DAVID SENRA SHOW: Marc Andreessen is the co-founder and general partner of Andreessen Horowitz (‪@a16z‬), one of the most influential venture capital firms in the world. Before he was an investor, he was a builder. At 22, Andreessen co-created Mosaic, the first widely used graphical web browser, then co-founded Netscape – the company that brought the internet to mainstream America. Netscape’s 1995 IPO ignited the first great technology boom. Microsoft’s campaign to destroy it became one of the most studied business battles in the history of capitalism.

MARK ANDREESEN: Basically what we did was we sort of, in line with your philosophy, we went back and we studied a lot of other businesses that have similarities to the venture business. And so we studied private equity, venture capital, or sorry, private equity, hedge funds, investment banks, law firms, management consulting firms, ad agencies, accounting firms, you know, basically anything where the product is fundamentally a relationship, you know, a knowledge work, you know, kind of relationship as compared to something that gets manufactured. And what we observed is basically, and exactly, Hollywood Talent Agency is actually the one we’ve probably talked publicly about the most. And so that was a great case study, the old story… And so, and he actually, and by the way, he gave us, you know, we make a point of crediting, like he gave us a lot of this theory. So a lot of this comes from him, but well, actually I’ll tell it through his experience. So when he started his agency in, was it 80, whatever? In the 70s. In the 70s, like in the mid 70s. It was actually a very similar, structurally, it was very similar to when we started A16Z in 2009, which was the configuration of the industry at that point was basically a bunch of essentially service firms, a bunch of talent agencies, none of which were at very high scale. And then each of them was basically a tribe of basically solo operators and kind of lone wolves. And so the concept in Hollywood was you had an agent and that was your guy. And that agent knew whoever that agent knew and had whatever relationships that agent had, but the other agents at your agency were not available to you. And there was no collective benefit to the fact that you were at an agency that had not just your guy, but like a hundred other guys. There was no collective payoff to that. They ran that in that way for a very specific reason, which is this kind of this, eat what you kill professional services mentality where everybody should have to go build their own book of business. But you end up, you’re just dealing with a guy as opposed to a firm. Like there’s no firm, there’s no collective thing. And that was basically the condition of venture capital in 2009, which is you have been, at this point we knew all the VCs really well and we had raised venture and we had worked with all these other companies that had raised venture. And basically all of the sort of legacy venture firms at that point, they were all like that. They were all just like tribes of lone wolves. And then the thing that we knew that was not publicly known was generally speaking inside the firms, they didn’t even like each other. Oh, I hear stories like this all the time. Right. And so it’s like, you know, whatever there’s Joe and Mary, you know, we’re partners at a venture firm and you’re working with Joe and Mary has like a key connection that you need access to. And so you ask Joe, can Mary introduce me to so-and-so and what you don’t know is they’re having like a brutal fight where they’re like trying to destroy each other because they’re fundamentally economics. They’re going for a greater slice of the profit pool. And so they’re really going at it. And so we just, we saw example after example of venture firm that was basically either, two things actually. One is either melting down due to just internal strife and conflict. Or by the way, the other was generational succession. The other issue is a lot of the dominant venture firms in 2009 had been around for 30 or 40 years and they were now on their third generation of partners going to their fourth generation of partners. And, you know, and again, it’s the same thing. They had been founded by Dynamos and then they were, you know, the later generation people were not like that. So we basically said, oh, this is where the oldest thing comes in. As we said, look, like that’s not gonna last. And so our theory of it was what we call death of the middle or we sometimes, the negative way to frame it is death of the middle. The positive way is the barbell, which is what’s happened in all these other industries, which is basically the industry gets stretched apart like taffy and what you get is you get this barbell thing. And on one side of the barbell, you get early stage angel seed investor who are really like first money in, like, you know, staying very light on their feet, writing a relatively small check, but like being involved in companies extremely early on, you know, taking a lot of risk. And then on the other side, you get basically scaled platforms, right? So, you know, you get large-scale enterprises that have like a lot of throwaway, a lot of access, very big networks and then access to a lot of money. The other comparison we always make is to retail shopping, right? Which is there used to be department stores like Sears and JCPenney, which basically where the brand promise was pretty good selection of products and pretty good prices, right? And then now those are dead. And what you have instead of boutiques, like the Gucci store or the Apple store, and then you’ve got this super scale e-commerce companies like Walmart and Amazon. We were to the point where it’s just like, there’s no reason to ever go to a department store because it’s got less selection than Walmart and Amazon, but it doesn’t have the quality tier and the special experience of a Gucci or Apple store.

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