a16z's Martin Casado on How the Venture Model is Broken

failed physicist. So in undergrad, did computational physics, worked at a national lab, decided that computer systems are much more accessible. And so I moved into systems, ended up doing a PhD at Stanford. Started the company based on the research. Ben Horowitz joined my board. This is by the way, this was in I started the company in 2007, so 2008 was a great recession. Almost went out of business. Marc and Ben saved the company. We ended up selling that four years later to VMware. I ran that business for a while, and then I decided that I’m super in love with innovation.

I love startups. I love infrastructure and systems. I spent ten years doing the operating thing, built a billion dollar business, and it was time to move to a different abstraction level. And so I joined, and I just focused on infrastructure and increase in Horowitz. So that is the crooked path I took. There

In my experience, you kinda have three types of board members. I think the mean board member, the average board member, they’re investors. They’ve seen a lot of stuff. They’ll roll up their sleeves. They’ll help a recruiter or whatever. But otherwise, they’re just not close enough to product market fit to add much value. They’ll say the things. They’re polite. They’re nice people. They’re they’re kind of net neutral. Right? I think this is the average board member. I think, unfortunately, the next most common board member is the frustrated operator.

They’ve kind of think they’re an operator, maybe were an exec at a large company, maybe had a small exit or whatever, and they really want to kind of backseat drive the company. I have definitely dealt very directly with those, and they can be incredibly disruptive just because they don’t realize that it’s stopped their company. And then periodically, you get like a pretty phenomenal board member. Like, for me, that was Ben Horowitz, which had a huge exit, spent eleven years really learning a craft, but also kinda getting it out of the system.

I’ll say a couple of things. For on the investment side, I don’t know if operating helps or not. Like, I don’t know if it helps you pick. I don’t know if it helps you close. I don’t know. Yeah. I don’t know how to answer that. Probably not. It probably hurts more than helps.

But on the operating side, if you can realize it’s not your own company, you end up having seen a lot of stuff and having a deep level of empathy that unless, like, basically, you had to pay payroll out of your bank account, which I had to do, unless you almost shut down the company multiple times, which I had to do, unless you had to go begging for money about 50 times, like I had to do, Unless you, like, almost sold a company that didn’t sell a company and almost get fired by your board, like I had to do.

It’s hard to have that kind of level of empathy and also just understanding. And so I think for that, much useful, but I just wanna caveat it. Like, hopefully, you did your run, and it’s out of your system. Otherwise, you can be disruptive.

There’s a few things to consider here. So the first one is, I honestly don’t know what VC’s do with their days. It’s just wild how many don’t work in evenings or are gone on Fridays or don’t work over a week. It’s just unbelievable over weekends. I just don’t know what they do. I grew up business from basically zero to 600,000,000 globally. I was working hundred hours a week, and I was flying all over the place. That’s what I spent ten years doing. It just turns out there’s a ton of time in the week.

If you put in the time, there’s an awful lot of time in the day, and even if you’re on a lot of boards, just nothing compared to running a 4,000 person team to hundreds of millions of run rate in my experience. The second thing, I’m very lucky at Andreessen Horowitz to work with basically the best junior partner team on the planet. Many of them could be GPs at other firms, and they know their areas very well. They have tremendous help, but I literally couldn’t do what I do without them.

A lot of times, I get credit unfairly for the work that my team did. And I’ll say one more thing, which is I’m pretty good at recruiting. I’ve recruited a lot of people. I’m pretty good at sales. I’ve sold a lot of stuff, but I’m not nearly as good at recruiting as Jeff Stebb, who’s our executive recruiter. I’m not really nearly as good at sales as Brad Kern. I think part of the Andreessen model, which is so effective, is we really have the industry best people that pitch in at stuff where often it’s the GPs that are doing it.

It’s a combination of you work hard, like you, Harry. I have I don’t think this I’ve done a lot of podcasts. I’ve never in my life had somebody be so thorough. You’re just so clearly good at what you do and you put in the fucking time. It’s what you should do and you should work in the evenings and you should work on weekends and if you don’t, like, I I don’t think you deserve to be investing in these companies. You just don’t and then you surround yourself with great people.

But

Here’s another thing, which is what I do in my spare time. I’m just being very honest. Like, like my first love is infrastructure and systems. It sounds like a weird and everything to say, but I love it. I just absolutely love it and I love how it intersects with finance, especially when it comes to the adoption of new technology and everything else. For those of you listening, I mean, I even started to Discord with Tim Chen, and it’s a there’s 1,200 people on there, and I’m there all the time, and we literally talk about infrastructure because this is what I wanna do.

If I wasn’t in a board meeting, I would be wanting to talk about this stuff anyways. And so I know so many VCs. You go and you talk about a bunch of stuff, but it’s almost never technology. It’s almost never category creation, and it’s always never how do you position marketing. It’s always, oh, what’s the new company? What’s new lead? Which I’m much, much less interested in that, and much, much more interested in what’s going on. So I also just think that my interest levels are much more aligned with kind of what sort of should be thinking about.

actually twofold. The first one is the whole market for private capital and technology two decades ago was about a fiftieth the size it is now. A fiftieth. The technology was much less mature. It was so much more fringe. And if you go forward to today, the market’s enormous. And then I actually think you can view software technologies more like you’d view a mature industry, like, say, real estate or something where you can be a bit more thoughtful about the placing money. It’s less random and outcome, etcetera.

And yet, we have this model that we use for investing where its investors are basically generalists. They play monies and they don’t scale out, etcetera. That was born in this earlier year. And I think that we can now think of venture much more like a mature market investment and have portfolio synergies, scale ups thesis, be very specialized, and still be able to deploy a lot of money, have multiple products and venture everything from seed through public through debt. At the end of the day, I think that venture believes in innovation, and we’re very tech positive.

And I think that we should be running Wall Street, not the finance people that don’t believe in any of these things. So I think, like, where venture’s broken, it’s just time to grow up.

Well, yes. Let’s so I actually think it’s not the winners that are scale up. I actually think it’s a bar bell. Either you’re operating at scale. You can help a company everywhere from Seats Republic. I think that’s one end. Or there’s a lot of alpha in relatively niche plays. Right? Like, you’re just focused in a certain area or a certain stage, and you build out operating around that. So I think both of those. So boutiques will continue to fare very well, and I think the ones at scale will continue to do very well.

I think it’s in between where it’s kind of a little bit more difficult because you’ve got pressure on either side of these. So what does it mean to scale up? Here’s the way I think about it. If you’re a founder building a company, you’re gonna need pools of capital. Today, the largest pools of capital either come from public markets, which they don’t care about innovation clearly, having been in a public company. They just want, like, repeatable earnings. Or you can get it from large debt providers.

They don’t care about innovation. They just only get their money back. Or you can get it from large financiers like private equity. They clearly don’t care about innovation. They’d much rather fire people to get efficiencies than do innovation. And so, eventually, you graduate to pools of capital. They just don’t care about innovation. Tech investing, VC has always been in the early stage where you’re like, we dream with the founders and we believe in building new things and adding value. And then all of a sudden, quote unquote finance big boys and girls come in and then basically say, okay.

Now everything’s just a spreadsheet. I believe tech has matured to the point that you can scale tech innovative investing for the life cycle of a company. So why is it that these billions of dollars are being deployed by people that just honestly wanna fire people for their own way?

Oh, think I it’s everything, and that’s the whole point. It’s the entire life cycle of a company. I think one way to think of step back. Think about the entire financial industry, everything from, like, private equity to the big banks to venture capital, etcetera. And if you pull a dollar at random from that pool, it’s quite likely that dollar is gonna come from a large bank or private equity or whatever. And what is their goal? Let me tell you. It’s not innovation. It’s just not. It’s predictable returns.

It’s arbitrage, all this other stuff. And like, kind of the top of the value chain is this cohort of people that they’re not interested in building companies and backing founders. I remember speaking with a private equity person. I was just talking to myself. I’m like, you know what? Yeah. We’re just having a conversation. I have a conversation. Like, you know what? If there’s a public company and the founder’s still running it, I’m bullish. Just because it’s the founders and founders can weather transitions and they can weather market transformations.

Look at Reed Hastings, look at Jensen. Founders are amazing. And this PE guy was like, was speaking Greek. He’s like, why do you care the founders running it? I’m like, dude, it’s the fucking founder, man. It’s the person that made the magic to begin with. It’s the person that has the credibility. That’s everything. My point is here is I want a future where if you pull a dollar off random from finance, that dollar is given by somebody that believes innovation is good and believes in the company teams and believes that you can continue to scale capital deployment far beyond just like Series C or whatever.

would indicate a really broken relationship between the board member and the founder. In all of these cases with multi stages, the actual investor and board member is aligned to a fund. Example, if you graduate from seed to venture to growth, it’s an entirely different team that’s making a decision. The board member is very aligned with the founder when it comes to the next raise. And so, for example, I focus primarily on seeds a’s and b’s. Sometimes our growth fund decides that it does the deal, and I I’ve been there pitching them too.

So, like, I’m very much aligned because I think it’s great when Infusion goes in. And so I think a situation where the company is reliant on one person to make all the decisions is not healthy, but certainly to have a partnership where they can access to pools of capital through the life of the company is positive.

I think this is just a bundling question, which is I think you create funds for different risk buckets and you provide LPs exposure to that. Like, debt will never get the same return as equity and early stage will never forget the same as late stage. And so you’ve got just different variances on all of these. This is probably why I I would be a horrible financial investor, just horrible. I don’t even really care strictly about thinking on returns. That’s not what maximize. Here’s the way that I view it, which is very simple, which is strongly believe technology is a good.

I think it solves problem. I think it adds value. I think it creates productivity. I think if you look at any graph on human betterment, which is infant mortality or how long we live, or the number of diseases we have, or whatever. This is just correlated with technical advancement, so I think technology is a general good. And so anybody that’s building technology that weathers the Darwinistic ecosystem of economics is gonna be adding value. I view this asset class as investing in an index of the top innovators in the world, and that’s a very productive asset.

And so my mental model is for anybody that wants exposure to the top software innovators in the world that are adding value. I want to provide an opportunity for them to have exposure to that, and I wanna help those set of top innovators. Now what happens specifically about the returns is a question on macro and all sorts of other stuff, but I guarantee a of lot value is gonna accrue there, and it’s historically a ton of value is gonna accrue there. Right? And so I’d like to think at much more of an index across innovation and much less specifically about, you give me a dollar, I’m gonna kinda make this $1 go up or down by exploiting every aspect that I can of a market.

So I think pretty much every single deal that I can recollect, I’ve been on the low end. The market’s the market, but if you actually look at any independent investment that I do, I’m normally on the low end as far as prices that go in. Is price a big factor in your consideration? Do you think you’re price sensitive? I think the market is the market. But I wanna be very honest. I think people say things like this, but they either don’t have data, or they just don’t know what they’re talking about.

A lot of people say a lot of things in this industry. It’s so funny how many rumors I hear about myself. It’s it’s like this constant set of rumors that I tend to ignore. I will say, many of the companies I’m in have hit great prices, and I’m very happy for them to do it. That doesn’t mean that I price them up. These are two very different things.

Yeah. For sure. And my philosophy has changed a lot. It’s gonna sound really simple, but it’s kind of the deepest truth that I’ve learned in this job. I used to have the hubris to believe that if a company walked in, I could look at the company and I could determine if it’s a good investment or not. And you think, of course you do. That’s the job. I’ve decided that’s a totally underdetermined problem. And by underdetermined, there’s just way more variables than equations, right, like mathematically. And if any company walks in, I haven’t a clue if it’s a good investment or not, with a few exceptions.

For example, this is I’m talking about the early stage here. The late stage, sure. Or if it’s a second time founder, it’s probably good. Right? So with, like, first time founder, new space, category creation, who knows? On the other hand, and this is this obvious unlock that I I’ve had mentally. If I meet five companies, I can probably tell you which one of those five has a better chance than the others. Not to any level of certainty. There’s a bit of alpha there. There’s a bit of judgment there, so I think that’s a much more determined problem.

And so I’ve stopped actually being in the Oracle game. I just don’t wanna in any given investment, who am I to second guess these founders who are doing amazing things? I don’t wanna be in that position. And who am I to say something’s not gonna work? I don’t wanna be in that position. And so more and more, what I love to do is I just take a space and I just study the shit out of it. It’s my favorite thing to do anyways. I’m gonna do it anyways.

I’m just gonna fucking learn about databases and back ends and front ends, and that’s what I did my PhD in and I love it. And then for there, see which one of that cohort I think is most in line with that. And I think that’s actually a decidable problem.

I got this one from Chris Dixon, who I actually think is probably the most thoughtful investor on the planet, I really do, and probably the smartest, which is I think the founder network is just more intuitive and smarter and more prescient than any other network. And by that, if smart founders are going to do something, there’s something probably interesting there. Right? I don’t care if VCs think it’s interesting, and I don’t care if analysts think it’s interesting, and I don’t care if Twitter thinks it’s interesting.

I care if smart founders think it’s interesting. I look to see where founders are going, and if there are kind of few of them, really smart ones are looking at an area, then I get very interested in the area. And then I do what I love. Like, this is I’m an awkward, nerdy dude. I think a lot of VCs like to go out and network. I like to sit at home and chat on Discord about databases. And then I really like to try and understand what’s going on.

Now, one thing that is I think a product of my past is I’m much more interested in how technologies hit markets, how markets adopt them, how do you category creation, how you do messaging. For example, when Ali, CEO of Databricks and I have dinner, we almost always just talk about category creation and building out go to market. From a technology standpoint, it’s actually a very interesting problem. It’s one that’s not talked about enough. So I just spend a lot of time trying to understand, like, how the market’s evolving, what are the macro trends, who are the players, what’s involved, etcetera.

And I try and go very deep. And then based on that, then we try and make decisions that we think are smart decisions in the space. This is

centralized How about a decent one? I mean, let me tell you, stop play bigger. Why would why would you go read about category creation? Let’s say you’re a new infrastructure company like me. So I like it. I was very heavily involved in the creation of software defined network and network virtualization. I spent ten years. I call it market annealing, just hammering the shit out of a market, just fucking beating on the market for years until it comes around. This is like selling into an existing market is easy.

The annealing you’ve got to do to soften up a market for categorization is hard. Where would you even start to read about that? Who?

who’s done it before. 100%. It’s just something that hasn’t really hit. There is no crossing the chasm for category creation. For the types of technologies I’m interested in, it’s as important as the product development, and it’s as tricky, and it’s as hard, and whatever. I just think it’s a very interesting space.

Working against a macro trend is just brew. And so forget timing. If a market is shrinking, if a trend is moving away from you, while there’s still market and opportunity there, if, like, the first derivative is negative, you’re just in a really tough spot. The second one is there’s varying degrees of market readiness, and I think this is just more correlated with the amount of effort that you as a startup need to do to establish yourself. If I am selling to an existing market with something that’s 10 times faster, the timing question is not really a question.

It’s easier to sell. It ends up being kind of questions around churn and pricing pressure and stuff like that just because the category already exists. When it comes to category creation, I think that companies that really put in the time will carve out a niche. And then the question is is more, what’s the staying power of the company and how much money do you want to invest in the go to market death march of a new category? And you can I know of companies that through just absolutely sheer will built markets?

And it wasn’t timing. It was just sheer fucking will, but they spent a decade doing it. I would say, make sure you’re trend aligned. Realize that if you’re in a new market, the amount of work you’re gonna have to do to make the market pliable is gonna be commensurate with your speed and then hopefully things unwind. I believe you can death march to a public company without the market ever actually unlocking.

I think it’s very important and not just for educating the market, but even, like, leading a team. I would say the two best people on this who both should write books are McJanet and Steve Mulaney. Dave McJanet is CEO of Hashi. Steve Mulaney, he’s CEO of Aviatrix. Both come from marketing product marketing backgrounds. Both are iconic world class CEOs.

And what they’ll tell you, which I think is exactly right, is it’s very important at some point in time to kick everybody out of the room, sit there for three days, and then write down the very lucid, very description vision of the company, like why it matters and what you’re doing in a way that you deeply believe, in a way that outlines the future, and outlines kind of the why together. It doesn’t have be the path, just the future. And then you use that to kind of drive everything about the company from recruiting to culture setting to early sales to marketing to speaking to analysts, etcetera.

And so I do think that in early categories, is just a crucial exercise to do.

I don’t think these things are at odds. I think that’s a bit of a false dichotomy. Let me tell you what I think is a mistake to do. Companies should be sized to the market opportunity and the funding environment. Otherwise, everybody loses their job and the company goes to zero. If the macro situation on this stuff changes, like the funding environment or you’ve got to right size the company in order to do that just so the company can stay viable. What I see happen at large companies, and smaller companies are much better at this, which is great, but I think we can use large public companies as an example of what not to do, is often the first thing everybody says is let’s freeze hiring.

So problem with freezing hiring, it happens in large public companies, is basically out of the hiring market. And then normally performance management kinda goes out of the window. It’s like every managers are not even backfilling a trip, so I’m not letting anybody go. I’m not moving people around. I’m not going to put this player into another team where they’d be better served. And then you’re also not adjusting the company relative to the needs of the market and the company. What if you have to, like, invest more in sales and less in r and d or something like that?

You can’t make those types of decisions. I think that once you if you have a market contraction, you need to decide because our existing operating plan, is that still viable in the current market? Because you can’t control the macro. And if it’s not, I would actually do a full replan to make sure that you can still operate like a company. What? Just because the market’s shrunk 20% doesn’t mean you don’t have a company. It’s just that your company now has to operate you’ve gotta cut somewhere.

It could just be spend. It could be all sorts of stuff. It doesn’t have to be layoffs or risks or anything like that. You’re gonna have to do category creation regardless of cutting spend or not cutting spend. It’s independent. I just think that you need to be very thoughtful when markets contract and capital contract about how you run your business. How many of your companies have you had to do replans on? In this market, if there’s a company that’s not doing a replan, they’re probably negligent.

Minimally. Normally in downturns, you move to scenario planning. And so the recommendation I’d give any founder, if you see this much of a dramatic shift in the macro, you should sit down and you should create a median, bare, and bull case plan, and you should at least do the exercise. You don’t have to enact it, but you should at least do the exercise. What is a median barren bull look like in terms of how you adjust depending

I cut my teeth in 2000 I started my company in 2007. A year in 2008 happened, and I was like, oh, shit. Fucking nuclear winter, end of the world. I literally paid for salary out of my bank account. Like, I couldn’t raise money. It was horrible. I had the same team of 10 people for three years. I just thought we were just anyways, I deeply appreciate and I empathize with what founders are going through on this, but I also think a lot of this skill set has been lost because it’s been a long time since we’ve seen them a reset this large.

So you created a plan probably in q four of twenty twenty one, assuming some level of growth. Now, what I think companies should have done in in q two is being like, oh, shit. The world has changed. We may not be able to raise for three years. Our top line might go down by 20%. Now what do we do? What I would do is do a bear case of what do you think the maximum impact to the top line is gonna be. And then as a result, revenue.

That median case, which is probably normally, you do look at public companies or other cohorts to see how they’re being impacted, and you do that for a median case. And then you do a bull case, which is let’s assume nothing changes. Do we do the same thing? Or are we gonna be recession accretive so that our business accelerates for whatever reason? And then you could do a bull plan, but at least you have to go to scenario planning so you have done in the exact work.

So if it turns out that, like, you totally whiff a quarter, like you do a 50% quarter, 40 quarter, you have everything planned out exactly how you’ll respond to that.

I tend to be very top down on these sorts of things, which is the goal is to keep the company solvent and successful, to protect common and as many employees as possible. The right approach is to create an operating plan given the current economic environment and ask the question is, what is the right company in order to do that given whatever risk profile that you’re comfortable with as a board? And boards are very different. Some boards are like, hey. Listen. The hell with it. Now this is the time to build.

Let’s go ahead and accelerate into it. I, you know, 100% work with companies that are, this is amazing. Fuck it, man. We’re now we’re gonna win. It’s like, hire, pull out the machetes, we’re going to war type thing. The level of response is all over, but you have to force discussion in the board. The board has to be aligned. I do think you have to do a top down replanning of what is the right posture for the company, and then everything falls out of that. And it may or may not be layoffs.

It could be all sorts of stuff. You could decide to reduce cloud contracts or whatever, but the top down plan is everything. I do definitely sit on boards or I know board members where they have these knee jerk reactions of we have to cut by 40%, and you’re like, why? It’s very funny if, like, an investor board member tells a company that we have to cut by 40%. And then you’re like, okay. Why? It’s not like they just put together an operating plan. It’s just this number.

And so I think everything needs to flow from an actual plan. At the same time, you’re asking your founder to create an operating plan, as well as asking for a cut. It makes absolutely no sense. Come up with a plan, then figure out what’s the right thing to do. I want growth, and I

That’s

I’ve made some mistakes early in my career for sure as a board member. This even prior to being an investor. Right? Like after, you know, I sold my company, a lot of people asked me to be an advisor and a board member, and I just dramatically overfit my experience early on, and that was a real mistake. We all mature and grow, and that’s something that I realized that I did. And what’s annoying about this is it used to drive me fucking nuts when other people did it to me.

So I’d be like, oh, okay. Built this billion dollar business. Like, I had hundreds of millions.

two things that I did wrong that I see a lot of x operators do wrong as board members. One of them is I would provide guidance as if I was the one running the company. And I’ve got my own way of doing things and it’s uniquely mine for all of his quirks. This is a huge trap that investors can do. This is what I would do, like, why aren’t you doing this? It’s not their way. So that’s one. And the second one is, yeah, I happen to have a great experience in the company that I built, but that’s just one path.

And so early, I didn’t have the deep board experience that I have now, and so I’d just draw from that for my intuition. The best junior board members that I know don’t try to be helpful with advice. They try to be helpful by doing stuff that only VCs can do and companies can’t do. So what I even I got my own team. I said, listen. Don’t tell them how to run their company. Don’t tell them a strategy around open source. And unless you really know, don’t.

What you should do is you spend every fucking day researching this space, all the competitors, the people, you’ve come up with a thesis. No founder has the time to do that. They don’t have the time that you have just taking a meeting. Synthesize that information, provide them with data and input for making decisions, but don’t try and tell them how you build a company with them. That’s their job. Having myself had that as a failure mode early on, I do think that everybody could use this.

I do think it’s worth noting that we always make fun of junior partners, which I think is a mistake. As an industry, we really undervalue junior VC partners. I think they’re fantastic. They’re hugely valued, but always make fun of them because, oh, you’re a PM in some crappy company or you’re giving advice. I think that particular criticism is very valid. What I think we do underappreciate is how much these people know about markets. It tends to be far more often than the founders and the companies themselves, and I think that’s something that if you’re an early investor, you should just lean on.

Did you ever read only The Paranoid Survival by Andy Yeah. Totally. I’ve got so many kind of anecdotes on this specific question. I’m gonna give you two. They’re gonna sound a little bit tangential, but I actually believe this to be the case, which is when you’ve got massively complicated, under determined systems that consider a bunch of variables, how do you systematically make a decision? Who fucking knows? I don’t know. Nobody knows. So there’s two people that I think said something very enlightening. One was Andy Grove.

He basically says, for any hard decision, the only way you can get to the bottom of it is lots of vigorous debate. I think he’s dead right. And you have to have it over days. Literally days or weeks or months, and you haven’t had that, you’re just being kind of reactive. You really need to explore this. I’m so blessed to work with the best team on the planet. I’m so lucky to have this team. Basically, all we do is talk about infra, and that’s all we talk about.

And I think that over time, we end up with a pretty even view on these types of things. We actually tend to make decisions as a group. It’s another thing I think for all of your listeners to understand, which is junior partners have a lot of pull. It’s not that I make decisions and they don’t. They have a lot of pull.

Good. How do

It’s a great question. The majority of my time and my team’s time is actually mapping out spaces. If a deal’s going down very quickly and we don’t jump on it, the number one reason is we just haven’t done the work. This is why I appreciate you so much, Harry. I just so appreciate you and I so respect what you do, which is I think that the only thing you can’t gain in investing is the work. You You can game anything else. You can game heat dynamics.

You can game everything. You can just game it. But you can’t game somebody spending doing the work and meeting with all the companies and understanding. Our method, it doesn’t happen at deal time, typically.

I think that I was being a very faulty human being that often literally is just wrongly, I think is is part of it. Here’s another thing that I think that we actually got wrong early on in the firm that I think we fixed, which is early on junior partners were very junior, and they’d come and go, and the tenure was two to three years. So you didn’t really have a common vernacular. And now, a lot of the team members I work with, we’ve been working together for four years, and it’s just a different level of communication and a different level of trust.

I think I’ve really enjoyed that. But I will say, it’s probably something that I should watch because I can be pretty opinionated. And by the way, I don’t think it’s nearly as acute in venture as it is in operating. In operating, it’s a real problem where you just surround yourself with people that disagree with you all the time. The bottom line is it’s something that you need to be aware of. If you’re actually having a discussion, then people need to have an opinion, otherwise, is no discussion.

So if you force discussion, something will come out. I do think everybody, including myself, should keep this top of mind. I think it’s a great question. If you don’t have an opinion, you’re fucking boring to me. Right?

There’s this interesting question of do operators make good investors? I think that you gotta rework a lot of brain damage on the operator side. I think that there’s another interesting question is do engineers make good investors? I think that this gets the heart of your question. The first decade of my career, twenty to thirty, I wrote papers and I wrote code. Like, I think that was ’20 to ’30. When you’re an engineer, especially in systems, and in systems, you go through techniques that work. There’s a few things that work, like caching works, like distributed consensus works, you don’t do things that have historically not worked.

And so bad ideas this is even on my Twitter thing. Bad ideas just tend to stay very bad. You kind of just stick with a few good ideas. That’s the method and systems. That just doesn’t work for investing. The reality is many companies end up working after three or four iterations. Google, very famously, the third iteration of search. Facebook, the third iteration of social networking. And I will tell you, my biggest lesson in this is just talking to Marc Andreessen. I’ve known Ben and Marc. They invest in my company.

I met Ben as I tried to hire him as my CEO. Oh, you get a lot to HP, and you’re like, Toby, I’m too rich. To meet people that really dream about the future and really dream about technology and really care and like really believe and are on the fringe and whatever, that’s the right view. It’s this positive futurism view and not the curmudgeonly engineering view, which which is I came from.

don’t. I actually don’t. I actually think now VC is becoming very real. I hate to be the old guy, but when I raised money, every VC show up late and on their fucking phone like, of them, on their phone, they’re all generalists. None of them are specialists, really. They mostly have, like, random backgrounds. They didn’t treat it like a discipline. The classic sandhill dude. There’s always a dude at the time. And I think now, there are people that you can talk to that really view this as a real discipline on the order of taking over all of finance, and they think about it in very, very structured ways.

They work incredibly hard, and they understand the spaces very well. And I don’t think that existed fifteen years ago. It just didn’t exist. And they really believe in value accrual to innovation and applying money to that problem. Now that said, we’re at the tail end of a decade long bubble. You’ve just got a bunch of people that just wanna get the spoils, and of course, you run into them the most because they’re the most flamboyant. But I think for this downturn, we’ll see a lot of the tourists go away, and I think what will be left, that kind of cohort are very serious, very smart people that have realized something that just didn’t exist 15 ago.

And it’s for

I think scaling anything is hard, whether that’s a distributed system or an organization. I will say scale is an unsolved problem in venture capital. It’s a solved problem in finance because you don’t have conflicts. Every asset’s fungible. The best change is that each independent investing arm has become very empowered, which I think is fantastic. And so, for example, bio or crypto or the venture fund or whatever, the operations have been decoupled so we can really focus on the areas and build a platform that’s more relevant to that area.

So I think that’s very positive. I suspect you’re gonna say what’s the worst, and so just to preempt that question very quickly, it’s just that scale is hard. Right? And so it just takes a while when you change operating model, go to distributed, to actually smooth that out. Now I feel like we’re we’ve done a phenomenal job having met through a bunch of big company re orgs. We’ve done a phenomenal job. What

to you, do think? Well, I think in this case, it’s just basic simple stuff. Could you ask for just doing certain things? It’s just basic process stuff. It’s actually much more banal than I think. Oh, you know, we’ve got independent teams, so, like, where does p and l sit and how do you do budget allocation? I mean, it’s basic stuff like that. It does slow everything down once you’re hammering out those details. How could you improve as a leader of a team today? Here is one that I think that the industry and myself could be better of, which is I think I get a lot more credit than is due.

I think my team is so phenomenal. And it’s kind of interesting though because we’ll do a deal and we’ll do a lot of work on a space and then often I’ll be the one that’s credited with it when I was involved and invested in etcetera, but I certainly wasn’t the primary backer. I think this really matters to people’s careers. I also think it matters for people to understand actually where the value is coming from.

And so this is something that I’ve been working on is making sure that we’re just a lot more equitable in general as far as, like I think that the a sixteen infra team is a phenomenal team, and I like it much more as the a sixteen c infra team than, like, a Martin Casado anything. And I just think that’s actually more reflective of reality. That’s one for sure.

I think this entire job is literally about controlling the things that you can control, but being very clear about what those are. And I do feel when I talk with a lot of investors that they’re just kinda winging it, and I think that’s a huge mistake. I think you need to come up with basically what is your belief as far as investing. That’s the first thing you do. And then realize that there’s two main challenges as an investor. The first one is getting emotion out of it, which is really fucking hard, man.

Dude, I’m Latin. I’m like, I’m as emotional as it gets. Right? I’m half Spanish, half Italian. When it comes to follow on decisions, it’s very easy to fall in love and so getting emotion out is very hard. So that’s one thing that you’ve got to find a way to do. And the second one, you need to realize that there’s a real principal agent problem in investing and it’s not even conscious. It’s if you have a team or whatever, people are gonna do what’s best for their careers or whatever.

Here’s the way that I think about it. So the first is you need to come up with an approach that you believe in. So in my case, I think the right thing to do is just to focus on top companies index, interesting spaces where the founders have gone to the space. That’s it. And then I don’t try and overthink any independent investment. I just say, does the thesis hold? Historically, has the thesis holds? And whatever. And then I always measure myself relative to that approach. And then I do my best to make sure that we’re not falling trapped to emotional issues and principal agents.

And then other than that, there’s not much you can do. Do you worry about

A lot of investors talk about thesis. I don’t think that’s the right way to think about investing at all. It’s just so crazy to come up with some story, which to your point is what we’re referring. So I’m definitely not a thesis investor in that sense. Here’s my thesis. It’s very simple. Founders are smarter than I am. Then what are you? A space identifier? I think so. I think that the principal value is understanding the spaces, which is led by the founders, not by me. I don’t feel like I’m smarter than any founder out there.

I just don’t. I think they’re smarter. I do think that I can have a broader view than they have because I can meet more people and I have a team that can do the diligence and call in the customers. The selection is between a set of a given space who I think is a leading company in that space. It’s really that. But that’s not a thesis. A thesis is like some grand unified theory of how the back end and this and that, more like, I don’t do any of that stuff.

I just think that it’s just too easy to spit a narrative for yourself.

I think there’s gonna be a question of, like, if there’s a dollar deployed in the future, is that dollar going to fund innovation, or is it going to basically get predictable returns and basically stifle innovation? I hope it’s going to fund innovation. And the bulk of the dollars are just not. Everything about the bulk of dollars literally are so you can fucking fire people and get better operating margin or whatever or get predictable returns or whatever. That’s what the majority of dollars are for. And it makes sense for like four zero one k’s and stuff like that.

But I just think that now technology is mature enough that you can invest in innovation and get predictable returns. It’s a fundamental belief of mine. And so I hope that in ten years, that venture looks a lot more traditional finance. Does that displace traditional finance? Sure. And it never makes sense to speak categorically about anything. Right? I don’t believe in zero sum games. I think the market’s expanding. I think it erodes its hold on companies earlier in their life cycle, but that includes public companies because there’s so much value that has accrued to companies after they’ve gone public.

And it just makes sense that pro innovation capital should be available to them. Displaced, no. Categorically could clearly not take some of the territory that it currently has. Absolutely, yes. Yeah. I think it’s capital shifts

I’m so bad with favorite questions, but I just read the weirdest people in the world, and it’s the most remarkable book ever. It’s a reminder of two things, that really brains are hardware and software and the software really matters. And in the case of this book, the thesis of this book is just basically like western protestantism, is that thought pattern has physiologically changed humans is one of the reasons that the western world is more pro social, that willing to work with strangers to solve hard problems.

It’s just a remarkable statement. And one of the reasons underlying it, one of the reasons that it’s not just kin based, we don’t just stick with our clan, we actually work with strangers to solve kind of broader ideals is because there’s a high level abstractions there that we kind of glom onto, universal good and stuff like that. So it just shows you how powerful brain software can be. What was your biggest last name from your time with Marc? So often, like, morality comes down to the aesthetics.

And I just I’m in love with the aesthetic that technology is a real good and we’re making the world a better place, and the future is bright on that. And it’s a great way to spend time and effort. What do you believe that most around you disbelieve, Martin? A lot of what I’ve said now, people start to believe. It was very controversial when I said that I think the cloud is breaking beyond its borders, which I absolutely believe. I think that the cloud is disaggregating. A lot of people disbelieve that.

What do you know now that you wish you’d known when you started at Andreessen? My bedside manner has improved an awful lot as a board member, and I think that my expectations on how smart a venture capitalist can be have also been tempered, and a lot of the hubris has gone. Life would have been easier if I didn’t have to take the hard path that way. Well, what did you make of the crossover fund activity over the last few years? I think it was actually brilliant.

I think that was a very, very smart model, and it’s the right one. I think it’s very hard for finance people to deploy money effectively at the early stage, but I think it’s the right model if you can actually understand the markets. It’s like the right model, kind of the wrong people doing it. What’s your biggest miss, and how did it impact your mindset? I’ve missed so many, and they’re all huge. You don’t even have a bet in cloud security posture management, like the Laceworks and the Orcas and the Wizzes.

Right? We still have the starvation mentality of the early two thousands of, oh, the market’s limited. We should only deploy a little bit of money, blah blah blah. The reality is you can’t deploy money fast enough in the current market even with the downturn, and there’s more opportunity out there. And it’s bigger than any of us know about it, and it’s time that we all kind of mature and believe that. What’s the best investment advice you’ve received? Follow the founder network is probably the best advice.

Who’s the most underrated angel in the ecosystem for you? Ram Sriram. There’s a bunch of great angel investors. Ram works so hard. It adds so much value to the boards that he’s on. It’s just unbelievable. It’s just so rare that someone of that stature and fame contributes so much. It’s not what you’re expecting as far, but, like, he really is something else. I really owe a lot to the guy. Martin, I said most

where do you wanna be? I would love to continue to focus on how West Coast product focused, founder focused investment can continue to rode at East Coast Finance. And I would love to continue to be playing a part of that. Martin, I have never