How wildly successful angel investor Ben Horowitz evaluates companies

some influencers one successful companies others make a fortune knowing how to pick them Ben Horowitz has done both he co-founded the high-profile venture capital firm andreessen horowitz which manages ten billion dollars in assets and has hit big with the likes of Facebook Twitter and slack before that he co launched a data storage company called loud cloud which he later sold to Hewlett Packard for 1.6 billion dollars he made waves in 2014 with a best-selling book on how to run a startup now he's back with a new book on building company culture Horowitz is here to offer his latest insight on the investing landscape and to explain why a company's success can depend on factors you don't see on the balance sheet [Music] i'm here with ben horowitz co-founder of venture capital firm andreessen horowitz an author of the new book what you do is who you are Ben nice to see you yeah great siannie so I want to talk about your book of course but also want to talk about what's going on in the world of venture capital all right all right and there's a lot of interest here Yahoo Finance in particular about IPOs and of course all the talk of we work and the cycle and what's going on a lot of people saying that's a sign of the top what is your take on things yeah I don't think so I mean I think we work is very specific to we work you know it's a unique company with the unique founder and a kind of unmatched investment from soft thanks so like I think we work as we work I don't think it has anything to do with the rest of the sector are the valuations though getting lofty and you're seeing companies doing multiple classes of stock are they pushing the envelope a little bit you know I don't think that the valuations generally like so lofty venture capital valuations I would say are always a little lofty or a little low so they're usually most private companies are worth somewhere between half and kind of double to triple what they should be and that's just kind of the nature or like it may be a third double or triple because it's a very illiquid market but that doesn't really constitute in itself a big problem like 1999 so you know generally there you know some things are a little head of their valuation some things are behind their valuation but it's not a super unusual period I would say and one more thing about the IPO business in the venture world and that is some people complain that the stocks the companies remain private to long for various reasons but then all the profits are going to Sand Hill Road as opposed to the general investing public is there something there yeah absolutely I think that's a probably one of the biggest issues we have as you know economically as a country is that you have all these amazing new businesses that are getting created in the United States but the way the regulation is went you know kind of starting in the late 90s for various reasons has made it very kind of expensive dangerous etc to be public you know make it very easy to sue companies who are public in this and that and the other and as a result I think we have about half the number maybe a little less than half a number of public companies that we had 20 years ago which basically just takes the investing the growth opportunity away from you know regular people and puts them all in the hands of the elite and I think that's really economically elite I should say maybe that you know intellectually elite and that you know that that's a terrible problem and you know I think we either have to make it a lot we have to kind of close the gap between what it means to be private and what it means to be public from a just general standpoint so it's a smoother transition any ideas on how to do that well I think there's one like I just think you have to make what it takes to sue a company more reasonable dno insurance for an average company is runs like over 10 million dollars a year so if you think about if you're a growth company let's say you have like 50 million in revenue well if you go public like 20 percent of your revenue goes to insurance and so and that's just the state of litigation and how easy it's been made to do you know frivolous lawsuits and so forth you also have things like reg FD which creates an asymmetric relationship companies are under reg FD nobody ever enforces that against hedge funds so like I can make up stories plant stories write whatever I want as a hedge fund and then as a company you're very boxed in so it's tricky from that standpoint there's other things like this short order handling rules and so forth but the whole regulatory structure of being public has just made it such that it's very dangerous and difficult for a small growth company to be a public company so yeah things wait till they get to a billion dollars in revenue and there's clearly not as much growth left at that point so you're a VC but you're an author yes what how do you reconcile that what do you like doing more writing books or being a venture capitalist well you know like as an author I'm I would say writing a little more my perspective as an entrepreneur when I was an entrepreneur and building companies than I am as a VC although being a VC enhances it because I see a lot of companies I would say from a knowledge perspective but I'm really just you know I can see where people struggle in kind of building a company because I have a great purview of that and having been through it I can then articulate ok here are the things that you don't know that I didn't know that would be good to know and you know so far people seem to like the books so so you in this book you draw on some non-traditional characters for management lessons a gang leader Genghis Khan yeah how did you think about that what's the conceit well like so in the first place when you're talking about culture culture is complex right because it's not you know like people have the you know these books about oh here's your KPIs and your ok are is your mission statement and so forth but like that doesn't really dictate what your culture is going to be your culture ends up being these little difficult things like well do people return a phone call today or next week do they show up to the meeting on time or 10 minutes late do they you know in a business deal did they focus on the partnership or the price like all those little things and so how do you move that how do you influence that it turns out to be you know very complex and the problem with culture is if I already have the culture right then I can't even see that its culture like if it's something that I am doing then I don't even know like that's just the right thing to do that's just who I am or whatever and so in explaining how it works I thought it was much better idea to start with cultures that weren't familiar so you could see ok why are they you know why does a prison gang like act that way how how does prison culture get so violent what are the steps that take place how did the only successful slave revolt occur what's hard about slave culture as you go to military culture these are things most people can look at and go okay I'm not identifying with that so I can understand like what's cultural and what's not but the techniques that they use you know be it in prison or the Haitian Revolution or the ancient samurai are the exact techniques that you would use to move culture and accompany and so it's very relevant in that way what causes a company to have good culture or bad culture been well you know I I would kind of back off on good or bad I think cohesive and not cohesive is a better way to look at it because not every culture is for every company and like what's good for Amazon is not necessarily good for Apple for example so Amazon known for their frugality they've done things technique wise to make it they used to have right they're ever famously that do you get a door as your desk you know on some 2 by 4's or whatever Apple would never do that but Amazon's strategy is to be the low-cost leader Apple strategy is to have the most beautiful high design products in the world so apples got you know whatever $2,000 doorknobs probably on their campus and a five billion dollar campus Amazon's not going to have that Amazon has low price as Apple's got beautiful products to different cultures not ones not good and one's not bad but when you're talking about like what makes the culture cohesive there's many many many things and it really gets to what drives people to behave in the way you'd like them to behave when you're not looking and that's a you know that's a lot of completa complexity particularly as you grow particularly as you bring in people from different cultures into your company and so that's what you know that's essentially why I wrote the book you know to get at that isn't it I mean when you talk about culture there's various constituents for a company but it's primarily the employees okay and and so isn't it really honesty and decency and a place where people really want them to work right what does decency I is that what you're laughing at what are you laughing about well like yeah you know people go oh like where we are integrity and you go cuz the people usually aren't and you know it gets it can get very ambiguous in a company context so for example you go and you raise money from some venture capitalists you say look we're definitely going to hit this forecast over the next three Cortis then you're out selling your products and you're like oh we're a little short of the forecast and you have a customer come in and you go wow like if we just told him this was going to be here in two months rather than in the six months it's really going to take then we get the deal and we could keep our promise to the investors that we just made or but we'd be sort of lying to them but how big a lie is that you know you get into these kinds of things so the definition of what you're doing and what you mean by integrity and in what context ends up being really important and you know and this is why you know one of the things that to Santa overture did in the slave revolution is you know he was very very very big on this concept of okay we're going to distinguish our culture by being more ethical than the Europeans that were fighting against and one of the things that he did is he said okay look everybody's pillaging we're not going to pillage but you can't just say you're not going to pillage because okay is that really the right thing to do because your turn you're you're in this mercenary war over sugar and you have to pay the soldiers your guys don't have any money so you're really going to jeopardize the war over like this ethic that like nobody else here cares about but what he said is we're fighting for liberty and you can't get Liberty if you're taking people's Liberty away and so if you think about what that does is it changes the whole motivation of the army and so culturally now they're fighting for a higher cause that then rippled out to the broader community and the stories are like you know the French came in they set the plantations on fire they you know stole all the cattle they you know took everything and then the slaves came in half-naked didn't take anything and as a result to SAP got the local support for what he did but like that's integrity works like that it doesn't work like so just do the right thing like nobody knows what the right thing is right so the end never justifies the means well I think that yes generally in life the ends don't justify the means once you compromise that you're you are actually the bad guy and I think that this is this is actually a good story for the broader culture you know like if you're running around calling people names you know on Twitter or whatever like you're actually the bad guy even though you're calling somebody out for being the bad guy because like that kind of behavior the ends don't justify the means culturally you take your place too you know you take your place yourself to a place of hatred and like that kind of culture like where I hate everybody okay that's its own punishment and I think that what you sent figured out was the opposite you know you did the right thing even if it's not the right means for winning the war it can pay off bigger and in Silicon Valley isn't there a tendency to I mean we were talking about projections right and you have a stretched target and then I'm trying to get money from andreessen horowitz mm-hmm and when does a stretch target become a lie I mean this sort of gets to Elizabeth Holmes right doesn't it right I mean she said that she had a vision yeah and yes without getting at the details which I you know I dare know yeah yes without like I don't want to kind of pound on Elizabeth not that it isn't a fantastical amazingly crazy story but yeah I think that's right that you get into well what is it as fake it to you make it okay right well look if you do that fake it til you make it that's not just going to happen with your VCS right like you're gonna fake it to your employees you're gonna promise them stuff that you can't necessarily deliver on like all that kind of thing like that's a big cultural decision to fake it till you make it like to legalize lying in a sense so all these things do end up mattering and and have long-term broad implications so there's that I mean are there problems with culture in Silicon Valley and problems that are unique to Silicon Valley in terms of business culture some people say there are they're clueless spoiled brats etc yeah so that's I think that's as you know I finger pornea look people are trying to go in and create you know something out of nothing on a dream so like I definitely I want I think people think that kind of stuff were just like that's just a weird jealous envy thing now because the a lot of the founders are very young don't have a lot of management or organizational experience and the companies grow very fast there are things that I think you know things get uniquely chaotic or maybe not uniquely chaotic but they do like their Silicon Valley struggles with that issue and it's very complex it's very complex to kind of build a culture out of nothing and and look no even the very best company cultures are not anywhere near 100% like there's no nobody's got a company where like everybody you know tells the truth all the time or like everybody like is very courteous and always returns a phone call and like always it like that's just not the way like it's not possible to achieve a hundred percent compliance on a culture so every culture has got problems I think the things that Silicon Valley runs into have a lot to do with just how fast they grow how many people they're getting from other cultures you know you hire 50 people from Google it's hard to resist that cultural force and these kinds of things and that's you know that's a lot of what I I try to get at is how do you solve these very very hard problems but these companies become so big been too I mean you go to Google and you go to Facebook I mean there are all of a sudden giant companies that very fast very fast that have the run of risk of becoming insular right yeah well all cultures all culture all right I'm not that's not singular to Silicon Valley but maybe it's surprising to them because you know ten years ago they were six people and now they're tens of thousands well on successes distorting right because you do something you succeed you draw that connection whether there's a connection or not right like you know you you always run the risk of being like a cargo call you know this story right right stuff drops out of the sky and they were doing a dance or whatever and that's a dance to get stuff to drop out of the sky so there's always you do run into that and that's just like one of them you know many problems that you get as you grow but would you really when you're talking about designing you're not trying to solve everything you're just trying to say look for what we're trying to do as a company what are the behaviors we need to differentiate ourselves to and to like make that strategy succeed so I'll give you like a really simple example so ad andreessen horowitz one of the things we want to do is very early on is we need to respect the entrepreneurial process and the entrepreneur now every single VC in Silicon Valley around the world would make that statement it's a it's the obvious statement but like if you think about the daily interactions that you have as a VC it's like this I have the money you want the money you gotta come see me and I decide whether you get the money so psychologically I all of a sudden feel like the big person you're the little person and so what are the behaviors that you always hear about oh they show up 30 minutes late to meet with you oh they ghost you when you you know like you leave the meeting they're not investing but they don't even return your email after that after you took the time to go down there wait 30 minutes for your meeting and do that so is that respect no that's like the ultimate disrespect so how do you deal with that you know if you're if you're kind of a firm and so what we did is several things one is we put I put a rule in place if you're late for a meeting with an entrepreneur you pay $10 a minute oh you had to go to the bathroom no problem you're five minutes late $50 oh you had a really important phone call and the most important deal we're doing you're 10 minutes late no problem $100 and people are like well then why are you charging me to work here like it I'm working hilt like you should be paying me not charging me and I'm like because I need you to plan what you're doing so that you respect the entrepreneurs time in that mechanism where every single time they have to meet with entrepreneur they have to think about why they have to be on time and why they have to plan to go to the bathroom early and why they have to end their prior meeting in time to get to that next meeting that process sets the culture and so when you're talking about culture you're talking about programming and mechanisms that make people or encourage people to move in the direction that you want them to move I love that specific example but how much money have you collected and where does it go does thousands of dollars Anthropy Nobel so we we have taken to kind of just giving it directly to the entrepreneurs lately we also have a pool historically and so forth but what about when the shoes most people show up on time right I would imagine what happens when the shoes on the other foot though in other words when you have a company that's in the driver's seat where all the VCS are chasing it how do you sell andreessen horowitz then yeah look and a lot of it and this is this kind of gets back to it a lot of it if you ask entrepreneurs it worth like without overly talking smack if you Paul entrepreneurs we read out very highly and the reason we write out very highly when you get into it is the culture and it's just we feel different than other firms we respond differently or the interaction is different I'll give you another example when we reject an entrepreneur the rule is you have to do that in you have to reject them explicitly and say why and to ensure that we do that with quality we survey every single entrepreneur that we reject with you know basically customer satisfaction survey and nobody else does that and our number one referrer of deals are number one sources rejected entrepreneurs and so this is kind of a cultural statement we put out there that ends up being a differentiator for the business this conversation usually goes to good versus he it gets very Shakespearean that guy is evil like we need to take him down he's set a toxic culture did it at a that's not actually what's going on it's very rare that there's like a bad intention CEO that's setting a bad culture what's really going on is kind of a Greek tragedy it's humans against the gods and the gods are the system and the system is the culture and designing a system that works is very very difficult and by putting all the emphasis on this like false whatever narrative of good versus evil we missed the whole point and the opportunity to improve it like I hear things about you know oh well how can these guys and so well they if they just liberal arts they would like that's like first of all you're not going back to school it doesn't help anybody and you're just basically saying these guys are evil and so that's why the culture they're not evil they they have most of them are super artists have great intent want their companies to be great they just don't know how to do it but is there a problem ban with what's going on in social media those companies with Twitter with Facebook with you - is there a cultural problem is there something that needs to be addressed from a regulatory standpoint so I think that we are in a brave new world and nobody yet knows how to deal with it and this is actually I would say the ultimate humans against the gods systems problem so if you look at the history of technology and media it is a history of really changing the world so the radio got Hitler elected you'd agree with that like I think most people would say without the radio Hitler never takes power is the radio evil we're the people who invented the radio evil like what was going on their television got Kennedy elected I think Nixon wins for sure without television and that's pretty well known so like if you're a Republican is like television need to be dismantled and then now 2008 Facebook gets Barack Obama elected and the funny thing about that if you're like working at Facebook near Mark Zuckerberg what'd it say yay Barack Obama we love Facebook amazing he's in social media genius that it up then like Facebook gets Donald Trump elected well we've got a crisis and so like it was very hard for the company to anticipate that that was gonna be the reaction given what had just happened and what had happened just historically but yes we are in a world where we have to look at social media and say well what are the rules like what's what are the rules of the public square we had rules when there were a thousand people in the square and it was all in the US now it's international and there's two billion people in the square and we don't have any rules and it is very chaotic and with consequences that are hard to predict and you know sometimes you know scary so it has to be addressed but the idea that we're going like do something to Zuckerberg or do something to Jack and it's gonna like stop social media like really like you think we're gonna turn back the clock like oh yeah we'll just stop television will just stop social media will break it up like a second you're not actually gonna stop it you might move it to China how do you like their rolls you know daryl morey doesn't do a tweet does a retweet deletes it immediately and they're ready to shut down the NBA like do you want that is controlling your social norms so I could think we have to think this through actually not that there aren't problems there are problems but this whole like vilify the CEO thing is just stupid have you given any thought to how we might address it though well look I think that it's very very complex so like I don't want to prescribe like the answer for like how we manage the public square like in two minutes because I think it's complicated but I do think there's an answer that should ought to be better than the world we were in because we now are in a place where everybody can have a voice now how those voices work and what the rules of expressing that voice are absolutely we need kind of to think about what that means a lot more than than we used to in the past but we ought to be able to get to a better world and there's definitely no like turning back the clock it's like Andy Grove said this it was one of my favorite quotes from him they asked him is the microprocessor good or bad and he was like what are you talking about that's like asking if steel is good or bad it is and we got to deal with it and that's how I feel about social maybe I like it doesn't matter if it's good or bad it is and we have to deal with it what do you think about the problem in the United States if in fact you think is a problem in terms of income and wealth inequality and if you look for instance in the bay area california writ large maybe the homelessness problem and it sort of struck me that people often talk about Silicon Valley greatest wealth creation in the history of the planet and yet at the same time homelessness in the Bay Area soared yeah yeah I know and and and it's I think it's like it's complex on many levels in that the people who are also governing both California and the city of San Francisco and so forth are the exact people who you would elect if you thought you cared about the homeless right like they're the people so like their policies like clearly also aren't working and so what is the answer is it's a big question it's definitely I mean like it's probably one of the biggest problems that we're facing is like okay how do we make the wealth work for everyone but that too is complex it's not just a matter of going like I love the homeless let's get San Francisco has more money per capita I think than any city in the world to spend on this problem and the mayor herself London Bridge said look money like more money isn't even necessarily the answer like we haven't figured out the answer and I think you know like she was being very earnest and thoughtful about it because we just had like this whole new bill to raise a lot more money to fix the homeless problem but there's more to it than that you know and and I don't know like I don't want to say you know what the answer is but I would just say again it's a systems problem it's it's complex and we have to think about the consequences of things it's not just evil people give the money to the good people I think they've kind of tried that too right I mean they're gonna be trying to do with housing yeah look and and you know and it's not just housing like that their housing for sure you know housing just building housing is very very expensive and complicated to do in the Bay Area so one thing is like we have these whatever not my backyard people who want to read there's tremendously complex like infrastructure and lattice of housing rolls there's the Associated corruption that goes with all that regulation there's and then you have you layer on top of that mental health issues and other things it can't just be addressed by housing that you know we and in the u.s. like the whole fact that we have the words mental health is crazy like its health like how's your mental health and your physical out there very connected like if you have a mental health issue you inevitably have a physical health issue and often if you have a sickle health issue it causes a man health issue yet from like a an insurance standpoint we separate them out you know you have to really get to the core issues of these things and not just go well that person has a lot of money in that person's homeless so like that'll solve it because it dent what are the most exciting areas for investing as a VC right now so there's there's tremendous opportunities in financial services for one so FinTech as we call it is growing amazingly fast and this is actually you know one of the kind of weird dividends of the financial crisis as it turns out that if you're a young person you're like not like you are I like say in your 20s you probably don't have a credit card and you may not have a banking account and you certainly don't trust banks the way we did and so that creates an opportunity for new businesses to come in and not have hidden fees or you know all the crazy things that's so funny you know we have these usury laws in the United States but if you break them down like the overdraft fees are way more they exceed the user draft the usury laws by a ton but like they don't fall under the usury laws so like regulating it is is very tricky but like new companies competition can kind of beat regulation on delivering better financial services and that's happening all over the place computationally computational biology is amazingly exciting and that you can now apply because we have an information model of the human body as opposed to just a chemical model we can now apply computer science techniques to doing diagnosis and and engineering drugs and finding cures and so forth so that's a another great area cryptocurrency is like super interesting as it relates to a lot of things we've been talking about which is how do you scale a society you know internationally and we start to get technologies that will help but things like money and law and finally been this show is called influencers and so I'm curious as to how you see you using your influence on the world well I think you know like and we've talked about a lot of things that I would say are probably beyond where my influence is good because it's out of my lane beyond my paygrade you know some of these political issues but in terms of how you build a company and how you build an organization that's a place where when people go to work there they go you know that time of my life was well spent and the way we treated people in the way we treated our customers and each other that's why I want to live my life like I can help people build organizations like that and that's why the book Ben Horowitz of in dreesen Horowitz author of what you do is who you are thanks very much for joining us okay thank you thanks Andy I'm and Easter where you've been watching influencers we'll see you next time you [Music]

Channel: Yahoo Finance

Views: 35,203

Rating: 4.8969402 out of 5

Keywords: Yahoo Finance, Personal Finance, Money, Investing, Business, Savings, Investment, Stocks, Bonds, FX, Currencies, NYSE, Equities, News, Politics, Market, Markets, Market Movers, Midday Movers, The Final Round, Ben Horowitz, Influencers, Influencer, #Yahoo Finance, private company, public company, IPO, Andreesen Horowitz, What you do is who you are, angel investor

Id: sU7l6se-z1A

Length: 30min 57sec (1857 seconds)

Published: Thu Nov 14 2019