Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York city, you're Inside the ICE House, our podcast from Intercontinental Exchange, on markets, leadership, and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans create jobs and harness the engine of capitalism. Right here, right now, at the NYSE, and at ICE's 12 exchanges and six clearing houses around the world. Now welcome, Inside the ICE House.
Theresa DeLuca:
Welcome to Inside the ICE House. I'm your host, Theresa DeLuca. I'm a member of the Intercontinental Exchange communications team, and co-producer of this podcast, along with my colleague, Pete Asch.
Theresa DeLuca:
Today, we're going to talk about timing. Timing, for better or worse, has a profound effect on our lives. In business, politics, sports, even our personal lives, how often do we hear stories of being a few years too early or just a few years too late? On occasion, the stars align and timing works out perfectly.
Theresa DeLuca:
Though timing isn't everything, timing is definitely something. It's a great statement, and one, I can't take credit for. It belongs to the man sitting across from me, Scott Cooper, managing partner at venture capital firm, Andreesen Horowitz. You're likely to find Scott in Silicon Valley, but today he joins us on the east coast, inside the library of the New York Stock Exchange, a somewhat fitting location, as his new book, Secrets of Sand Hill Road, Venture Capital and How to Get It, comes out this week.
Theresa DeLuca:
Before we get ahead of ourselves, let's go back 10 years, June, 2009. Nearly 3000 miles from Wall Street, in Menlo Park, California, two early tech titans, Mark Andreesen and Ben Horowitz, decided to launch a venture capital firm. Andreesen Horowitz was based on the idea that a network of people and institutions could help founders improve their chances of making it to the next level and even beyond. Their first hire? Well, we're about to hear from him. How did Scott Cooper's own career lead him to Silicon Valley? What does the VC landscape look like 10 years later? And of course, how does one go about getting venture capital? Scott's answers to those questions, and more, coming up next.
Speaker 1:
And now a word from Artur Bergman, CEO of Fastly, NYSE ticker symbol F-S-L-Y.
Artur Bergman:
Fastly is an edge cloud platform. We help deliver digital experiences for amazing customers, like Spotify, and Ticketmaster, and New York Times. We got started eight years ago, it's been an amazing journey. We work very closely with our customers. We're a very critical part in their business. We're very selective in type of customers we want from our network. Fastly is built by developers, for developers. Fastly is listed on the New Your Stock Exchange.
Theresa DeLuca:
My sense is that Scott Cooper enjoys staying busy. As a lawyer, turned entrepreneur, turned VC, he has overseen the growth of Andreesen Horowitz from a three-person operation, to over 150 employees; $300 million in funds to a cool $7 billion. He is a co-founder and co-director of the Stanford Venture Capital Directors' College, and teaches VC and corporate governance courses at Stanford Law and the Hass School of Business, as well as the Boalt School of Law at UC Berkeley. He is Vice Chair of the investment committee for St. Jude's Children's Research Hospital, and previously served as Chairman of the Board of the National Venture Capital Association. He now ends a new title, author.
Theresa DeLuca:
Prior to joining ICE, I was a social media editor at Forbes. Phrases like Sand Hill Road, Andreesen Horowitz, funding round, and IPO, were all part of the regular newsroom jargon. Needless to say, it is an honor, to be joined by one of the biggest players in Silicon Valley. Scott, welcome to the ICE House.
Scott Cooper:
Thanks for having me.
Theresa DeLuca:
Scott, Wall Street and Sand Hill Road share a certain symbiosis. Venture capital is focused on helping entrepreneurs and their respective startups get the funding they need to grow their companies. Our focus, here at the New York Stock Exchange, is, of course, someday welcoming those companies to the public markets through the IPO process. It's an exciting week for you, as your book is about to be published. Of course, you're also celebrating Andreesen's 10th anniversary. Is New York the first leg on your book tour?
Scott Cooper:
It is. We had a quick party in San Francisco for friends and family, and the firm, and now we're off to the east coast. So, lots of fun.
Theresa DeLuca:
All right. I saw you signing a few copies of your book.
Scott Cooper:
Yes. I'm learning how to sign very quickly and efficiently.
Theresa DeLuca:
I'm sure there is much more signing to come. Having read the book cover to cover, I feel like I have gotten an instruction manual right on my hands, about raising venture capital. So why now? Why did you want to publish it?
Scott Cooper:
Yeah, so I've been in tech for about 25 years now. I actually started as an investment banker, and had the chance to spend some time here, taking companies public, and then spent about eight years as an entrepreneur in a startup company. Then, for 10 years, as you mentioned, now been in venture. What I have found is, there continues to be a big appetite for interest in what is happening in the venture world, but quite frankly, not as many resources as people would like. The book really is a bit of a compilation of all the questions that I got over the years from entrepreneurs about, should I raise venture for capital? What does it mean to do? What happens when I take venture capital and how do I make sure that I protect my interests when I do so?
Theresa DeLuca:
Having read this book, did you have a particular person in mind when you were writing it, whether it was yourself, or one of your daughters, or somebody that you have spoken with about venture and giving them advice?
Scott Cooper:
Yeah, the persona that I was trying to keep in mind was the canonical entrepreneur, who is either raising money now or thinking about it, and then also just lots of people who are in and around the venture ecosystem, and who just have an interest in what's happening in the broader technology community. I must admit, my wife was my final editor, and when she told me that she could read about 80% of it and understand it, then I figured that job was mostly complete.
Theresa DeLuca:
Is this something that you wish you had had when you were starting out? I know venture capital, in those days, was certainly the Wild West, quite literally. When you were looking at LoudCloud, was out by fire, or did you just go in hoping you had your questions ready?
Scott Cooper:
Yeah, it was mostly trial by fire. And before that, as I mentioned, I had been an investment banker. I started, actually, my career doing life sciences and investment banking.
Theresa DeLuca:
Okay.
Scott Cooper:
And then, because the technology boom was happening at that time, there was so much more software activity, so similarly, it was trial by fire there, trying to learn and how to deal with the software world. It would be nice sometimes to not always have to go things that way.
Theresa DeLuca:
You're certainly no stranger to people asking you questions, as you said. If you're speaking on panels, or you're doing podcasts, or you're doing interviews, I'm sure there's a lot of questions that you get repeatedly. I'm sure you're saying, "I get this question a lot, I get that question a lot," as you're writing the book. Are there any topics, VC-related or business-related, that you don't get a lot from people, that surprise you that you don't get those questions, or that you'd like to talk about?
Scott Cooper:
Yeah. I think the one that I get the least amount, which surprises me, is whether venture is even appropriate for some businesses? Because we live in the Valley, I think it is part of our normal vernacular, and so people automatically assume that makes sense. Part of what I hope the book does, is to help entrepreneurs understand what it is that motivates and incites BCS, and therefore make sure that's what you're signed up to as an entrepreneur, because there's lots of other forms of capital out there. It doesn't make you a bad person if you decide that VC is not the right one for you. So that's one that I often feel like people skip over before they add actually kind of critically ask themselves that foundational question.
Theresa DeLuca:
Do you think there is a reason, whether it is just culture of the day, we're seeing all these VC companies come up in the ranks, that people automatically say venture is a way I need to go, versus friends or family, or bank loans or, or working with banks directly?
Scott Cooper:
Yeah, I think that's true, particularly in the coast. If you live in California, or New York, or Boston, I think you are just versed in this language, and you know people in the industry, you know entrepreneurs. What I think is a big issue that we have today, is we haven't geographically distributed the benefits of technology, in many respects. Again, a part of what I hope the book will do, is to demystify it, particularly for people who are outside the coast, in a way that helps them figure out whether venture makes sense for them, and whether entrepreneurship is the appropriate place for them to be.
Theresa DeLuca:
The book follows the VC life cycle because, as you point out, if you are going to raise money from VCs, or join a company that is venture-backed, it helps to understand why VCs do what they do.
Scott Cooper:
Yeah.
Theresa DeLuca:
In your 10 years at Andreesen, in its simplest terms, what is it that you do?
Scott Cooper:
Basically, what we do is we provide money to aspiring companies. Often it's two, three people, who have a business plan and idea, but probably don't have a product at that point in time. We hope that over seven, eight, 10 years, those companies develop into companies like a Facebook or a Twitter. They can be standalone public companies, they can go public on places like the NYSE. That's the goal. Now, the reality often, as you know, is very different from the goal. The unfortunate reality is a lot of what we invest in, probably up to half of it, never really materializes in any fashion; you probably lose most or all your investment there. We're really playing for one or two, out of 10 companies, as part of a portfolio, that could actually have real outsized returns, and ultimately end up as a public company.
Theresa DeLuca:
Over those past 10 years, what would you say you are most proud of in the investments? Whether that is a large investment that, like you said, that it was successful; or maybe one that wasn't, but it was a great company, nonetheless.
Scott Cooper:
Yeah. One that comes to mind, which is a recently public company, is a company called Okta, which is an enterprise software company. To us, what is exciting about that is just literally having seen it through the entire life cycle. It was one of the very first investments we made when we started the fund 10 years ago, and at the time it was what we would call a seed investment. We literally invested half a million dollars, behind two great entrepreneurs, who were just leaving their jobs at salesforce.com and had this idea that you would need a whole new way to do security and user authentication in the new world of applications we had. What was most gratifying about that, was seeing literally the conception of the company 10 years ago, and then a couple years ago, and now, trading as a public company, the fruition of all their hard work.
Theresa DeLuca:
As I mentioned, I'm a Forbes alum, and the magazine recently featured Marc Andreesen on its elusive cover. The adjoining story had an exclusive that Andreesen Horowitz is registering as a financial advisor, renouncing your status as a VC firm entirely. Why the move?
Scott Cooper:
Yeah. I hate to break is to you, but actually the news is not quite as exciting as, perhaps, maybe Forbes made it out to be. What actually happened is, and I will not bore your listeners with the details, but we decided to register in the same way that hedge funds and other funds are registered. The main reason is we had been investing, and we continue to invest, in crypto-related technologies; those don't qualify under the current rules for venture capital exemption. We needed, in order to be able to do that, and to run it as an integrated firm. But the reality is our business hasn't changed. We are still venture investors. You're not going to see us selling public stocks to retail investors; that's not our business. We literally just voluntarily agreed to a higher regulatory structure in order to give ourselves, quite frankly, more degrees of freedom on the business.
Theresa DeLuca:
Interesting. I know that he mentioned you will be able to go in on some of those, I don't want to say riskier bets, but just different industries that, like you said, have different classifications?
Scott Cooper:
Yeah, I think that's right.
Theresa DeLuca:
We can do an entire podcast on crypto, but for time's sake, what is your general view of the industry right now?
Scott Cooper:
Yeah. We are big believers in crypto. Most of what we're focused on is, what we call, crypto networks. What we mean by that is, it is a new way to build a digital service, and a digital service could be any kind of website. But where the governance, and ownership, and management, of that service is decentralized, as opposed to centralized. If you think about a company like a Facebook; obviously Facebook is a centralized company, in the sense that there is a management team and a set of shareholders, who ultimately determine kind of corporate actions.
Scott Cooper:
The beauty that, we think, of crypto is you can actually have the benefits of decentralization, which means you have open governance standards. You have a community of users who can make sure that everything is happening above board, and therefore it can become a platform for application developers to build new applications on top of. To us, it really looks like basically everything else we do in the venture business, which is most of the things we're doing, are backing small teams of entrepreneurs who are trying to build a product. It just happens to be that the kind of architecture of that product is in this decentralized nature, as opposed to, effectively, a traditional corporate structure.
Theresa DeLuca:
Well, I know in the past couple weeks we have seen crypto starting to bubble up again, and that's exciting.
Scott Cooper:
Right.
Theresa DeLuca:
We will see what happens there. You also just announced a new growth fund, adding between $2 to $2.5 billion, am I correct?
Scott Cooper:
Yeah, $2.2, to be precise. Yeah.
Theresa DeLuca:
Okay. For AH's newest partner, David George, who you actually wrote about on the website.
Scott Cooper:
Yeah.
Theresa DeLuca:
Which is a a16z.com.
Scott Cooper:
That's right.
Theresa DeLuca:
You specifically wrote about his hire, and his plans to help invest in late-stage venture investing capabilities. Can you tell me a little bit more about those late-stage opportunities?
Scott Cooper:
Absolutely. We've been, what we call, a multi-stage investor since the beginning, meaning we have done seed stuff all the way through, what we call, this later stage venture. A big trend that, obviously, you are aware of, and I am sure your listeners are, is this idea that companies are staying private a lot longer. As we see that continue to evolve, we realize there are more opportunities along the maturation curves for these companies, for us to invest in. Historically, we had not broken that out into its own fund, and we had not had someone like David, who was a specialist in that area. We had our same partners, who are doing early stage stuff, also doing the later stage.
Scott Cooper:
This new fund gives us both the financial flexibility, as well as kind of the resourcing, to be able to say this is a really, really important area of focus for us. It is a great compliment to what we're doing on the early stage side, by being able to, in many cases, double down on existing investments we already made at the early stage and increase our exposure over time.
Theresa DeLuca:
He will lead the charge on that, and I imagine you will have some more partners who will help him out later on?
Scott Cooper:
That's right, yeah. David is working on it, and then myself and Marc Andreesen are also working with him there. We are building out a team and, over time, we will certainly add to it as the opportunity expands.
Theresa DeLuca:
You once said you would never touch biotech. Why is now the right time to reconsider?
Scott Cooper:
Yeah. We use the term bio, just to be clear, which is, we think, a little bit different from traditional biotech.
Theresa DeLuca:
Okay.
Scott Cooper:
The honest answer is, we've always invested around this idea of software as a foundational enabling technology, and we've always viewed our charter as to invest in things where software is intersecting with various vertical industries. You're right, we had not done traditional biotech before, but what we started to see, really, in 2013-14, was this convergence between computer science and life sciences. In many ways, the bio fund, really, is actually no different from what we have been doing for the last 10 years, which is just an application of computer science to a vertical industry. Mostly, we are in the talent business, and what I mean by that, is we are in the business of identifying really interesting entrepreneurs, who are doing something cutting-edge in software, and we just started to see this confluence of engineers really interested in the intersection of those two domains. That is why we started doing it, in about 2013. Then in 2015, we thought the opportunity was ripe enough to break out a separate fund and invest in it.
Theresa DeLuca:
It is a powerful industry, and I think having that money go to, who knows, it could save lives, really.
Scott Cooper:
Yeah.
Theresa DeLuca:
It's exciting. 10 years into the firm, money is no longer a precious commodity that it once was, and therefore something else needs to be that differentiator in the marketplace. Is that found in bio, or late-stage funding? What makes you stand out, like you said, that isn't just we have the money?
Scott Cooper:
Yeah, you're exactly right. The way this business has changed over the last 10 years, is that there was a point in time, for most of the first 30 or so years of venture, where having access to capital was your differentiator, and that's what the venture capital firms had. As you have seen, in lots of different areas, money is free flowing, so it is definitely a commodity and no longer a scarce resource.
Scott Cooper:
What that means for us and for, we believe, other venture firms, is we have to do something other than that to be competitive in this space. What we have done as a firm, we have about 160 employees, actually, and about 100 of them focus on the post-investment side of working with our portfolio companies; helping them with everything from sales and business development opportunities, to PR and marketing opportunities, to talent acquisition. We think, for venture capital, quite frankly, to be relevant for the next 10 and 20 years, it has to do something to actually facilitate and help the entrepreneurial and the company-building process, and not just be a source of capital.
Theresa DeLuca:
Going off that, do you think that venture capital as we know it, there's a lot of different opinions here. Would you say it is in flux, it's changing from the past?
Scott Cooper:
Absolutely.
Theresa DeLuca:
What it was 10 years ago, which was small, has since grown tremendously?
Scott Cooper:
Yeah, it is definitely in flux. It was a pretty staid business for, again, most of the first 30, 40 years of the business. The big things that changed over the last 10 to 15 years were, number one, there is a lot more seed activity happening now. In fact, I think in the US, I read a number that something like 500 new firms have been formed, over the last 10 years, focused on the seed category. On the one hand, what that has done is it has made it probably easier than ever for raising $500,000, a million, two million dollars.
Scott Cooper:
The other thing that has changed over the last 10 years, is the end user markets for these business has gotten bigger, and companies are staying private longer. You've got this weird dichotomy of, it is cheaper than ever to start a company, but it is probably more expensive than ever to scale a business, just because these businesses are trying to go after very massive global opportunities. That is really changing the nature of our business. It means we have got lots of these later-stage investors that did not exist before, some of whom are your investors; mutual funds and hedge funds.
Theresa DeLuca:
Yep.
Scott Cooper:
We have got sovereign wealth funds, and I think it is going to continue to be in flux. Probably the one constant is, what we talked about earlier, which is we are all going to have to figure out what our differentiation is in this market, because capital loan certainly isn't going to be it.
Theresa DeLuca:
I want to go back to LoudCloud for a minute.
Scott Cooper:
Sure.
Theresa DeLuca:
As that was your first entrance. I know you that you worked in investments before, but that was your first entrance into working with Marc Andreesen and Ben Horowitz. I've heard it said that Marc is very persuasive, as most successful entrepreneurs tend to be. What was LoudCloud, and what did it turn into?
Scott Cooper:
Yeah. LoudCloud, Marc and Ben, and we actually had two other co-founders, Tim and and In Sik; the four of them started LoudCloud in 1999. The basic premise behind LoudCloud was, essentially, what now has become Amazon Web Services. Their basic idea was, if you are a developer and you write code, you should not have to worry about what is the networking infrastructure behind that code, or the storage, or the servers. You ought to be able to write your code, and it ought to just magically work. The analogy we used to use, was it should be a utility. When you plug your plug into the wall socket, you don not care how the electricity got there, you just know it powers your computer and that is all you need to worry about.
Scott Cooper:
That was the basic idea; it was a great idea. As you led off this segment, timing, unfortunately, often does matter these businesses, and we were probably, unfortunately, 10 years too early. This was height of, what turned out to be, the bubble. They started the company in September '99, and the excitement was palpable. As I wrote in the book, I met Marc Andreesen and Ben Horowitz, and made what was probably, at the time, a very irrational decision to quit a very good job, right around the time my wife and I were trying to buy a home and we were having our first child together. Lucky for me, I passed that IQ test and decided to go ahead and move forward.
Theresa DeLuca:
Were you living in California at that time?
Scott Cooper:
Yeah, we were. We were in California at the time. Yeah, the company was based in a town called Sunnyvale, which, if you know, the area; that is where the heart of Silicon Valley used to be.
Theresa DeLuca:
Yeah.
Scott Cooper:
Now, of course, San Francisco is much more the heart of the Valley today.
Theresa DeLuca:
Marc sat down with Business Insiders' Henry Blodget in 2009.
Scott Cooper:
Yep.
Theresa DeLuca:
To discuss LoudCloud turning into Opsware. Here's what he had to say.
Marc Andreesen:
This is the case where we are actually really proud of what we did, in this case, which is basically reinvented the company from scratch. Essentially took the cash, and the people, and the technology, and basically did a restart as a public company. Started, basically, a whole new company, called Opsware, within the context of the previous company.
Henry Blodget:
Then ultimately sold it for two billion dollars.
Marc Andreesen:
Right.
Henry Blodget:
Tremendously successful over a period of years.
Marc Andreesen:
Yup.
Henry Blodget:
Going back to that moment, though.
Marc Andreesen:
Yup.
Henry Blodget:
There are lots of companies that just fail completely.
Marc Andreesen:
As LoudCloud, all of our competitors as LoudCloud went bankrupt, except for us.
Henry Blodget:
Did you stop the burn earlier?
Marc Andreesen:
No, we-
Henry Blodget:
Did you see the impending crash earlier? What was it?
Marc Andreesen:
No. We sold. We had a magic deal; we pulled out a magic deal, which was, we sold our managed services business to EDS, which actually turned out to be a great fit for EDS, because of what was happening in their own business. They were a very big and successful company at that stage, and had the wherewithal to be able to, basically, make an investment like that at a time when a lot of other people could not. We pulled off a deal with EDS, where we basically sold EDS our services business, and all the associated assets, and the burn rate and everything. Also all of our revenue, all of our customers, and actually a lot of our people, went over. That deal saved the company.
Theresa DeLuca:
As Marc mentions, and as you state in the book, you ultimately sold most of the LoudCloud business to Electronic Data Systems, EDS, and restarted as an enterprise software business called Opsware. That's operations software combined, Opsware. Is this, what we would call today, a pivot?
Scott Cooper:
I think even in today's parlance, pivot might be an even too euphemistic way of saying it. Yeah. Everything Marc said is accurate. The only thing that you do not have an appreciation for in that clip, is the time period in which this was happening.
Theresa DeLuca:
Right.
Scott Cooper:
We sold the business to EDS in 2002.
Theresa DeLuca:
Okay.
Scott Cooper:
We had gone public in 2001. We were one of two companies that entire year that went public.
Theresa DeLuca:
Wow.
Scott Cooper:
What happened was most of our companies had been dot-com companies, a lot of our customers, so we had this real unfortunate problem of being a public company, and effectively having attrition throughout our customer base. So we sold this business in 2002, and as Marc said, it was an amazing, amazing time and we were incredibly fortunate to get that deal done. The stock traded down to, basically, 14 cents, which was essentially less than the cash we had on our balance sheet. We had one customer at the time, which was EDS, was kind enough to license the software from us, to use in the services business that they had bought. But we did all this stuff as a public company, which was a pretty amazing thing to go through. For those of us who were lucky enough to be part of the company, it was just an incredible, incredible learning experience.
Theresa DeLuca:
Yeah. Though timing is not everything, it is definitely something.
Scott Cooper:
Yes, it is something.
Theresa DeLuca:
On the topic of pivots, arguably one of the best pivoters of all time belongs to Stewart Butterfield.
Scott Cooper:
Absolutely.
Theresa DeLuca:
Andreesen Horowitz invested, in 2010, in a gaming company called Tiny Speck. Want to tell us what happened from there?
Scott Cooper:
Yeah. For the listeners, just to be clear, we are investors in Slack, and as you know, probably.
Theresa DeLuca:
Yeah.
Scott Cooper:
They are rumored to be going public one of these days, so I won't say anything about the company numbers. But yeah, Stewart. Actually, the funny story behind Stewart, was he had sold, before that he had built a company called Flickr, which was really the early, first versions of the photo sharing applications, and it got sold to Yahoo. When he started that business, he actually, initially, set out to start a gaming company. It turned out the gaming company didn't work, and so he pivoted into Flickr, which got sold.
Scott Cooper:
When he came to us, when he was starting this company called Tiny Speck, he wanted to go back to his gaming roots and he said, "I'm going to go try this gaming business again." They built this really, really amazing game, but he concluded, at some point in time, that it just was not a viable business. What he said to us- And there was another venture capital firm also invested at the time. He said, "Look, we have been using this internal productivity tool, just to help ourselves develop stuff. We have a couple months of cash left. Is it okay if we kind of give this a go and see if there is something there?" To his credit, obviously, they did, to your point, the pivot of all pivots, and turned something that was basically an internal tool into a very interesting enterprise software business.
Scott Cooper:
Those things don't always happen. As you say, timing is important, luck is also important. We had the luck of backing an entrepreneur with incredible stick-to-itiveness and incredible vision, with Stewart. But truth be told, we backed a gaming company that ultimately became a software company, and those pivots don't happen all day long.
Theresa DeLuca:
Oh, no. It is a unique story, and Slack is about to list, here on the New York Stock Exchange, in a few weeks. I know, for myself personally, just going back a few years, the first time that my then boss said, "Hey guys, we're going to try this thing called Slack. Everybody get on it, create a profile." It is just one of those things that you don't forget. You're like, "What is this?", and it becomes a part of your life so quickly.
Scott Cooper:
Yeah, yeah.
Theresa DeLuca:
Switching to the current IPO climate, in 2019, so far, three of your unicorns, that is companies with a valuation of over a billion dollars. That would be, for these three, Lyft, PagerDuty, and Pinterest. Obviously, Slack will chalk that up to four; they've already gone public this year. Is the IPO market hitting its stride, or do you see an eventual tipping point?
Scott Cooper:
I thin, right now, the market is pretty good. It is a little bit of, you have to distinguish, I think, between stuff that is right in the strike zone of the IPO market, versus stuff that is maybe, not out of favor, but I would say less in favor. I think the sweet spot, right now, is software companies, 35, 40% growth rates, line of sight visibility into profitability. Companies that are not consuming significant amounts of cash, but they are growing at good rates, but not crazy rates. I don't think you have to be growing at 100% a year to be attractive in the IPO market.
Scott Cooper:
We have seen some other companies right there, where they are growing very fast, but there is more cash consumption in those businesses. I think given, particularly, some of the macro challenges that we have ongoing right now, with uncertainty around China and other things, there is a little bit more of a very high growth off mentality in the IPO market, but a reasonable growth mentality on, I guess, would be the simplest way to describe it.
Theresa DeLuca:
After the break, I'll talk with Scott about growing up in the Lone Star State, his own journey to Sand Hill Road, and the personal side of investing.
Speaker 1:
And now a word from Tufin, NYSE ticker symbol, T-U-F-N.
Speaker 8:
We provide policy management for large organizations. Your security is only as good as your policy, and we are the security policy company. We enable companies to implement network changes in minutes, instead of days, with dramatically better security. We have over 2000 customers worldwide. 300 companies in the global 2000 are Tufin customers. We are going to invest more in R&D, go after this huge market opportunity that we have. It's very exciting to look at the next phase of Tufin.
Theresa DeLuca:
Welcome back. Before the break, I was talking with Scott Cooper, managing partner at venture capital firm Andreesen Horowitz, about the venture capital industry, and his new book, Secrets of Sand Hill Road, Venture Capital and How to Get It. Scott, let's go back to the beginning. You were born in New Haven, Connecticut, and raised in Houston, Texas. Any reason for that?
Scott Cooper:
My dad is a doctor and had done his training in New Haven in Connecticut. This was back at the time where there was this thing called a draft. He ended up in San Antonio, in the Air Force; that's how we ended up in Texas. I think my parents thought they would be there for probably two years and then go back to the east coast, and somehow two turned into 50 and they are still there.
Theresa DeLuca:
So then you went from Houston to California. I saw that you were a graduate of Stanford.
Scott Cooper:
That's right.
Theresa DeLuca:
How did you decide to make the jump?
Scott Cooper:
I always wanted to go to Stanford, even though I had never been to California; it just seemed like an interesting place be. Truth be told, I did not get in when I first applied out of high school, and so I ended up going east, to the University of Pennsylvania.
Theresa DeLuca:
Okay.
Scott Cooper:
I'm an outdoors person, just kind of decided after about a year in West Philly, that it was time to try something else. Second time around turned out to be a charm, and had the opportunity to go out west.
Theresa DeLuca:
Northern California.
Scott Cooper:
Yep.
Theresa DeLuca:
I saw that you recently retweeted an article about Steve Kerr. Are you a Golden State Warriors fan or just a defendant?
Scott Cooper:
No, no. I am a Golden State fan, and unfortunately it is hard to watch the Warriors and the Rockets play.
Theresa DeLuca:
Yeah.
Scott Cooper:
In fact, my partner, Ben Horowitz, has these fantastic seats to the Warriors' games, literally right next to the bench. I didn't get to go this time, but in prior series, I've had a chance to sit there when the Warriors are playing Rockets, and all my friends from Houston, basically, text me and accuse me of being a turncoat. I told them, "Look, if you buy me tickets court side at the Rockets, I would be happy to sit there as well," but so far nobody has taken me up on that offer.
Theresa DeLuca:
You said if you were not a venture capitalist, you would sing country music in Nashville. Who are some of your favorite artists?
Scott Cooper:
My favorite, favorite artist is the Zac Brown Band. My wife and I- It is a very funny story, since we're sharing personal stories here. When I first met my wife, I always listen to country music, and I didn't know, obviously, what her music choices were. So I changed all the radio stations on my car, the night of our first date, to be normal rock music or whatever. It was only after that we finally opened up to each other and admitted the guilt of being a closet country and western music fan. That was probably part of the reason why we ended up together.
Theresa DeLuca:
Well, going off of that, I mean, Zac Brown is certainly a band that is popular across the country. We were talking earlier about being on the coast.
Scott Cooper:
Yeah.
Theresa DeLuca:
So that is New York and San Francisco. But there are a number of startups that are based in Alabama, or based in Detroit, or across the Midwest, and obviously they have funding; there are different VC firms that would love to take them on. But from your perspective, there is a lot of tech developers that are based in Silicon Valley; you might have more resources on the coast. What is your take on the argument that there's cities and then there's across the country?
Scott Cooper:
Yeah. I think there's no reason, over the long term term, why we should not have more Silicon Valley-like places. We have talent, it is incredibly well distributed, quite frankly, both here in the US and abroad. Just so you have a perspective, the US used to have a stranglehold on venture capital. We were about 90% of venture capital about 20 years ago.
Theresa DeLuca:
Right.
Scott Cooper:
Today it is about 50%, so that has definitely diversified. I think that thing that people forget about Silicon Valley is, look, it takes a long time to build these network effects. One of the things that has made Silicon Valley successful is that, you are right, you have this confluence of engineers, and a confluence of financiers. All that has taken a long time. You could almost date Silicon Valley back to the early days of Stanford, in the late 1800s, where there was always this intersection between academia and industry. You can certainly date it back, easily, to the military-industrial complex and a lot of what gave rise for semiconductors. That is not to say that other geographies won't exist and thrive, but I do think people sometimes forget that it has taken 70 to 120 plus years for that network effect to grow over time. It will just take time for some of these new geographies to get there.
Theresa DeLuca:
Interesting. Obviously, just with California, Silicon Valley may always be Silicon Valley. I guess we'll have to wait and see. But it is expensive too.
Scott Cooper:
It is. I think there is a real question, and I don't know if it is in my professional lifetime or maybe my kids', but I think there is a real question over time between the cost and the lack of affordable housing, lack of public transportation. There's lots of things, as spoiled as we are, in many respects, by living in Silicon Valley; there's lots of challenges. In particular, look, the income that has been generated from these businesses has not been well distributed. I think something is going to have to change over time. I don't know if it will have an immediate impact on the business, but it seems hard to believe that we can go another 10, 20, 30 years without some changes in the political climate, to make it successful.
Theresa DeLuca:
You were once a marathoner.
Scott Cooper:
Yes.
Theresa DeLuca:
How many races have you completed?
Scott Cooper:
I have done 10 races.
Theresa DeLuca:
Wow.
Scott Cooper:
And then I had to hang up my shoes.
Theresa DeLuca:
Major cities?
Scott Cooper:
The one I did that was my favorite was Boston. But I will admit, in full disclosure, I was working for HP at the time, and I had an HP ticket as opposed to qualifying on my own. It was a fantastic experience, but I do not want to take anything away from people who actually qualified for real, for Boston.
Theresa DeLuca:
Would you compare the process of venture capital raising to running those 26.2 miles?
Scott Cooper:
Yeah, it's a good point. I think there are many similarities, which is that, at some point in time, physical inertia does overtake pure intellectual skill, in many respects. I think it can be that way. Part of what I hope that people take away from the book, is I don't think it has to be that way, which is, I think- Part of the reason, sometimes, why it takes so long is either the business, quite frankly, may not be suited for venture capital in the first place, or people go to who they know in the industry, and that may not be the best people. Not that they are bad people, but they may not be the people who specialize in the type of company they are doing, or the stage of financing they are doing. Some of what I hope people get here, is that the industry is not this monolithic industry, but there are different pockets, and stages, and industry specializations that are important to understand. Maybe that turns a marathon into a half marathon, at least, and makes it more accessible.
Theresa DeLuca:
Right. To your point, the early stage versus the late stage.
Scott Cooper:
Correct.
Theresa DeLuca:
In those specializations.
Scott Cooper:
Right.
Theresa DeLuca:
If I could sum up Andreesen Horowitz, based on my research, talking to you, it would be authenticity, I would have to say. When you come in, you look at founders of companies who have pitched to, the companies that you guys have invested in; how would you sum up the firm?
Scott Cooper:
Yeah, I think authenticity is a great word. I would say transparency, certainly, is something we try to do. Again, that's a lot of what the book tries to do, is to say, hey look, we shouldn't have to compete on information asymmetries. Let's make sure everybody has a level playing field. The main word, though, I would use is respect. The foundational value that we have at the firm is respect for the entrepreneur, and respect for the entrepreneurial process.
Theresa DeLuca:
Okay.
Scott Cooper:
What we mean by that is, particularly since so many of us came from the startup world, we recognize that we sit in a very privileged seat, here on the VC side. 99% of the hard work is done by the Stewart Butterfields, and by the Brian Cheskys of Airbnb, of actually trying to build a company. It's an incredibly difficult process and, unfortunately, the likelihood success is pretty low.
Theresa DeLuca:
Right.
Scott Cooper:
Most of what we try to do every day, and most of what we try to align our employees around, is you have to drop everything else and just recognize that you have to respect the entrepreneurial process. We get back to people when we say we're going to get back to them, we give feedback when we tell them we're going to give feedback. We also recognize the limits of what we can do, which is we don't run these businesses. The best we can do is be coaches, and sounding boards, and facilitators, and help. But at the end of the day, our fortunes are in the hands of these incredible entrepreneurs, who are doing great work.
Theresa DeLuca:
I want to switch to another topic entirely.
Scott Cooper:
Okay.
Theresa DeLuca:
And that is cancer. You're the Vice Chair of the investment committee for St. Jude Children's Research Hospital. You recently tweeted out an article from the New York Times, on how AI is helping provide doctors with more accurate readings of CT scans, used to screen for lung cancer. You wrote, "Software is eating radiology," a nod to Marc Andreesen's 2011 Wall Street Journal op-ed, Why Software is Eating the World. Cancer has touched so many of us with a powerful vengeance. How have you been able to utilize your network and resources to help the fight?
Scott Cooper:
Well, I've done practically nothing, is the real answer, in terms of making a difference. But as a firm, what we've done is, as I mentioned, is we do have a bio fund. A lot of what that fund is doing is, hopefully, using things like computer science and artificial intelligence to help improve both the diagnostic process of being able to identify things like cancer early, and then hopefully, potentially over time, finding therapeutics. We are big believers in that biology is really undergoing a significant revolution, very similar to the computer revolution that we had in the sixties and the seventies. We think this kind of marriage, of life sciences and computer science, really has a tremendous opportunity in front of us.
Scott Cooper:
In a small way, I was privileged to be able to join the investment committee for St. Jude, and I try to support the organization as much as I can. It's a wonderful place. They, basically, treat people for free and have an incredible onsite treatment center, as well as making all their protocols known to other people in the world.
Theresa DeLuca:
Right.
Scott Cooper:
It's a great institution. As I said, in reality, I do very little, but am privileged just be part of the organization.
Theresa DeLuca:
Was that personal based? I know you said your dad was a doctor.
Scott Cooper:
Yeah. Yeah, I have been generally lucky. My mother-in-law, unfortunately, passed away from cancer, but we have been generally lucky, in terms of I have not had a lot of that in the family. It was really more I just got to know the organization. Actually originally, once when we were raising money, that is how I met the people on the investment team. I just found, as I dug in, it was just an incredibly interesting organization. The thing that struck me the most, is how successful they've been in terms of fundraising; they have plenty of corporate sponsors. But I think something, I'll get this wrong probably, but their average donation is like $17 or $20.
Theresa DeLuca:
Oh, wow.
Scott Cooper:
They've done a great job between fun-runs, and cash register collections, and stuff like that, of being able to identify with a very, very broad cross section of the US, as well as the rest of the world. To be the combination of incredibly financially successful and self-sufficient organization, coupled with the research and the treatments that they do there, just got me hooked.
Theresa DeLuca:
Jumping over to another topic. One piece of coverage that I was really proud to help promote at Forbes, was our reporting last year on the launch of All Raise; it was in March, 2018.
Scott Cooper:
Yup.
Theresa DeLuca:
That was spearheaded by Aileen Lee, a VC veteran in her own right, and founder of Cowboy Ventures. It was an answer to the lack of female leadership in Silicon Valley, and the numbers, they were pretty bad. To quote the article, as of 2018, at 74% of US ventures funds, there are no women decision makers. At 53% of the largest funds, there are no female investors at all. It is getting better. This year, Andreesen Horowitz added three female general partners.
Scott Cooper:
Correct.
Theresa DeLuca:
You are the father of three young girls. What is your hope for them? Should they choose to follow your path or strike out on their own?
Scott Cooper:
Yeah. I think everything you said is 100% true. I think, as an industry, both in terms of the venture industry and, quite frankly, the startup industry more generally, we have not done a good job in terms of both gender diversity, as well as ethnic diversity. So we are trying to do a few things at the firm to help improve that. We recently launched, you may have heard, something called the Cultural Leadership Fund.
Theresa DeLuca:
Right.
Scott Cooper:
The idea behind that, is really to better tie in African-American business leaders and celebrities, with the startup community, both to create business opportunities. Then we are also taking all the fees that we generate from those funds, and donating them to nonprofits that will hopefully help improve STEM and other engineering and technical resources for African-American students.
Theresa DeLuca:
Wow.
Scott Cooper:
But you are absolutely right on the female GP side of things. What we found over time, was we had a very hard criteria for a GP, which was we said you had to have been a founder or CEO of a company. We had lots of reasons at the time for why we thought that was a good idea, but what we, of course, learned over time, is that by its nature was very limiting in terms of the funnel of applicants we could bring in, because the unfortunate reality is, obviously, there are not that many diverse founders and CEOs of companies.
Scott Cooper:
What we decided about a year and a half ago, was that what we were really going after was how do you find people who are maximally attractive to the very best entrepreneurs in the domains in which they are? Someone like Connie Chan, who has got incredible depth in China, was very attractive to lots of entrepreneurs who wanted to understand that. Katie Han, who joined us on the crypto side, about as deep as anybody could be from a regulatory perspective. We realized that that was really what the right criteria should be, and that enabled us, therefore, to be able to look at a broader funnel, and identify three incredible folks on the GP side.
Theresa DeLuca:
It looks like the future is bright in that area.
Scott Cooper:
I hope so.
Theresa DeLuca:
Yeah. As we wrap up, what gets you out of bed in the morning? Is it the thought of funding the next great tech company, playing a role small or big in changing the world? Or is it something else?
Scott Cooper:
For me, it is the same thing that has always gotten me up, which is I just like learning, quite frankly, and I like seeing different things. It's amazing to me, having now been in this business for 10 years,, I don't personally see that many.
Theresa DeLuca:
Right.
Scott Cooper:
But if you think about that, call it order of magnitude, 20,000 pitches over the last 10 years. What is amazing to me is I would have thought that a lot of times we would walk out of the room and say that is a terrible idea, or I have seen that 1000 times, or I can't believe somebody has devoted their life doing that. I can count, probably on one hand, over the last 10 years, the number of times where we have come out and we haven't said- We might not have agreed with it, or we may not thought it was a great business idea, but the number of times where we have said that's just an uninteresting, uninspired idea.
Scott Cooper:
To me, that is what I really love, is the variety, the learning; I love working with the portfolio companies. And quite frankly, as we talked about, recognizing that there is only so many things I can do, because I'm just not close enough to the companies, at the end of the day, to be able to give great advice, other than hopefully be a sounding board and a coach with the companies. It is a fantastically privileged opportunity.
Theresa DeLuca:
Scott, Andreesen Horowitz's first and third flagship funds, $300 million and $900 million respectively, look like they will return five times their money to investors. Your $650 million second fund, and $1.7 billion fourth fund are expected to return three times their investment capital. The money, the numbers, are very high. What is the secret?
Scott Cooper:
Well, I am going to leave the numbers to other people, since we certainly do not talk public about our numbers. Look, I think what has enabled us to be successful in this business, is that we really do have a differentiated value proposition. Again, if you go back to where we started this conversation, our whole thesis for the firm has been that capital will no longer be the scarce resource, and therefore for venture capitalists to be competitive, they really have to be attractive to entrepreneurs, in the sense of being able to do something that helps them with their business.
Scott Cooper:
I would like to think that we have been successful, because if you talk to our entrepreneurs, I think they will tell you the ways we have been able to add value, and help them with customer opportunities or hiring the right folks, have been important inflection points in the business. I think if we keep doing that, then the investment results will ultimately be there. But right now we have got to work on the day-to-day tactics of just being of value to our entrepreneurs, and let the rest of it work itself out.
Theresa DeLuca:
Experts in the field. The book is Secrets of Sand Hill Road, Venture Capital and How to Get It, available on bookshelves June 4th. Scott, thank you for joining us Inside the ICE House.
Scott Cooper:
Thanks so much for having me.
Theresa DeLuca:
That is our conversation for this week. Our guest was Scott Cooper, managing partner at Andreesen Horowitz. If you like what you heard, please rate us on iTunes so other folks know where to find us. Got a comment or a question you'd like one of our experts to tackle on a future show? Email us at [email protected], or tweet at us at #IcehousePodcast. Our show is produced by Peter Asch, with production assistance from Ken Abel and Ian Wolf. I'm Theresa DeLuca, signing off from the library of the New York Stock Exchange. Thanks for listening. We'll see you next time.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independent verified. Neither ICE, nor is affiliates, make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.