Transcript
0:00 America's got to rebuild its entire infrastructure like right now. We don't have enough rare earth minerals. We don't have enough electricity. We don't have enough manufacturing capacity. Nvidia will make enough chips, but then you we won't have enough memory. Almost everything is a bottleneck. >> The China graph is like this and the US graph is like that. How do we make this seem less scary? >> The history of technology is things have always gotten better. Humans are kind of unbelievable in their ability to come up with new things that they need.
0:27 >> Now 8 billion people that might have an idea in their head can get it out of their head. >> I do think what's going to happen is So you've been doing this for a long time. and I thought maybe I'd start off and it's funny we actually didn't rehearse this at all because I thought that way would be more more real, right? More unique. But let's talk about you know you have this book where you talked about you know how hard it is to be a CEO and everything that you went through at Loudcloud and Opsware.
0:58 that was a giant shift where it's like the market kind of collapsed, the financial market collapsed. and you had to really pivot and just change the company and what do you think there there are new age companies that are popping up right now? AI first it's like they hopefully have their together. They're off to the races building something new. But like a you know a legacy company or a five or 10 years ago where there's this great opportunity but also great challenge like what does a five or 10-year-old CEO do where it's like they they're pre-AI?
1:28 Yeah. So they got to they got to figure out what they do. >> markets hate them. Yes. Yes. So there's the financial markets hate them. Yes. So I don't know maybe maybe riff on that. I I'd love to hear your thoughts. Yeah, well I I think the first thing you have to recognize in a kind of huge dislocation like this is the like some very basic axiomatic like laws of physics are different and the two that are really different with AI compared to have been built in kind of technology forever is one it used to be very well known that you cannot throw money at the problem. So for example if I had a product and I was two years behind I could not hire a thousand engineers and catch my competitor like it's a mythical man-month. Nine women can't have a baby in a month. Everybody knows that. it never works.
2:28 No problem. That's no longer true. you can throw money at the problem. If you have enough money and some good data you can buy enough GPUs and solve basically anything in software. So like that's gone. the second thing that we knew for sure is like in software you know possession is 9/10 of the law. So if you have the customer you have multiple lock-ins. You have like the migration pain lock-in. You've got the data lock-in. You've got the user interface lock-in. Those are pretty much gone, right? So it's very easy to replicate the code. It's very easy to move the data and then it's not even going to be a human talking to your software. It's going to be an AI and you know AIs are really flexible on how they use user interfaces. So that mode is gone. So I think that's just like the first thing you have to recognize as a CEO that like okay that's going away. So then what is it? you know where is your value? What are you delivering? And there it turns out there are many things that are of value. but like if you're trying to get like good pricing through any of those things you're going to be under tremendous pressure. You know your your price has to be a function of some other value that's much more distinct that you provide.
3:55 Got it. and the other thing that's we we've talked about this a lot internally as a firm is that once upon a time like you would just have maybe if you have a good product you might have 10 years to run with that product. Maybe five years. And now it might be like five weeks. Well we we also talked about this like in terms of going public. So companies are staying private a lot longer. which probably is good. If you're going through an existential crisis you'd much rather do that as a private company than a public company. But also the reason why the SaaS apocalypse is happening is because there are doubts on terminal value. Yeah. Right? So everybody who starts a company they're doing it because they want to create economic value. They're capitalists.
4:36 They're trying to actually benefit from this this equation financially. But if you wait too long maybe your company is worth zero. That's kind of scary. And that that was always a risk but it would play out over decades. >> not as fast a risk. >> guess what what do you I if you were I mean Loudcloud's around today you're the CEO again. Bad bad example. Sorry sorry to give you I know. I know. Although actually Loudcloud would be It actually did us Yeah exactly. You would you would be very well positioned. But I guess what is it that a CEO should do potentially differently? I mean obviously get the like move faster, cut faster, be more efficient, throw money at the like all these things that we've talked about. But it's like if I don't go public if I go public and I get disrupted then I have this terrible life of I'm going to be a penny stock.
5:21 If I just wait there's this chance that I get eviscerated and this kind of like road killer success equation is kind of scary, right? I mean it's always scary but you would have a you would have time. And now it feels like you don't. Yeah, I think you do have to be honest with yourself on like what it is you have really. And there are like there are companies that get thrown under the bus correctly and ones that don't. And then like if you take a lot of these ideas to their logical conclusion then you know nothing is worth anything cuz there are no people at companies and if there are no people who's going to buy your shitty software.
5:59 So like you know da da da da but but like like it is more like subtle and it it just tends to take much longer than we think for some of these things to play out. So then the question is are you getting stronger in that meanwhile or are you degenerating? So is what's happening nobody's buying you know like the money just shifted. The customers are buying other stuff. They're not buying yours. In that case you have a huge problem. You probably have to you know cut deep and pivot.
6:31 On the other hand like there's companies that have been slaughtered in the valuation game but are pretty strong. So I'm on the board of this company Navan, right? Like they're travel. So obviously the SaaS apocalypse like they're dead. Like no way you're doing travel. But then you look under the covers and you go well it actually is a little more complicated than that because on travel like you actually need explicit relationships to you know if I'm providing your travel and you're any kind of company that's important at all you need to travel globally. So now I need a relationship with every single airline in the world, every single hotel in the world, every every train, every everything. You got to deal with that.
7:16 You've got to kind of connect back to their budgeting systems and all these things. And then the second thing that's like nobody wants to do including OpenAI or Anthropic is sell to the damn travel manager. Like nobody has a channel to the travel manager. It's a not like and you you can't even imagine that being a good idea. You know you want to keep advancing. You want to kind of do the things that Intuit is doing where like okay like turn ourselves into more of an AI company and then like kind of hold the customer. And and by the way like the AI like the agentic travel experience turns out to be much more complicated than one would think.
7:56 and you know I don't know if it stays that way but like that's the way it is today. so I think it's very company dependent. Like I don't think it's all one thing. But I do think brave new world and if you keep looking at it like the old world and it's got completely different laws of physics you are definitely going to die. Yeah. well maybe let's talk about venture capital. >> There's a lot of cope going on now too.
8:19 So like you got to be careful with that. Well that's the thing. It's like there are some things that really are features and before it would take a long time to build a feature. So you might as well you know it's comparative advantage. David Ricardo. I could weld my own steel. I could grow my own food. But I'm just going to not do that because I can do things that actually produce more economic value for me. But now it's just becoming not that hard to go create features. But features are not products are not companies. And we've always had this distinction. There's feature product company. But it's a little bit confusing figuring out which one is which right now just because the ability to create a feature and create a product and even get all of the data you know you you know my favorite saying the best companies have hostages not customers. Like even get some of the data out of the hostage company. Yeah.
9:06 So it's like it's just a it's a very very confusing world in terms of figuring out which one is which which is you know kind of maybe a good segue to to venture capital land Yeah. of how do you think I mean when you started this firm in 2009 big financial crisis actually very very big financial crisis. Global financial crisis going on. The biggest. the world has changed a lot since then. I mean how much of what's happening today kind of fits within the mental model of back then and how much is kind of brave new world.
9:36 and maybe maybe riff on that a little bit. Yeah, so it's really different. So our first fund was $300 and we raised it from all the traditional kind of LPs, endowments you know charitable foundations, etc. Fund of funds. You know we just raised $15 billion for four of the seven funds. Four of the seven funds. So, like not even the whole complex. and you know, we raised it from very, very different kinds of investors. So, we you know, like basically none of our LP base was international when we started and we're at like 35% international money and it's from all kinds of places.
10:23 So, and and just tech has gotten more like tech has gotten so much more important. I think that, you know, we have to think in terms of the world in in a way that we just didn't before. So, for example, like with you know, why why do you raise so much money? which by the way, I'm kind of mad at myself cuz I don't even think I articulated internally well enough cuz we could have raised even more money. It's not. Don't worry.
10:51 >> Yeah, yeah, we we had more money on the table. but the way I was thinking about it is, look, America's got to rebuild its entire infrastructure like right now because we don't have enough you know, we don't have enough rare earth minerals. We don't have enough electricity. We don't have enough manufacturing capacity. We don't have we have the wrong chips. Like they take way too much damn power. They were built for games. You know, we don't have the we don't have enough anything kind of to be in this future world and somebody's got to fund it and you know, so and clearly that's going to take a lot of money. So, all that is brand new and I I would say it's like fairly overwhelming in a sense, but it like it is really, really important. Like we're pretty much out of electricity down in the United States. Like not not 12 months from now, like right now. The China graph is like this and the US graph is like that.
11:46 >> Yeah, and the demand for for these tokens is straight vertical. but the the ability to kind of build that capacity is absolutely not vertical. so, we need new era. I mean, like we need we invested in a transformer company. Not like a an AI transformer, like an actual power transformer company cuz you need you know, kind of better, easier to manufacture, more more efficient transformers. and the transformer hasn't changed since really we invest you know, we invent electricity. So, like these kinds of things. I guess how So, there's an old saying, the cure for high prices is high prices. Yeah. But the problem is there's a lot of latency involved. So, right now there are computers that show up with no RAM.
12:31 Like if you buy you go buy a server from Dell, they're like, "Sorry, we don't have any RAM to sell you." Because all of that has been gobbled up. Because yeah, they could build a new factory or you and I could decide to go build a a DRAM factory. That would take us 5 years. Yep. >> So, how do you I mean, and we don't believe >> Got to start now. Yeah, you got to start now, but this is this is actually, if you remember, which you obviously do, 1999, it's like, "Well, we have to build more fiber." Right? "We have to build more capacity." But it's obviously very different because all the GPUs are hot.
12:59 They're all lit right now. And back then, most of the fiber was dark. Yes. but how do you get like Yeah, well, there were bottlenecks when we were building fiber, the bottlenecks were kind of in different places. So, you know, we like the servers weren't capable of putting like bits out even fast enough to do video, right? And like the software was really We didn't have load balancers. We didn't have application servers. We didn't have anything. And so, you had all this fiber and all this bandwidth, but like you couldn't actually build the applications and then most of the end users weren't It's a network, too. So, you know, people weren't connected on the other end. So, it it just didn't work and then we had the dot-com crash and all these things.
13:45 So, now we're in a little different place cuz almost everything is a bottleneck. I do think what's going to happen is like we'll probably have enough chips long before we have enough electricity. So, Nvidia will make enough chips but then you we won't have enough memory and we won't have enough electricity. So, we're we're in that kind of situation now. So, you I think you really have to study where we are at each point in the supply chain and figure out how to alleviate those bottlenecks. And by the way, you know, God bless Elon, the Terafab.
14:18 you know, that's the idea. He's going to just go deal with all the bottlenecks himself. which is how he does things, which is why we need him. >> Indeed. so, I feel like you're an expert in three things. hip-hop, AI, and crypto. And I don't know anything about hip-hop, but I I you know, I found your your I I I've heard a lot from you. But let's talk about the other two. Yeah. In particular, crypto and AI. so, I I actually just wrote about this. I mean, you remember the origins of crypto was hashcash. Yeah, yeah, yeah, yeah, yeah, yeah.
14:47 >> and the scariest thing right now from my perspective is that everybody with Claude or with ChatGPT can actually like go super deep and personalize a phone call, an email. Like seems like all communication is going to be completely unusable. I don't know if you agree with me. I 100% agree. >> Because it's like normally I can just delete, delete. I get some email yesterday, "Dear Alan at Index Ventures." It's like, "Well, I'm not Alan. I don't work at Index Ventures.
15:12 Delete." And I'm very grateful that this person messed up my name cuz I can just delete that. Whereas if I get a thousand emails, like the best way to think about an email inbox is it's a to-do list that has right access for the public. Yeah. Right? It's like anybody can get in and now anybody can personalize. Same thing for phone calls. Like, what do we do? and then it seems like there's a lot behind crypto and that's that's why I mentioned hashcash because it was originally intended to stop spam. Yeah.
15:36 So, do you think there's overlap between AI and crypto? I know you do, so tell us about that. Yeah, so I I I do think it starts with the problems that AI causes. And actually one of the the first thing I woke up in the middle of the night one day and I was like, "Oh my God, somebody's going to go on a Zoom. They're going to It's going to be AI me and they're going to tell my finance team to wire like, you know, $500 million to Nigeria."
16:03 And and that's going to be a problem. So, you know, and then we're like, "Okay, everything's hardware root of access. Don't believe anything from me unless it's got my cryptographic key on it." All that kind of thing. So, I I knew these problems were coming. They're coming so fast now. So, I think there there there's kind of several categories of things. First is just, "Are you a human or are you a bot?" Like I I I think everybody is going to really, really want to know that. Be it social media, a dating app, a Zoom call, like like anything. You want to know, "Am I talking to an actual human?" Like, "Okay, can I prove that I'm a human being?" and then, you know, can I prove that I'm me?
16:47 And then, can I sign content? Like, how do I know it's true? Like there there needs to be a distinction between I get so many AI videos sent to me from my family that they think are not AI videos. And they're like, "Did this really happen?" And I'm like, "No, you could actually ask Grok and it's pretty good at that right now." But but I think, you know, like Grok's getting to the point where it can barely figure it out. and I think at some point it won't be able to figure it out.
17:17 AI will not be able to tell what's an AI. so, the only way is you're going to have to have you know, something some cryptographically strong indication, a signed piece of content that says, "Okay, yeah, I made this or this is like really a video of me, Marco Rubio, you know, giving a speech. This isn't something that somebody faked." and then there need that you know, there needs to be a source of that truth. And are you going to Who are you going to trust for the truth? Are you going to trust Google? Are you going to trust Meta? Are you going to trust the US government? And I think you want to trust the kind of mathematical game theoretic properties of the blockchain.
17:55 So, I think that's going to be just a very, very important part of the infrastructure. And then you you know, you get into like fraud. and like what is How do you know somebody's a citizen to get them money? Everybody's talking about, "Well, let's do UBI." Well, great. but we you know, when we did the stimulus program, we found out that the government is very bad at getting money to people. I don't know. It's like depending on the the numbers you read, it's somewhere around $450 billion got stolen.
18:28 so, what you really need is everybody needs an address where you can send them money. And so, I think that's a crypto problem. And then finally, how does an AI, you know, become an economic actor? Like how do I make money as an AI? How does somebody send me money? Like can I be a merchant, a credit card merchant if I'm not a human? I don't think so. Like I think that's actually kind of hard. and you know, and it's probably not the kind of right infrastructure anyway. And so, you need a bearer instrument on the internet. You need internet money for these AIs to be economic actors and I think that's very likely to be crypto.
19:05 So, so I think it's a There are many opportunities in the crypto space that have been generated by AI. Yeah. Because it feels like it's this old Yogi Berra saying, "It's so crowded, nobody goes here anymore." Like we're kind of we're entering that era because number one is, "Are you a real person?" But the problem is that you know, co-work is so good right now that or you know, open claw. I just say, "You are a real person. You were a real person." But now your your addresses are being used by a machine. Yeah. Right?
19:36 So, CAPTCHAs don't make any sense. CAPTCHA is an acronym. Like what is a CAPTCHA, right? So, it feels like the solution lies in in kind of economics somehow. and and game theory. So, Yes, yeah, and and that, too. Right, right, right. Like are are you going to just have to Well, maybe like I think half-caste is kind of a relevant idea again. Yeah, no totally. so maybe we why don't we talk about where you think venture capital is going and I mentioned this because Mark got some crap for saying you know all the jobs will go away except for one job of venture capital which which was seen as a self-serving comment but in his defense I will say it's partially because it's a non-deterministic problem. Yeah. Right?
20:16 It's like all right, you're betting on an entrepreneur first and foremost and you want to know that this entrepreneur as I like to say can materialize labor capital and customers and you can't just like you know run an algorithm on I mean maybe you can but there's just not a lot of data out there. It's very very hard to do. So that's the logic by which and also just personal relationships in general will probably survive AI. Yeah, but if there's a venture capitalist then that kind of assumes there's an entrepreneur job now. Yes, yes, that is true. It takes it takes two to tango.
20:45 But yeah, if you're very bad you just raise money and never allocated it I guess. But but I guess what what do you think the world of venture capital looks like kind of today? We've obviously done a lot of things internally as a firm to try to embrace AI like very very fully but you know now 5 years 10 years from now just given what's potentially going to happen to white collar work. Yeah, I I it's really tricky because you know you kind of go back to the last transition like this which was kind of the transition to the Industrial Revolution. So you know kind of the venture capitalist of the railroads and the automobiles and so forth you know ended up becoming JP Morgan Chase, Goldman Sachs, etc. So they they ended up becoming banks and you know some of the reason for that was just how like how fast that materialized. So I think in the 30s like 20% of American workers work for the auto industry which is like spectacular compared to what it is today.
21:54 and so things in the Industrial Revolution kind of started out very much like we are today in venture capital where there were whatever 300 auto companies and so forth and then it consolidated very hard into you know in the US the big three and so forth and then the kind of venture capitalist went upstream with the companies. I think that's one scenario where like okay, there's going to be a small number of very gigantic companies and they're going to own everything and so forth.
22:23 there's another kind of future where it's like okay, they got really big and then we've kind of we've kind of finally hit the asymptote on this intelligence idea and like they're as smart as they're going to be or whatever and we're either going to like nationalize the big labs and like like they're utilities they're electricity plus plus like FU if you're going to think you're going to collect all the money and then everybody's just going to build on this utility set of things and then that's a very different venture capital world.
22:55 So I I I would say you know the as I'll quote Yogi Berra like the problem with the future you know the problem with predictions they're very hard especially about the future. And I think this future is particularly hard because it's so dynamic. And it's really hard and then like how does the electricity shortage play into does it make the big companies all powerful because they suck up all the electricity and nobody else can get it and nobody else can get any GPUs or does like that push all the computing out to the edge and then the models just get really good and small and everybody's like well I got enough in my phone and what they're going to charge me for their mega GPU farm is just outrageous and I'm just going to do that or like so so there's many ways it could go and I don't know.
23:49 I guess I I don't know but I could see venture capital being much bigger and much more exciting cuz everybody in the world is an entrepreneur or I could see it being like more like what happened in the Industrial Revolution and like new companies are just harder. Yeah, well that it's kind of a good it's a good follow-up or a good parallel question which is like how do we make this seem less scary? Because I don't know if you saw Bernie It's a lot of change, you know, it is scary. Well, but yes and no. I mean 98% of Americans were farmers in 1789.
24:23 I'm pretty sure they're not farmers right now. I mean you made this interesting point where if you go to like a third or fourth world if there is a such thing country everybody's an entrepreneur. 100% like the guy like I sell bananas by buying them here and selling them there. Everybody's an entrepreneur. There were no organized companies. And the cool thing is that now 8 billion people that might have an idea in their head can get it out of their head and maybe it's a bad idea. Probably is a bad idea but there's no longer a gate for them. There's no capital gate. There's no like idea it's just like boom. It is not just for code. It's like you know I can write music. Right? I can make a movie. Like this is super exciting. So that feels like a very you know we if you're trying to make this not look dystopian. I don't know if you saw Bernie Sanders interviewing Claude. Like this is literally old man yells at cloud. Yeah, yeah, yeah.
25:08 >> Like you know metaphor no metaphor right it's just like he's yelling at the cloud. and like that's the dystopian view and it's wrong. I feel very passionate that that's wrong but we need a better we need a better narrative. So the history kind of I I I would say if you look at a macro standpoint right the history of technology is things have always gotten better. Like would you like to live in the world before electricity? You know probably not.
25:33 Doesn't sound that You can if you want. But like nobody seems to opt into that. And I I think we're very much in kind of a period like that but it is the transition is always scary cuz it's a different world. Like the jobs everybody was a farmer. Like everybody was a farmer in like 1750 I think it was like 93 or 94% of America was farmers and then like almost all those jobs are gone. Just like the you know like the jobs that we think are jobs that they would have thought were ridiculous. Like ridiculous. If you were a farmer you would think what I do is the dumbest thing in the world or a product marketing manager any of this stuff.
26:17 It's like that's not a job. You're not making any food. Like you're not building a house. Like how could that be a job? so like I I do think it's very hard to see to the other side of that but I I think it's very very likely to be like way way way better for everybody. just like electricity ended up being way better for everybody. And and to me like the biggest kind of the the most salient like wrong idea was from John Maynard Keynes. So he wrote a paper that wasn't that famous but you know the the the the the great economist of the of the depression where he said look things are going to be so abundant and everybody's needs are going to be met. Everybody's going to have a house or like a shelter and everybody's going to have enough food to eat. And then once you have your needs met like you're going to work way less like 15 hours a week max cuz your needs are met. But like what he didn't realize was well we're not just going to need one car.
27:18 We're going to need a car for every person. We're going to need you know computers and television sets and this and that and the other and and awesome vacations and like food that takes you know like a chef 10 hours to prep and all this kind of thing which did not exist then. Like there was no like whatever foodies and tasting menus and all that that we have now. But like that's all a need. Like that that want goes to a need very fast.
27:45 And you know humans are kind of unbelievable in their ability to come up with new things that they need and you know and then you you have to make those and so forth and and I think it's going to be you know look I I I think in 15 years the truth is everybody is going to in America and probably around the world is going to live better than you know the very best life you know from a just luxury access to information etc. etc. than anybody did in 1980. So like that's that's a very you know that's the world that we're we almost certainly are going to get to. So you shouldn't be so mad about it.
28:23 But it is disconcerting. All right. Well on that >> Especially if you're trying to teach little kids, you know, they're like what should I do? I don't know. That's a hard one. Well on that note Horowitz at at Andreessen Horowitz thank you very much. We really appreciate it. All right. Thank you.