Ben Horowitz on Investing in AI: AI Bubbles, Economic Impact, and VC Acceleration

You know, if you want to change the world, you have to believe you can change the world. What you're really trying to find is are they literally the best in the world at a thing, and that's always the thing that's worth investing in, as opposed to they're pretty good at a lot of things, and I can't figure out what they're not good at.

We just have a higher concentration of talent here than that's probably possible in a company in terms of just sheer IQ. There's a lot of VCs, very few who can actually help you succeed as a company. And so being one of those, I think, is still quite a special position.

So I'm going to start first with more of how you manage the firm and particularly lessons that you've learned over the years, obviously extrapolating lessons as a founder as well, and then how we think about running the firm on a day-to-day.

So the first question I'll start off is from your book, but it's I think relevant to this conversation in part because when you wrote that in technology business is you rarely know everything up front and we're sitting in this massive AI wave right now where it's still incredibly early.

Yeah, but the difference of course between a mediocre company and one that's magical is often the difference between letting people take creative risks and then holding them too tightly accountable.

So there's many ways we could take that direction this question but maybe first start how do you manage a group of GPs because and particularly what's different about managing GPs versus a company and what's the same?

Yeah. No, it's pretty different than a company in that with a company like there are functions, there are things you know people there are very specific outputs that you're driving to and then the people in the company are I would just say like we just have a higher concentration of talent here that then that's probably possible in a company in terms of just sheer IQ.

So if you look at like Chris Dixon and Martin Casados and Alex Rampel and so forth like you I mean these guys one they've all run companies and then it would just be very hard to have that many people that high IQ on an executive staff and so you know if you have somebody you know like Martin who is kind of the probably the best architect in networking software in the last 20 years plus like a really talented investor and so forth.

You know, I'm not really telling him I'm not giving him that much direction. I'm more kind of helping him understand like the process or like how the the process of the conversation affects the process of investing and you know kind of how you work your way to the right answer, taking the right amount of risk.

You know not getting and the biggest mistake we make is we get too wrapped around the axle about some weakness that a company has as opposed to focusing on what they're great at and how great they are.

So it's not like everybody is like kind of you could talk yourself into as great at something but what you're really trying to find is are they literally the best in the world at a thing.

And that's always the thing that's worse and worth investing in as opposed to they're pretty good at a lot of things and I can't figure out what they're not good at. That's a much generally a worse investment.

So just kind of orienting around that and then you know kind of helping think through you know the platform the personnel and how how to deal with the conflicts and then you know how to close deals and that kind of thing. So it it's very different.

I would say and they just you know like understanding you know when people run out of gas like investing in technology you really have to be in deep in the tech to be good at it and I think that it's very possible as you know people get older you know they get less into it sometimes and so you know at that point we got to make a change but maybe just sticking on the topic of of GPS how do you also think about accountability because one question had come up over you know when to promote the right people when to manage out the right people and and ultimately you know the vertical levels are making decisions but you're also making decisions you and Mark are making decisions at the firm level as well what's your sort of thinking and framework as that evolved over the last 16 years.

Yeah I mean I think I think it's evolved a little but the the main things are are kind of the same. So like I I think it's dangerous to in VC kind of wait for the outputs because they're so far out you know to kind of wait and see okay does somebody have a great portfolio after 10 years or 15 years before kind of deciding what to do with them.

It's just such a long time and you know you can make a lot of bad investments in that time frame or like you could miss out on a lot of good investments in that time frame you know if you don't put that person in position to do more stuff and so we I really try to look at okay you know at the point of attack you know like how are they showing up like how good are they at finding opportunities how good are they at winning those opportunities and you know what's the general like what do we think the quality is at the time of investment because you know some some work out and some don't but it's all it's not all magic you know like it you kind of know okay this is a great you know how great an entrepreneur is Meera or how great an entrepreneur is Ilia well like those are pretty special people so if you can win that deal like that that means something whether or those companies work.

Maybe just to to focus in on verticalization because verticalization I think was probably one of the seminal points in the history of the firm and changing the structure of it. And you and Mark have talked about this and now in retrospect it's clear that that was the right decision at that point in time.

How do you avoid some of the pitfalls associated with verticalization, meaning the communications and strengthening communication across verticals and making sure you still have that connectivity as the firm continues to to size and scale?

Yeah. So, look, I think that the most important observation and this is a actually a conversation Mark and I had with Dave Swanson, the the late great Dave Swinsson back in 2009. And what Dave said, which I thought was very interesting at the time, he's like like an investing team like shouldn't be too much bigger than a basketball team.

You know, a basketball team's like five people who start and the reason for that is the conversation around the investments really needs to be a conversation. And so I always had in mind that like okay any investing team we really don't want to be too much bigger than that size and so how do we kind of maintain that and the only way to do it is to verticalize and then you know the other thing that was happening simultaneously in the industry was you know software was eating the world so you know we had to get bigger in order to address the market But I didn't want like teams being bigger than a basketball team and so that kind of led to the vertical structure.

I think you know in effect the the most important thing is that those teams should be good and then the communication across the teams we do in different ways. So like one way is if the teams are very close like AI infant AI apps then we have people from each team going to the other team's meetings and so there's like good kind of just hardcore connectivity that way.

And then in addition you know we've got like a kind of management meeting of that of that group in AD that we do and then we have you know kind of kind of the big thing is the GP offsite. So we just take everybody away for two or three days twice a year with not much agenda.

I do think, you know, David Haber has this thesis of like opportunity lies at the intersection. Like I think everyone not only culturally knows but also economically is incentive to see everyone win. And so there isn't that level of politicking.

I also think that sometimes can be prevalent at other organizations where it's very zero sum and like protecting thief type of behavior as well.

Yeah. You know, that's kind of like a cultural idea that we have at the firm. And I I would say I mean my you know the feedback we get from people who come from other firms is we have less politics than firms with you know 10 or 11 people.

You know and it's just that's a cultural thing like either you know politicking gets rewarded you know and then you have everything from coups to you know infighting all the time and they don't like each other and so forth or politicking you know gets deincentivized and and that's what we have here.

Another point around culture, I I always remarked to you like I'm always in awe of the fact that you always hear the goss around the firm even detail around minor things where I'm like how do you know that Ben and Mark commented and and you often say you know you got to whenever you run something it's got to be in the details that's the only way to do it.

But I maybe I'll ask the question slightly differently. How do you stay on top of the details right? How do you hear all this? How do you find the settle but without also micromanaging? Because I I think there's also the creative sort of process of letting things run its course as well. How do you balance those two things?

Yeah, if you think about my job, a lot of it is kind of setting the direction and then making decisions when like things get into conflict or or we're not sure what to do. And the kind of if you think about you know what's decision making, it's you know what makes you good at it? It's a combination of intelligence and judgment or it's judgment kind of which is a combination of intelligence and knowledge.

So like what do you know and then how smart are you at kind of turning that into the correct judgment and the knowledge in a in an organization tends to live with the people doing the work. So meaning you know the not the managers I I would say you know like so it's you know what are the deal partners doing what are the you know kind of individual people on the IT team doing you know like what are the kind of accountants doing what you know like what what are people what are people on you know who when we go visit LPS like you know that's where the knowledge judges like in in talking to people who are kind of at the point of attack so to speak or talking to entrepreneurs and so I just spend I try to spend enough time both you know kind of in the team meetings and you know we're doing that I just end up knowing a lot about a lot of things and then plus I'm a founder so if something gets effed up in the firm somebody calls me you know like that that happens a lot like they're like okay I'm gonna tell Ben you know this he's not going to like this.

So it's a this is a I think a key thing for leaders is you never want people to think oh we shouldn't bother them with that because it didn't take me what it took me like 14 seconds to resolve it. And you know generally people aren't looking for you they're just looking for clarity you know like a lot of what an organization needs often is clarity not like correctness.

And you know if you have clarity you can move.

Last question on verticals. So we have seven verticals today. One topic that has come up is is how do we know these are the right verticals and then how maybe give some examples of vertical ideas that you've resisted to start but maybe sound good on it on this premise but doesn't either have the right technological legs or even entrepreneurial kind of capability around that that we've decided to not pursue.

Yeah. So they're really kind of designed around the market and you know kind of where are the entrepreneurs? So we try to match up to you know if there is a big cluster of important entrepreneurs that are going to create multi-billion dollar companies you know do we have a team that's going to win those deals and you know different categories end up having fairly different needs.

So, you know, the needs of a crypto entrepreneur, a bio entrepreneur, an American dynamism entrepreneur are very very different. And so, you kind of have to have a product that matches that market.

You know, in picking markets, you want to not be too early and not be too late, right? So, it's a little bit of an art. I think that what we've seen is I'm very confident those are the right markets because there's lots of very interesting activity in all of them.

Now we've got to then perform in each market. So it's not like a given just because we show up and we're Andreas and Horowits that we're going to win that market. But you know so we have to kind of evolve the team and and like evolve our thinking and make sure that we win.

But I think that the markets we're in are like pretty clearly very good markets. We have had you know a few that have popped up that you know people have proposed that we haven't done. I don't think we got that serious with them but the other one was kind of ESG kinds of things you know clean tech green energy this and that and the other and you know, we thought that the right lens on that was much more going to be American Dynamism one because it wasn't like weirdly constraining and it was much more oriented around the kind of economic outcome as opposed to the do good do do good by doing well or whatever the phrase is.

You know like that those things kind of can lead you into very weird decision-making. So like investing is hard enough without like introducing other criteria other than is this thing going to be a giant company and make a lot of money. And you want to have a focus on that.

And I think the beauty of American dyn would be you know maybe good for America or whatever but like there's so many opportunities in that space because the US really does have to modernize the way they do defense. We really do have to get much better intelligence in public safety to keep everybody safer.

That you know there you know and then we've got we've got to solve the energy problem. We've got to solve the rare earth mineral mining problem. Like there's very good problems to go dig into where you know if you look at like okay we're going to come up with an alternative energy source or an alternative fuel you know like that's like will any of those work like maybe you know and and that kind of thing. So we never did ESG.

I remember actually as you were going through that I remember very early on in our discussion around American dynamism I remember you pushing the team and asking them like hey is this a marketing message or is this like real technological transformative change and like they went and did the work around it and like it was very clear now in retrospect there was real tech change especially happening on the supply chain side and you know the defense side and and really how people actually even engaged with the government.

But I think that often times when people ask us this question like it's both a combination of is there a real technology change because that's when you make and generate venture returns and then also is entrepreneurial talent actually there to build it.

Yeah, ADA is a good marketing idea. And I think what right when they presented it internally like they presented the marketing idea and I was like, well, I want to know what the fund idea is, you know, like how do I make money? Like we have investors, we got to make money.

Like we're like it's a great marketing story, but like we're not doing all that. We're going to do the things that, you know, the the fund is going to be less than that the marketing in terms of its focus. It's going to be tighter focus.

Then we ultimately, you know, zoned in on three kind of core vertical areas that the that there was actually a tech change happening.

Maybe switching gears. So Mark and I believe the best thing society can do for a person is give them a a shot. Give them a shot at life, a chance to contribute, a chance to do something larger than themselves and make the world a better place. That's the best they can do.

So can you elaborate on this and how it's driving how we are evolving as a firm and and particularly looking ahead as people think about you know what's going to be a a set of funds that are deployed over the next two to three years but also ultimately have an impact over the next 10 to 15. How do you think about that as you you think about leading the firm?

You know I think it's important to put the work that people do into context and you know we're in a like super special position. You know what I wanted to get at was like if you take a step all the way back and you say what's been good for humanity what's been good for humanity historically is when people have a chance to kind of do something larger than themselves and contribute and look and and I think there are there are many systems ideas like well what if like we could make utopia or everybody equal or this and that the other and you know that's kind of ended up doing the opposite if If you look at the history of communism or or or what have you, it it's kind of everybody has an equal chance of getting no shot is much more what occurs.

And so you really want to enable contribution and kind of the rise of America kind of coincides with that rise in kind of a free market capitalistic rule of law system and that you know if you look at kind of the history of the country and the history of humanity that you know the rise in wealth lifespan population size of the earth all kind of grew spectacularly in the last 250 years.

And so America's been very important in that. And then America today is still, I think, very clearly the country where and the system where people are most likely to have a shot, a real shot at life. And you know, look, we've done some things to screw that up and and so forth, but you know, that's certainly still the case.

And the for America to maintain its importance in the world it has to win economically. It has to win which means it has to win technologically. It has to win militarily which means it has to win technologically. And our job is to you know kind of help the country win technologically.

And it's it's not only important for us, it's important for the country, it's important for humanity. And that's really kind of what I was driving at. And I think that you know for our people it's it really kind of helps them go okay like this isn't you know these things matter you know creating these opportunities matter and you just to give you an idea of some of the things it leads to.

So, actually, you know, Jen and I were just in Mexico and, you know, a lot of that was catalyzed by kind of a junior person on the team going, you know, what we're doing is so important. And we need to kind of help with this alliance. We need to help secure the border. We need to help with our own kind of defense manufacturing. We've got to, you know, help with energy. Like, I'm going to get this meeting.

And then, you know, we got the meeting. And so, you know, if you you want to change the world, you have to believe you can change the world. And that's a lot of what it was about.

It seems like little tech emanate is opening back up. What's your view on on whether that is here to stay and whether that might actually expand to to larger opportunities as well?

AI is such a disruptive phenomenon that every company, every incumbent is under threat from like AI in general. And so a lot of the ways that you deal with the threat is you just acquire the DNA of the future. And so I think it's I think there's going to be a lot of M&A because I think that people need to reconstruct how they work if they're going to survive.

So if you go back say three or four years, I think people believe that you know there would be the big foundation models would be these giant brains that could do anything better than anybody. It has not played out quite like that.

The way it's played out is that the big models do provide a very important infrastructure that you know all of our companies you know end up building on to some extent. But often the kind of for any particular use case the longtail of not only kind of scenarios but the long tail or the fat tail I should say of human behavior is ends up itself being something that you have to model and understand very very well.

And so if you look at cursor cursor consists as I think of 13 different AI models all which kind of model different aspects of how you program how you speak to a programmer etc etc etc and those models end up being very important so important that they in fact released their own foundation model for specifically for programming and for coding.

So they have a coding model that you know you can swap in in place of anthropic or open AI if you want or you can use the open AI or anthropic models with their kind of other set and so and and that thing has gotten great adoption. So like it's kind of going well maybe the application behavior is actually in some ways more important than having a gigantic like the biggest model train with the most GPUs.

You know and it's not clear exactly how that plays out but right now currently I would say that the complexity of the application itself is very high and is not subsumed in the foundation model and so I think these things are not as straightforward as they appear and the benchmarks can be misleading and you know like I think that this also is showing up in every aspect of AI.

So we've seen that there's a great post that Justine Moore from our team did on you know there's no god vid level video model which I would encourage you to read which kind of gets into like you know look different use cases end up needing different models which is again not what we thought four years ago for sure.

Yeah, that's actually goes back to when I what I started this webinar with your quote from the hard thing about hard things in technology businesses you rarely know everything up front. So as folks are are figuring out everything that's happening in AI like the calibration also of benchmarking is changing and also the expectations around the utility of those things are changing but also the founders that are building that are changing.

So it is it is a very fun time to say the least but also one in which we're learning in in real time as a as a part of it. Which can be sometimes deeply unsettling I think for for also folks as well who you know may be anxious about where valuations are and the market and the environment as as a part of that.

Okay I am going to switch gears actually to the future of VC investing which is is very related. So some believe leaner, more efficient businesses will allow founders to retain more on the cap table. Do you worry about that at all when you when it comes to ownership and what you've been, you know, working with GPS on in terms of expectations of ownership in this new environment?

So I think that like what we've seen is we're getting pretty good ownership. So if you look at a lot of the recent investments where you know at 20% or better there are ones that were not where you know we don't get to that level of ownership but those companies get so valuable so fast that it's been fine.

And you know like there have always been special companies with very very special founders you know at a moment in time where like okay you know that is what it is but I you know for us it's you know for a lot of the just like core infrastructure things the core applications and so forth like I you know the ownership has been like pretty reasonable.

question around just the VC landscape today because when when you you and Mark started the firm 16 years ago, you know, there weren't nearly as many VC firms. There's now 3,000 plus VC firms running around. There is still this rate limit of great entrepreneurial talent, but also increasingly there's more sources of capital flooding in whether that be on the retail side etc. How do you see the power dynamics between whether it be the LP, GP, and founders also evolving as you think about the future of the firm and anything you're doing at the firm to to prepare for that?

Well, I mean, I think it it's still like very hard to build a company and you know to if you're just like an engineer, a AI researcher and you're kind of an in you invented something and you're jumping into the world, it's very competitive world. You know having a a financial partner that can help you build the company so you know does the initial valuation matter more the partner and I think that like you know most entrepreneurs who are smart realize it's a partner and there aren't that many good like there's a lot of VCs very few who can actually help you succeed as a company and so like being one of those I think is is still like quite a special position I I so the one area that we're kind of you know can you're upping our emphasis in is this kind of entrepreneur who's just like starting something and doesn't you know it doesn't quite yet qualify for VC money with our speedrun accelerator and you know one of the reasons why we're emphasizing that so much now is it is you know with the new tools it is possible to convert an idea into a product much more easily than it has been in the past.

So, we just want to make sure that we keep a very very close eye on that. And then and you know, and then the brand is translating into that accelerator. We're just getting a lot of talent in there and and so that that phenomenon we want to make sure that we're on top of.

Building on earlier question about being multiple winners in AI, why did prior cycles of technology not play out the same way? I.e. Why were there only Google, Amazon, you know, a concentration of a small number of winners in those product cycles compared to what you think about in in what's happening in AI?

Well, you know, we don't know quite what's going to happen yet. But I I would say, you know, AI is a new computing platform. So, you kind of have to look at it as like how many winners were there who built applications on computers. And like that's the order of kind of the size of of what this is.

You know I think in the internet era if you say well like what are all the businesses that got built on the internet? It was actually like a reasonably large number of businesses from uh you know Meta to Netflix to Amazon to you know Google and so forth and and you know those were very very like spectacularly huge winners.

I think in AI the products are having even bigger economic impact. And so I think there are going to be more things certainly more companies that are worth you know over a billion dollars and over 10 billion and then the last era I mean from what we've seen so far. But it's a very big design space like it's an enormous design space like one we've we've never seen that before in technology and you know I of course nobody's asked me this yet but got a lot of questions about the AI bubble and I think that one of the reasons why people are so worried about it being a bubble is you know the valuations have gone up so fast but like if you look at what's going on underneath in terms of the customer adoption the revenue growth rates etc. Like we've never seen demand like this.

And so we've never seen valuations rise like this, but we've never seen demand rise like this either. So it it is we are in a bit of a brave new world at least from anything that I've seen in my career. And we'll see how it plays out.

But like I think like even like the Nvidia multiples aren't you know they're not like outrageous. That you know particularly when you look at the growth rate and the just the size of the earnings and so forth like they're not historically nuts. To the point where people would be claiming bubble like that.

So I think that people think oh well is that growth fake? Is it this? It's that and from what we're saying no like like the demand is is very intense. And you know, we'll see how it plays out, but I think this is as big a this is a bigger technology market than I've ever seen. And you know, we'll see how many companies actually win it.

I'm going to ask you a few fire round lightning round questions, Ben, and then we'll close out here. What will be your most played song on Spotify rap this year?

So I think it's that that Young Thug song, Do you know how it feel to see your face on the news? called you a boohoo. Yeah, it's that that one really touches me like like particularly crunch. I I love it.

I I will say I think for me follow the leader is going to be on on one of my most played. I will say that was Yeah, that's a great song. Wrote wrote the piece and also saw Rock in person early this year at your event and then also George Clinton. It's been been fun to dig back into the into the database of songs that I I've never really listened to. Yeah, know that that that's an all-time great song.

What's one AI tool that you use every day?

Well, for sure, you know, Grock and Chat GPT I use every day. And then, you know, probably I been playing with like, Vio and, Nana Banana a lot on a on a daily basis of of the big guys.

All right. Follow Ben's feet on Banana Banana drops. Okay. And because we asked Mark, we have to ask you, do you plan to be cryogenically frozen?

No. Same answer as Mark. Do you plan to go to Mars?

Same answer as Mark as well despite despite your background. All right. Look, I'm trying to stay healthy so that like we don't have any generational transfer, but I'm not I I don't necessarily believe in living forever. I don't It's my destiny.