“Grandpa” Andreessen Says We Live in Dang Exciting Times
Marc Andreessen has been a venture capitalist for two years, and just scored his first big win: Selling Skype to Microsoft for $8.5 billion. His firm’s aggressive investment strategy, in both early and late-stage companies, has put Sand Hill Road on notice.
Before that, Andreessen co-created the Mosaic Internet browser and co-founded Netscape and LoudCloud.
Tonight he’s our evening entertainment at D9, taking questions from both Walt Mossberg and Kara Swisher. Here’s the liveblog:
7:58 pm: Starting now!
A slide of Andreessen’s 1996 Time Magazine cover. He says, “Two people have been on the cover of Time with bare feet. I’m one, the other’s Gandhi.”
Walt: When you think back to that period, what was in your mind about where things would go?
Andreessen: In ’93-’94, the conventional wisdom about the Internet was it was an errant toy for academics. The thought was we were going toward interactive TV. But in ’95-’96 people realized the Internet was a big deal. And there was a lot of potential, but in the ’90s we got ahead of ourselves.
“When I talk to entrepreneurs today, I feel like I was the grandfather in the Civil War.”
“Back in the day, there was dial-up access, TCP-IP, slow computers, small screens–“it was really so crude.”
8:03 pm: In the first issue of Wired, the Internet wasn’t mentioned till the last page, in Nicholas Negroponte’s column. His email address was Nicholas@Internet, Andreessen recalls.
Andreessen: “The exciting thing about where we are in the industry today is that these things are all happening.”
Walt: Apps versus the browser, Web apps versus local apps…as somebody who had a lot to do with the browser, how do you feel about that?
Andreessen: “It’s worth revisiting why the browser made sense 15-20 years ago. In those days (grandpa says) you had to actually install the application, and there was this nonstop mess of trying to keep everything up to date.”
The app model with its shopping process and updates over the air is a lot better experience. But I have an iPhone, Web OS phone, Microsoft phone, I’ve tried them all. And at the end of the week I have to click for updates.
In the long run, the browser model makes sense.
Kara: Does it already make sense?
Andreessen: All the good smartphones and tablets have great browsers on them. HTML5 is a big step forward for the browser. We’re seeing companies saying “I can have my cake and eat it too. I can build an HTML5 application and wrap it in an app.”
“As long as you’re connected all the time to an infinitely fast network, the browser is best for everything.”
8:10 pm: Kara: What’s the state of the browser market now?
Andreessen: Four browsers have 100 million or more users that are independent (a.k.a. not IE), double the Internet universe only 10 years ago. There’s a lot of dynamism happening. We hope RockMelt will be the fifth of those.
Andreessen: “Chrome has been a very big step forward, purely from a performance standpoint. Which is a huge thing.” Chrome’s a really big deal. Webkit, open source, too. It’s probably the best time ever for browsers in terms of smart teams working on them.
Walt: I think we’re actually moving in the other direction from infinite bandwidth. The pipes companies are capping and metering. Does that threaten this whole cloud computing movement and the future of the browser?
Andreessen: Limitations on bandwidth are a constant challenge. But I will say on the mobile side there’s limitations on spectrum and geographic rollout. Smartphones are so exciting, but they do have a lot more data demand.
Andreessen: “In many ways, the most exciting thing for our industry is the smartphone revolution, just purely from size.” He’s bullish on Wi-Fi, and thinks FCC Chairman Julius Genachowski’s idea to reclaim analog spectrum is interesting.
8:16 pm: Walt: But what about metering setting us back?
Andreessen: “It’s not great, you’d rather just have complete 4G coverage everywhere.”
Kara: After Netscape was done, what were you thinking you were going to do? Second acts are hard.
Andreessen: “The good news is we had this idea of cloud computing. The bad news is we were 10 years too early.” We had six good months at LoudCloud but then all our customers went bankrupt.
Kara: What was the transition like from “golden geek” to the next thing–from an entrepreneurial mindset?
Andreessen: “If the world is caving in, then it doesn’t seem so bad to be in a business heading toward bankruptcy.”
8:17 pm: I’ve enjoyed the last 10 years tremendously. There’s a psychological manic-depressive aspect, but the people I admire keep their heads down and work the whole time.
Andreessen: A start-up should be a radical idea. As a venture capitalist I prefer companies where I don’t know if it’s going to work, as long as it’s a big idea.
Walt: What do you think about Eric Schmidt’s “Gang of Four”?
Andreessen: He’s a smart guy, but “the nature of what a platform is has changed dramatically.” There’s a completely different dynamic of control over applications being released on platforms.
Kara: So it’s a gang of many?
Andreessen: Yes, and it’s going to change quickly.
Walt: Schmidt left out Microsoft.
Andreessen: The market increasingly is PCs, smartphones and tablets, and if you partition that out by vendor that is a very interesting picture. And Microsoft fell below 50 percent about a year ago, of operating systems across those three categories.
Which makes it harder for developers, because there are so many more platforms to develop for.
8:24 pm: Walt: Did you ever think Apple would be a platform developers would build for?
Andreessen: The transformation of Apple is probably the biggest tech story of the last 15 years. They were 90 days from bankruptcy. Steve has really demonstrated there was nothing wrong with Apple that a few great products couldn’t fix. So if Apple was recoverable, I think any company today could recover. If the next version of Windows or Windows Mobile is spectacular, it could change.
Kara and Walt: Well, we just saw them. What do you think?
Andreessen: It’s for the market to decide, but it looked great.
Walt: When someone starts a company, they need a product.
Andreessen: Yes, companies need to have breakthrough products, but I think they also need to have radical products. Then when you really know is when it’s growing like a weed. There’s a lot of me-too in this industry and I think that’s practically impossible.
Kara: Why’d you become a VC?
Andreessen: I invested before, including a lot of money in a company called MobShop in 1999. Which was kind of like Groupon, but that didn’t go well.
In ’04 and ’05 you started seeing companies getting seeded with a lot less money, the Ron Conway model. Google and Facebook started with much smaller rounds. My first might have been LinkedIn.
Kara: When did you invest in Facebook?
Andreessen: I was not an angel investor, but I joined the board about three years ago.
Kara: But now you’re on the dark side?
Andreessen: I say that, but my sense of humor gets me in trouble. I had great experiences with venture capitalists at my companies, and I had the chance to work with most of the top firms. The top crop is extremely impressive, as are a lot of the new firms.
Walt: What’s different about your approach?
Andreessen: If you look at the history of VC, the best firms were generally formed by operators. Over the years, there have been many different kinds of VCs, but we thought it would be kind of fun to go back and do what they did at the beginning.
Andreessen continues: We’re a throwback in two other ways. We’re focused on computer science and technology, and we’re overwhelmingly Silicon Valley focused. As far as we can tell, we will always be a single-office firm based in Silicon Valley. We think SV is special because there’s a repeatable process for building great companies.
I hope there will be a bunch of great companies built all over the world in the next few years, but I do know there will be in Silicon Valley.
8:34 pm: Walt and Kara: Is there a bubble–and did you cause it?
Andreessen: A bunch of people think there’s a bubble, so therefore we think it is not.
Andreessen: If everybody’s euphoric, then I’m concerned. “If we’re back here in three years and nothing’s changed and nobody’s worried, I’ll be horrified. I’ll wet my pants on stage.” There’s no history of an equity bubble that has not affected the public markets in a major way. Read “The Go-Go Years.” Fast-forward to today, in 2011: Apple’s PE is 12, projected to be 10. Microsoft’s is 7.2, next year 6.8. Google 13.7, next year 11.3. Cisco 7, next year 5.5. “PEs in single digits are what steel mills trade at before they’re going out of business.”
What these things tell me is the public market hates tech. It’s tremendously scarred by 10 years ago.
Walt: But the public loves their products. They’re standing in lines for iPads, but not selling the stock.
Andreessen: The one company on the public market is LinkedIn. As an angel investor I’m biased, but it’s only one company, it only just went public, it’s a thin float, the public market is starved for growth, you can’t even borrow shares to sell LinkedIn short yet, and LinkedIn is an important company doing an important thing.
The problem is there is no other one. For the first time in history we have an equity bubble affecting one stock.
Kara: But there are secondary markets.
Andreessen: Ah, second markets. There’s so little supply and so little demand, so it’s hard to say. It turns out LinkedIn IPOed at four times its price on SecondMarket, but it’s so hard to draw any conclusions yet.
Kara: Groupon going public despite death stare.
Andreessen: No comment.
Kara: Oh right, you’re an investor, do you want to give me a death stare?
8:41 pm: Andreessen: It’s much harder to go public these days, you need armies of lawyers and accountants, etc. So companies want to stay private for longer, so the markets have adjusted themselves.
Kara: Do they have to go public? Sometimes it seems like Facebook never wants to go public.
Andreessen: No comment, but Bloomberg demonstrates you can succeed without an IPO.
Walt: So why IPO?
Andreessen: Liquidity, acquisitions, becoming an institution. Then specific things like the 500-shareholder rule.
We have an investor who’s a fund of funds who said they have 400 companies in their portfolio with $50 million in revenue or more that are still private and have been built over the last 10 years.
Kara: Your fund, what’s the deal?
Andreessen: We’ve raised $1.3 billion, not raising more now.
Kara: Skype selling to Microsoft, how did that feel?
Andreessen: Great. Skype was about to go public, about to hit the road, but Microsoft’s offer short-circuited the process. It was very compelling.
Walt: What’s the logic of the deal?
Andreessen: For Skype, it was a risk-reward equation, it was an easy one. For Microsoft, they have such broad coverage across all their products, so if you have a powerful capability like Skype that could be distributed across all of them, it’s a big, big opportunity to do a functional upgrade across all your products.
Walt: Skype’s technology is replicable, but their user base and brand maybe not.
Andreessen: It’s the network effect. They have been growing the whole time and continue to grow. It’s hard to name the No. 2 to Skype. The technology was also very special, and the scale at which it was operating. And the quality of the voice and video compared to a normal phone call is magic engineering.
“Skype has a great engineering team, which I like to describe as ‘all of Estonia.’”
Andreessen: Microsoft is also saying they’ll run it as a separate division. Josh Silverman did a great job, Tony Bates too, and he’ll be running it there as a division. As far as I can see they’re doing it all right, they have to execute but they’re setting it up right.
Kara: Who’s set up to succeed now?
Andreessen: Generally, people addressing big markets, and people who have deep technology. Google and then Facebook have been tremendously valuable in demonstrating that a commitment by the founders to technology is at the core. “Hard-core technology companies are definitely back in vogue, and for a good and valid reason.”
Kara: What about you, what are you doing in Silicon Valley?
Andreessen: Mostly trying to help. We’re working with people on their fifth company to people who are just getting out of school. “We go out for coffee and they’re like, ‘Now what did Netscape do again?’”
Audience question from Jim Louderback: What do you think about smart TVs?
Andreessen: “Very exciting! All I can say is I’d like to buy one. A friend of mine’s three-year-old walked up to the TV screen and tried to swipe, and nothing happened, and said, ‘Dad, what’s wrong with the TV screen?’”
8:54 pm: Kara: Would you fund a start-up that brought this to you?
Andreessen: It’s hard to do an operating system as a start-up, probably a better project for Google or Apple.
Audience question from email security person: What do you think about the evolution of security?
Andreessen: We love security, we’re all excited about security: It’s government, it’s businesses, it’s organized crime. It’s a phenomenal commercial opportunity.
Kara: What would you invest in?
Andreessen: That’s why I was smiling inappropriately. The threats keep morphing.
Walt: Which companies would that be?
Andreessen: We have some interesting undisclosed investments, and I’m on the hunt.
For instance, big data is an opportunity–mining data for security.
Audience question: Are we still too early for solving some of these problems?
Andreessen: In general, timing is the hardest part. And entrepreneurs don’t understand because they think it should have already happened. So I think timing and luck are really the same thing. Right now we’re thinking up a list of things we want to invest in, and if they fail, we’ll try the same things in three years, six years and nine years.
9:00 pm: I just had this out-of-body experience where I saw someone reading on an iPad in the lobby and I had a flashback to the Newton. I’m quite confident that there are things we’re funding now that will be great 10 years from now.
Here’s my prediction: Almost every dotcom idea from 10 years ago that failed will succeed. Pet food, diapers, deliveries, they’re all working again now.
Audience question: What about funding valuations?
Andreessen: It’s still not that much money at the seed stage, and arguably they were too cheap a few years ago. In venture rounds, entrepreneurs like cheap capital so those valuations stay under control. If you take all the later-stage companies on SecondMarket, collectively the entire universe is still worth less than Google, at a time when Google is trading at a PE less than 10.
Andreessen gives shout outs to a bunch of other venture capital firms that he’s co-invested with, giving the VC-heavy audience a giggle.
Audience question from Steven Levy about innovation outside Silicon Valley.
Andreessen: I hope to be living in a world where there are lots more Silicon Valleys.
Audience question: What are the best research schools, what are they working on?
Andreessen: The top trend that really good computer science graduates want to work on is big data distributed systems.
Audience question: What about the market for local-social apps?
Andreessen: In a world of smartphones, we are able to connect our location to everything. The ability to map the real world into the virtual world is a really big idea. Read “Mirror Worlds” from 20 years ago, it’s terrific.