... Where it's more about being seen. Do you feel that same feeling that I do?
- MCMartin Casado
Uh, I, I, I, I actually, I-
- HSHarry Stebbings
Coming, coming from the guy with the podcast that's quite hilarious.
- MCMartin Casado
I, I actually, I actually don't.
- HSHarry Stebbings
(laughs)
- MCMartin Casado
I actually don't. I actually think, I actually think now VC's becoming very real. So in... Yeah, I hate to be the old guy but, like, you know, when I, when I raised money, every VC was like, you know, show up late and, like, were on their fucking phone. Like, all of them, on their phone. They were all generalists, none of them were specialists really. Um, they mostly had, like, random backgrounds. They didn't treat it like a discipline. I mean, it was like, you know, it was like, you know, like the, the classic Sand Hill, you know, dude. It was always a dude at the time. And I think now there are people that you can talk to that really view this as, like, a, a real discipline on the order of taking over all of finance and they think about it in very, very structured ways, and they work incredibly hard and they understand the spaces very, very well. Um, and I don't think that existed 15 years ago. It just didn't exist. Um, and, and, and, and, and they really believe in, in value accrual to innovation and applying money to that problem. Now, that said, we're at the tail end of a decade-long bubble so, of course, you know, you've just got, you know, a bunch of people that just wanna get the spoils, and of course you run into them the most because they're the most flamboyant. But I think with this downturn we'll see a lot of the tourists go away and I think what will be left, I think that kind of cohort are very, very serious, very smart people that have, uh, have, have, have, have realized something that just-... didn't exist 15 years ago, and that's, for me, that's very, very exciting.
- HSHarry Stebbings
Can I ask you, now, we, we've spoken about the scale-ups, we, we've spoken about kind of the changing nature of venture. Andreessen's changed so much as an institution in the time that you've been there.
- MCMartin Casado
Yeah.
- HSHarry Stebbings
But it's actually over the last 24 months. What have been the best change
- 49:44 – 53:03
Scaling at a16z
- HSHarry Stebbings
and what's been the worst change?
- MCMartin Casado
Well, I think scaling anything is hard, whether that's-
- HSHarry Stebbings
Yeah.
- MCMartin Casado
... a distributed system or an organization. Um, I will say scale is an unsolved problem in, in venture capital. Um, it's a solved problem in finance because, you know, you don't have conflicts, every asset's fungible. Um, and so th- I think the best change is each independent investing arm has become very, very empowered, which I think is fantastic. Like, um, so for example, bio or crypto or the venture fund or whatever, I mean, you know, the, the operations have been de-coupled so we can really, really focus on the areas, um, and, and, and kind of build, you know, build a platform that's, that's more relevant to that area. So I think that's, that's very positive. I, I s- I suspect you're gonna say, "What's the worst?" And so just to preempt that question (laughs) very quickly, I mean, it's just, it's, it's, scale is hard, right? And so it just takes a while when you change operating model, you know, to go to distributed, to actually smooth that out. Now, I feel like we're, we've done a phenomenal job, having been through a bunch of big company re-orgs, um, that we've done a phenomenal job.
- HSHarry Stebbings
What, what, what, what, what things break with scale? Culture? Communication? Decision-making? That's most prominent to you, do you think?
- MCMartin Casado
Uh, I, well, I think in this case, it was, um, I mean, it was just basic, simple stuff, like, who do you ask for, to (laughs) do certain things. It's just basic process stuff. Um, you know, and then you just need to-
- HSHarry Stebbings
I, I-
- MCMartin Casado
... you know, it's, uh, it's just, I mean, it's all, it, it's actually, it's actually much more banal than I think, (laughs) people would assume, where (laughs) you're like, "Oh, now we've got, like, you know, like, we've got independent teams, so, like, where does P&L sit, and like, you know, how do you do budget allocat-" I mean, it's basic stuff like that, but you know, like, it does slow everything down once you're kind of hammering out those details.
- HSHarry Stebbings
How could you-
- MCMartin Casado
It was actually-
- HSHarry Stebbings
How could you improve as a leader of a team today?
- MCMartin Casado
Oh, in a million ways, are you kidding? (laughs) Yeah.
- HSHarry Stebbings
Wh- what's the, what, what's the one where you're sitting at a dinner-
- MCMartin Casado
What, what, what, what kind, what kind of team do you mean? Like, uh, like, uh-
- HSHarry Stebbings
Like, li- like, an investing team. So, like, you think, you run your team today, and you're like, "You know what? I don't give them enough room to speak, I'm not present enough, I'm whatever that is." Where are you, like, as a leader today, I can-
- MCMartin Casado
Well, well, well, all of those. (laughs) All of those, all of those, for sure. I mean, listen, I'm, I'm, I'm a deeply, deeply flawed human being, right? And, uh, and we can all do a lot of growth. I'll, I'll say, he- here is one that I think that the industry and myself could be better of, which is, um, I think I get a lot, a lot more credit than is due. I, (laughs) I think my team is so phenomenal. And, um, and it's kind of interesting though, 'cause like, you know, like, we'll, we'll, we'll do a deal and we'll, you know, do a lot of work on a space, and then often, like, I'll be the one that's credited with it, when, you know, like, listen, I was involved and, you know, invested in it, et cetera. But, like, I, I certainly wasn't, like, the primary backer. And so I think this really matters to, like, people's careers. I also think it, it matters to, um, uh, you know, f- for people to, to understand actually where the value i- is coming from. And so this is something that I've been working on, is making sure that, like, we're just a lot more equitable in general, as far as, like, you know, I think that the a16z infra team is, you know, a phenomenal team, and I, I like it much more as the a16z infra team than, like, a, a Martin Casado anything, and I just think that
- 53:03 – 55:00
Advice for Young VCs Looking For Their First Hit
- MCMartin Casado
that's actually more reflective of reality. And so that's one area.
- HSHarry Stebbings
How do you advise investors, young investors today, going through an abyss? It happens in investing careers, where you have one not-so-good investment, two not-so-good investment, and then you're going, "Ah, fuck, am I any good at this?" And actually, you really lose confidence. How do you advise investors on going through the abyss? And is there a difference-
- MCMartin Casado
Yeah.
- HSHarry Stebbings
... between those that make it and those that don't?
- MCMartin Casado
So I think this entire job is literally about controlling the things that you can control, but being very, very clear about what those are. And I do feel when I talk with a lot of investors that they're just kinda winging it, and I think that's a huge mistake. Um, and so I think you need to come up with basically what is your, uh, belief as far as investing. Like, that's the first thing you do. And then, and then realize that there's two main challenges as an investor. The first one is, like, getting emotion out of it, which is really fucking hard, man. Like, dude, I'm Latin. Like (laughs)
- NANarrator
(laughs)
- MCMartin Casado
Like (laughs) , I'm like, I'm as emotional as it gets, right? I'm half Spanish, half Italian, I just wanna like-
- HSHarry Stebbings
Whoo.
- MCMartin Casado
... you know. Um, and so I, I, you know, when it comes to follow-on decisions, when it comes to, like, you know, it, it's just very easy to fall in love, and like, you know, so getting emotion out is very hard. So that's one thing that, you know, you've gotta find a way to do. And the second one, you need to realize that there's a real principal-agent problem in investing, and it's not even conscious. It's like, if you have a team or whatever, people are gonna do, like, subconsciously do what's best for their careers or whatever. And so there's... And so h- here's the way that I think about it. So the first is you need to come up with an approach that you believe in. So in my case, I think the right thing to do is just to focus on, like, top companies, index, interesting spaces, where like, the, the founders have gone to the space. Like, that's it. Uh, and then I don't try and overthink any independent, like, investment. I just think, like, does the thesis hold? You know, historically, has the thesis held? You know, and whatever. And then, and then I always measure myself relative to that, relative to that approach. And then I, I, I do my best to make sure that we're not falling trap to kind of emotional issues
- 55:00 – 56:42
Confirmation Bias
- MCMartin Casado
and, and, and principal-agents. And then other than that, there's not much you can do.
- HSHarry Stebbings
Do you worry about confirmation bias? So you have a thesis, you've done your work and you see this going this way, and then you find something that aligns to that thesis and you back it. A lot of times your thesis might just be wrong.
- MCMartin Casado
Yeah. No, no, that's why I, yeah, I, I definitely try not to do... So I (laughs) it's kinda funny, um, a, a, a, a, a, you know, at a16z a lot of people talk about... Uh, actually, in the, uh, and not just a16z, a lot of, uh, investors talk about thesis. I don't, I don't think that's the right way to think about investing at all. I think this thing is just so crazy to come up with some story (laughs) which, to your point, is what we've retrofitted. So I'm definitely not a thesis investor in that sense. I, look, here's my thesis, it's very simple. Founders are smarter than I am.
- HSHarry Stebbings
So, so then what are you? A space identifier? Like, uh, uh, help me.
- MCMartin Casado
Um-Yeah, I think so. I think that the- the principal value is- is understanding the spaces which, by the way, is- is led by the- the founders not- not by me. Like, I don't want to identify ... Like, listen, I- I don't feel like I'm f- s- f- smarter than founder out there. I just don't. Like, I think they're smarter, right? I do think that I can have a broader view than they have, 'cause I can meet more people and I have a team that can do the due diligence and call in the customers, right? And so, there's- the selection is between a set of, you know, uh, of g- of a given space who I think is- is, you know, a leading company in that space. It's- it's- it's really that. But that's not a thesis, right? (laughs) A thesis is like some grand unified theory of how like the backend and this and that and whatever, whatever. Like, I don't do any of that stuff. I just think that it's just too easy to spin a narrative for yourself.
- HSHarry Stebbings
Uh, uh, speaking kind of a narrative for yourself, I do want to touch on kind of a narrative venture looking forwards before we do a quick fire.
- 56:42 – 58:56
The Venture Ecosystem in Ten Years
- HSHarry Stebbings
- MCMartin Casado
Yeah.
- HSHarry Stebbings
When you look forward, we've spoken about kind of venture because it's what could be changed, when you look forward, we're in 2032 now.
- MCMartin Casado
Yeah.
- HSHarry Stebbings
You're, you know, the sprightly age of whatever, 34, um, very young.
- MCMartin Casado
Yeah. 22.
- HSHarry Stebbings
Good face moisturizer. Yeah, there we go.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Um, ah, what does the venture ecosystem look like then in 10 years?
- MCMartin Casado
I mean, I think- I think we're heading to- to- to honestly what I said, which is I think there's gonna be a question of like if there's a dollar deployed in the future, is that dollar going to like fund innovation or is it going to basically get predictable returns and basically stifle innovation? And I- I hope it's going to fund innovation, you know. I mean, the bulk of the dollars are just not. I mean, if you think about it, the bulk of the dollars literally are so like you can fucking fire people and get like, you know, better operating margin or whatever, or like you get predictable returns or like whatever. Like, that's what the majority of dollars are for. An- and it makes sense for like 401Ks and stuff like that, but I just think that now, technologies mature enough that you can invest in innovation and get predictable returns. It's a fundamental belief of mine, again, uh. And so I hope that in 10 years that like venture looks a lot more like traditional finance.
- HSHarry Stebbings
Does that- does that-
- MCMartin Casado
Mm-hmm.
- HSHarry Stebbings
Does that displace traditional finance?
- MCMartin Casado
Sure, but not in, I mean, listen, it- it- it- it never makes sense to speak categorically about anything, right? Like, I don't believe in zero sum games. I think the market's expanding. I- I think that it definitely moves it into, um, uh, I- I- I think it erodes its hold on, you know, companies earlier in their life cycle. But that includes public companies, because there's so much value that has accrued to companies after they've gone public, right? I mean, it just makes sense that, you know, like pro-innovation capital, um, should be available to them. And so displace, no, categorically clearly not, you know. (laughs) You know, take some of the territory that it currently has, absolutely yes.
- HSHarry Stebbings
Yeah, I think it's capital shifts on LPs budgets which is, you know, traditionally venture is, I mean, uh, used to be like 8%, now it's like 20%. I'm seeing in some endowments it's like 35 where fff that's overweight.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Um, but I- I totally agree in terms of capital shifts. I want to move into a quick fire, Martin.
- MCMartin Casado
Yeah.
- HSHarry Stebbings
So, I say a short statement, you give me your immediate thoughts. Does that sound okay?
- MCMartin Casado
Yeah, I'll give it a shot, yeah.
- HSHarry Stebbings
So, what's your favorite
- 58:56 – 59:58
Martin’s Favourite Book
- HSHarry Stebbings
book and why?
- MCMartin Casado
Uh, I'm so bad with favorite questions, but I just read The Weirdest People in the World and it's the most remarkable book ever, um, and the reason is-
- HSHarry Stebbings
Why?
- MCMartin Casado
Eh, the reason is- is it's just, um, it's just ... Well, it's a- it's a reminder of two things, that really brains are hardware and software, and the software really matters. Um, and in the case of this book, the thesis of this book is just basically like Western Prodentis- Pro- Prode- Protestantism? (laughs) Um, uh, is that thought pattern has physiologically changed humans and is one of the reasons that humans be- that the Western world is more pro-social, like, you know, like willing to work with strangers to solve hard problems. Just a remarkable, remarkable statement. And one of the reasons underlying it, one of the reasons that it's not just kin based, like we don't just like, you know, stick with our clan but we actually work with strangers to solve kind of broader ideals, is because there's high level abstractions there that we kind of glom onto, like universal good and stuff like that. And so it just shows you how powerful, you know,
- 59:58 – 1:00:54
Biggest Lesson from Marc Andreessen
- MCMartin Casado
brain software can be. (laughs)
- HSHarry Stebbings
(laughs) What's your biggest lesson from your time with Mark?
- MCMartin Casado
My biggest lesson from my time with Mark?
- HSHarry Stebbings
Yeah.
- MCMartin Casado
Oh, it's- it- it's what, it's what I mentioned, it's just- it's just, you know, um, I think, uh, so, uh, so often like morality comes down to the aesthetics, and I just, I'm in love with the aesthetic that technology is a real good, and we're making the world a better place, and the future is- is bright on that, and it's a great way to spend time and effort.
- HSHarry Stebbings
What do you believe that most around you disbelieve, Martin?
- MCMartin Casado
Uh, (laughs) so, I mean, a lot of stuff. (laughs) Uh, I mean, a lot of what I've said like now people start to believe, but like, I mean, it was very, very controversial when I said that like, you know, I think that the cloud is breaking beyond its borders, which I absolutely believe. I- I think the bl- the
- 1:00:54 – 1:01:18
What do you know now that you wish you’d know before a16z?
- MCMartin Casado
cloud is disaggregating.
- HSHarry Stebbings
(laughs)
- MCMartin Casado
A lot of people disbelieve that.
- HSHarry Stebbings
What do you know now that you wish you'd known when you started at Andreessen?
- MCMartin Casado
Well, the things that I talked about. Um, you know, I think I would've ... Listen, my- my bedside manner has improved an awful lot as a board member, and I- I think that my expectations on- on- on how smart a venture capitalist can be have also been tempered, and a lot of the hubris is gone. Um,
- 1:01:18 – 1:01:41
Martin’s Opinion on Crossover Funds
- MCMartin Casado
and so, listen, life would've been easier if I didn't have to take the hard path that way, but ...
- HSHarry Stebbings
Wha- uh, what did you make of the crossover fund activity over the last few years?
- MCMartin Casado
I think it was actually brilliant. I think that it was a very, very smart model, and it's the right one. Um, you know, I think it's very hard for finance people to deploy money effectively at the early stage, but I think it's the right model if you can
- 1:01:41 – 1:02:47
Martin’s Biggest Miss
- MCMartin Casado
actually understand the markets. And so it's like the right model, kind of the wrong people doing it.
- HSHarry Stebbings
What's your biggest miss, and how did it impact your mindset?
- MCMartin Casado
I've missed so many, and they're all huge. (laughs) I've missed so many, I've missed so many times, I mean, I miss, you know, whole ...... whole areas, right? Like we, we don't, we don't, um, we don't even have a bet in cloud security posture management, right? Like the Laceworks and the Orkas and the Wizzes, right? And so, I mean, you know, I, I ... but h- here's my, here's my biggest takeaway, is like we still have the men- like the starvation mentality of the early 2000s of like, "Oh, the market's limited. We should only deploy a little bit of money, blah, blah, blah." Like the reality is you can't deploy money fast enough in the current market, even with the downturn, and there's more (laughs) opportunity out there and it's bigger than any of us know about it, and it's time that we all kind of mature and believe that.
- HSHarry Stebbings
What's the best investment advice you've received? So like mine is this too shall pass. (laughs)
- MCMartin Casado
(laughs) Um, phew, I don't know. Tru-
- 1:02:47 – 1:05:01
Most Underrated Angel Investor
- MCMartin Casado
tru- tru- trust founders. Follow the founder network is probably the best advice I've ever ...
- HSHarry Stebbings
Who's the most underrated angel in the ecosystem for you?
- MCMartin Casado
Ram Shriram.
- HSHarry Stebbings
Ram Shriram?
- MCMartin Casado
Mm-hmm.
- HSHarry Stebbings
Where, who, where's he?
- MCMartin Casado
I mean, he's got Sherpalo Capital. I mean, he, I mean, he's on the board of Google and Amazon and-
- HSHarry Stebbings
Ah, yeah, yeah, yeah, yeah.
- MCMartin Casado
... people know. Yeah, but let me just tell you, let me tell you something why I say Ram Shriram. There's a bunch of great angel investors out there. Like, listen, the guy's a billionaire, he's super famous, um, and there's a lot of these super famous, you know, billionaire guys out there, right? There, that Ram works so hard and adds so much value to the boards that he's on, it's just unbelievable. And, um, it's just so rare that someone of that, um, you know, stature and, and fame contributes so much. And so I know it's a non-tradition- (laughs)
- HSHarry Stebbings
(laughs)
- MCMartin Casado
It's not, it's not what you were expecting as far, but, like, he really is something else. I, I, I, I really owe a lot to the guy.
- HSHarry Stebbings
Martin, as in most underrated, it's perfect. That's exactly what I wanted.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Final one for you though.
- MCMartin Casado
Yeah.
- HSHarry Stebbings
What's your most recent publicly announced investment, and why did you get so excited?
- MCMartin Casado
I actually don't even know.
- HSHarry Stebbings
(laughs)
- MCMartin Casado
(laughs) I, like, I, I honestly don't know the answer to the most re- recent one. Do you know?
- HSHarry Stebbings
Wh- wh- wh- I, I don't know. (laughs)
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Um, uh, I couldn't answer it for myself, let a- let alone for you. (laughs)
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Um, that, that's the joy of what I do. I couldn't answer most of my own questions. (laughs)
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Uh, but, no, I, I totally get ... Okay, ta- give me another one. Martin Casado in 10 years, where do you want to be?
- MCMartin Casado
I, I, I, I, I would love, I would love to continue to focus on how, you know, West Coast product focus, founder focused investment c- can continue to erode at, at, at East Coast finance. And, um, I would love to continue to be playing a, a, a part of that.
- HSHarry Stebbings
Martin, I have never, uh, quite had a guest who swears as much as me. I loved it.
- MCMartin Casado
(laughs)
- HSHarry Stebbings
Uh, it's a thrill for me.
Episode duration: 1:05:06
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