wp-plugin-hostgator domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home4/scienrds/scienceandnerds/wp-includes/functions.php on line 6114ol-scrapes domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home4/scienrds/scienceandnerds/wp-includes/functions.php on line 6114Source: https:\/\/www.theverge.com\/23020727\/decoder-chris-dixon-web3-crypto-a16z-vc-silicon-valley-investing-podcast-interview<\/a> Regular listeners to Decoder<\/em> know I\u2019m pretty skeptical of crypto. But I want to come by that skepticism honestly, so I talk to people who are actually investing in and building crypto startups and technology. There is a lot of money, attention, and energy \u2014 both literal and metaphorical \u2014 in crypto, and I think it\u2019s important to ask the questions and really listen to the answers. We\u2019ve done a few of these episodes now, but this episode is a conversation I\u2019ve wanted to have from the very beginning. <\/p>\n Chris Dixon leads crypto investing at the storied Silicon Valley venture capital firm Andreessen Horowitz, or a16z. He\u2019s responsible for leading funding rounds for Coinbase, which went public about a year ago, the NFT marketplace OpenSea, and Yuga Labs, which is behind the Bored Ape Yacht Club<\/a>, among others. He is also a prolific user of Twitter<\/a>, where he posts lengthy threads about crypto and web3. He is at once one of the biggest investors in the space and its biggest booster. <\/p>\n Chris is a smart guy who has been around the industry a long time and has seen a lot of tech hype come and go. This episode gets way into the weeds and, while we do talk over each other here and there, I think excited but respectful disagreement is in too short supply these days, so we wanted to keep all of that in the episode. <\/p>\n In any case, I think it\u2019s a good one, and no matter what side of the crypto debate you\u2019re on, you\u2019ll find something here that you hadn\u2019t thought about before.<\/p>\n Okay, Chris Dixon, general partner at Andreessen Horowitz. Here we go. <\/p>\n This transcript has been lightly edited for clarity.<\/em><\/p>\n Chris Dixon is a general partner at the storied Silicon Valley venture capital firm Andreessen Horowitz, or a16z, where he leads a16z crypto. Welcome to <\/strong>Decoder<\/strong><\/em>.<\/strong><\/p>\n Thanks for having me.<\/p>\n I always ask what I have come to call the <\/strong>Decoder<\/strong><\/em> questions about structure and decision-making, but I really want to talk about Web3 with you, so let\u2019s do those questions as a little bit of a lightning round.<\/strong><\/p>\n Sure.<\/p>\n How is Andreessen Horowitz structured?<\/strong><\/p>\n Great question. It has actually changed a lot over the recent years. When I joined the firm in 2013, it was just a traditional venture firm with a group of investors that we call general partners. Something different with our firm is that we have operating teams, which are teams whose job is to support our portfolio companies. That was a new idea from founders Ben [Horowitz] and Marc [Andreessen]; they had been entrepreneurs in the past and had wished that their VCs would do more than just provide money and advice. They wanted them to supplement their network, introduce them to people, help them recruit, and a whole bunch of different things.<\/p>\n They built the firm with that in mind. Over the last few years, we realized that Web3 is just so different from other areas. For example, we have a biology and healthcare fund, we have a FinTech practice, we have an enterprise software practice \u2014 there are different expertises required, different people involved, and different networks of companies. Over the last few years we really split it out, so I am part of the firm, but really run an autonomous unit.<\/p>\n Our crypto Web3 team is now at about 60 people. We are pretty significant, and that has grown a lot over the last few years. Out of those 60 people, about 15 are on the investment team; I am one of four general partners who lead investments and we have about 10 junior people under us who support. The other 45 are in our operating team, and their jobs are to help our companies with everything from recruiting talent to business development to research and computer science. <\/p>\n We have a team that helps if we are working on cutting edge problems, and we have a marketing communications team. Security is a big issue in the space, so we also have a five-person security team who does things like audit their smart contracts. Sonal Chokshi \u2014 who built out the firm\u2019s podcasts \u2014 just came over to our team and we are going to really ramp that up. The way we think about the comm side is not for us, but to evangelize the space and explain what are sometimes difficult concepts. We really want to make an investment in that, so we have this broad team. Our core activity is two things: We meet entrepreneurs and lead investments, and then get involved with those companies and help them out.<\/p>\n You said there are four general partners, and you have a few billion dollars in funds for crypto startups. How much is it exactly?<\/strong><\/p>\n The last one was $2.2 billion, I think it is around $3 billion now.<\/p>\n Where does that money come from?<\/strong><\/p>\n We raise money, as our companies do. Our LPs \u2014 limited partners \u2014 are everything from university endowments to nonprofit foundations. For those who do not know, universities and nonprofits basically have two sides of the organization. There is the side that gives out money and the side that invests money. We talk to the folks who invest money. Sometimes they are high net worth friends, entrepreneurs who have been successful, and so on; it is a collection of different groups.<\/p>\n Venture capital in its modern form began probably 40 to 50 years ago, and it is often called the Yale Model. David Swensen, who ran Yale\u2019s endowment, had the realization that they had a very long time horizon with their capital; universities operate on decades\u2019, if not centuries\u2019, time horizons. They had all these smart students leaving who were starting companies, and they made the connection of, \u201cMaybe we could take that capital that is very patient, and give it to these founders who also have a long time horizon.\u201d <\/p>\n If you invest in a venture-backed startup you may not see your money for 10 or 15 years, so you have to have a really long time horizon. That was the origin of the venture capital industry, the connection between those long-term sources of capital and the founders who had a long time horizon in what they were building.<\/p>\n You have long-term sources of capital, you have founders who are going to build on potentially decades\u2019 time horizons, and you, the VC, sit in the middle. How do you make decisions? This is like the classic <\/strong>Decoder<\/strong><\/em> question.<\/strong><\/p>\n Yeah, it is a really good question. This is such an important thing in our business, because it is very easy to get wrong and I have certainly gotten it wrong. To me, the most common failure mode in investing in venture capital is decisions by committee. A group of people get together because of various politics, economics, or even social dynamics, and they all have to come to consensus on what is a good investment. In my experience, the nature of good startup investments is they generally have one thing that is amazing and a bunch of stuff that is messed up.<\/p>\n It is just the nature of startups. They are very hard and there is a lot of stuff going on, and often going wrong. But the good ones have some magic superpower where they have some incredible breakthrough in technology, or there is some great market insight, or for whatever reason they have built a product that the market just loves. You see these things over and over. We all know Twitter, so let\u2019s go back 10 years ago to a product that I think we and other tech people loved as an example, Twitter Fail Whale. I am sure the numbers were going up, but there were management changes and just the question, \u201cWhat is the business model?\u201d You could imagine a committee looking at that saying, \u201cWow, I don\u2019t know, how do we get to consensus?\u201d <\/p>\n What I have learned, and the way we operate, is we have the solo decision-maker model. One of the general partners will sponsor an investment and we will have a vigorous discussion, which I think is important; you want to get to the truth and not to delude yourself. I believe it is very important to have individual decision-makers who are closest to the topic and know it the best, not have decisions by committee.<\/p>\n I think that is the number one failure mode in venture capital. I don\u2019t know other areas of investment, but I am guessing it is also the failure mode for those areas, and a general failure mode in management. I believe the same way for recruiting. We have what we call the Ocean\u2019s 11<\/em> model; there are the people that blow stuff up and there are the people that do the backflips. If you went and tried to find an all-around great person, you would have a different group than if you went out and said, \u201cI want to get a specialist in each area.\u201d<\/p>\n I just want to point out that you have just constructed a metaphor in which you are George Clooney.<\/strong><\/p>\n Definitely, George Clooney or Brad Pitt.<\/p>\n In that model, a bunch of institutions with a lot of money give you a lot of money, and you go seek out founders. How does Andreessen Horowitz make money?<\/strong><\/p>\n What I am about to describe is standard venture capital. There is something called carry, which is basically a percentage of the profits. We all get a salary, but that is not the significant money in the business; that is more to cover the bills and things. <\/p>\n Let\u2019s say someone gives us $1 billion \u2014 we have to first return that $1 billion before we make any money. We also have to return the money that we charge to pay salaries, rent, and all the other kinds of things. We have to completely pay everything back. Then above that, we take a percentage of the profits. That is how it works throughout venture capital.<\/p>\n It is different in hedge funds, where they have what is called mark to market. They can actually not have paid the money back, but just have the paper profits and take profits on that. I like how venture works; to me, it is like a startup. It\u2019s very simple. You give us money and I won\u2019t take anything until I have fully paid back every dollar I took, then on the profits, you take something. I think it is a very simple, nice model, and we are fully aligned with our investors. It\u2019s pretty much standard across the industry.<\/p>\n To make it one step more granular, how does a general partner like yourself get paid?<\/strong><\/p>\n Basically, we have that pool of money I just described and split it up across the team. All 62 people on our team get some percentage of that, which varies by seniority and things like that.<\/p>\n That\u2019s great. Those were my lightning round questions that I think are important to ask everybody. Let\u2019s talk about Web3. Andreessen Horowitz generally is responsible for a ton of money flowing into Web3, but you are one of the solo decision-makers so you personally are responsible for a lot of it. Give me the elevator definition of Web3. I think your definition is one of the most important definitions.<\/strong><\/p>\n
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