How I Invest with David Weisburd
E155: Ben Horowitz: "The Classic VC Model Is Done”
Tue, 15 Apr 2025
In this thought-provoking debut episode of Turpentine VC, Erik sat down with Ben Horowitz, Co-Founder of Andreessen Horowitz, to explore the evolving landscape of venture capital, leadership, and the future of innovation. Ben shares his insights on navigating market cycles, building resilient companies, and the role of culture in long-term success. This conversation, recorded live at a16z’s Menlo Park offices in 2023, is packed with practical wisdom and candid stories from one of Silicon Valley’s most influential investors.
Chapter 1: Who is Ben Horowitz and what is the focus of this episode?
Today, we're excited to share an episode of Turpentine VC, a podcast about the art and science of building venture capital firms hosted by Eric Tornberg. Guests on the show include Vinod Khosla, Alfred Lin, Sarah Tavel, Mike Maples, and more top GPs of the world's top venture firms.
Unlike other shows in the space, Turpentine VC digs into the nuts and bolts of firm building, covering fund construction, governance, talent, strategy, and decision-making. Up ahead is Eric's interview with Ben Horowitz, general partner and co-founder of Andreessen Horowitz.
Chapter 2: What separates venture firms that last decades from those that don't?
Ben, we're just talking off camera. There's some firms that are great for 10 years and then struggle. There's some firms that are great for 30 years, multi-decades. What separates the firms who could do that and what enables them to be great?
Yeah, I think it's a combination of kind of the lasting parts like the culture and then the parts that change like the leadership. And so I think that, you know, if you just have a couple of smart investors but no culture to speak of, then you're probably not going to do a great generational handoff. And, you know, that's probably 10 years. Is it kind of 10 years is a...
pretty good run for investors, you know, like maybe you stretch that out. Then, you know, if you can transition it, like, you know, Sequoia transitioned it from Don Valentine to, you know, Mike Moritz and Doug Leone and Jim Goetz. And that worked, you know, that transition worked well.
So they were able to kind of take the original culture and build on it and kind of grow it, you know, 20 years for the original guys, 20 years for the successors and that kind of thing. So yeah,
That goes pretty well. You guys are no spring chickens. You're almost 15 years.
Yeah.
How do you think about it for your firm?
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Chapter 3: How is Andreessen Horowitz different from traditional venture capital firms?
Yeah, so we're a little different in that we are organized in such a way where it's not like Mark and I can have very significant contributions without picking the investments. Because we have, I would just say, more scale and more job functions at Andreessen Horowitz because we're kind of... a product first and then a team of investors second, whereas every other firm I think is the opposite.
Product meaning the product to entrepreneurs. So like what are we offering is where we start. And then the team of investors is kind of goes with that as opposed to we're a team of investors and then like we'll figure out what our product is as we go. So it's very kind of different orientation.
I've always thought of Y Combinator as another example of a product firm in the sense that you could replace a lot of the investors they have over time, and yet it still seems to work to some degree.
I think that's right. I think they're probably the closest analog to us kind of spiritually.
Yeah. So they're spiritually close to you, but they're much earlier and they dominate kind of like company creation, whereas you do a lot of seed, of course, too, but you've played all stages.
Mm-hmm.
Have you thought about going after that space pretty hardcore? How have you thought about where you situate in the ecosystem?
It's funny because Paul and us started around the same time. He started a little earlier. And we talked to him quite a bit during that phase when he was running Y Combinator out of his house with Jessica. And You know, I have to say we never really thought about kind of being Y Combinator.
And I think like a lot of it has to do, you know, my philosophy of business is you have to start with, OK, what can you contribute that's going to be important in the world that nobody can do better than you? And, you know, for us, a big thing that we had done is. We had scaled companies, built them to very large size.
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Chapter 4: What is the future structure and evolution of venture capital firms?
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Yeah, so there's a real interesting alignment problem with going public if you're a venture capital firm, and it's as follows. So if you look at Apollo or Blackstone or any of these guys, private equity companies that have gone public – The public markets value them on their fee stream much more than on their investment returns.
I think that's a safer kind of alignment between the investors and the firms in private equity than it is in venture capital. I think in venture capital, that can get super dangerous. Because even at 100x, what it used to be, the entire venture capital market is not that big. And the amount of capital versus the amount of great ideas, we already have more capital than great ideas.
And as we saw, I think, with both SoftBank and Tiger Global, if you try to change that demand supply imbalance, you just end up creating a mess. And so if you were public, you'd have a strong incentive to create a mess.
So they went big and created a mess. But you guys went as big in some ways, right? Your volume was very high. Your funds raised is very high. You went big in a much better way.
We didn't go $100 billion big. And then I think Tiger was raising $12 billion a year. So they were bigger than us just technically. So, yeah, look, we scaled to basically size our funds to the market opportunities.
So the way we look at it is like in a two to three year time frame, how many great deals will we see in a category and then try to size the fund to basically cover that time period is huge. is kind of roughly how we do it. And that's certainly increased fund sizes, both fund sizes and the number of funds over the years.
But it's still really contained compared to what you do if you were just scaling assets. I think it's still way smaller than what Apollo or Vista or somebody would do in that kind of business. So yeah, so I think that misalignment is pretty tricky for venture capital to overcome. Like I haven't figured out a way where you would overcome that yet.
Right. So a firm like a firm that stayed diligent, like a USV or diligence on fund size, you know, a benchmark or kind of stays at 500 or 250, respectively. They believe that they can get better multiples on that, you know, much, much smaller fund size. What do you believe that they don't believe that in terms of justify why go so much bigger?
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Chapter 5: Should venture capital firms consider going public?
Yes, I think the market's just gotten bigger. So I think the way to think about it is if you believe the market was fixed at 15 companies, then that's the exact right strategy. Right. And we don't believe that, and I think that – I'm not allowed to talk about our fund returns because we're an RIA, but –
If you look at our funds, I think our larger funds have at times way outperformed our smaller funds. And that's just kind of a function of, look, if there were 15 companies and now there's 150, then if you had a $400 million fund, then maybe you need a $4 billion fund to do the same deals. If you win the same percentage of them. And, you know, like that's just a simple math.
And I think that there are different beliefs. I think Benchmark believes what they believe. We believe what we believe. And again, look, our mission isn't to isn't necessarily fun turns, right? We have a mission to kind of help the best entrepreneurs in the world build the best companies that they can.
And so, you know, we generally come at like the whole structure of what we do from that perspective. I think also like, We could all get much higher salaries if we didn't organize the firm the way we did. But our mission isn't to maximize the number of money per partner. Our mission is to kind of be the resource for building great technology companies. So it's just like a different point of view.
And so how do you recruit such amazing partners if at other firms, because they don't have these resources, maybe they can get higher salaries or there's certain perks of being at one of those firms. How do you think about recruiting the best talent at Andreessen?
Yeah, well, I think that people here It's actually helpful that we kind of pay lower salaries to me because we get people who are on mission. Fairly. And, you know, like there's a lot that goes into that. You know, like there's a, for example, there's this kind of thing in venture capital that a lot of venture capitalists will say, well, spend all your time with your winners.
Like we don't believe in that at all. Now, like if you look at a spreadsheet, that's exact right thing, right? Like because the whatever three winners are going to produce all the returns that But the way we look at it is, one, we're not so confident that we know who the winners are for a long time.
The other thing is that we kind of have the philosophy is, look, we knew the job was dangerous when we took it. If you're going to take us as your partner, we're going to be there till the bitter end. And having been very close to the bitter end myself from time to time, Like, you really do need kind of support or at least somebody to talk to when you're in that situation.
And because, you know, just from a competitive standpoint, our whole idea is that we sell on reputation. Yep. That's fundamentally important to our competitive advantage is to have the best reputation. Yeah. all those things kind of cause us to behave differently. And if you're not into that, if you're into the spreadsheet view of venture capital, then you would hate that idea.
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Chapter 6: How does Andreessen Horowitz recruit and retain top partners despite lower salaries?
Does venture kind of look, does the trends that are happening now continue to happen where there's just this bifurcation, you know, multi-stage firms become even more multi-asset firms that just get bigger and bigger and bigger and this sort of, you know, solo GP or small specialists on, you know, kind of this barbell or do new models come into play like venture studios really take off or do emerging technology like Web3 or AI really change how venture works or say more about the future of venture.
Yeah, no, like all possibilities. I mean, look, I think the kind of classical venture firm that is just like a collection of smart, you know, investors, like I think that's probably run its course. So I think you have to be like... A top end, like serious brand that can marshal resources and money and considered smart money and people want to follow. You know, I put us in that category, Sequoia.
You know, there's that class of thing. And then there's people who are very specialized in a very kind of specific part of the market and know that network and have experience. REALLY GREAT SPECIFIC EXPERTISE AND THEY WOULD PROBABLY BE MORE EARLY STAGE, I WOULD THINK. AND THOSE TWO THINGS SEEM PRETTY SOLID AT LEAST FOR THE NEXT FIVE, TEN YEARS. EVERYTHING ELSE A LITTLE MORE QUESTIONABLE.
With the studio model, to me the big problem with that historically, and I think Bill Gross was probably the greatest practitioner of that historically, is that it's not an idea. It's an idea maze.
Yeah.
And so and it's very hard to run through the idea maze if it's not your idea. And so like that's a I think that tends to be problematic. That's kind of it's a little bit of a design for the head of the studio's lifestyle and kind of capabilities as opposed to what's going to make a great company. And so I don't know that that's ever going to work.
And I thought Paul's genius was the ideas weren't his. And that was the difference between an incubator and an accelerator. And that, I think, just proved to be the right model. And the reason it's the right model is because whoever's building the company, it better be their idea.
Yeah. When you identify an emerging trend, whether it's Web3, whether it's AI, whether it's companies that get big and it's really big, really fast in a certain, you know, during the pandemic, let's say. And some people are more prudent about it. Some people are more bullish. And I put you guys more in the bullish camp. Smart, bullish, but bullish.
And is the logic there that, hey, not everything's going to work out, but the things that work just work so much that it just really makes sense to be extremely bullish?
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Chapter 7: How does Andreessen Horowitz decide which adjacent opportunities and services to pursue?
I know Mark is spending a bunch of time in AI right now. Talk about the AI strategy, how you're approaching AI in terms of both how you think about it from an investment perspective, but also does it change things at the firm more broadly?
Yeah. Well, like it does change things at the firm broadly. You know, from an investing perspective, it's kind of like, oh, my God, we have non-deterministic computing. Like, holy cow. You know, like it's a whole every problem we couldn't solve with deterministic computing is now for grabs. Yeah. And that's like, you know, we've never seen anything like that. So.
From a firm perspective, I think we end up needing, okay, different expertise. We need kind of access to different networks. We need kind of different kind of help for entrepreneurs. Like it's amazing. so many of the AI entrepreneurs are actually, they're not even engineers, they're like researchers. So this is a totally different type of cat to be starting a company.
And, you know, what do they need to succeed and that kind of thing. So it's a very big tidal wave kind of running through the firm and running through the industry. But we're we can be more excited about it. I mean, the other thing is like we're in this phase where it's such a profound change that anything you do like will work at least for a while. Yeah.
And so it's kind of hard to pass on any deal in that way. So it's exciting.
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And that was true also of Web3 for a moment. When you think about Web3, do you think, hey, it's just in a momentary lull, partly sponsored by markets and developer activity is higher than ever? I've been struck just by how far ahead AI is of Web3 just in terms of use cases and products, and yet I've been ignoring AI up until the last year or so, and I was spending more time with Web3.
Was the financialization a distraction? I guess reflect on that a little bit, or what's your perspective on that?
Yeah, so there's a few things. So one is like AI happened overnight. Like this AI model started in 1943. So it was a long time coming.
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Chapter 8: What does the future of venture capital look like in terms of models and emerging technologies?
And there's a very, very specific reason for that, because everybody's got nukes, and nobody wants to get nuked. And I think that AI is... To the extent that AI is a super weapon, that will also be true there. And so if you believe that, then I think what you want is open source. And I think if you want regulatory capture or monopoly for yourself, you want to shut that down.
Yeah. You mentioned earlier that you consider your peers as the best kind of specialist firms and you compete with those firms. Do you also see your peers or competitors, firms, other multi-asset firms that are not even in venture? Like as you get bigger and bigger AUM, you know, are there firms that you see yourself as veering into their space or?
So, like, you know, it's funny because I've spent some time with both kind of the folks at, like, BlackRock and at Apollo just trying to understand their structure and why they're public and these kinds of things. And I would say they are culturally – philosophically operationally the opposite of us.
So like they're very, very price focused, they're optimizers, they're, you know, efficiency experts. Um, like we don't care about any of that. Um, what we care about is like, is it a real breakthrough and how big can we help make it? You know, can it win the market? Like those are the things that drive us. So There's nothing about what they do that would make them good at what we do.
And there's nothing about what we do that would make us good at what they do. So like, I think, you know, we'll never get into that realm.
Yeah. And when people focus so much on returns, it also it's important to think about just the LP product. Like my understanding of the SoftBank thesis was that this is a place that LP could plow a ton of capital and get some like consistent, you know, return. And there's not that many places where you could just plow all that capital into into one place and get that kind of diversification.
Is that how you think? Like, how do you think about the LP product that you're offering?
We think about LPs differently. So we think about LPs, or the way we like to think about them is the same way a company would think about its VC. So we're not building a product for them. We're building a product for founders. And they can invest in that product. And then there's a couple of things we think about there. One is
we want to have the kind of investors that we want to be in business with for a very long time. So we choose them very carefully. And two, we want to treat them like investors. And I think, you know, sometimes venture capitalists make the mistake of not doing that, which, you know, what does that mean?
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