Inside a16z’s $1.25B Infra Bet | Martin Casado, General Partner at a16z | Ep. 23

Martin Casado 0:00 The market is so big, and it's growing so fast, even companies that seem like they're competing end up in totally different places, just 'cause so much white space is being created. But they're all competing, like, totally different companies and spaces are competing for the same talent.

Jack Altman 0:11 Talent, yeah.

Martin Casado 0:11 So the first time-

Jack Altman 0:12 Yeah

Martin Casado 0:12 ... I can remember where the actual talent competition is, like, way more fierce. [upbeat music]

Jack Altman 0:19 Martin, I'm really excited to be doing this here with you today.

Martin Casado 0:21 Same.

Jack Altman 0:22 Thanks for making time for it.

Martin Casado 0:23 Yep, yep.

Jack Altman 0:23 And, um, one of the things that I was just, uh, chatting with you and laughing about, on

Jack Altman 0:27 my way in, there were, like, many other podcasts going. There's, like, one, like, before and after us.

Martin Casado 0:32 Yeah.

Jack Altman 0:32 And I talked about this with Mark-

Martin Casado 0:33 Yeah

Jack Altman 0:33 ... about how, like, podcasts are, like, this future thing-

Martin Casado 0:36 Yeah

Jack Altman 0:37 ... of, of media. And basically, my question for you is sort of like, as somebody who's been on the inside of a firm that's dominated this, you do a lot of it yourself-

Martin Casado 0:45 Yeah

Jack Altman 0:45 ... like, what's your experience about, like, the importance of media for venture capital?

Martin Casado 0:50 So I think it's probably important to recognize that it's never been a thing, really. Like, if you look at a lot of historically good investors, they weren't very public. Like, think about, like, the, the greats, like Moritz, Ping Li, Doug Leone, Benton, Mike Volpi. Like, they're just not very public, and so historically there's been no correlation to being between public or not.

Jack Altman 1:09 Yeah.

Martin Casado 1:09 I think a couple of things have changed in that time. Um, one of them is the traditional media just turned on tech, and it hates tech, right?

Jack Altman 1:17 Yeah.

Martin Casado 1:17 And so in the past, you know, when I was a founder, to get a po- uh, like, a, a lukewarm to positive article was pretty straightforward, and the VCs would help with that. Like, you know, they would know a few reporters. It was very easy. But now it's actually very dangerous because, like, you go talk to them, and, like, who knows what they're gonna say? And so in a way, like, if you wanna help a portfolio, you do wanna build a bit of a platform. You do have to go straight. So I, I, I think that's one thing that's changed. The second thing is... [exhales] So if you're traditionally an enterprise, take from the enterprise standpoint, like, marketing has been something that you build brick by brick, right? And it's like you put content out there, and people read it, and, like, it's durable over time, and so you get this kind of compendium, and you build a brand over time. And it feels we're in an era now where it's just become so episodic that if you don't understand, like, the current zeitgeist, you just can't even get a voice at all. And by episodic, I mean, like, today, GPT-5 launched, right? It was, it was, it was massive. Like, if you didn't know that that was gonna happen, you would've been drowned out, and if you did know, you could draft on it. And so, and then, and then it just feels like for some launches, they go, they're a big deal, and then they just disappear forever. So I just... So much of the nature of how we consume and think about content has changed, and so I do think that venture capitalists, one, they need to, like... If they have a message they wanna get out, they kind of have to go direct because, I mean, if it's your own platform, it doesn't hate you. That's one.

Jack Altman 2:40 [chuckles]

Martin Casado 2:40 But then also to help your portfolio company, I think you need to build an in-house capability, so, like, they can know how to, like, most effectively message, and you can't really borrow a page from traditional marketing. And this is from someone that's come very much from the age of traditional marketing.

Jack Altman 2:53 Yeah.

Martin Casado 2:53 It's just different.

Jack Altman 2:54 Yeah, I mean, one of the things that I've been very surprised by is, you know, there's always room for, like, another podcast or something like that.

Martin Casado 3:01 Yeah.

Jack Altman 3:01 Like, um, like, people consume a lot of this stuff-

Martin Casado 3:04 Yeah

Jack Altman 3:04 ... and I think people in tech find it sort of like a, it's almost like a halfway between working and, like, watching Netflix, where it's like, "I'm passively learning-

Martin Casado 3:12 Yeah

Jack Altman 3:12 ... but it's, like, low stress," and people would, like, rather consume a good podcast than, like, a new Netflix show.

Martin Casado 3:17 Yeah, for sure. And I'll also say, like, there's always a concern that there's too much content, but that been- concern has been around forever. There's always been too many books to read. There's how many... And too much, like, you know, TV to watch. There's always been too many web pages to read, et cetera. So it's always been an ordered list that starts with the most important and goes to infinity. So the question has always been: How do you be in, like, the top 10 or the top 20?

Jack Altman 3:37 Yeah.

Martin Casado 3:37 And that, that changes all of the time. I do think you're right. I think people like to consume things that they can consume casually-

Jack Altman 3:43 Yeah

Martin Casado 3:43 ... that is relevant to their interests, and so it's actually [chuckles] a great time now that you can actually be in that top 10 for the set of people that, that you

Martin Casado 3:50 care about.

Jack Altman 3:50 Totally. Uh, so I wanna talk about your time-

Martin Casado 3:52 Yeah

Jack Altman 3:53 ... at Andreessen and, like, what's evolved-

Martin Casado 3:54 Yeah

Jack Altman 3:55 ... which has obviously been, like, a lot.

Martin Casado 3:56 Yeah.

Jack Altman 3:56 Um, can you sort of give the picture of what it was like when you joined?

Martin Casado 4:00 Well, so when do you wanna start, when I joined as a f- when I was a founder or when I actually joined as a GP?

Jack Altman 4:03 Maybe when you joined as a GP, but then let's connect it back to when you, you were-

Martin Casado 4:06 Okay. So when I joined, it was, it was 2016, so I've been here almost 10 years.

Jack Altman 4:10 Yep, that's a lot. [laughing]

Martin Casado 4:11 [chuckles] I know, wild. So, um, uh, so I think it was the ninth general partner. I think the firm has 75 people. Um, not only were we all generalists, like, you know, you could do whatever you want. That was kind of part of the pitch.

Jack Altman 4:25 Mm-hmm.

Martin Casado 4:25 You know, you could kinda do whatever you want, but, like, most of us had done some pretty serious time operating. Like, my journey of my startup was about 10 years-

Jack Altman 4:33 Yeah

Martin Casado 4:33 ... let's call it. Um, and so many of us, like, we're so tired of the space we came from, we did something totally different. [chuckles]

Jack Altman 4:40 Yeah.

Martin Casado 4:40 You know, like-

Jack Altman 4:41 Yeah, totally

Martin Casado 4:41 ... you know, and so it was very, very different than that. So generalists, few people in the firm, and then actually the investing team alone, you, you really had GPs-

Jack Altman 4:49 Yeah

Martin Casado 4:49 ... and we were all the same, and then you had relatively junior partners that couldn't write checks, that actually would bounce between the GPs. Like, so there's no alignment at all. So it's a very, very different structure.

Jack Altman 4:58 So I guess one of the things that's interesting then over the evolution is that, you know, it started in this generalist version-

Martin Casado 5:03 Yeah

Jack Altman 5:03 ... and now you're running a distinct platform.

Martin Casado 5:06 Yeah. Yeah.

Jack Altman 5:06 And the way the firm is shaped is-

Martin Casado 5:08 Yeah

Jack Altman 5:08 ... there's a ton of autonomy. You know, Marc was talking about this on the podcast-

Martin Casado 5:11 Yeah

Jack Altman 5:11 ... where basically part of the idea was, like, we can recruit these amazing GPs because they get huge autonomy, but we're gonna have specialists-

Martin Casado 5:17 Yeah

Jack Altman 5:17 ... you know, sort of leaders for things.

Martin Casado 5:18 Yeah, yeah.

Jack Altman 5:19 Um, and so I guess, what has that change meant for you? What's it been like to go from generalist to specialist, I guess?

Martin Casado 5:25 Yeah, so, so I think it's important to maybe talk about why a change is, is necessary. So the historical context is interesting. I think there's two things that are important. One of them is the model of venture came out when, like, tech was, like, a non-market. It was, like, this total speculative stuff, and when you meant tech, you meant everything from, like, bio to software. Everybody was a generalist. Um, often it was just kind- it wasn't, like, really a profession. It was like, you know, if you wanted to play money, you do it. And so, you know, they made decisions that made sense at the time, but that no longer make sense. So, for example, it's a historical quirk why, you know, we... venture capital uses, like, the same-... model that you'd use for, like, a dentist office or something, like a partnership where everybody's equal, right?

Jack Altman 6:11 Mm-hmm.

Martin Casado 6:11 Like, that makes sense for a small service organization, but you can never scale that. And so there's all these decisions that were made when the market was much smaller, that as AUM grows and as the market grows, like, there's many companies, many more companies you could deploy in now, you'd have to restructure the firm.

Jack Altman 6:25 Mm.

Martin Casado 6:26 And so kind of our view is, like, we definitely wanna scale. We definitely thought we had the best platform, uh, for founders. Um, and also, the markets were so large, you didn't have to be a generalist. Like, in 1980, if you did, a, you know, enterprise infrastructure software, how many companies could you invest in?

Jack Altman 6:42 Not a lot. [chuckles]

Martin Casado 6:43 Two, or something like this. Now, you know, someone could have an entire career investing in databases alone, right? And so as the market grows, clearly you have to specialize.

Jack Altman 6:51 Mm-hmm.

Martin Casado 6:51 And so when I joined, we were all generalists, often that hated our own disciplines-

Jack Altman 6:56 Yeah

Martin Casado 6:56 ... because, you know, we've kind of been through it.

Jack Altman 6:57 Can I ask you a question about something?

Martin Casado 6:58 Yeah, yeah, of course. Yeah.

Jack Altman 6:59 Do you have

Jack Altman 7:00 to, do you have to become specialist as the market grows or as the firm grows? In other words, is that, is the specialization choice downstream from growing the firm, or do you think it's downstream from the market growing?

Martin Casado 7:12 I think it's ultimately the function of the market, and I'll describe why. So if you believe that this stuff is competitive, right, which I do, then you need to end up with a product that is, that is competitive. And because it's adaptively competitive, like, let's say you've got two firms that are competing, you're always gonna be looking at, like, what the weakness of the other one is.

Jack Altman 7:35 Mm-hmm.

Martin Casado 7:36 And so, like, for example, if, um, a certain firm can't do seed, then of course, you know, you'll wanna do seed, or if they can't do large checks, you wanna do large checks. What happens is everybody ends up getting as many products as they can so that they don't have any weaknesses, which will naturally happen. Now, you can only do that if the market is large enough. And so now you have a, a high AUM, right? You've got a lot of products. I've got a growth fund, I've got a seed fund-

Jack Altman 7:59 Yeah

Martin Casado 8:00 ... I've got a venture fund, and then you have to ask the question of: How do you scale that? And, like, venture was not, was not built to scale. And I think this is why we've seen the industry go this way, which is the market has increased a lot, you know, funds wanna be competitive. In order to be competitive, they have to find out kind of like what products that they offer that are actually competitive. This drives to higher AUM, and as a result, you know, you have the specialization.

Jack Altman 8:22 When you're-

Martin Casado 8:23 Now, that... Just, just that said, so, so but there's also kind of this internal thing, which is assuming that you wanna scale AUM independent of the market, you have to solve this problem, 'cause you just can't scale like a consensus org of generalists. Like, just not something you can do.

Jack Altman 8:38 Like the people issues on the inside, you just can't get through good decisions, is that what you mean?

Martin Casado 8:42 Well, I just think conflicts- well, there's many, many issues, right? Like, but one of them is, uh, y- you wouldn't ever have, um, uh, a structured approach to tackling a market, so you could never know that you've got good coverage, because maybe everybody wakes up in the morning and they decide they all like the same thing. And so I just don't think you can actually, even from a numbers game, scale it, because you don't... You're, you're not carving it up enough where you actually know that you've got, like a, like a uniform focus. You don't know if you have... Are hiring people that can cover the certain areas. I actually just think even just from a strict numbers standpoint, it doesn't work.

Jack Altman 9:15 How valuable is the specialist thing when you're in these competitive situations? Like, I imagine that a lot of the times when you're competing to win a deal, it's, you know, up against a firm that, or a partner that is, like, more or less generalist, I would think. Um, and I'm curious how that plays out sort of in the day-to-day.

Martin Casado 9:33 Uh, so I'm not... Yeah, it's, it's, it's hard to answer how much it, it helps in a competitive situation. Um, I think, think my experience is it's a lot more powerful that founders know that I've been a founder. Uh, and I know this is, like, such a cliché thing to say, but I, I, I do feel that resonates much more than, like, "I got a PhD in computer science-

Jack Altman 9:57 Yeah

Martin Casado 9:57 ... or I know infrastructure," right?

Jack Altman 9:58 Right.

Martin Casado 9:58 'Cause the reality is, most founders know a lot more than I do about whatever their area is, even if I've got a high-level thing. So I think in a competitive situation, it's not, it's not hugely... But, but what it, I think it is very helpful for is, like, I am primarily a Series A investor, and at Series A, you have to have some thesis-

Jack Altman 10:18 Mm

Martin Casado 10:18 ... on how the tech hits product and how the product hits the market. And unless you've been very close to, uh, to both of these things, that's a hard thing to do. Now, if I was a growth investor, it wouldn't matter, I'd just look at numbers. But, like, for where I am, I think you kind of have to understand.

Jack Altman 10:32 Yeah. And an interesting offshoot question from that is, um, you know, when we were talking earlier about how important is media, you're like: It seems really important, but, you know, there's a lot of great examples of investors who are all over. They're, you know, all over media and social media. There's a bunch of examples, phenomenal investors who you'd never hear about if you go on the internet.

Martin Casado 10:52 Yeah, I don't know if- I literally don't know if they're correlated at all. Mo- most of the, the best investors-

Jack Altman 10:55 Yeah

Martin Casado 10:55 ... I have known in the last 20 years-

Jack Altman 10:57 Yeah

Martin Casado 10:57 ... had no media presence, and they, they had no interest in it.

Jack Altman 11:00 Totally.

Martin Casado 11:00 Yeah.

Jack Altman 11:00 And then I'm wondering, um, I think, you know, around being a former founder-

Martin Casado 11:04 Yeah

Jack Altman 11:04 ... like, um, as I'm just, like, thinking through names-

Martin Casado 11:06 Yeah

Jack Altman 11:06 ... I can think of, like, a lot of examples of both. I definitely think founders appreciate it, and I'm, you know, speaking as somebody who's a former founder-

Martin Casado 11:13 Yeah

Jack Altman 11:13 ... I think that's a nice thing.

Martin Casado 11:14 Yeah.

Jack Altman 11:14 But, like, it also, I wonder if that's also an uncorrelated thing, or do you think that has more of a correlation somehow?

Martin Casado 11:20 Okay, so I'm, I'm just gonna guess here. I would guess that founders really appreciate reach, and so I don't think a founder's like: "Martin, I saw you on that podcast. You seem smart," 'cause everybody sounds pretty smart [chuckles] on podcasts, and articulate, and whatever. I do think, I do think a founder would be like: "Hey, listen, like, when you really believe in something, boy, like, you talked a lot about it. You know, I will have the opportunity to talk about it. You know, you will help me kind of break through the bootstrap problem of, of zeitgeist-

Jack Altman 11:49 Yeah

Martin Casado 11:49 ... understanding and brand." And so I do think having a platform matters more and more. And again, a lot of this is just because the media has turned on tech so heavily.

Jack Altman 11:57 Totally.

Martin Casado 11:58 Like, there just aren't a lot of options.

Jack Altman 11:59 Yeah.

Martin Casado 12:01 Again, I mean, I, I think sometimes we in VC kind of overweight our importance in these things. There's... Most companies with great brands did not do it through a VC firm.

Jack Altman 12:09 Totally.

Martin Casado 12:09 Right? And, like, it's not like, you know, we somehow can single-handedly make great brands, but we are an accelerant, we are a platform. Um, you know, and there is actually a lot of signaling as a result of aligning with a good firm, so I think all of that matters.

Jack Altman 12:22 Yeah, I do think that it's, um... There's this question of, like-... are the top VCs getting to do the great deals because they were the top VC, or are they-

Martin Casado 12:31 Yeah, absolutely

Jack Altman 12:31 ... in some sense helping make them? And I, my, you know, my own instinct is that for the most part, it's the former, and, like, you know, companies are just almost exclusively made by the founders.

Martin Casado 12:41 I totally agree a hundred percent. I think that the prime- the primary reason to create a distribution channel as a VC is so the portfolio can get out there-

Jack Altman 12:47 Yeah

Martin Casado 12:47 ... and reach the people. This is very hard what we're doing. It's not because, like, whatever-

Jack Altman 12:51 Yeah

Martin Casado 12:51 ... Martine needs to be famous or Martine needs a brand. Like, that doesn't really matter. That never comes up-

Jack Altman 12:56 Yeah

Martin Casado 12:56 ... in, like, a closing situation. I mean, I've done-

Jack Altman 12:58 Yeah

Martin Casado 12:58 ... so many deals, right? That's never been a thing. But I do feel that a number of our companies, you know, once they're ready to launch, you know, we can provide a benefit. And so I think that is the ultimately the benefit to the portfolio, but I've never seen a company win or lose by marketing.

Jack Altman 13:13 Yeah.

Martin Casado 13:13 Right. So I just don't think that that's the high order-

Jack Altman 13:15 Totally

Martin Casado 13:16 ... bit.

Jack Altman 13:16 Okay, I wanna jump over and talk about AI a little bit, and in particular, I'm interested in talking about, like, infrastructure, 'cause it's something I know relatively little about, and so I wanna, like, learn from you about, like, first of all, like-

Martin Casado 13:27 Yeah

Jack Altman 13:28 ... what is it? If you could, like, put some like broad, you know, kind of, uh, you know, a, a broad fence around what the term is.

Martin Casado 13:33 Yeah, so I do computer science infrastructure, so I'm, like, a computer science maximalist. I think it's like the meta-discipline that you can, like, you know, solve other, other disciplines with, right? Like, we solve grand unified field theory, and physics goes away, and then we just go on to biology type thing, right? So I do computer science. So infrastructure is the stuff used to build the apps. So you sell to technical buyers, people that use computer science to solve business problems. So, like, if the company sells to marketers, that's not infrastructure, but if it's developers-

Jack Altman 14:04 Mm

Martin Casado 14:04 ... database administrators, networking, that's core infrastructure. I mean, and so, like, depending on how you count, this is a multi-trillion dollar industry, but, like, the important thing is, is, like, the actual buying and use behavior is a very technical thing. So that's, that's our definition of infrastructure.

Jack Altman 14:19 Okay, so when you're looking-

Martin Casado 14:20 Like compute, network storage, databases-

Jack Altman 14:22 Yeah

Martin Casado 14:22 ... now models-

Jack Altman 14:23 Right

Martin Casado 14:23 ... like, that dev tools, that type of stuff.

Jack Altman 14:26 And it seems to me, from, you know, just my, my viewpoint, is that, um, when these new paradigms come, cloud, mobile, you know-

Martin Casado 14:33 Yeah

Jack Altman 14:33 ... AI-

Martin Casado 14:33 Yeah

Jack Altman 14:34 ... it seems like that's, like, a very good moment for, you know, infrastructure-

Martin Casado 14:37 Yeah

Jack Altman 14:37 ... 'cause the board's shuffling a lot-

Martin Casado 14:38 Yeah

Jack Altman 14:38 ... and new infrastructure's being laid.

Martin Casado 14:39 Yeah, yeah.

Jack Altman 14:40 And so when you're looking at it, is there any broad way that you think about, you know, will this, will this continue to exist over time? Will the models or, you know, whatever, AWS in the past, will they do it? Will there be, you know, a need for somebody third party? Like, how do you even start to think about what will play out over time, just, like, at a structural level in infrastructure?

Martin Casado 15:01 So can I say something that's probab- that may not be true, but I feel very strongly? [chuckles]

Jack Altman 15:04 That's what we're here for.

Martin Casado 15:05 This is, like, a total- [chuckles]

Jack Altman 15:07 That's what this whole thing's about.

Martin Casado 15:07 But this is, like, an inflammatory opinion that's self-serving-

Jack Altman 15:10 Please

Martin Casado 15:10 ... that may not be true. So-

Jack Altman 15:11 That's what I want.

Martin Casado 15:12 But, but as an observation, here's my observation. Um, in software, the true differentiation is, is technical, right? You know, now there's, of course, brand stuff and business stuff, but, like, you know, if you have two products, like, it comes down to a technical problem, and that's almost always comes from the actual infrastructure, um, that, you know, that the software is built on, right? So if, if I built like two, let's say, dog walking apps, the fact that, like, it's got three or four features, like, you know, that's a very light differentiation.

Jack Altman 15:47 Mm.

Martin Casado 15:47 But, like, one being super fast, one being super slow, that's like a, like an infrastructure.

Jack Altman 15:51 Yeah.

Martin Casado 15:51 So the companies that provide infrastructure, I think ultimately they are the s- they are, like, the source of value. They are the source of differentiation.

Jack Altman 15:58 Mm.

Martin Casado 15:59 And so while there are fewer infrastructure companies, my bet, and this is my, my, my inflammatory opinion, is that they just have better multiples and they're more durable because they service everything above it, but they're the, the thing that provides it. And actually, Sarah Wang, who is an investor on the growth fund here, and I did a, you know, kind of relatively loosey-goosey public market analysis, where, like, what are the multiples of companies that are infrastructure versus apps?

Jack Altman 16:26 Mm.

Martin Casado 16:26 And they just have higher multiples for this reason.

Jack Altman 16:28 Mm.

Martin Casado 16:28 Does that make sense?

Jack Altman 16:29 That does make sense.

Martin Casado 16:30 So, like, so my... so my view is, is, is the infrastructure's where the value is. Every time you have a platform shift, you'll get a new set of infrastructure companies-

Jack Altman 16:39 Mm-hmm

Martin Casado 16:39 ... and then a bunch of apps get built on top of those. But, like, the value is gonna accrue largely to the infrastructure, 'cause that's where the differentiation ends up happening. So you don't need to have a platform shift necessarily in order for you to have, you know, like, important infrastructures with k- good multiples. Like, I, I just think it's a durable part of any sort of application. But then the question is, what happens when it matures, like the clouds do, and becomes an oligopoly-

Jack Altman 17:05 Yeah

Martin Casado 17:05 ... and then no longer can private investors invest on it?

Jack Altman 17:07 Mm-hmm.

Martin Casado 17:08 But every time we've seen that happen, you see a layer of infrastructure evolve on top of it.

Jack Altman 17:13 Mm.

Martin Casado 17:14 So l- maybe let's say it this way. So the way I view the world is you've got a bunch of app developers who are non-technical, and they wanna develop apps to solve all sorts of, like, consumer problems and business problems and whatever. So their goal is to build s- is to build an app for a non-technical user. So why would they kind of invest heavily in technology? So they'll pick up whatever-

Jack Altman 17:34 Mm, mm

Martin Casado 17:35 ... is easiest to use technically. And so, you know, the, the companies that fill that need are the ones that provide a lot of the value and the true differentiation.

Jack Altman 17:43 Yeah.

Martin Casado 17:44 Does it make sense? And so I always think that will always be something that you can make it faster, you can make it easier, you can make it more reliable. It'll always be kind of the bedrock that apps get built on. And, you know, until, like, people stop wanting to produce apps, like, you'll always need to produce infra- and this is totally independent of, like, macro shifts or platform shifts.

Jack Altman 18:04 How do you think about if or when, um, the big players are gonna decide to, like, enter those markets and, like, how that might impact things? You know, like, in cloud, like, whether or not AWS was gonna offer something directly. Now, whether, like, you know, OpenAI or Anthropic's gonna offer something directly, or are you like, "If I'm investing at the Series A or B, that's not that important, you just have to think about great entrepreneur, big market, and that's okay?"

Martin Casado 18:28 Yeah, I mean- [sighs] -... I mean, I worked at VMware for four years. We were the big incumbent, and so, like, we're always worried about the shadow that is cast by these incumbents. But the reality is, like, it's not nearly as strong as everybody's worried about, and it's very hard for these big companies to execute. And so, you know, re:Invent is, like, the AWS conference, and I, I swear, being an infrastructure investor for so long, every time they have re:Invent, I have to play therapist to all the founders. They call 'em like, "Oh, they're entering our market, they're entering our space. Like, they're doing all this competitive stuff," et cetera. And I still today can't really think of a company that AWS has put out of business, even though they entered the market.

Jack Altman 19:06 Hmm.

Martin Casado 19:06 And the reality is they kind of compete with everybody. And so, I mean, if the market will bear an independent company, then that requires your own sales force, your own focus on customers, your own support, your own technical differentiation, right? And, like, no big company can, like, build a small company in a big company, because they have too many centralized service. And if the market won't bear an independent company, there's no company to build anyways. And so my view is, as long as the market is continuing to expand, which software's continuing to expand, if you enter an area that's viable, as it expands, you will fill that expanse. And if that doesn't work, then the market is either not big enough or it isn't expanding fast enough. And I just feel like if you take the historical view, this is the case.

Jack Altman 19:48 I strongly agree with

Jack Altman 19:49 that.

Martin Casado 19:49 Okay.

Jack Altman 19:49 When you think about, um, like, markets in AI right now-

Martin Casado 19:54 Yeah

Jack Altman 19:54 ... and, like, how things are evolving-

Martin Casado 19:55 Yeah

Jack Altman 19:56 ... one of the things I thought was really interesting from talking to Mark was, like, basically, as, you know, you all sort of ambitiously grow the firm-

Martin Casado 20:03 Yeah

Jack Altman 20:03 ... one of the biggest whole- one of the biggest issues is companies running into each other in this, like-

Martin Casado 20:07 Yeah

Jack Altman 20:07 ... conflicts dynamic.

Martin Casado 20:08 Yeah.

Jack Altman 20:08 And obviously, you're super... You're, you, you're becoming prominent within a, you know, s- area to a degree where you're gonna just, I would imagine, just-

Martin Casado 20:17 Yeah

Jack Altman 20:17 ... companies, uh, na- as they grow, they grow into each other.

Martin Casado 20:19 Yeah.

Jack Altman 20:20 And what's your experience with that?

Martin Casado 20:21 It's such a complicated problem, because you can do... You can try and do everything right and still end up with conflicts. So it's actually pretty good to categorize the conflicts. And so perhaps the most co- common conflict is one company that... Two companies that you've invested in, one pivots into the other one.

Jack Altman 20:36 Yeah.

Martin Casado 20:37 Right? And, um, this one, it's basically impossible to do anything, because companies have to, uh, you know, figure out the right business. You're on the board or not, and you don't control it, and they do that one. So that one I feel like no investor can, um, uh... You know, there, there's nothing an investor can do. There's another more pernicious type of conflict of existing portfolio companies. I'll get to the net new companies soon-

Jack Altman 21:02 Mm-hmm

Martin Casado 21:02 ... which we're seeing a lot now, which is, imagine you have an old co- imagine you have a tech revolution like AI.

Jack Altman 21:08 Mm-hmm.

Martin Casado 21:08 And you have a set of old companies doing things the old way, and you have a set of new companies doing the new thing, and the old company wants to pivot to using AI to do what they did before. But the reality is, is the old way is not the AI way. They're not AI native, right? And so now there's this question, which is like: Well, when we invested in this company, it was doing X, whatever it is, and now it wants to do X with AI.

Jack Altman 21:30 Mm-hmm.

Martin Casado 21:30 But the reality is, the AI way of doing it is entirely different, and they've got no chance.

Jack Altman 21:33 Mm-hmm.

Martin Casado 21:34 And so then you have, you know, the dilemma of going to the founder and saying, "Listen, we're investing in one of the new space, but it's AI and you're not AI," which of course, that's not gonna work. Um, or you just don't do the deal. Uh, I run into this one a lot. We've got a very large portfolio, and to date, we've just been like: Hey, listen, like, we're gonna back the, the portfolio companies that we have. Um, actually, this happened last week. You know, the founder company says, "You can't invest in this. This is the space we're going into." They haven't even done it yet, and we try to do the right thing-

Jack Altman 22:01 Yeah

Martin Casado 22:02 ... um, there. So that, that one is, I think, the toughest one for all investors today, just because, like, you never want to kind of bet against your own portfolio, but, like, the, the reality of them doing, like, being actually competitive is very low. Um, I think the most, um... And then there's, there's one more, which is kind of like this fund stage thing, which is like: We've got a growth fund. They do their own thing. We've got, like, an early stage. They do their own thing. And, and, like, sometimes the communication isn't always perfect, and you can kind of end up in, like, you know, conflicts that way. The one that we simply do not do is, you know... And I always have this talk track. You probably heard me say it, and I, I borrowed it from Chris Dixon, but it's very, very effective, where you basically say: For any company that I'm an investor in, if I'm talking to another company that looks similar, I'll ask the founder, I'm like: "Listen, is this your mortal enemy? You only get one."

Jack Altman 22:51 Hmm.

Martin Casado 22:51 "You can't... You don't get 20 more. You only get one, but is this- if this is your mortal enemy, we'll do everything together to kill it, and we wanna invest in that. But, like, you have to name your mortal enemy, and you can't keep changing it." And I think at least that gives them the power to decide who it is, but not kind of hamstring investment efforts.

Jack Altman 23:06 Totally, that makes sense. I mean, it's also funny, because I think a lot of times, you know, two companies that look the same but are serving very different segments of the market-

Martin Casado 23:13 Yeah

Jack Altman 23:14 ... those are actually, they might sound like competitors, but they're actually never gonna bump into each other, versus two companies offering, you know, different products to the same customer are much more likely to bump into each other.

Martin Casado 23:23 Yeah. Well, in, in AI, it's even crazier than that, which is, the, the, the market is so big, and it's growing so fast, even companies that seem like they're competing end up in totally different places, just 'cause so much white space is being created. But they're all competing, like, totally different company spaces are competing for the same talent.

Jack Altman 23:39 Talent, yeah.

Martin Casado 23:40 So it's the first time-

Jack Altman 23:41 Exactly

Martin Casado 23:41 ... I can remember where the actual talent competition is, like, way more fierce than the market competition.

Jack Altman 23:47 Well, actually, what's funny about that is I've heard of people getting upset with their investors because-

Martin Casado 23:51 Totally

Jack Altman 23:52 ... not- and they're like, "I know this company has nothing to do with it, but we were interested in that candidate, and-

Martin Casado 23:56 Totally

Jack Altman 23:56 ... one of your partners sold that candidate on one of their programs."

Martin Casado 23:58 Totally.

Jack Altman 23:58 And they're-

Martin Casado 23:59 It, it's a very real... And what's interesting is, like, you often don't even know-

Jack Altman 24:02 Yeah

Martin Casado 24:02 ... right? Like, you know, like-

Jack Altman 24:04 Yeah

Martin Casado 24:04 ... they'll say, "Oh, well, I'm, I'm, you know, I'm talking to a healthcare company."

Jack Altman 24:07 Yeah. [chuckles]

Martin Casado 24:07 You know, or whatever-

Jack Altman 24:08 Right

Martin Casado 24:08 ... and you're like, "Okay, well-"

Jack Altman 24:10 What's, what's I gu- I, I... What's, what's tough, but I guess is also, like, a blessing overall, is I think there's a lot more good ideas than there are talented people to work on those ideas.

Martin Casado 24:17 Yeah.

Jack Altman 24:17 And I think one of the hardest things right now is, like-

Martin Casado 24:19 Yeah

Jack Altman 24:19 ... clustering talent densely enough behind a good idea.

Martin Casado 24:22 Yeah. It's, it's also, this happens when there's these large infrastructure build-outs. This happened with the cloud, too, which is, there are these moments in time where to build a system, you have to have experience with the system at scale.... Right? This happened with the internet.

Jack Altman 24:35 Mm-hmm.

Martin Casado 24:36 This happened with, like, the big cloud data centers, and this is the case with AI, which is like, it's one thing to, like, go to school and know AI and be a good researcher. It's another thing to have actually trained a very large model. You know, like, maybe what? There's 30 teams that have ever done it, and so-

Jack Altman 24:49 And that's part of where you see these, like, m- mega acqui-hire acquisition things-

Martin Casado 24:52 Yeah. Yeah

Jack Altman 24:52 ... because it's like certain experiences are just worth a huge amount.

Martin Casado 24:55 Yeah, yeah, a hu- 100%, and like, like the, the market always normalizes these things.

Jack Altman 25:00 Mm-hmm.

Martin Casado 25:00 By the way, I mean, this is all ancient history now, but the exact same thing happened in the internet. I remember once there was, like, basically one guy that ever wrote a BGP stack-

Jack Altman 25:08 Mm

Martin Casado 25:08 ... which is like, it's a way that kind of routers talk on the internet, and he was, like, the one guy that could make it work, and so he just basically got these [chuckles] crazy o-

Jack Altman 25:15 Yeah

Martin Casado 25:15 ... at the time, crazy offers, and he'd jump between all the router companies and do that, and there are very few teams that could do this. And so-

Jack Altman 25:20 Right

Martin Casado 25:20 ... we've always seen this episodically in the industry. We're just kind of seeing the new version, and the... Listen, the businesses are working, and they're doing great, and so we're kind of seeing it on steroids.

Jack Altman 25:28 Yeah, I mean, it's like, I mean, you know, if you're a, if you're a FAANG-sized company, what's it worth to have, like, the one or two or three people who really know how to do something huge before?

Martin Casado 25:36 Yeah. Yeah, I also feel like tech always figures out a way around kind of regulations and markets. Like, you know, in like the late '90s, it was like, you know, you could IPO a company for very little, uh, you know, w- with not a lot of, of, um, market traction. Remember, like, the whole SPAC craze, um, and then now we've got these weird acqui-hire things. I think the reality is, is, is in hot markets, people know that there's a lot of value to be had. Nobody knows exactly where it is, and so, you know, there's all sorts of things-

Jack Altman 26:13 Mm-hmm

Martin Casado 26:14 ... you know, the markets try to do to get access either to the talent or the companies or whatever it is, and we're kind of seeing our version of that now, whether it's these, like, "I will hire an individual one, I'll do a weird acqui-hire." But again, I feel like this is all normal in the sense of, you know, we've seen it in different-

Jack Altman 26:29 Yeah

Martin Casado 26:29 ... shades in the past.

Jack Altman 26:30 Yeah, totally. It's like an evolutionary response.

Martin Casado 26:32 Yeah.

Jack Altman 26:32 What are the markets right now in AI that you feel most confident are totally working? What are the ones where you feel like they're on the horizon and, you know, should be working very soon?

Martin Casado 26:43 Yeah.

Jack Altman 26:43 And then, what are the ones, if any, that you maybe have low confidence will, will work, period?

Martin Casado 26:47 Yeah. So, so the diffusion markets are all working. So any, any area where you bring the marginal cost of creating something, a piece of content to zero, is clearly working. You're creating an image, creating music, you know, creating speech, and we don't think about these markets as much because we're all so focused on, like, the frontier labs. But, like, it's cheaper to build these models because they're smaller. Um, and then, like, you know, people need content, and like, actually, like, the economics are so simple. Like, I, you know, like, whatever. Imagine you're, uh, an artist and you're like: "Okay, I'm gonna, I'm gonna draw a picture of Martine," right? Like, how long would that take you?

Jack Altman 27:25 A while.

Martin Casado 27:25 Whatever, three hours, and it costs you 400 bucks, right? But if I have a model do it, it's a hundredth of a penny type thing, right? So you've got a four orders of magnitude difference in economics. So that's why we've seen those types of companies, you know, think like, you know, Eleven Labs or whatever, do very well. So, like, that's clearly working, and this is content creation, where the marginal cost of, of, of, of, um, creation goes to zero. I actually think the whole kinda loneliness, companionship stuff is definitely working. It's just this very fragmented market. So I think if... You know, I think the unit economics are fine. I'm not sure, like, from an investor standpoint, how you think about it-

Jack Altman 28:00 Mm-hmm

Martin Casado 28:00 ... but, like, it's a use case that will be solvent, you know-

Jack Altman 28:03 Yeah

Martin Casado 28:03 ... that will, that will, will do fine.

Jack Altman 28:05 Yeah.

Martin Casado 28:05 Um, code seems to be working incredibly well.

Jack Altman 28:08 Yes.

Martin Casado 28:08 Uh, and you know, we, you know, you see this in, you know, in, in, in, in Cursor and, and, and the whole thing. Um, the areas that I don't know, I mean, they're working, but I don't know how the economics actually pencil out, are the enterprise use cases at this point that are kind of a bit more agenticky, automatey.

Jack Altman 28:27 These are the ones you're putting in the middle bucket? This is, like, what you're saying, is, like, kind of working, but not 100% sure yet?

Martin Casado 28:32 No, no, no, no, that... So the ones that are, are, are... Well, so, so the middle bucket was like, was companion, was, was actually like, like, you know, like, like the friend-

Jack Altman 28:43 Yes

Martin Casado 28:43 ... the emotional, like, the character that AI is. Like, there- there's a long tail of companies-

Jack Altman 28:47 I-

Martin Casado 28:47 ... that are, that are basically emotional support-

Jack Altman 28:49 Yeah, yeah, yeah

Martin Casado 28:49 ... and/or friends and/or entertainment.

Jack Altman 28:50 It's probably also a big component of the usage of, like, the main models and so on.

Martin Casado 28:53 Yeah, 100%, like, and that's clearly working-

Jack Altman 28:56 Right

Martin Casado 28:56 ... in the sense that people are willing to pay for it, the engagement's great, et cetera. From an investor standpoint-

Jack Altman 29:00 Yeah

Martin Casado 29:00 ... it tends to be kinda long-tailed and fragmented and kinda spread and stuff.

Jack Altman 29:03 And then that enterprise agentic workflow-type stuff?

Martin Casado 29:05 That was the, the fourth one I, I mentioned. That's like, you know, chatbots. I mean, clearly it's working, and there's, there's companies that are doing it, but it, it tends to be... You know, if you look at the companies, like, you know, there's a lot of, like, bespoke work going on.

Jack Altman 29:20 Yeah.

Martin Casado 29:20 Like, it's just a different type of economic model than the content creation one, where it's like-

Jack Altman 29:24 Totally

Martin Casado 29:24 ... it's just a model.

Jack Altman 29:25 Yeah, I mean, one-

Martin Casado 29:25 So, like, those ones we're still trying to understand.

Jack Altman 29:27 Yeah, I mean, one way to think about that is, like, how confident are you that, um, that, like, highly skilled work will get replaced in, let's say, like, legal, finance, accounting, tax, like, those kinds of areas?

Martin Casado 29:39 So the, I, I think the way I view it is, is, is, it's actually very simple. So if the use case is the model is creating content, and that content is whatever, it could be language, it could be image, that clearly works, right? So, okay, if the model is automating something a human being would do, and we conflate these two things all the time, that's totally different, right? So if I'm like: "Model, do this thing instead of me," that's not content creation. It somehow has to, like, mimic exactly what I do. That area still needs a lot of work, it seems to me, and so they sit- they clearly can do some work of a human-

Jack Altman 30:17 Mm-hmm

Martin Casado 30:18 ... but, you know, um, you know, not as exact, and they need a lot of guidance, and I think that's an area where there still holds a lot of promise, but, like, the economic case isn't as obvious, right? Like, make me a picture versus, like, go browse the web for me.

Jack Altman 30:30 Yeah.

Martin Casado 30:31 And so it's kind of that second one, the automating what humans do, where we're still, like, we've got lots of investments. We're very excited about it. We think there's a great future there, but, like, the economic case isn't nearly as good as make me a picture.

Jack Altman 30:42 Totally.... let's, um, to double-click on code for a second.

Martin Casado 30:45 Yeah.

Jack Altman 30:45 Obviously, you know a lot about it through Cursor-

Martin Casado 30:47 Yeah.

Jack Altman 30:47 -you were technical CTO.

Martin Casado 30:48 Yeah.

Jack Altman 30:48 Like, um, where do you think we are right now? You know, like, I, um, I, I just posted one with, uh, Guillermo, who, you know, and-

Martin Casado 30:55 Yeah

Jack Altman 30:55 ... he, he obviously knows a lot too, and-

Martin Casado 30:57 Yeah, he's great. He's amazing.

Jack Altman 30:57 And it's like this is both the future-

Martin Casado 30:59 Yeah

Jack Altman 30:59 ... and it's also, at the moment, you know, it's not obvious that it is in today's-

Martin Casado 31:05 Yeah

Jack Altman 31:05 ... you know, incarnation. It's not necessarily producing quite as much value for engineers as even they themselves experience, but- [laughing] ... clearly it's gonna get there.

Martin Casado 31:13 Well, well-

Jack Altman 31:13 So, yeah, I'm curious.

Martin Casado 31:13 So just so you know, AI in general has this problem, which is so dazzling. People conflate, "Oh, this is dazzling," with, "This is useful," right?

Jack Altman 31:21 Yeah.

Martin Casado 31:22 That's for everything, [chuckles] right?

Jack Altman 31:23 Oh.

Martin Casado 31:23 It's not just code, right?

Jack Altman 31:24 Yeah.

Martin Casado 31:24 It's like, you're so impressed, like, these things are magic.

Jack Altman 31:27 Yeah.

Martin Casado 31:27 And then somehow that dopamine, you know, hit.

Jack Altman 31:30 What's really funny is, so I posted this on X, and, you know, like, this study that was saying-

Martin Casado 31:34 Yeah

Jack Altman 31:34 ... that people experience their own programming as plus twenty percent-

Martin Casado 31:38 Yeah

Jack Altman 31:38 ... and, like, the-

Martin Casado 31:38 Yeah

Jack Altman 31:39 ... the observed results were minus twenty or whatever.

Martin Casado 31:40 Yeah, yeah, that's right.

Jack Altman 31:41 And what was funny was there were a bunch of reply threads, where somebody was like: "No, no, no, this is crazy. I've been using it-

Martin Casado 31:46 Yeah

Jack Altman 31:46 ... and I'm so productive."

Martin Casado 31:47 Yeah, yeah.

Jack Altman 31:47 And then the reply to that is like: "That's what the study's saying."

Martin Casado 31:50 Yeah, yeah, yeah, yeah.

Jack Altman 31:50 Um, which I'm sure for some people there- but, you know, there is this thing of-

Martin Casado 31:53 There literally, there is an endorphin hit. These things are absolutely magic, but I do think it makes it very hard to think clearly about the actual utility-

Jack Altman 32:01 Yeah

Martin Casado 32:01 ... right? Now, so I think you can say a few things, like, you know, like, there's a lot of things that it does very well that programmers don't like to do that, like, is pretty routine, right? Documentation.

Jack Altman 32:12 Mm-hmm.

Martin Casado 32:12 It's great at writing documentation, right? There's a lot of boilerplate stuff it knows. Uh, w- the thing that I use it for the most is, you know, writing code isn't just writing code. Writing code is like understanding the frameworks, it's knowing how to deploy it, it's knowing how to run the tool chain, and like, there's no first principle way of knowing that type of stuff. There's not like some, like, core computer science fundamentals on deploying to Netlify. Like, that doesn't exist, and so it has all of that knowledge, which is clearly very useful.

Jack Altman 32:43 Mm-hmm.

Martin Casado 32:44 The writing code itself, I think it's still clearly very early days. I mean, if you constrain how you use it, it can be very effective, and then if you don't, it may not be as effective. Um, and so I think that, like, studies like this that are purely observational are hard to read into, because-

Jack Altman 33:01 Totally

Martin Casado 33:02 ... you know, it's just like, this is like, you could use it for anything, and because they're so magical, I do think people tend to use them for stuff that they may not be so good at-

Jack Altman 33:09 Yeah

Martin Casado 33:09 ... just because the experience feels good. And so my guess, like any new tech- technology, we'll develop best practices. I feel very strongly we're gonna get a 10 X in productivity.

Jack Altman 33:18 Yeah.

Martin Casado 33:18 But like, it'll take us a while to get... Listen, I rem- I remember in other epochs of development productivity, like when the IDE came out, when higher-level languages, when OOP came out, like, we'd get so enamored with the tool set.

Jack Altman 33:30 Yeah.

Martin Casado 33:30 Like, object-oriented programming, I'm gonna do everything in it. And it turns out these were great advancements in computer science, and they helped the best practices, and they helped architecture and engineering. But at the time they came out, they were just so cool, [chuckles] like that-

Jack Altman 33:42 Yeah

Martin Casado 33:42 ... just kind of took a lot of our focus. So I think we're seeing that. So it's like this drop in productivity is not like necessarily code requires you to drop productivity. I think it's-

Jack Altman 33:50 Of course

Martin Casado 33:51 ... it's just so cool.

Jack Altman 33:52 Yeah.

Martin Casado 33:52 I'm gonna try it with everything.

Jack Altman 33:53 Yeah. It does seem like it's on a path to, like, you know, in the same way that like people have been saying this about self-driving cars, and it seems like it's gonna become true. It does seem like we'll get to a place where, like, you can-

Martin Casado 34:02 It's so clear. I mean, this is incredibly obvious. I mean, you can literally just-

Jack Altman 34:04 It's enormous

Martin Casado 34:04 ... scope it to a subset of things-

Jack Altman 34:06 Yeah

Martin Casado 34:06 ... that are obvious, like it's really good at writing text-

Jack Altman 34:07 Yeah

Martin Casado 34:07 ... it's really good at writing documentation.

Jack Altman 34:09 Yeah.

Martin Casado 34:09 It's really good at, like, dealing with a bunch of like-

Jack Altman 34:12 Yeah

Martin Casado 34:12 ... you know-

Jack Altman 34:13 Yeah

Martin Casado 34:13 ... long-tail framework stuff that you don't know. It's good at teaching you things. I mean, there's clearly, these things are obviously good at.

Jack Altman 34:19 Yeah.

Martin Casado 34:19 I just think we get so enamored with it, maybe we start using it for stuff that it's not so good at-

Jack Altman 34:24 Totally

Martin Casado 34:24 ... or not so equipped to deal with, et cetera.

Jack Altman 34:25 Yeah.

Martin Casado 34:25 But yeah, this is very clearly a, a... It's gonna change software. And, and, and, sorry, I don't mean to ramble on.

Jack Altman 34:31 No.

Martin Casado 34:31 I just have to say, I have been in software for a long time, since the late '90s. We disrupted everything, right? We disrupted the back office, we disrupted hotels, we disrupted everything. Um, this is the first time I say that we're probably getting legitimately disrupted as a discipline, right?

Jack Altman 34:49 Mm.

Martin Casado 34:49 Like, what it means to be a software engineer is changing pretty fundamentally, and I think it's because of AI. So it's kind of fun to, like, actually be the disrupted-

Jack Altman 34:55 Yeah

Martin Casado 34:55 ... for a change.

Jack Altman 34:56 That's awesome. Yeah, um,

Jack Altman 34:58 another topic I wanted to get your thoughts on was, um, like, why is open source so important to you? And um, you know, like I saw, you know, you were really excited about, you know, OpenAI's open-source model.

Martin Casado 35:09 Yeah. Yeah.

Jack Altman 35:09 And I know this is, like, thematically and spiritually important.

Martin Casado 35:12 Yeah.

Jack Altman 35:12 Like, why do you... Why, why do you think that it is such a critical part of the way that, you know, this plays out?

Martin Casado 35:18 So I think open source is historically one of the best mechanisms that shows a healthy ecosystem, right? Uh, and what normally happens is somebody does something closed source, it turns out to create a market, and then somebody releases open source, and it, like, stops a monopoly from forming and enables everybody else.

Jack Altman 35:39 Mm.

Martin Casado 35:39 You know, and then it kind of, you know, keeps the, the people that are closed source to continue to be innovators, um, and allows everybody else to come in. So it's just been very, very healthy. And the thing that really worried me last year... A- and, and, and, you know, in the past, academia, VCs, startups were all very pro open source 'cause they understood that it was a very, it was a very important part of a healthy, competitive ecosystem. And the thing that really, really worried me last year was the people that should be championing open source, like VCs-

Jack Altman 36:12 Mm

Martin Casado 36:12 ... like startup founders, like academia, were decrying how dangerous it was in relationship to AI. The implications of this to me are huge, right? I mean, of course, you know, the national security implications are pretty straightforward, which is like if somebody else does the open source, it proliferates, and that, that's not good for US interest. But for the industry, it's terrible, right? I mean, this is kind of how you actually create monopolies, um, if, you know, you're not allowed to, to create, um, something-

Jack Altman 36:37 Right

Martin Casado 36:37 ... that enables everybody else. And, and again, it was very dramatic when, like, Vinod Khosla was like: "Open source is bad," and Founders Fund is like: "Open source is bad," and you had academics saying, "Open source is bad." And so I was much more interested in, like, trying to reset the discourse than, like, any specific open-source release.

Jack Altman 36:53 Yeah, and I guess a lot of that probably came down to, like, how, uh, how potentially dangerous was the technology.

Martin Casado 36:58 Yeah.

Jack Altman 36:58 You know, and so, like, if you thought it was extremely dangerous, for example, then there is a argument for, like, massive containment. I guess-

Martin Casado 37:05 Right

Jack Altman 37:05 ... or, or what was the steel man in your mind, you know, at the moment when closed source was, like, such a strongly argued... Like, if you had to-... you know, argue why you think people were saying that? Like, what would've been-

Martin Casado 37:16 I really think it's the legacy of Bostrom, right? Like, so, you know, Bostrom wrote the book Superintelligence in 2014.

Jack Altman 37:21 Yeah. Terminator, waking up, we gotta continue.

Martin Casado 37:23 But this is before all of these things, right? That like, like, Bostrom's book was a thought experiment.

Jack Altman 37:27 Mm-hmm.

Martin Casado 37:28 Right? It was like this Platonic ideal-

Jack Altman 37:30 Yeah

Martin Casado 37:31 ... of AI, and then somehow that created this, you know, very interesting kind of intellectual journey on the perils of AI. But then, you know-

Jack Altman 37:40 Yeah

Martin Casado 37:40 ... like, GPT-2 lands, and these two things got totally conflated.

Jack Altman 37:44 You also got... There's a lot of incentive for people to be doomer-y, I think. Like, it, like, gets a lot of clicks. It was like-

Martin Casado 37:51 Yeah, but not histor- but this is the weird thing historically. Like, let's take the internet as an example. So, like, I was there during the early days of the web. We had a lot of examples of, like, how it actually changed the dialogue when it came to, to risks, right? We were running critical infrastructure on it. We had totally new types of attacks, like the Morris worm, which had actually taken down computer systems. So we're at this space. We're like, "Okay, well, it makes you more vulnerable if you use it, um, and we have new attacks that you can attack with it," right? And yet academics were like, "This is great." The technologists were, "This is great." So you had this very even-handed debate. What was so weird-

Jack Altman 38:27 Mm

Martin Casado 38:27 ... about the AI was it wasn't even-handed. Like, I'm all for both sides of the debate. Like, I'm not a, you know, I... You know, I'm not, I'm not just, you know, pro innovation at all costs, but, like, that's not what was happening. And so, like, m- maybe you're right. Maybe it's like the doomers got more click, but I think it's something more than that. I, I just think that there was an existing intellectual legacy that came from Bostrom that had some very influential people, right?

Jack Altman 38:50 Mm.

Martin Casado 38:50 Like, Elon was pulled by that.

Jack Altman 38:52 Yep.

Martin Casado 38:52 Um, you know, Eric Schmidt, Moskowitz, like... And, and they had very legit concerns, but they were kind of already primed, and, like, you know, there was already kind of that ready. So when it happened, I just think they, they were already ahead of the game, and it took a while for the rest to catch up. And now I, now I listen- when I listen to the discussion, it just feels more even-handed, which-

Jack Altman 39:14 Yeah

Martin Casado 39:14 ... thank God I don't have to, like, be on Twitter-

Jack Altman 39:17 Yeah

Martin Casado 39:17 ... talking shit about this like I did for so long.

Jack Altman 39:20 Yeah, totally.

Martin Casado 39:20 Just, I feel like the right voices are in the room.

Jack Altman 39:22 For sure. And, uh, obviously, this isn't, like... You know, I don't think either of us are saying that, like, there aren't real risks with AI. There's-

Martin Casado 39:27 No, there's totally real ri-

Jack Altman 39:28 Yeah

Martin Casado 39:28 ... it was just a totally lopsided debate.

Jack Altman 39:30 Yeah.

Martin Casado 39:30 It's so crazy-

Jack Altman 39:31 Yeah

Martin Casado 39:31 ... when VCs are talking against open source. I mean, uh, to me, I mean, I... And, like, no academics are talking in defense of it. Now, now we have a bunch of academics in defense of it. I mean, like-

Jack Altman 39:40 Mm

Martin Casado 39:40 ... I think the right people got mobilized, but it really took some, some rallying to get the right folks back into the conversation.

Jack Altman 39:46 Yeah. Yeah, absolutely.

Jack Altman 39:48 Uh, I wanna ask you just a couple more questions-

Martin Casado 39:49 Yeah

Jack Altman 39:49 ... about sort of the structure of-

Martin Casado 39:50 Yep, yeah

Jack Altman 39:51 ... uh, the, the firm and sort of your own work outside of the specifics of what you're investing in.

Martin Casado 39:55 Yeah.

Jack Altman 39:56 One that I thought was, um, a really interesting point from Mark when I talked to him on the podcast-

Martin Casado 40:01 Yeah

Jack Altman 40:01 ... was basically around, you know, like, how do you sort of drive the right overall aggression of the firm? And he said something to the effect of like, "When you're in a market moment like this-

Martin Casado 40:13 Yeah

Jack Altman 40:13 ... the right answer is to just encourage people to do more." And so many partnerships are trying to get other people to a no, and, like-

Martin Casado 40:19 Yeah

Jack Altman 40:19 ... that is, like, the common function.

Martin Casado 40:21 Yeah.

Jack Altman 40:21 And, you know, he was basically describing something where, like... It was like, "How do we get people to a yes, and, like, how do we take advantage of this?"

Martin Casado 40:27 Yeah.

Jack Altman 40:27 I'm just curious how you feel and, you know, your experience, you know, in, in the last couple of years in AI land.

Martin Casado 40:35 So one of the reasons Mark is such a great leader is he- his intuition on the temperament of people is, is almost perfect, and he will drive, like, the right behavior relative to that. And so, like, if he thinks people are being too conservative, of course, he'll drive them to be more aggressive. There's definitely a more aggressive sta- I mean, the reality about AI is there's been a lot of money that's already been lost in absolutely record time.

Jack Altman 41:02 Mm-hmm.

Martin Casado 41:02 Right? Right, so just because, like, the-

Jack Altman 41:04 Yeah

Martin Casado 41:04 ... upsides aren't great, doesn't mean, like, the down... Like, there's been a lot of money, you know? And so, you know, as a, as a firm, we've... We, we tend to be fairly disciplined and do a lot of market analysis, and, you know, he do things for coming, and so, like, you know, he's very good about, like, pushing the team, and I think he's absolutely right to do that because, um, you know, there is already a foundation of discipline that, like, is not gonna be eroded or compromised by doing that. On the other hand, there are individuals who are like, [chuckles] "Total shoot from the hip, like everything," and then he actually tempers his messaging a lot with those. And so I would say, again, I, I mean, you know, I, I, I don't know what was in his head when he was saying that, but I just think if I was gonna add a little bit of nuance is my observation of Mark is-

Jack Altman 41:48 Mm

Martin Casado 41:48 ... he's very good at pushing when people need to push, but he understands the situations when, like, that's probably not the most appropriate thing. And so I think this is a core issue of leadership, which is, you need to provide kind of the right kind of macro, you know, macro, you know-

Jack Altman 42:05 Yeah

Martin Casado 42:05 ... shift in order to get the right one without being too overbearing.

Jack Altman 42:09 Yeah, and I think, you know, s- some of that conversation was in relation to, like, you know, fund sizes and what's possible.

Martin Casado 42:15 Yeah.

Jack Altman 42:15 And I think some of it was articulating just, like, these companies can be enormous. This opportunity is, like, you know, quite oversized relative to what's been in the past.

Martin Casado 42:21 Yeah, yeah, but, but I mean, but, but, but again, I I just think it's important to note, which is, um-

Jack Altman 42:25 Yeah, that it's a per person thing.

Martin Casado 42:26 It isn't... If, if, if, if you take, you know, him at his word-

Jack Altman 42:30 Yeah

Martin Casado 42:30 ... it would be an infinite fund deployed infinitely.

Jack Altman 42:34 Yeah, yeah.

Martin Casado 42:34 Right? So, like-

Jack Altman 42:35 Yeah

Martin Casado 42:35 ... this is a-

Jack Altman 42:36 It's calibrated to people

Martin Casado 42:37 ... this is an intellectual landmark-

Jack Altman 42:39 Yep

Martin Casado 42:39 ... which is set and is 100% the right one to do.

Jack Altman 42:43 Yep.

Martin Casado 42:44 But it- but what's important-

Jack Altman 42:45 It's in relation... Yeah.

Martin Casado 42:45 He's, he's so good at that it, it... Yeah, it is in relationship to the mindset of the people that he's talking to-

Jack Altman 42:50 And what-

Martin Casado 42:50 ... and he knows that.

Jack Altman 42:51 Yeah. And what flag posts do you have to put out to get people to the right place?

Martin Casado 42:54 A hun- 100%, and 100%.

Jack Altman 42:54 Yeah.

Martin Casado 42:54 And then I, I have seen him very subtly-

Jack Altman 42:57 Yeah

Martin Casado 42:57 ... depending on who is the audience-

Jack Altman 42:58 Yeah, yeah, yeah

Martin Casado 42:59 ... you know, he, he'll, like, move that flag post to different places. [chuckles]

Jack Altman 43:02 Yeah. Where do you normally experience yourself there? Are you... Do you feel you're often needing to get pulled into more aggression or into more conservatism?

Martin Casado 43:09 I think I'm a seven out of 10 for aggressiveness.

Jack Altman 43:13 Mm-hmm.

Martin Casado 43:13 I, I would say my team is a-... five or a six out of 10.

Jack Altman 43:18 Mm-hmm.

Martin Casado 43:18 There's people on my team that are 10 out of 10, there's people on my team that are three out of 10.

Jack Altman 43:22 Mm-hmm.

Martin Casado 43:22 So I think, like, if you did a normal distribution, I'd say we're a six and a half to seven. And so for us, you know, he- I mean, he, he pushes pretty hard, but I know he knows that he's getting, like-

Jack Altman 43:32 Yeah

Martin Casado 43:32 ... you know, [chuckles] like, a step forward-

Jack Altman 43:34 Totally

Martin Casado 43:34 ... as opposed to, like-

Jack Altman 43:35 Yeah, and I think that's, like, one of the... I mean, being a leader of people is always-

Martin Casado 43:38 Exactly

Jack Altman 43:38 ... in relation to-

Martin Casado 43:39 Yeah

Jack Altman 43:39 ... you know, pulling-

Martin Casado 43:40 100%, yeah

Jack Altman 43:40 ... you know, minds in a certain- so that's always how it goes, which is-

Martin Casado 43:43 Yeah

Jack Altman 43:43 ... you know, it's a rare thing to- it's rare to be able to do multiple versions of that at the same time with lots of different people.

Martin Casado 43:48 No, exactly. Exactly.

Jack Altman 43:49 That's hard.

Martin Casado 43:49 Yeah, and it, it's just, it's just... It's hard to appreciate from the outside, 'cause you have to actually see the conversations.

Jack Altman 43:54 Yeah.

Martin Casado 43:54 It's something-

Jack Altman 43:55 That's cool

Martin Casado 43:55 ... that he's just phenomenal at. And of w- and they're very kind of nuanced, different takes, where he kind of knows where people are, and he'll kind of nudge them in the right direction.

Martin Casado 44:02 Yeah.

Jack Altman 44:02 To the extent that we are in somewhat of, like, a gold rush-y, in the good sense, moment-

Martin Casado 44:07 Yeah

Jack Altman 44:07 ... you know, overall-

Martin Casado 44:08 Yeah

Jack Altman 44:09 ... do you think, um, does it change your perspective at all about, um, what you need to see to want to make an investment? So, like, m- maybe a specific version of this question-

Martin Casado 44:19 Yeah

Jack Altman 44:19 ... is in a somewhat stabilized time, I think most, you know, most people would agree that you should only back extremely special founders.

Martin Casado 44:27 Yeah.

Jack Altman 44:27 Is there ever a version in these kind of moments when a good founder in, you know, a great market with, like, exceptional traction or some configuration like that-

Martin Casado 44:35 Yeah

Jack Altman 44:36 ... where you say, "Actually, you know what? That, that works here, and that can produce something really big"?

Martin Casado 44:39 So do you know how we think about investments? 'Cause I think it answers this question.

Jack Altman 44:42 Tell me.

Martin Casado 44:42 So it's very simple. So the way that we think about investments... And the, the reason is, is the only way you can scale, because you can actually distribute this kind of algorithm to a team, is the only sin is picking the wrong company in a certain space. Because in the-

Jack Altman 44:59 Because that conflict thing?

Martin Casado 45:00 'Cause you're conflicted out of the winner. Like, investing in a space that doesn't work-

Jack Altman 45:06 Mm

Martin Casado 45:06 ... is fine. I mean, like, there's no way you can actually predict-

Jack Altman 45:09 Mm

Martin Casado 45:09 ... whether a space is gonna work or not. I mean, that's like weather prediction, right? But in a given space, if you know all of the companies, you do the work, you can most likely, you know, at least tilt it... Like, you can do the work to determine if you think one is better than the rest. Like, it's something you can actually put... So the way that we view the world is, first you have to identify legit spaces. We think that founders are smarter than VCs, so I don't care if VCs think it's interesting. If there's five founders in a space and they're good founders, man, they're betting their families, their fortunes, you know, their time, so it's probably a real space. And then we do the work to understand the space and all the teams, and then we make a pick within that. I mean, that's really how we think-

Jack Altman 45:48 Mm

Martin Casado 45:48 ... about it. That's true within AI as anything else, right? The thing that's harder is... And I've, I've evolved so much as a, an investor. I used to think, like, "Oh, we get good deals, like, price matters, outcome matters, TAM matters." And more and more, especially with AI, that's what you have to throw away.

Jack Altman 46:07 Mm.

Martin Casado 46:07 The market is the market, right? Like-

Jack Altman 46:09 And that's what matters the most, you're saying?

Martin Casado 46:12 It doesn't matter at all. I'm saying... I'm so, so, so histo- so we don't know what the TAM is, 'cause it's growing so fast. Like, nobody knows valuation, so I think this is... It's, it's contrary to, like-

Jack Altman 46:23 Mm

Martin Casado 46:24 ... common belief. I think in these times, where you don't know the TAM and things are moving quickly, you definitely want the, to pick the best team. You definitely wanna pick the best team. I don't think you should overthink the space, but, like, asking questions about, like, TAM or valuation or value makes a lot less sense, because that's actually what's uncertain.

Jack Altman 46:44 You just need to be in the best one, and then-

Martin Casado 46:46 You have to be in the best ones-

Jack Altman 46:48 And the market will just produce-

Martin Casado 46:48 ... and every category

Jack Altman 46:49 ... produces on some level.

Martin Casado 46:49 The market is the market. And listen, either you believe that the stuff is in, expanding very quickly and market gets are, um, are efficient or not.

Jack Altman 46:58 Mm.

Martin Casado 46:58 And listen, having been through the dot-com boom and bust, the reality is the market was actually pretty smart, and if you put the bets in the right companies-

Jack Altman 47:05 Yeah

Martin Casado 47:06 ... that would've been generational up. The same thing with cloud, the same thing with mobile. And so the goal is finding the right companies, and, like, if... Really, if there's one change I would say is you, you need to throw away too many thoughts about market sizes and TAM.

Jack Altman 47:18 Is the rational sort of behavior then to... You know, obviously, you wanna invest as early as possible, but you wanna invest as early as possible when you know that you've got the right one. So does that ever push you to being like, "I'd rather wait around right here?"

Martin Casado 47:30 Oh, yeah. All, all the time, right?

Jack Altman 47:32 Yeah.

Martin Casado 47:32 All the time. So I mean, yeah, eh, this, this is all very rough heuristics, right?

Jack Altman 47:38 Yeah.

Martin Casado 47:38 Like, you know, we get it wrong all of the time. You know, I've made, you know, like, I've, I've made so many mistakes, and so you're just trying to beat the market, right? You're just trying to have... Um, but, um, but yeah, very often, like, our discussions are like, do we actually know who the winner is?

Jack Altman 47:52 Yeah.

Martin Casado 47:52 Like, you know, and, uh, and often we wait for that reason.

Jack Altman 47:55 Basically, the earliest that you feel confident you can pick it.

Martin Casado 47:58 Yeah, and so, like, listen, when we do seed, normally it's like the person that did the thing in the big company, and now is doing the thing and is the world expert.

Jack Altman 48:05 Mm-hmm.

Martin Casado 48:05 And the thing is a very technical thing, and, like, somebody else isn't just gonna wake up and decide to do it, who's a good founder, right?

Jack Altman 48:10 Yeah.

Martin Casado 48:10 'Cause it... Like, the pool of people that do it are, like, five.

Jack Altman 48:12 Yeah.

Martin Casado 48:12 And, like, this one's the best of the five. Like, that's kind of, like, for early investments, the way that we think about it. And then most everything else is actually the result of a lot of market work.

Jack Altman 48:20 Mm.

Martin Casado 48:20 And then this is our best guess, like, this is kind of best approach, best team, best market. And then in these types of way... And this is where Marc, and this is, this comes from Marc, and Marc is totally right. Like, if you think you can outsmart the market, like, I think, you know, it's very tough, and so-

Jack Altman 48:35 Yeah

Martin Casado 48:35 ... just be in the best deals.

Jack Altman 48:37 Um, as a final topic-

Martin Casado 48:38 Yeah

Jack Altman 48:38 ... I wanna just hear your perspective on the board relationship and board roles in general.

Martin Casado 48:43 Yeah, yeah.

Jack Altman 48:43 And maybe as, like, a prompt on this, I feel like, um, you've done something which I find very impressive, which is it seems like you're able to manage successfully many more board seats than a lot of people. And, um, you know, I often will hear common wisdom that, you know, it could be 10 or 12 or 15.

Martin Casado 48:59 Yeah.

Jack Altman 49:00 Um, but it seems like, you know, you've found a way to do more than that and be-

Martin Casado 49:04 Yeah

Jack Altman 49:04 ... very effective with those founders. And so I just wanna hear sort of your perspective on, like, what's that relationship? What do you think is sort of, like, the limiting factor here, if any?

Martin Casado 49:13 Yeah.

Jack Altman 49:13 How does it all play out?

Martin Casado 49:14 Yeah, um, I mean, I do think that, like, a lot of the common wisdom on boards came from, like, that earlier year in VC, when, you know, it's like people would literally choose VC for, like, a life choice or whatever, right? And I think if you come from, like, pretty serious operating, like you do, and like I do, like, we've just got a lot of hours in the day to throw at it. VC is also involved that we've got better platforms that actually really help with these things. And so, um, you know, between, like, actually, you know, the hours in the day, um... I mean, how much does that go, like, board-... take? I mean, you're a board member. You know, I actually find that, like- can I, can I just take a step back? Just 'cause, uh... Let's, let's talk about what boards mean. Like, 'cause I always ask when I invest in a founder, like, like, "What is a board for?" What do you think they say normally?

Jack Altman 49:58 I'm actually curious what the most common answer is, but I could imagine-

Martin Casado 50:01 What do you think, what do you think it would be? Yeah.

Jack Altman 50:02 Uh, I would think they would probably say it's something like, uh, you know, governance and approvals or something like that.

Martin Casado 50:09 No, that's, that's what they should say. That's what you and I would say. They say, they say, "To provide guidance-

Jack Altman 50:13 Uh-huh

Martin Casado 50:14 ... to help with hiring." [chuckles] I'm like, "No!"

Jack Altman 50:16 Yeah, yeah.

Martin Casado 50:16 That's an inv- that's not a board, right? And, and, and, and so a lot of... You know, there's a lot of this belief that, like, a board member is somehow helping with company building. And, and almost like it's actually hard for a board member to be, like, the best friend of a founder for those types of things because, like, you know, you're, you're a fiduciary and you do governance. So, like, the actual board work itself is just not a lot from the fiduciary governance standpoint. So often implicit in this question is, is, like, non-board stuff. Like, how can you be helpful to a company and everything else? 'Cause that can take a lot of time.

Jack Altman 50:46 Mm-hmm.

Martin Casado 50:47 And I do think this is where, like, you know, having a big platform to lean on, being totally available helps a lot. But, like, it's not the board work, it is the other stuff.

Jack Altman 50:57 Mm-hmm.

Martin Casado 50:57 And so I would say to, you know, anybody listening who, who is a VC, you can take as many boards as you want. The actual board work itself is not. The question is, can you still be available to founders and add value-

Jack Altman 51:06 Yeah

Martin Casado 51:06 ... whether you're on the board or not? A lot of the companies I spend the most time with, I'm not even on the board of.

Jack Altman 51:10 Yeah.

Martin Casado 51:10 And-

Jack Altman 51:10 Actually, that's what's funny to me is, you know, people talk about this with me. There's some board seats I have that are o- you know, the founder's asking quite a lot less than, you know, some seats-

Martin Casado 51:20 No, it-

Jack Altman 51:20 ... or there's no board seat, and it-

Martin Casado 51:22 Yeah

Jack Altman 51:22 ... they're sort of decoupled.

Martin Casado 51:23 Uh, yeah, exactly.

Jack Altman 51:23 Um-

Martin Casado 51:23 So I feel, I feel like we need to be very clear. Like, a board is to keep everybody out of jail and to, like, do the right thing for the shareholders.

Jack Altman 51:29 Yeah.

Martin Casado 51:29 And, like, like, the actual work requirements for that are relatively little.

Jack Altman 51:32 Yep.

Martin Casado 51:32 That's actually not the hard thing, but we use it as a proxy for the hard thing. The hard thing is, like, how do you add a lot of value? And for that-

Jack Altman 51:38 Yeah

Martin Casado 51:38 ... I do think like this, and you have to, like... In, in my case, listen, I have the pleasure of working with the best team I've ever worked with in my life. They're fucking amazing. We've got, like, a phenomenal platform. Like, it's fucking amazing, and I get to leverage all of that. And it's not a board thing, it's, like, the help the company type thing.

Jack Altman 51:52 Totally.

Martin Casado 51:52 And, and I just think this is, like, the new era of VC. Like, you help these companies with more than just one person who shows up, you know, off the golf field, like, I don't know, every Thursday. [chuckles]

Jack Altman 52:01 Yep, yeah. Well, that's a great place to leave it. Martin, thanks so much for making time for this. I really enjoyed it.

Martin Casado 52:05 It's a pleasure. That was great. [upbeat music]