The Twenty Minute VCa16z's David George on the Most Controversial Bet at a16z & Do Margins and Revenue Matter in AI?
EVERY SPOKEN WORD
135 min read · 27,496 words- 0:00 – 1:24
Intro
- DGDavid George
Our best performing fund in the history of the firm is actually a one-billion dollar fund.
- HSHarry Stebbings
David George is a general partner at Andreessen Horowitz, where he leads the firm's growth investing. His team has backed some incredible defining companies of this era. He's now investing behind a new generation of AI startups.
- DGDavid George
If you overweight the fear of future theoretical competition, you can always talk yourself out of making an investment. The number one way to measure a company is ultimately return on invested capital. On the gross margin point today, I'll say this. We give a little bit more of a pass than we used to.
- HSHarry Stebbings
At what point does the entry price you think for OpenAI become not a good use of dollars?
- DGDavid George
We have to constantly reassess this. So-
- HSHarry Stebbings
What I just don't understand, and I would love to, is flow. Can you help me understand flow? 'Cause I think the world kind of scratched their head. Why did it make sense to you when it didn't make sense to anyone else?
- DGDavid George
You remember what I said earlier about investing behind strength of strengths?
- HSHarry Stebbings
Yeah. Ready to go? David, dude, I am so excited for this. Um, I've been looking forward to this one for a while and I feel like I'm extra prepped now I've just listened to you on Invest Like The Best. So, I'm ready to, I'm ready to go, dude.
- DGDavid George
Let's do
- 1:24 – 7:13
Why Everyone is Wrong: Mega Funds Does Not Reduce Returns
- DGDavid George
it.
- HSHarry Stebbings
Okay. So, I actually spoke to most of your partners beforehand, and they said to me that I have to start with a show that we did with Everett Randall. And Everett Randall said on the show that you cannot look LPs in the face (laughs) and tell them you'll do a 5X with the fund sizes you have. How do you think about responding to the notion that one can't say to their LPs you'll do a 5X with large funds?
- DGDavid George
Uh, well, Harry, it is great to be back with you. I love, I love hanging out with you, so I'm glad, I'm glad we're diving right in. Yeah, as it relates to fund sizes, so our funds consistently beat small, large, diversified, concentrated venture funds. So, our larger funds have outperformed our smaller ones, and our larger ones actually have similar multiples of money to our smaller ones, uh, ac- across, across strategies. So, I would start by just saying this. In venture, we have two customers. We've got the LPs and we have founders. On the LP side, money is gonna flow to where the highest returns and best risk reward are. And, and so I think our fund sizes are a reflection of that. Our best performing fund in the history of the firm is actually a one-billion dollar fund, so it's a large fund, right? In that fund, Databricks has returned 7X the fund so far. Coinbase has returned already DPI 5X of the fund. In that fund, we also had GitHub, DigitalOcean, uh, Lyft, and many other things. So, to me, you can kind of see it in the data and our returns already, it's about the number of winners you capture, uh, and if the big wins are great, that can really work out. Um, so I think the idea that large funds can't have great returns is just not true in our experience. So, private markets have changed, tech waves create bigger opportunities. So let me just talk about each. The private markets have grown 10X over 10 years, right? So it's over $5 trillion of market cap now in our market. We actually just looked at the 50 top IPOs from 2017 to 2025, and if you disaggregate where the dollars of return come from, 47% of the dollars of gain happens between the C and the Series B, and 53% of the dollars of gain happen from Series C+. So there's actually a lot of dollar... I was actually surprised when we looked at this. But there's a tremendous amount of dollars of gain that happen at the later stage. And that's 17 to 25 IPOs, that actually skews a little bit heavily toward when companies were still going public, uh, when they were, when they were smaller. Um, so the size of outcomes, you know, is huge. Again, we've got 5 trillion of private market cap. Uh, if you look at our LSV funds, the aggregate market cap in those funds has ranged between 700 billion to one and a half trillion. So it's just large companies, and if you apply ownership assumptions to that relative to generating, you know, 3X or 5X returns, it's, it's pretty manageable. So, that's the private market and the conditions that have changed, and we can talk a bunch about that. Tech waves tend to create massively different value. I mean, this is very well covered, but the big story of mobile social SaaS cloud e-commerce all at once was 20 tr- 25 trillion of market cap creation. And if that started from scratch today, given the public private market dynamic that I just described, so much of that value creation would take place in the private markets. So we're in winning inning one of this new big tech wave. Um, I never would have expected in the last wave that companies like Salesforce would be worth $230 billion, or ServiceNow would be worth $175 billion, or CrowdStrike $130 billion, or DoorDash $100 billion. But here we are. And if you look at what's happening in the private verse public markets now, the size of the winners from a new tech wave, that's gonna happen in the private markets. Uh, so-
- HSHarry Stebbings
Can, can I just ask, with the extension of private markets, are you worried that essentially companies are not going out for so long that they are getting competed by new private companies before they get a chance to get out? You can look at the dynamic between Axon and Flock Safety is a good example of that, where, like, Axon is, like, eating away at part of Flock Safety's business, where they replaced them in Atlanta, a core part of, you know, Flock's business. And both are private, and they're eating away at each other in a world where one of them would have gone public in that time in a traditional world.
- DGDavid George
Yeah, I don't, I don't think that whether it's public or private has much to do with the competitive dynamics, to be honest.
- HSHarry Stebbings
But it does in terms of liquidity for venture investors.But if-
- DGDavid George
Yeah. Well, we, you know, we've led, you know, three rounds in Flock Safety. We, we led their last round too, and so we're still quite bullish about Flock Safety. Um, you know, you, you could talk about the increasing competition with Axon. The real story of that one is that the market is actually embracing technology now, finally. And so it used to be that historically selling into law enforcement was a terrible category. And now, it turns out that it's a wonderful category. If you actually have the most compelling products, you can get tremendous amounts of market share. And so I don't worry about that dynamic at all. And, you know, frankly, I think the more some of those companies have stayed private, it's been to our benefit because we've been able to increase our ownership over time.
- HSHarry Stebbings
Are you able to take money off the table with the ascension of private markets? Given how big a name you are and how big a position you often have, you're just a, a big piece of a cap table. For someone like me, it's much easier to sell out in a later round. Are you able to, and do you have that discussion internally of, "Hey, we should take chips off the table now"?
- DGDavid George
We could, but we historically have not. And so, you know, for the most part, for the companies that has decided to stay private, we've been really excited to, to stay in them, keep backing them, and that's probably the strategy that we'll, we'll continue to have.
- 7:13 – 11:02
The Biggest Advantage of Staying Private for Longer
- DGDavid George
You know, I think this staying private dynamic is a little bit overblown because I think there's some idiosyncratic reasons why certain companies have stayed private. Um, and many companies, many CEOs that I talk to, they are very happy to be public or they're excited to go public. So, you know, I tell our CEOs all the time, I've been fortunate to work with a bunch of public companies, never one of them has said, "I regret going public." And so, uh, I think for most of the companies that we're talking about, they'll wait longer than they had historically, but they will still end up going public.
- HSHarry Stebbings
Seriously?
- DGDavid George
Yeah.
- HSHarry Stebbings
I, I don't mean, I don't mean that horribly. I don't meet many public CEOs who don't tell me they wish they were private.
- DGDavid George
Hmm. No. I mean, look, I think there's tremendous benefits to being public. Now there's huge benefits for being private as well, which we can talk about. Um, but, you know, you could look at many of the public companies that are out there that had difficult paths and, and they would say, you know, they wouldn't trade it.
- HSHarry Stebbings
Can you... Genuinely, can you tell me what those benefits would be?
- DGDavid George
It's easier access to capital in some cases. So, there are a select few private companies that have very easy access to capital in the private markets. I think there's a trade-off in the private markets where you actually have a more expensive cost of capital, even if you have access to a lot of it. So, I think you can get a cheaper cost of capital in the public markets, um, and it's a little bit-
- HSHarry Stebbings
Do you think you can still get a cheaper cost of capital-
- DGDavid George
... easier.
- HSHarry Stebbings
... in publics? Like, publics, to me, is more expensive today. Privates were given more elasticity on price today, to me. No?
- DGDavid George
Oh, I don't think so. I, I don't think so. The companies that we've invested in, I, I'm very excited about them in the private markets. And I think if they were, if-
- HSHarry Stebbings
When you look at like a, a Rapid or a Lovable price, where it is, it's like priced at the same price as Wix. And Wix is doing a 2 billion of profit.
- DGDavid George
Yeah, I'm not close enough to those to know. (laughs) I don't, I don't follow those. We're not close enough to them.
- HSHarry Stebbings
The comps are very, very sh- sharply contrasting what we're saying there. That actually publics is harder and privates have cheaper cost of capital.
- DGDavid George
Yeah. Look, we're not close to those companies. I'm not close enough to know how they're valued relative to their performance. I can say in our portfolio, the companies that we have invested in over the last year or so, I'm pretty confident that if they were in the public markets, they'd probably have access to capital at a cheaper cost.
- HSHarry Stebbings
I always remember watching, uh, I think it was John Collison say like, "Oh, I, I..." I'm not gonna do the accent 'cause I'm shit at accents, which is, you know, why I'm not an actor. Uh-
- DGDavid George
You already have the good one. You don't need to mess with it.
- HSHarry Stebbings
Stop it. Stop, you're too kind. Um, and I don't want John to like unfriend me (laughs) 'cause I'll sound like a Russian. Um, but, uh, he was like, "I don't understand why we go public. I don't need some like 25-year-old associate to tell me that I need to, you know, plan more efficiently."
- DGDavid George
Yeah. For certain companies, like it's a huge benefit, you know. For somebody like Stripe that can get a pretty liquid, you know, market in the private markets, I get it. For them, I think the biggest benefit is, you know, not so much that, um, because I think in the fullness of time, if you're transparent, you tell a, tell a good story, you share with the pr- with the public markets, they'll, they'll kind of understand your business. I think the biggest advantage is the avoidance of volatility in your stock price and sort of employee management. And so, you know, I think, um, you know, if you can kind of steadily grow or control your stock price in the private markets, even if it's a slight discount to where you would be in, you know, in the public markets, I get the benefit of that for sure. And, you know, we've, we've seen some of our companies that have, have been able to do that, right? Stripe, SpaceX, Databricks, you know, it's worked, it's worked to their advantage for sure.
- 11:02 – 22:42
Is Public Market Capital Actually Cheaper Than Private Capital?
- DGDavid George
- HSHarry Stebbings
Is there anything else that you think is complete bullshit or that people don't see about the extension of private markets and the opportunity this opened up for fund sizes like yours with this expansion?
- DGDavid George
I think the biggest thing that's missing is just the change in what that means for asset classes. So, it used to be that you could get access to great companies in the public markets that are small cap. It turns out that's fewer and further between now. So, we just did, uh, an analysis on this. I mean, it turns out that the number of public companies has been cut in half over the last 20 years. Uh, you know, the companies that we're talking about, you know, many, many of them would already be in the public markets and they're not. Uh, and so, you know, if you look at where the returns are getting generated, the returns are actually getting generated in the private markets before they go to the public markets. And now if you look at what remains in small cap land in the public markets, you know, there are definitely some high, high-quality companies, but the quality has deteriorated. Uh, a friend of mine just shared this analysis with me that, that showed the return on invested capital of the Russell 2500, uh, over the last 30 years. And if you look at the ROIC, which to me is like the easiest measure of the quality of the company, the ROIC of the Russell 2500 over the last 30 years, it's gone from 7 1/2% steadily down to 3%.... so like more than cut in half. Uh, and so, and that's a pretty steady decline. I mean, it- it ebbs and flows with economic cycles. So, I think the biggest thing that's- that's missing and it's probably, you know, a reality that we have to adapt to in how we run our business, but it's also a reality for, you know, institutional investors and the LP community, that the asset class is no longer, you know, a sort of bespoke small thing. It's like the grownup leagues, you know? It's the big leagues. Like, if you just look at the size of the private technology high-quality companies, it dwarfs the size of private equity, um, you know, private equity technology in the US. And so, you know, that- that- that's a major- that's a major shift, and we've had to adapt our business to it, uh, in a big way, right? Like, if the companies stay private longer, we gotta give them new stuff. They have to be multi-product. They have to be multi-channel. They have to be international. And with AI, it's happening much, much faster. So, we've changed our business, uh, as well, but I think the market reality is just historical views of what the asset classes are do not reflect what they actually are today.
- HSHarry Stebbings
Completely agree. So, I'm an institutional investor with a $10 billion endowment fund. How should I change my asset allocation between PE, venture, publics, given that blurriness, merging, lack of clarity that you just mentioned? What would you genuinely advise me?
- DGDavid George
I'm heavily biased. Uh, and, you know, look, I- I recognize that many of the endowments have kind of... They have a starting position, which is, you know, I think many have probably find themselves a little bit overallocated to- to privates. And so, I don't know how to assess that relative to the- t- to the future outlook, but if I take the future outlook only, um, where do I think are the most attractive opportunities at? Like, if you just start with where the 10 most valuable companies in the world are today versus 25 years ago, like eight of the top 10 are US West Coast-based technology companies. And, you know, they were venture-backed. Uh, and so, if you assume that the future is likely to be, you know, something similar to what's happened in the last 20 years, I think the most interesting place to be is- is this asset class, you know, which has exposure to what those next generational kind of dominant companies can be. And so, you know, I think the allocation should reflect this sort of melding of what used to be part of the public markets that no longer is, uh, that's sort of a- you know, a newer- a newer asset class. And so, that's one piece of it. You know, my- my friends in private equity do an amazing job. They have incredible returns.
- HSHarry Stebbings
Do they have better returns than you?
- DGDavid George
Uh, if you were to look... Um, my compliance guy doesn't let us talk about returns, but if you were to look at our returns, uh, or the top performing venture funds, let's just call it that, uh, relative to, you know, top performing PE funds, the top performing venture funds outperform. Uh, and so, you know, I think that's historical, but I think it's gonna be, you know, more extreme in the future, uh, because I think AI and the effective implementation of AI is gonna be the most important thing for companies over the next 10 years.
- HSHarry Stebbings
There's so many things that I wanted to talk to you about. You said that- that eight out of the 10 are US. Candidly, would you be like, "Ah, don't worry about Europe." Like, if you have the US covered, you've got eight out of the 10. You've got dominant market share. Silicon Valley has retained the title as AI center. Ca- uh, obviously I'm in London, I'm not gonna be offended, but is that what you would say?
- DGDavid George
No, not at all. I mean, there's great entrepreneurs in Europe. And we've backed a bunch, right? Like, we- we backed, um, Matty from ElevenLabs, and he's doing an extraordinary job building what we think is a generational market leading company. You're shaking your head.
- HSHarry Stebbings
Yeah, I turned it down at seed.
- DGDavid George
(laughs) You- you can't- you can't- you can't bet 1000. Uh, but-
- HSHarry Stebbings
Dude, another one of yours I turned down at seed that keeps me up every day, every day ... Alex and Deal, Alex and-
- DGDavid George
Yeah, there's amazing- there's amazing entrepreneurs.
- HSHarry Stebbings
... Deal, Deal.
- DGDavid George
Oh, Deal?
- HSHarry Stebbings
Uh, two on 12.
- DGDavid George
Yeah. Deal. My favorite thing about Deal, um, I mean, Alex is just absolutely relentless. He... So, I- I recently... I had some post, I think it was, um, you know, an announcement of something, you know, that I posted on LinkedIn. Somebody had commented, a CFO of a growth stage company had commented on it, and I immediately get a screenshot from Alex circling the comment, and he said, "Can you introduce me to this guy? He looks like a great Deal customer." And I'm like, "Man, this guy is always selling." Uh, and so, in a market like that, like that is exactly what you need. I love it.
- HSHarry Stebbings
Dude, I pinged him on a Sunday morning. I said, "Hey, I project Europe company, this is like very young founders under the age of 25 with no employees, uh, wants to be a Deal customer. Who's the lowest person on your team I should int- like who should I introduce them to on your team?" "Me. You can do it now, please. I'll take the call today." I was like, "Dude, it's like but there's one person." He said, "I'll do it. It's cool to meet him."
- DGDavid George
(laughs) It's actually- it's actually amazing. (laughs) He's- he's- he's relentless. And- and, you know, look, like this is very much the kind of founder that I love.
- HSHarry Stebbings
One thing that I do worry about when we look at this stage of the market, especially when it comes to these prices, that we're like taking venture risk in terms of probability, stage of company, but at prices that were previously very, very mature companies. How do you respond and think about that, taking venture risk at super high mature company prices?
- DGDavid George
I think there are certain instances where it makes sense. I mean, I- I would agree with you that there are many instances in the market where that doesn't make sense. Uh, I think there are certain instances where some degree of likelihood of success is very, very, very high, despite- despite, you know, a- a very early stage. And so, you know, as an example-... you know, my partner, Sarah, um, led a round in Character.AI and, you know, it was extremely early stage and, you know, we, we invested at a, you know, what you would call a growth stage price. Um, but we knew that the likelihood of some degree of success in backing Noam was extremely high. And so, you know, it worked out that way. And so for, for extremely, extremely special people like that, uh, you know, we're, we're comfortable to step into those situations.
- HSHarry Stebbings
So would you argue for deals like that actually, the risk is not the entry price because you've got the liq pref? Which means that someone like Noam, he's always gonna get bought for whatever the liq pref is, like, whatever, $100 or $200 million, obviously.
- DGDavid George
Yeah, we almost never make an investment saying like, "Oh, we've got the liquidation preference." Um, but, you know, there are certain situations like that where, you know, we feel like it's pretty asymmetric. And so, you know, backing Noam, you feel like there's a pretty safe downside and there's an extremely high upside. I think the, the kinds of people, you know, I, I say people because these, you know, some of these are, like, earlier stage people as the kinds of people like that that warrant an investment decision, you know, a thought process like that, I think are extremely small. I mean, the list is five people, I think.
- HSHarry Stebbings
Love that. I, I spoke to Brian Kim on your team and he asked me, "Do you see as part of the growth fund's charter to fix the errors of omission from your venture team?"
- DGDavid George
Very much so. (laughs) And, but we do it in partnership with the early stage team. So this is, this is like our whole model, right? Um, you know, w- we talk about mistakes we make all the time. And, and we have some very p- I have very painful errors of omission at the growth stage too. I think if you think about what our business is, we're never gonna have at the early stage 100% market share of all the best deals. And so, you know, by having a growth fund, we can come later and, you know, we, we call it like the fix the mistake fund internally when we're joking around. Uh, but we do that in close partnership with our early stage team. So we always join team meetings, we're always talking to each other, you know, what, what are you, you know, asking the early stage team? Like, "Hey, what Series A's do you wish you had done that you passed on? You know, which seeds do you feel like you passed on?" And so when you have a situation like what you described with Matty and you say, you know, you're pulling your hair out that you, that you didn't do the seed, you know, that's okay. Come back and, you know, come back and fix the mistake at the B or the C. Uh, and so it's a huge part of our charter. By the numbers, about half of what we do is follow-ons from existing venture companies. And then, um, from a dollar standpoint, another 15% is follow-ons from existing growth stage companies. And then about a third or so is fully net new companies. And when we're doing the fully net new companies, we have a preexisting relationship with those founders from the early stage every time. And so definitionally-
- HSHarry Stebbings
T- can you just help me on the 50 and 15? 50 is follow-on, but 15 is what? Follow-on of a different kind?
- DGDavid George
Of a, of an originated growth fund investment. So the thing that's important about that is, you know, when we invest, I don't know, two-thirds of the time or so, it's into a company that we have a preexisting relationship with, either at the early stage or the growth fund. So the 50 is, you know, we, we did the ElevenLabs growth round and we d- and, you know, thankfully Jennifer and Brian did the, the early stage round. Uh, the 15 would be, we led two more rounds in Flock Safety or, you know, we led another round, um, you know, into Figma or, uh, you know, we, we put more money into SpaceX. So something that was originated, you know... Or Waymo, something that we originally did out of the growth fund.
- HSHarry Stebbings
What did the venture fund do that you didn't double down into that with the benefit of hindsight you're like, "Motherfucker, we should have done?"
- DGDavid George
Oh, man. There's many of these. I mean, we don't, we don't get it right all the time. I think the most relevant are like we passed and then we ended up fixing our own mistake. Uh, so (laughs) you know, for example, you know, with Deel, um, you know, there was a round in between when Aneesh led the Series A and then we co-led the Series C. And, you know, we, we, we obviously wish that
- 22:42 – 30:23
The #1 Investing Rule for a16z: Always Invest in the Founder's Strength of Strengths
- DGDavid George
we had done that.
- HSHarry Stebbings
What do you learn from that? I... Yeah, I, I, I have this too. I actively, like, what do I learn from missing ElevenLabs, from missing Deel? My takeaway is very simple. I thought I was smarter than markets. I thought I could, uh, forecast what OpenAI's product roadmap would be in the case of ElevenLabs. And actually, I should have just 100% backed up the truck on amazing founder. Same with Alex at Deel. Payroll, ADP, paychecks.com, bleh. But Alex is amazing, just back. What was your takeaway from missing that B, which is, is a mistake?
- DGDavid George
Yeah. I think often the takeaway is when we make an investment, we should always be investing in strength of strengths as opposed to lack of weaknesses. And so this is a philosophy that comes from Ben, that if you have spiking strengths in a founder and a company, it's okay if there are weaknesses or concerns. Often the mistake, you know, will manifest itself as, you know, the fear of future competition, like the fear of theoretical competition, right? So that's, that's the perfect articulation of what you just had for ElevenLabs and say, "Oh my gosh. So aren't the labs gonna do it?" It's the old VC trope of, you know, "Well, isn't Google gonna do it?" Or, "What happens if, if Facebook does this?" And so, uh, if you overweight the fear of future theoretical competition, you can always talk yourself out of making an investment. And so we try really, really hard not to do that. Um, other, other mistakes, you know, i- if we, if we pass on great companies, it's because, you know, it's not because they're, you know, the market leader, it's not because they have a good business model, it's, it's because we think the market might be too small.... those are mistakes, too. Like, we a- we always underestimate the size of a market and we have fun stories about that all over the place.
- HSHarry Stebbings
We do, but it's just so interesting, I just did a show where the guest talked about the TAM trap, which is like why SaaS is like Japan, which is like shrinking population, uh, shrinking seats and actually TAMs being smaller than we thought, and whether it's your Dropboxes or your Twilios or your PagerDuties, fuck.
- DGDavid George
Yeah, look, I- I think many of the incumbents, I call them the new incumbents, and the new incumbents are in much better position, I would say, than like the licensed, you know, licensed incumbents when SaaS came along. If I were to rank order the level of disruption that is coming for these companies, business model shift is number one. And so, you know, we can talk about examples where that's most in practice today. You know, Sarah and Kimberly from our side led an investment, uh, investments in Decagon. Customer service is the most obvious one, where you can certainly price, you know, based on a completion of a task, and it's- it's better, faster, cheaper value prop to the customer. So, if you are going to compete with a seat-based customer service thing, look out, that's hard. And that's a business model shift. So that's, like, the most disruptive piece. The second most disruptive piece, I would argue, is, um, UI and workflow, and then the third most disruptive piece is access to data. So what data do you actually access? And so if you have all three of those that undertake major change at the same time, I think you've got a really good chance for a startup to come and beat, you know, beat- beat the incumbent, the new incumbent, if you will. I, n- at the same time, I- I just never in a million years would have thought that the big software companies could be as large as they are. And so I- I have to think that this next wave probably presents the opportunity for this next generation to be much larger than the, than the previous generation. And it doesn't mean, you know, they have to go eat all labor, uh, you know, which is like, we have that on slides too. Um, but I- I- I don't think in practice that's actually what happens. I think in practice what actually happens is there's massive surplus that gets delivered to end customers and you can still create much bigger companies than the previous generation.
- HSHarry Stebbings
I do think it does go back to this great question though, which is like, we have to see the transition of spend from technology budgets, or sorry, from human labor budgets to technology budgets, because if we don't, then the TAM for technology spend just stays the same and we've all just overpaid a shit ton.
- DGDavid George
Yeah, but the pro- so the only flaw in that logic is that has to be product-driven, not top-down driven. Like that, needs to be pulled from the market, that needs to be, like, slapping the customers in the face that there's the value prop for them to go do that, as opposed to CIOs or CEOs saying, "You know, we need to do AI stuff and so let's shift labor, you know, spend." The- I would say there's some encouraging data points. If you look at recent earnings reports, there are a couple of companies, and- and you gotta like look kinda deep for these, but there are a couple of companies that have started to show signs of actually running their business differently and showing really high ROI from AI. So do you- have you heard of CH Robinson?
- HSHarry Stebbings
No.
- DGDavid George
It's a truck brokerage. So they take customers, you know, who need to ship stuff and trucking companies and they broker deals between the two so that they can ship things. Uh, and most, most of the industry in the US is actually intermediated, you know, it's not direct, you know, it's not direct. Like the, the trucking industry is very fragmented. So this is a, this is a large business and, you know, historically they've had, uh, like football field sized, uh, call centers of people making phone calls and connecting dots. They just disclosed in their last earnings that they saw a 40% productivity increased- increase, uh, measured in shipments per person per day in their core business since the end of 2022. 40% increase. It's an incredible ... And it's- it's AI driven. And so what's actually happened is their operating margin has gone up 680 basis points. And so, you know, like that's very effective implementation, uh, of AI. And so, you know, people always ask, they're like, "Oh, well, is there real usage?" You know, "Are we in a bubble?" All this stuff.
- HSHarry Stebbings
But that- but that just proves, that just proves what I said to be true though, which is like the transition of human labor to technology is fundamentally necessary for us to have a great business.
- DGDavid George
Yeah, yeah, yeah, yeah. And I think it will happen. I think it will happen. I'm just saying you're seeing green shoots. Um, I don't think it necessarily means that every SaaS company is doomed, but, you know, even Microsoft has reduced their headcount by 6% over the last year or so.
- HSHarry Stebbings
I do think it means you're going to tap out though. You know, sadly, I'm a big shareholder in monday.com, in Duolingo, and you know, one of our recent guests who's a dear friend of mine is like, "Yeah, but that's exactly the problem. There's no human labor replacement there. And unless you have a human labor replacement story in public markets today, you're not gonna get the premium."
- DGDavid George
Yeah, and I think that, I think we'll see that, and I think we'll see that and I think it will come with the business model shift. I think, I mean, you know, you're talking about the public markets, like in the public markets today, you are guilty until proven innocent. It's- it's the, it's the full flip side of our criminal justice system where you are assumed that you are doomed by AI unless proven otherwise. And so I think there's probably opportunity. I mean, you can see the, the way the, you know, the- the stock prices, uh, you know, have- have gone. I fortunately, that's not our world, I don't- I don't have to play in that world. We get to bet on the next thing. Um, but I do think that, you know, there's gonna be a huge opportunity, uh, to shift
- 30:23 – 30:54
Does Revenue Matter as Much in a World of AI?
- DGDavid George
that.
- HSHarry Stebbings
Uh, speaking of, like, the huge opportunities, some companies are taking advantage of them, and the revenue scaling, dude, is just so much faster than any of us have ever seen before. We see the race to 100 million ARR. I think you guys just did, um, Gamma, uh, which is a product that, awesome product, um, Grant, uh, scaled very fast to 100 million. Does revenue mean as much as it used to when it's gained so quickly and also seems so transient?
- DGDavid George
Okay, so this is a great question because I think this is where you have to be really discerning
- 30:54 – 43:48
Does Kingmaking Still Exist in Venture Capital Today?
- DGDavid George
in the market. It does mean the same as it has before if it is high retention and high engagement. And so this is, uh, the, the bar has actually gone up significantly for us when we look at AI companies because they've grown so fast. And so you can't actually look at years of renewal behavior, but you can look at shorter cycles of retention, and you, most importantly, can look at engagement. And so if people are using the product a lot and getting a lot of value out of it, that's a really good leading indicator and we can take comfort in that. But we have spent way more time focused on that than we did, you know, in the previous generation. It's, it's, so, what makes companies like Gamma so special, again, this is one of Sarah's deals, um, <|sv|> One, heavily organic customer acquisition, and two, really high engagement retention. And so, you know, we talked about the engagement and retention piece. It's magic when you have, you know, ease of customer acquisition, you and I have talked about this before, but, you know, this is one of the most impressive things that we're seeing in the AI companies. ElevenLabs has this, ChatGPT has this, xAI has this, uh, where it's organic customer acquisition, uh, or, you know, very low cost sales acquisition, a Bridge, Harvey, companies where, like, the market is just absolutely starving for their product. That's a really good sign, um, and so just because it grows really fast doesn't mean it's going to end up transient or lower quality, but the bar for assessing that is way higher than it used to be.
- HSHarry Stebbings
Totally get that. The bar for other companies is also way higher it seems, and my question to that is, dude, I'm sitting on a lot of great enterprise software companies, and, um, you know, we- we were always... I was always taught, dude, that you're going to get great funding if you treble, treble, double, double. Is treble, treble, double, double dead in this new world?
- DGDavid George
I don't think it's dead in this new world. I, I, I tend to think that companies are... The number one way to measure a company is ultimately return on invested capital, and so the way you do that with an early stage company mostly is efficiency of customer acquisition. And so not every company needs to go, you know, 0 to 100. Like, it depends on what market they're in. Uh, but I do think the companies with AI, if there's very, sort of, starving end customers, momentum gives you, high momentum gives you a chance to build a moat. And I think that's the most important thing about this sort of debate about how, how high of growth is- is good enough. Um, it depends on the market you're in. In some markets, like, they're not going to move as fast, but in the markets that are moving really fast, if you're not moving really fast, you know, that's a, that's a risky place to be. But I think the most important thing about momentum is just, you know, it's relative to your peer set. And so if your, you know, if your peer set is growing really fast and your compe- your direct competitors are growing really fast, you know, and- and it's, and it's, you know, high retention and- and customer acquisition is- is relatively easy, like, you need to be growing really fast too.
- HSHarry Stebbings
But, like, uh, the opportunity cost of cash is so real. Uh, we were- we were talking about this the other day with the company internally, and I'm just like, "I completely agree." It could be a very good way to build a very solid business over a long period of time, but the opportunity cost of my cash is I could be in the next Gamma, Harvey, Lovable, you name it. And so yeah, it's- it's good, but is it the best place for my precious dollars and for my LP's precious dollars?
- DGDavid George
Yeah, and- and, you know, I- I think we spend all of our time thinking about, like, where is there market pull, right? 'Cause those are the best places where you can build a company. Like all those companies that you just described, there's extreme market pull, and the reason they've grown really fast is not because they've poured tons of money into hiring sales reps. The reason they're going very fast is because there's tremendous customer pull for them. And so we look for, you know, we look for those markets.
- HSHarry Stebbings
I believe that king-making does exist. And king-making, for those that don't know, is when, uh, a financier is able to bluntly invest so much that they are en- able, able to anoint a winner in a category, and that then leads to moats and everything that comes with it and ultimately winning. Do you believe that king-making exists or do you disagree that it exists?
- DGDavid George
As we think about investing in companies, so we always seek to invest in the winner. Uh, if the investment thesis is our investment is going to make them a winner, it's probably a pretty flimsy investment thesis. Now, an investment that we make in a company that is already attracting resources, hiring really well, able to raise capital well, um, able to deploy more money into go-to-market, able to deploy more money into R&D, it can- it can generally help. Like, this is the whole theory of preferential attachment, which is, you know, why increasing returns to scale is a concept, right? Even if you're not a network effect driven business, if you're salesforce.com or, you know, Workday or ServiceNow or CrowdStrike, the more you become the leader, the more resources come your way and the easier things get for you, potentially. Uh, and so we look for situations like that. I would contrast it with situations, y- you know, like the original SoftBank Vision Fund did a lot of really good things. Honestly, they- they did a bunch of really good things and-
- HSHarry Stebbings
Like what? I genuinely want to be educated here because I- I immediately shivered.
- DGDavid George
They were early to figuring out that there would be a huge opportunity in AI, so, you know, they famously were in NVIDIA in- in that fund. Uh, you know, and they did some really good investments, like-... Slack, like Gartner. Um, the, the one piece of it was missing, in my opinion, was that capital as a weapon was a viable strategy. So, capital as a weapon in enterprise is really, really hard to do because you physically have to hire people. You have to hire sales reps, you have to hire marketing people, et cetera. Capital as a weapon in consumer s-... most of the time, it, it doesn't really work. Like, I would say TikTok is maybe the exception, maybe Uber. Um, but, you know, the thing that, that maybe was wrong about it was we can king-make if we just put the capital into the companies and then that will allow them to win. But that's a bit of an adverse selection machine, where the companies that opt into that as their winning strategy are the ones that maybe don't have as good of a, a reason to win or competitive advantage in the first place. And so, if that money is gonna go, you know, back to consumers or drivers or whatever it is, uh, in that case, and just get funneled back to Google and Facebook, like, I don't think that king-making for that is necessarily a good strategy. Um, but, you know, investing a lot of capital, having a brand that gives a seal of approval, it can definitely help make a company, you know, make a company succeed. And, and I think, um, you know, I think Mark and Ben have des- described it well in the past. You know, what are, what are we giving to our founders? Partially, what we're giving to our founders is, you know, a loan on our brand, you know, a seal of approval. And, you know, often, especially for early-stage companies, it, it, it really can help with hiring. Have you heard that talk track of, like, um, you know, what, what store do you want to be? I mean, talk about that. You know, we... N- there's sort of a barbelling of the retail market and, you know, there's... Basically, there's Amazon and Walmart on the one end. On the other end, there's, like, extremely high-end retail. So-
- HSHarry Stebbings
We call that, we call that Chanel, but yeah.
- DGDavid George
Yeah, Chanel, Zegna. This is where Europe really thrives. Yeah, there's scale players and then there's specialists, and I think, you know, we're obviously a scale player. I think the risk is, is everything in between, right? Department stores that have general merchandise, but don't have scale, for example, and that's a very risky place to be. So, our strategy is very much scale, build scale. And the reason we do that is because it gives a huge advantage from a ter- from a resources standpoint to our portfolio companies.
- HSHarry Stebbings
Totally get that and understand. Do you mind being, like, called Walmart, then? (laughs) Like, I didn't mean that rudely, but, like... (laughs) I love you, dude, but that looks like a beautiful Loro Piana. There's nothing about you that screams-
- DGDavid George
(laughs) Yeah. Um-
- HSHarry Stebbings
There's nothing about you that screams Walmart, dude (laughs) .
- DGDavid George
I, I love, uh... Uh, let- let's... We're happy to call ourselves amazon.com, you know? Customers love it.
- HSHarry Stebbings
Ah, we're-
- DGDavid George
They're very well-served. And, and-
- HSHarry Stebbings
Ah, we're Amazon, we're not Walmart. Okay, gotcha. Yeah, yeah, yeah. Um, I, I... We mentioned, like, king-making and competitive categories there. One I just can't get over, dude, and I've tweeted this, is the customer support category 'cause there's just, like, 50. Like, there's so many. And, like, Brat & Ciara is obviously like, you know, the OG of OGs of SaaS. Like, can you help me? Why am I wrong on being so confused by this space? Because there's just some- something for every vertical.
- DGDavid George
Yeah, well, I think there's a good reason why there's excitement in this space. It's better, faster, cheaper already today, with today's model quality, with the reasoning capabilities, you know, with the cost of the models. And so, you don't need to believe any future state of a different product or a different, you know, model capability. The functionality is there. And so, you know, I think there's good reason why... You know, we, we, um, you know, we put on EBCs for our portfolio companies. Every time Decagon appears in one of these EBCs, there's extremely high interest and, uh, and, you know, most of the time, conversion, uh, to a deal. So, I think the market pull, the market size is what is most interesting about that space. You know, Jesse and Ashvin, this, this... Again, this is not my deal, it's Sarah and Kimberly's, but they are special founders. They're really, really good, they're relentless. They're the kind of founders that we really love to back. If you look at, like, SaaS and cloud markets, about half of them are winner-take-vast-majority, like, the overwhelming majority. And about half of them, you know, they're sort of a, a sort of breakup of market share. So, for example, you, you know, you mentioned, Dale, like, payroll. Payroll market, like, payroll market is not a winner-take-vast-majority market. Uh, there are many markets like this in, in SaaS and cloud. And so, it's possible that, you know, Decagon is the winner and they move really fast on product and they win the market based on having the best product and the best distribution and all the things that we talk about. Um, you know, or it's also possible that, you know, it's a, it's a sort of, you know, kind of more distributed market, sort of like payroll. Either way, the, the growth is staggering, the market pull is staggering. It's a... You know, Decagon, for us, is, is a great company.
- HSHarry Stebbings
Love Jesse and love Ja-... But how do you just think about, like, the willingness to pay up ahead of time? Because that's kind of where, where you're going, which is that you're just paying so far ahead of time. You know, 10 billion for Ciara is, is, is, br- amazing, yeah, but you legitimately are paying a fuck-ton ahead of time.
- DGDavid George
Yeah, I, I don't know. We- we've, we've not been close to that. Obviously, we're, you know, we're existing investors in, in Decagon, so it's hard for me
- NANarrator
... to kind of
- HSHarry Stebbings
But, like, you, but you with Decagon on, like, how do you get... Do you just say, "Okay, well, if the market continues in this way..." Because if you map out expected growth rates, you have to map out with fricking LSD glasses to see where this lands. Like, you have to, like-
- DGDavid George
Oh, I'm not, I'm not sure that I would, I would agree with that, actually.
- HSHarry Stebbings
Okay, it- I'm- I'm taking a company, not Decagon, at 50 million in ARO. You have to expect that it will 5X to get to 250 and then 4X to get to a billion and then 3X to get to three billion and then ... But- which is all pretty optimistic fucking growth rates. And then with a 6X in public markets, or 7S, we're looking at a what? 3X on the cash, on the price that we're paying today. Wow, that's not a good opportunity cost dollar spent.
- DGDavid George
I've been historically surprised at how good the best companies can be and how fast they can grow, especially in markets that are early innings with a big technology shift. So I'm very optimistic. Those are abstract numbers. I also don't think that every great high growth company will end up trading for six times in the public markets. There are some that are gonna trade higher based on very high growth rates or high cashflow. And so, you know, it's hard to debate like an abstract financial case, uh, but, you know, for- for most of these companies that we've backed, these- these winning apps, they're growing faster, 3X faster, you know, than predecessor SaaS and cloud companies. And so, you know, sure, th- high- high valuations from the outside, I- I think in- in many of those cases are warranted.
- 43:48 – 47:01
Do Margins Matter Less Than Ever in an AI-First World?
- DGDavid George
- HSHarry Stebbings
Everyone shits on them for margins. Do you think that's a really weak argument to shit on AI apps? And do you think we'll just see the transformation of those margins pretty quickly over the next two to five years?
- DGDavid George
The history of technology inputs would suggest that the m- the margins will rationalize and the margins are gonna go up. There's a high amount of uncertainty today. So it's possible that this next generation of- of companies is 50% gross margins and, you know, that's ... If- if they're delivering a ton of value, growing really fast, that's totally fine. Um, today, the input costs per token have gone down massively but token usage has also gone up massively with the introduction of reasoning. So in the last, you know, year and a half or so, it's been a bit of a muddy picture on the input costs. I think over time, that will rationalize, will go down. I think the market structure will end up sort of like cloud for the models, where, you know, cloud costs for the average end customer are fine and, you know, cloud's an oligopoly and they make high profits. I think the model companies, you know, that serve APIs will be relatively oligopolistic. They'll probably have reasonably high margins and the end customers will be pretty high served or well served. Um, on the- the gross margin point today, I'll say this. We give a little bit more of a pass than we used to and if we ever see a company that pitches us as an AI company and they have SaaS gross margins, we ask a lot of questions, uh, because it probably means that people aren't actually using the AI features.
- HSHarry Stebbings
I do want to ask this too 'cause I did- I did listen to the show with Patrick and there was something that was interesting or struck me with it where you said you look for greatness lying where others don't and kind of the- the art of the pick more, like in determining beauty where it's not obvious. And I- I- I thought that was kind of interesting and again, you can shit on me for this but your biggest positions are Anduril, Stripe and OpenAI which struck me as not exactly diamonds in the rough.
- DGDavid George
(laughs) Um ...
- HSHarry Stebbings
I'm not-
- DGDavid George
Yeah, I didn't-
- HSHarry Stebbings
I- I- I- I- I ... No, but my point being you wouldn't-
- DGDavid George
I'm gonna, I'm gonna answer it in a different way which is-
- HSHarry Stebbings
Hmm.
- DGDavid George
What I mean by finding beauty or opportunity is most of the time, it's seeing a magnitude of greatness that isn't totally obvious on the surface and so, you know, when- when we've made original investments in some of those companies, you know, we invested in Anduril, um, you know, in the growth fund when they had one program of record and it was- and it was Border Towers and, you know, the bet was can they be massively multi-product and, you know, now they have, you know, many, many programs of record, some of the coolest products in the market. You know, OpenAI we invested before they had ChatGPT, uh, and so often, you know, often there's an opportunity, uh, you know, where we see things that may be great in the future even if the companies themselves are already
- 47:01 – 48:15
My Biggest Miss: Anthropic and What I Learn From it?
- DGDavid George
great or hot.
- HSHarry Stebbings
We said about errors of omission. What error of omission lingers on your mind? What company are you not in that you would most like to be in and why? So like for me it's Revolut. It actually upsets me every day that I'm not in Revolut. I- I use it, I love it. It upsets me.
- DGDavid George
I have a lot of errors of omission. Uh, I mean, I- I have many dating back like deep in my career. Um, you know, Door Da- DoorDash, it's 700. Like it-
- HSHarry Stebbings
What one really lingers? The- for me it's Revolut and Deel.
- DGDavid George
Yeah, for current companies on the model side, Anthropic has done a really great job. You know, we're not investors in Anthropic and they've- they've done a really good job and so, you know, I think it's one of those cases where similar to cloud, like if you could own all of AWS, Azure and GCP as independent companies, it- you know, like that would suit you pretty well. And again, that's- that's one of those markets that was not winner take all even though it's a scale market, you know, it's sort of oligopolistic. Like if the model companies turn out to be something similar given- given how much we expect demand to grow, um, you know, that's- that's probably
- 48:15 – 52:50
Has OpenAI Won Consumer AI? Will Anthropic Win Enterprise?
- DGDavid George
one.
- HSHarry Stebbings
Do you think the market will evolve with like OpenAI winning consumer and Anthropic winning dev and B2B?
- DGDavid George
Yeah, I think they actually will, um, diverge in pretty meaningful ways. Um, this is sort of what we've seen in historical technology markets but I think each will try and remain competitive in their spaces and so, you know, uh, B2B-Anthropic is certainly putting more resource after it today. OpenAI's gonna have a really good B2B business. They already do. Uh, so I think that market is gonna be pretty competitive. Um, you know, not just, not just coding, but general B2B API usage. And moving up into the application stack. Both of them are, are obviously trying to do that. So, I think that market is gonna be pretty competitive. I think Google will play some part in that market. Um, but, you know, the big head-to-head competition will come, you know, between OpenAI and, and Anthropic. On the consumer side, I think, you know, it's ChatGPT. Like, ask, ask my family in Kentucky what do they use. You know, they, they know... What, what is AI? They know ChatGPT. They use ChatGPT, you know, extensively. Google's gonna take a crack at, and they already are, uh, trying to compete in that market. But I think, you know, brand and the best product in the market can take you a really, really long way. Uh, and so, you know, as we under, have, have, have kind of underwritten future rounds of OpenAI or later rounds of OpenAI, it's very much, you know, with the mind of, of consumer.
- HSHarry Stebbings
At what point does the entry price, do you think, for OpenAI become not a good use of dollars? This is one thing where I'm permanently, like, reflecting on it myself, where it's like, you know, if you think it's a $2 trillion company, well, you can still see a 4X from here. At what point does the opportunity cost no longer make it worth it?
- DGDavid George
We have to constantly reassess this. So, again, you should look back at our investment case for investing in Databricks, you know, in 2019. Like, it's... You know, we did, we did an investment out of our growth fund. It was one of our first investments, it was our largest growth fund investment in Fund One at $6 billion. And our investment case n- never would have predicted, uh, you know, what, what they became. And so we have to constantly push ourselves and think about, you know, um, how big they can become. I, I, I've been surprised at how big in absolute dollar terms that companies can be and how good they can be. So, we constantly have to push ourselves on this. The example I always use is, you know, Google and Facebook. Like, 10 years ago, Google and Facebook were monetizing their users at, like, one-seventh of what they are today. And it's just hard to, it's hard to forecast that. It's hard to model that. Um, but it would be limiting to think, you know, you're ever at, like, an end state of productivity or end state of new products. So, you know, we've been, we've been surprised. We like to invest in the ones where there's a theory on how the core market can be bigger than we would expect or others would expect. You know, Stripe is an example of this. SpaceX with Starlink is an example of this. You know, Waymo when we invested is an example of this. And then we also like to invest in the ones where we feel like the founders have an advantage in figuring out the next product. And so, Anduril is, like, a perfect example of this. You know, we knew border towers would, would be a huge product line. Uh, but with the team, you know, we were also pretty high confidence that they were gonna figure out a, a bunch of other stuff. I wouldn't have predicted that they figured out autonomous fighter jets, uh, which is, which is pretty awesome. Uh, but, you know, the best ones, the best ones who know their markets the best, who have market leadership, who are product people or tech people, you know, they tend to find the next product areas and, and that's what we want to find.
- HSHarry Stebbings
At scale, and at the scale you are, do you just say, "Hey, we have to invest in competitors. You can't not"?
- DGDavid George
No, we, we don't. I mean, when we, when we invest, we try to, you know, we try to avoid conflicts as best we can, um, you know, especially if we're on the board. So, you know, it's the trickiest part of scale of our business, um, and we, you know, we don't always get it right there.
- HSHarry Stebbings
Can you delicately do it between funds and be like, "Oh, that's in the early fund"?
- DGDavid George
We try not to do that. Um, we try not to do that. I mean, look, the, the, um, you know, the thing that we see that more often happens is companies diverge more often than they converge. And so, you know, the perception of what a conflict can be in the future, like, often doesn't come into play. You know, there, there are also examples in, in the opposite, where we funded a company and then they pivoted and they pivoted into a different space. Uh, and, you know, we, we try and, we try and help the founder as much as we can, even if that's the case.
- 52:50 – 55:59
The Most Controversial Decision in Andreessen Horowitz History
- DGDavid George
- HSHarry Stebbings
Can I ask you, what decision did you and Mark and Ben most disagree on, um, and what was the outcome? What, where were your views just very divergent and how did that resolve itself?
- DGDavid George
The biggest one was our original investment in Waymo. So, we invested in Waymo in early 2020. So, we were the only VC fund that invested in Waymo in, in early 2020. It was extraordinary. I mean, the product was magic, even at the time. Like, we, you know, we did demo rides. This was obviously well before, uh, they, they were, they were, uh, everywhere on the road. We did demo rides. You know, it could do... It could drive smoother than a human. They could do unprotected lefts. Uh, they, they could avoid construction sites. They, they could do all these, like, really special things that you wouldn't think that an autonomous car could do at the time. Um, but at the time, like, they didn't have a product in the market and I thought the valuation was, was really high. Uh, and so, you know, I, I said, "Here's all this analysis." And our team and... You know, we produced all this analysis that showed that, you know, the price was really high. And, uh, Mark, Mark and Ben, you know, were like, "It's autonomous driving." Like, "It... What are you talking about?" Like, "This is the, this is the, this is the endless market size." Um, you know, "This, this can be the biggest company in consumer technology." And so... And they're the market leader. And the way we did it was we, you know, we invested a smaller amount at the time, just given we were conflicting points of view on it. Um, but that served us well 'cause we kept a close relationship with the team and we wrote, you know, a much larger check, uh, into their most recent round. And, and I'm really excited about it. I mean, they have a very exciting future. Uh, I'm, I'm going to San Francisco after this and I am gonna take a Waymo on the freeway, uh, up to our office in San Francisco from Palo Alto. And that's sort of a magical product experience. This is one of those cases... You know, we talked earlier about potential future com- competition.Like, this is one of those cases where there's gonna be, you know, tremendous potential future competition, but the product in the market today is magical. Um, and, you know, there was just an op-ed written in, um, I think, I, it was New York Times, uh, that was like, it was done by a medical professional and he said, "Okay, we now have enough data from Waymo that shows they are 7 to 10X safer than a human driver. When we see results like this in clinical trials in the healthcare industry, we fast-track the drug into full approval and just get it in the market, because the benefits are so great." And he was comparing that to Waymo, which is like, hey, how many deaths are there on the roads per year? Um, you know, it would be irresponsible to block this, let alone not fast-track approval of it. So, it's gonna be kind of the mother of all markets. Like, I think autonomous driving and robotics are, are maybe the mother of all, you know, markets that are coming on AI.
- HSHarry Stebbings
I'm always quite annoyed about it because I always see it on social and we don't have it in London, and I've never been in one.
- DGDavid George
They'll try to get one in soon. You know, L- London's a tough market to enter. I mean, you remember what it was like for Uber to enter London in the first place, uh, that it was, it, it got brought into the market kicking and screaming. Um, but you know, London, Tokyo, they'll be some of the best international markets possible for autonomous
- 55:59 – 59:17
Why Did You Invest $300M into Adam Neumann and Flow?
- DGDavid George
driving.
- HSHarry Stebbings
That I understand. What I just don't understand, that I would love to, is Flow. Can you help me understand Flow? Because I think the world kind of just scratched their head. Why did it make sense to you when it didn't make sense to anyone else?
- DGDavid George
You remember what I said earlier about investing behind strength of strengths?
- HSHarry Stebbings
Yeah.
- DGDavid George
Adam has extraordinary strengths. He has some of the strongest strengths of anybody, any entrepreneur in the market. Um, and it doesn't mean that he has no weaknesses, um, but he absolutely spikes in the areas that are most important for the business he's trying to build.
- HSHarry Stebbings
What would you say that is odd? 'Cause I, I'm not in those meetings and no one is, and so I'm fasa- where was he world class?
- DGDavid George
He's world class at brand building, company building, product, um, and hiring. And when I say world, th- those sound like things that are maybe, you know, a little fuzzy, um, but they're not. I mean, they're the most important ingredients for early stage company building. And so, you know, he, he s- surrounds himself with an extraordinary team. He's got an incredible insight, which I think is fascinating. Um, consumers in the US, obviously home ownership is declining, you know, rapidly, and, and people aren't able to buy homes and, and there's a whole political and social issue with that, but it's the reality of the case. Um, the, the average renter in the US spends 30% of their disposable income on rent. It's the highest amount of spend of any category, and yet it's the only unbranded experience in anyone's life. If you think about, you know, the food you eat, the clothes you wear, the car you drive, um, you know, the places you go, all of those are branded experiences and consumers pay a premium for that branded better experience. Um, and so, you know, his idea was kind of what if you actually brought brand and a better product experience to a renter's life? Uh, there's a huge market opportunity for it, there's great business model that goes with it, uh, and if there's anybody who can do that given, you know, the intersection of real estate and brand, I think it's Adam. And so, you know, if you think about the average entrepreneur walks in off the street and, and pitches us an idea, you know, what is the, what is the likelihood that, you know, Adam can build a humongous company versus the average entrepreneur? It's extremely high. It doesn't mean that it's now without risk, but he has extremely strong strengths. So, that's the theory behind it.
- HSHarry Stebbings
The founder of Calm I walk with every week and he always just asks me one question. He goes, "How often do you meet a founder like this? Once a month? Don't write the fucking check. Once every six months? Mm, probably write the check. How often do you meet a founder like Adam?" I don't know, you can answer me on your dataset, but it's probably quite rare, in which case you're like, "Well then write the fucking check."
- DGDavid George
Yeah. Yeah, yeah, and it's e- it's extremely rare. And, and like, you know, Adam, Adam is a learner. Like, uh, you know, he, he is, uh, he, he is like a deep student of the game that he's in. Uh, so I'm really excited about Flow. You know, Mark and Ben and I are all involved, uh, and Justin from our team. You know, they're, they're building, um, they've sort of proven out the value prop of the product and, you know, now it's just
- 59:17 – 1:11:51
Quick-Fire Round
- DGDavid George
about scaling.
- HSHarry Stebbings
Dude, can I do a quick fire-round with you? What have you changed your mind on in the last 12 months? Like mine was Andreessen.
- DGDavid George
Oh, that's good. I like it.
- HSHarry Stebbings
Andreessen and YC. YC is the single biggest buy, I think, in venture. Every great European company is a YC company. Every one.
- DGDavid George
They're, they've crushed international, like, for what it's worth. I mean, they, and they, and they, they're really, really good in the US. Like I, I-
- HSHarry Stebbings
Yeah.
- DGDavid George
Yeah, they're really good. And I, I'm, I am a big fan of Gary. Um...
- HSHarry Stebbings
Yeah.
- DGDavid George
I don't know if it's in the last 12 months, but if you think about the moment that all of the models started to demonstrate their capabilities, I would say there was a moment in time where we thought that the models would eat everything in consumer and enterprise software, and I think maybe there's a bit of a shift back toward this in public markets at least, that the models are gonna eat all these application software categories. We fully changed our mind. I, I, I think there's gonna be application software companies built on top of models, uh, in pretty much every direction. And so if you look at our investing behavior, it, it, you know, it obviously reflects that. That's probably a little bit further back. That's probably more like 18 to 24 months ago. Um, but you know, we, we sort of all thought at first like, the models will just do everything and subsume everything, and it turns out there's tons of stuff you have to do-... around the tasks that humans do, um, you know, in order, in order to build a viable product. Th- the example I like to give, I know it's a lightning round, but, you know, radiology. L- like, AI has been able to do a better job than human radiologists, like, prior to this whole wave, like neural nets were able to do a better job than human radiologists at looking at scans. And yet, since the, you know, this sort of proliferation of AI, the number of radiologists has actually gone up. It hasn't declined. And so why, why is that the, why is that the case? It turns out that radiologists only spend 30 to 40% of their time looking at the scans. There's another 60 to 70% of their time doing all the other stuff. And so, the, the model companies aren't going to go do the work to figure out how to automate the other stuff, the 60 to 70%, but that's what, what the opportunity would represent for an independent company in that space. Does that make sense?
- HSHarry Stebbings
I a hun- I, I, no it does, and I 100% agree with that. We've got a business who will solve intelligence, which is like patent law AI. No way they're going there, agree. But like OpenAI are doing, I, I, I have the nuance about OpenAI are doing customer support. Gemini and Google have just released Build Anything or Build Anywhere or whatever the fuck that lovable competitor's called. They are moving into the application layer in ways that we didn't know they would.
- DGDavid George
Yeah, but it, you know, it's, it's, it's one of 30 things in their AI divisions that they're trying to do. It's sort of like how AWS in the cloud, you know, have service offerings for basically everything, uh, that, that you could possibly have, and yet there's still tons of infrastructure companies that are independent.
- HSHarry Stebbings
Dude, you've met many great founders. One first founder meeting that was most memorable? I'm not asking for the best founder or anything like that, I'm just saying, like, the most memorable first founder meeting.
- DGDavid George
Okay. So there, there are, uh, more extreme success versions of founders that, that I've backed and over time wh- who I've gotten to know. One of the ones that struck me recently was the first meeting, I had dinner with, um, with one of my, with one of my partners, Santiago, with Shiv, uh, from Abridge. Uh, and I didn't know what necessarily to expect. Uh, I knew he was a doctor, you know, practicing cardiologist. I knew that, you know, he was making a lot of progress in his market. Um, but he's, he was one of these perfect archetypes where he knows his end market, he knows his product, he knows the technology, and yet is a total, total killer. Like, he's this, you know, great bedside manner cardiologist, but an absolute killer. Uh, and so, you know, I love when I have those first meetings and, and you can already feel that.
- HSHarry Stebbings
He actually reminds me of Winston at Harvey, which is like, you, you feel the authenticity to the core domain, but then it's like not the elegance of that domain, like the aggression of a tech founder with the academic nature of the core domain. Do you know what I mean?
- DGDavid George
Yeah, of course. Like, this is, this is like, uh, you know, it's, it's, it's actually a really good archetype in a lot of the vertical software categories. Um, but, you know, you, you can definitely see it with, with those folks. And honestly, like, speed of execution aggression is a huge part of success in those categories.
- HSHarry Stebbings
Totally get you. You've got a seed firm, you've got a series A firm, and you've got a growth firm that you have to invest in other than Andreessen. Which do you put your money into?
- DGDavid George
Obviously 20VC.
- HSHarry Stebbings
(laughs) Very sweet. Thank you. Um, so I, I, I can help you out. So like me, I put my seed Hummingbird, series A Benchmark, growth, either you or Pat. And I'm not just saying that, but like I just think scale is super important and brand is super important. Or Napoleon at Founders Fund, one of the three.
- DGDavid George
I think those guys are all great. I, I have tons of respect for all those guys. You know, we end up doing rounds together, we're in companies together. You know, I think, I think they're all great.
- HSHarry Stebbings
Who is not in Andreessen who you would most like to work with?
- DGDavid George
I think the best would be, you know, we, we, we partnered a lot with Nat and Daniel when they were still on the field. And so, you know, if they wanted to, you know... Actually, I guess they, they were off the field when they were investing. They got back on the field, uh, to do real jobs now. Uh, but if they were to come back off the field, I think it would be fun to work with them.
- HSHarry Stebbings
Mine would be Lee Fixel. The guy's ability to predict and forecast markets, like 10-year vision plan, I think is really amazing. Or Fenton. Clarity of thought. Fenton could make a fucking plastic bag seem like it's like made by Jesus.
- DGDavid George
(laughs)
- HSHarry Stebbings
Like, (laughs) seriously, like he's amazing. Anything just sounds poetic. Who's the best picker in Andreessen?
- DGDavid George
There are a bunch of really, really talented people at the early stage. Like I, I love that I get to learn from these people all the time. I think the people at the early stage that have developed the most clarity of thought on approach to early stage investing, like I think it's Dixon. Um, you know, he's, you know, he obviously runs our crypto funds now. Uh, but you know, he's, he's got a generalist background as well. He's been doing this for a really long time. Uh, and I think he has the sort of clearest articulation of what our early stage strategy is, which has been adopted, I would say, across the firm. Um, but he, I think he has the clearest, clearest view on it.
- HSHarry Stebbings
When you need to win something internally in Andreessen, who's the savage that you bring in to win?
- DGDavid George
Mark Betts.
- HSHarry Stebbings
You can choose one.
- DGDavid George
(laughs) They're both exceptional. It depends on what the founder wants.
- HSHarry Stebbings
How does that differ? Love to know.
Episode duration: 1:11:52
Install uListen for AI-powered chat & search across the full episode — Get Full Transcript
Transcript of episode IxoGRY6TXwk
Get more out of YouTube videos.
High quality summaries for YouTube videos. Accurate transcripts to search & find moments. Powered by ChatGPT & Claude AI.
Add to Chrome