--:-- You either want revenge or redemption, and some of the best entrepreneurs have this in common. And you see this with some of the best entrepreneurs, like what is the driving motivation? These are all industries that I wouldn't say they've been untouched by software. They've been untouched by specialty software. And the reason why is because the market was perceived to be too small. That's the really hard thing to disambiguate today, which is you can have things grow so quickly, but they can also go to zero so quickly because anybody can build software in like a weekend, which is both great and terrifying at the same time. the ability to materialize talent, capital, and customers, as well as why motivation beyond money, what he calls revenge or redemption, often determines who endures. They also get into how Alex is thinking about the application layer in an AI-driven market, from greenfield opportunities and labor-replacing software to proprietary data moats, and why compressing timelines are raising the bar for defensibility, distribution, and long-term advantage. What a day. Congratulations. How are you doing? Thank you. Good, good. Fantastic. Super excited to have you on. I've enjoyed, you're somebody who's, I've read your writing and listened to your podcast appearances for a decade now and always appreciated your point of view on a bunch of different things. So welcome to the show. Yeah. Thank you. I'm here to prove that I'm real. Fantastic. It's like proof of life is very important increasingly, right? Yeah, it is. I mean, first time on the show, can you give us a little bit of the backstory, the journey to Andreessen and how long you've been there? Sure. So I've been here for 10 years. Previously been a long time on success. Previously a long time entrepreneur. So kind of started by writing software when I was a kid in high school, actually even before that. And then out of college, I was like, I graduated in 2003. I was probably the only person for my class that just kind of became an entrepreneur right away. and it wasn't because I was smart or dumb, probably more dumb than smart. It's like I had a little business that I was running in college so I kind of kept doing that. Met this guy named Chris Dixon who was at Harvard Business School when I was at Harvard College. You have to remember like 2002 when we met, the internet 1.0 had just died. Everybody lost their jobs and it was September 11th that it happened. And what do you do if you're a dried up entrepreneur? You go to business school. I remember there was a company called Cosmo.com, a huge hit that kind of went to zero. What did that guy do? He went to HBS. No way. So Chris Dixon was there, and he and I were like the only two people, I swear in the entire state of Massachusetts, that thought that the internet was still kind of cool. We got introduced by a mutual friend, had coffee at Auburn Pan, this little East Coast chain, and then cooked up a product called Did They Read It, which is still around today. It's an email tracking tool. It embeds a tracking pixel in every email that you send out. That did pretty well. Then we started a venture-backed company together that became Site Advisor. that got acquired. And then I started another company called TrialPay. The thing that we learned at SiteAdvisor is that nobody likes paying for software. You're willing to pay for an intangible good, like a glass of wine. $20 for that seems totally reasonable, right? But paying $20 for one song on iTunes, there would be riots in the streets. So the idea was, I'll give you this digital good for free if you buy something else. And if you know how affiliate marketing works, it kind of plugs into that. So it's like, hey, we'll give you this product for free if you sign up for Netflix or if you switch to Geico or if you shop at The Gap or if you get a Discover card using the affiliate commission to go pay for the product. That did pretty well. It was like half of the revenue of SideAdvisor. It was like from a little shareware business that I used to have back in the day, it doubled our revenue. So I turned that into a company called TrialPay. That did great for a while, that it did terribly, that I kind of resumed to okay, sold it to Visa. Then along the way, I met this guy, Max Levchin, after he had sold Slide to Google and we cooked up a company called Affirm. So I co Affirm at Max in 2012 and actually brought Affirm to Andreessen Horowitz as a funding opportunity which they did And Chris Dixon kind of ended up talking me into joining here in 2015 So I've been here ever since. How quickly did you realize that Chris and Max were special? Because I imagine during those two periods, you were meeting hundreds of different people. I'm sure people wanted to build stuff with you, other entrepreneurs. and you picked well back-to-back. And it's probably one of the hardest things to actually clock at times. Yeah, I mean, I think a lot of the greatest people, they have two things in common. They have this term that's going around a lot, like high agency. They don't just follow the rules, they just take matters into their own hands and do something. And then they just kind of know the history of everything before. They're just like students of history, philosophy, like Chris was a philosophy major. People don't know about him. He went to, like he went to, you know, he got his bachelor's degree in philosophy, was going to do a PhD, kind of realized that was a bad idea. And then eventually went to business school, which was, he will probably say the worst idea. But it was kind of self-evident. I mean, Chris and I, I mean- The history thing is a real thing. Like if you're talking to an entrepreneur that has been building their business for one to two years and you can tell them companies that in somewhat recent history, in the last decade even, that have like attempted that or companies that are adjacent, and they're like, oh, I'm not familiar with that. It's like immediately like such a bear signal. Oh, it's the red flag. Yeah, well, the opposite, like that's the red flag. The, whatever the opposite. Green flag. Yeah, that's what I'm saying. But yeah, the green flag is. Yeah, never mind. What's the green flag? The green flag is not only have, do I know everything? I mean, I'll give you one example. I think the Collison brothers went out to like D-Hawk's ranch. Like D-Hawk started Visa. He's kind of like a weird quasi-communist. even though he started one of the biggest companies in the world. Because Visa was meant to be this, like, it was a non-profit. Visa was a non-profit until 20, I don't know, 2008, maybe 2009. It was the biggest IPO. The biggest IPO, yeah. That's right. Yeah, but it was a non-profit until then. A non-profit like the NFL is a non-profit. It, like, makes a lot of money, but it's owned by the constituents, and the constituents that own Visa were the banks. And it's like, okay, I'm starting a payment company. There were a lot of payment companies that came before, but it's like, who will, let's find this guy who's 90 years old, who's moved outside of capitalism is working as a farmer just to learn from him. And I have this mental model that I now use for entrepreneurs, and it's a memo that I've written that we use internally a lot. I got to say, the best entrepreneurs, they have five things that I look for. They can materialize labor capital in customers, and hopefully those are self-evident. It's like you can get people to quit their high-paying job for certain failure. It's like the Ernest Shackleton thing. It's like you wanted men for dangerous journey, almost certain failure and death, but if it worked, you might be famous. It's like you want that. Very, very hard to do. You have to find people that can materialize capital. It's like, get people to give you money. And the best sign of future fundraising success, like if we do round N, we want to make sure there's going to be a round N plus one, or you're going to be profitable on round N, which is unlikely. So are you good at fundraising? Can you get customers? Like imagine, it's like, I have two weeks of cash left. Please be my first customer. I have none. It's very hard to pull that off. Then you want to know the history of the space, which is super important to your point. You want that green flag version, not just the intermediate, you know, what's the combination of green and red flag? Brown? You don't want the turquoise or whatever. Like you want the green flag. This person knows everything that's tried before and they have a new angle of attack. They're not going to learn on the job. They've actually learned through history. And then the last thing that I care about a lot, everybody on my team knows this, my favorite book is The Count of Monte Cristo by Alexander Dumas. And it documents the story of this guy, Edmond Dantes, who's like wrongfully accused, is like in prison for 17 years, but then becomes the richest person in the world, but doesn't give a shit. It's like all the riches in the world do not matter. He wants revenge. So you can either, revenge kind of sounds bad, but you either want revenge or redemption. And some of the best entrepreneurs have this in common. And the reason why it's so important from a venture lens is imagine that you're a 20-year-old kid, you start a company, and somebody offers you, I don't know, half a billion dollars to buy your company. And you own 25% of it. You're going to make over $100 million. you'd have to be insane to turn that down. Right? And we need people that are insane, that actually are going for, it's not that we don't want people that aren't capitalists that don care about money but it like they care about if you seen the movie Spaceballs it like we not doing this for the money We doing it for a shitload of money A little different here I doing it for another reason And a great example of this is, there's this guy, Renaud Laplanche, who started a company called Lending Club. Very famous company at the time. There was a dearth of IPOs. Lending Club kind of gets to scale, goes public. He gets fired from his board, ousted from the company. He's probably made hundreds of millions of dollars. He's the Count of Monte Cristo. He's like, fuck those guys. I'm going to start a new company. I'm going to start an upgrade. And you know what he called his new company? Upgrade. It does the exact same thing as Lending Club. It's probably 10 times the size of Lending Club now. And what's motivating him is not just the, hopefully, you know, shit ton of money, space balls quote, but he wants revenge. He wants redemption. And you see this with some of the best entrepreneurs. Like, what is the driving motivation? Because when times get tough, like, you need something, because like, there is no money. Like, if your company's going to zero, If you're Ernest Shackleton in the winter of Antarctica, like, your voyage is not successful, right? You need something else driving you at that point, and that's why that medal is something that I find extremely valuable. Have you seen Spaceballs, Jordy? I have not. You got to. I famously have seen like under 10 movies. He's not a star, though. Nice question. One of my, probably like a, I really, I was going to say, maybe it's hard to exactly place a top 10. I loved your episode on Invest Like the Best on operating systems. How is AI updating your thinking on moats and operating systems and how somebody can create a lot of value with a startup? Yeah, well, I think, well, maybe I can rewind a little bit and just because we announced this new fundraise, I can tell you exactly what we told our LPs in terms of what we want to invest in at the application layer. Because I do application layer stuff. And it's really three things. Category one is, I call it greenfield bingo. And maybe another way of answering your question is, there's a quote that I use a lot, the best companies have hostages, not customers. That's why nobody likes using Salesforce. You've got to be taking revenge. You've got to be taking hostages. You know, it's very old customer stuff. The best companies have hostages, not customers. those are great companies to invest in. And that kind of goes to the point that I was making. NetSuite, Workday, Salesforce, they're all hated by their customers, but none of those customers can leave. However, if you build a better version, like kind of a more AI-first version of all of these companies, and you're selling into the green field, you've got a shot. Because I was lucky enough to be the first investor in Mercury, and Mercury worked not by stealing people from SVB. They just worked. It's like, oh, you're a brand new company. You can use shitty SVB or you can use really good Mercury. And that worked. Whereas they never got customers from SVB until the weekend that SVB failed. So that greenfield opportunity for software that is AI enabled in the same way that that was true for cloud. That was true for mobile. It's like, here's the new thing. The incumbent will eventually build it. Another expression that I use a lot is the battle between every startup and incumbent is whether the startup gets the distribution before the incumbent gets the innovation. My default assumption is that the incumbent normally wins. Because they have the distribution, they will get their act together three years later, and with AI and Cursor and everything else, they'll get their act together maybe three weeks later. So the might of distribution is very, very powerful. So one option is you just go into the greenfield. So that's kind of category one. We call it greenfield bingo. It's just like build, we have a bet. It's just like NetSuite, it's better, it's AI, enabled, but they're not going to steal customers from NetSuite. They're just going to get Greenfield. Category two is this kind of new, super exciting category of software does labor. And there is no incumbent software product for trial attorneys. It's called Microsoft Office, but Eve does that and does that really well. There's no incumbent software product for dental office receptionists, but Tenor does that and does that very well. So that's a really, these are all industries that I wouldn't say they've been untouched by software. They've been untouched by specialty software. And the reason why is because the market was perceived to be too small. And this is exactly what happened to SaaS FinTech really changed SaaS significantly because take I sure you heard of Toast Toast is one of my favorite businesses It like Square but it only for restaurants It's this whole operating system for restaurants. How many restaurants on their IBM PC Jr. in 1984 used software like zero? And how many of them would pay tens of thousands of dollars a year for software? Zero. But they all need payment processing. They all need payroll. they need these other services. You kind of bundle them in with software. And this is the really exciting thing about AI, is you go say, hey, trial attorney, I want you to pay $50,000 a year for software. You said this 10 years ago. Like, no way. Like, we'll pay for Microsoft Word because we use it to write demand letters. Like, that's it. And now you can say, hey, we'll handle all these cases for you that you could not handle profitably, and that's AI plus software. Now they are software buyers. So that's category two. And then category three, I call the walled garden. And I wrote a post about this a little while ago. but walled garden businesses are amazing because if you assume that in the world that we live in today, and this is another way of thinking about defensibility in AI, OpenAI has their sights on everything. Anthropic probably has their sights on everything. It's so easy to build everything. Have you guys heard of OpenEvidence? Yeah. I tore my Achilles in February. It's almost a year ago. It sucks, right? It's all better now. Doing something fun? It was. I was skiing in Japan. There we go. That's a good reason. Tear my Achilles. What do I do? So I go to ChatGPT. I'm in the clinic in Nisico, Japan, talking to this Scottish doctor, and he tells me, oh yeah, you only have surgery in the U.S. Nobody does it outside the U.S. I was like, this guy's on crack. Of course you have surgery to fix an Achilles. I go to ChatGPT. He tells me everything. Then I find this thing, open evidence, and it's like ChatGPT, but it has every single medical document in the world. And imagine that tomorrow, ChatGPT 5.3 comes out, it's AGI, everybody agrees it's AGI, human race is over, but it has no medical data. And then on the other side, you have GPT 3.5, and it has every single piece of medical knowledge ever known to mankind. What would you rather use? And the answer, at least for me, and I did use this, is open evidence. There are so many businesses that look like this where they find some proprietary piece of data. They're the only ones that have, because before you would have to sell data. That was your only hope as a business. And another example that I mentioned in this post, there's a company called Vilex. And Vilex is this 25-year-old European data business that bought up legal records in Spain to start, and they would sell it to firms like Wilson Sincini that needed it for case law. Now they sell an outcome, because they're the only ones that have all the records. So you can build a really interesting business if you're the only source of some unique form of data. And I love businesses like that because that's the other, sorry for being so long-winded here on the answer to your question, but the businesses that can be very, very large in AI, that can grow very, very quickly, you still need to make sure that they're fundamentally defensible. And that's the really hard thing to disambiguate today, which is you can have things grow so quickly, but they can also go to zero so quickly because anybody can build software in like a weekend, which is both great and terrifying at the same time. Yeah, indeed. Well, thank you so much for hopping on the show and breaking it down. Incredible overview. Yeah. Thanks, guys. Yeah, great to meet you. Thanks for listening to this episode of the A16Z Podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review, and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify. Follow us on X at A16Z, and subscribe to our Substack at a16z.substack.com. Thanks again for listening, and I'll see you in the next episode. its affiliates. Information is from sources deemed reliable on the date of publication, but A16Z does not guarantee its accuracy.
