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If you’re a would-be startup founder looking for venture capital, it’s there. But you’ll have to work for it.
The world of venture capital is pretty mysterious, especially if you’re an entrepreneur trying to make your startup dream a reality. The center of the VC world is one street in Menlo Park, California, in the heart of Silicon Valley. It’s called Sand Hill Road.
Host Molly Wood talked with Scott Kupor, managing partner of one of the most famous venture firms, Andreessen Horowitz. He has a new book out called “Secrets of Sand Hill Road: Venture Capital and How to Get It.” But a big critique of VC is that it is so concentrated on this one road and a tiny group of investors who have historically picked startup founders who are a lot like them. Wood asked Kupor if he feels a responsibility to not just explain VC but to change how it works. The following is an edited transcript of their conversation.
Scott Kupor: The industry has not done a great job on inclusion, generally. And that’s true both with female entrepreneurs as well as with entrepreneurs of color. Ultimately, I think the best thing we can do is try to address what we would call a network connectivity problem, which is we know there are great and smart entrepreneurs everywhere and the question is: How do we reach out to those communities and make them feel like there is actually a home for them here? One of the things I do hope that we get out of the book is if we can demystify the business and make it feel accessible to people who are not in New York and Boston and California. I think that actually might have a positive impact from overall diversity inclusion in the industry.
Molly Wood: What is the next step? You’re clear in the book that you’re not handing out Marc Andreessen’s phone number, I get it. But let’s say I am an entrepreneur in Iowa, and I have a great idea, and I read this book, and I want money. How do they get in? How do they translate that into action?
Kupor: Yeah, I think one of the most important things to do is to prove your mettle as an entrepreneur by showing your creativity and your willingness to walk through walls and find a way to get an introduction into a firm. We get a number of people, of course, who will send cold emails in, and we look at those, but it’s very hard to obviously get those into the right hands. Ninety-five percent of what we do comes from some referral source that at least we’ve known of or seen at some period in time. We like to see how many degrees of freedom do [entrepreneurs] need before they can find somebody who actually knows us, and can get something to our hands. That’s the same skill they’re gonna need when they’re recruiting employees. It’s the same skill they’re going to need when they’re trying to identify customer opportunities. That’s our best advice: Be persistent in trying to find a way in the door.
Wood: That sounds a little passive, to be honest. We’ll just wait here for these awesome people to find us and then we’ll know how great they are. Do you also or should you also have the equivalent of a publishing house slush fund or scouting?
Kupor: So you’re absolutely right. We’re lucky enough to have relationships who say, “Hey, I met this great person the other day.” But the vast majority of our activities — you can think about them as outbound activities where we might have a thesis on an industry. As part of that we’re doing research and trying to identify the five or 10 companies who are doing something interesting in that space. That really is, quite frankly, a huge part of what the job is of being a general partner at a firm like this.
Wood: I will say it wasn’t until last June, I think, that Andreessen hired its first female general partner. How important is that?
Kupor: It’s very important. You’re right, it did take us a while to do that. We’ve since hired three general partners. One of the things that we recognized as we were recruiting for GPs, we had a hard requirement, which is you had to have been a founder or CEO in order to be a general partner candidate. Not surprisingly, over time we recognized that that really narrowed the funnel of diverse candidates just given the fact that the industry itself of founders and CEOs is not very inclusive. We felt like it was better for us to say, [let’s] relax that constraint and really focus on what is the unique quality that makes you attractive to entrepreneurs in your field. You could be somebody like Connie Chan, who’s an expert in China. You could be somebody like Katie [Haun] who’s an expert in cryptocurrency. Those types of things ought to count just as well and be just as important as whether you’re a founder or CEO. That’s really helped us make progress, I think, on the inclusion side.
Wood: Andreessen has 15 partners, which is actually more than most big-name firms. It’s a small group of people who are of course valuable, who are really king- and queenmakers. I think people don’t realize that the central group of decision-makers is so small and that that introduces bottlenecks in terms of how many boards you can be on and how many meetings you can actually take. And then your thinking is going to be limited to the people in the room and their lived experiences. Is that something that people don’t understand, and is there any way to change that?
Kupor: Yeah, I think you’re right. I don’t know how you change it, but I think it’s a real important thing to understand. You mentioned it from a bottleneck perspective. If you think about a general partner at Andreessen Horowitz or any other firm, there is some finite number of deals you can do. We debate this all the time, quite frankly. We have some partners who have 15-plus deals who think they can do 25. And then we’ve got some who are at 10 who feel like they’re overdrawn at this point in time. But what that means is that the opportunity costs for every time you take one of those chips off the table is extremely high. Because it means you’ve now, for probably an eight- or 10-year time frame, given up one of those slots on your dance card. It really does become the central limiting factor for scale in the business. I don’t know if there’s a way to change that. I think you could change it if you weren’t an active participant in the company post-investment.
I don’t know if this would work, but you can imagine a venture capital firm who says, “Look, we’re never going to take a board seat. We’re not going to be involved post-investment.” And then you eliminate that potential constraint on growth. I’m not sure in this day and age that that’s attractive from an entrepreneur’s perspective because I do think they’re looking for something other than capital, but it’s at least a theoretical possibility for how you might loosen that constraint.
Wood: Finally, there is this sort of techlash now. You’ve got this new consumer awareness about privacy, particularly in your investment field, as you’re looking at the cloud and cybersecurity, God help us, and data privacy and all of that. How is that affecting the questions that you’re asking of the entrepreneurs that you’re talking to?
Kupor: Yeah, I think it’s having a real impact. I think what we are starting to recognize as an industry — and it probably shouldn’t have taken us this long to do so — is that the impact and the pace at which technological change is happening is just so much faster than it’s been before. We’re lucky enough to live in a place like Silicon Valley where most of what we see as consumers the consumer utility, and we can see the consumer value of all of these technologies.
But I think for too long we probably haven’t had enough appreciation for how those technologies impact people in other ways, whether it’s, to your point, privacy or whether it’s job dislocation. Or lots of other issues that are happening. One of the things that we’re doing as a firm is trying to spend more time in D.C. and at least have an active dialogue with the regulators and policymakers and get out ahead of these issues, and try and help them understand what’s happening in the Valley. And help us understand what are the concerns and issues that they might have as some of these technologies get deployed mainstream.
I mention this theme: Software is eating the world. If we’re right about that, that means software is going to continue to enter into and integrate with lots more regulated industries over time. I think the onus is going to be on this industry to make sure that we are active participants in that dialogue. Otherwise I think it’s going to be very hard for us to be successful.
Wood: Does it become part of a set of questions that you ask, though? Are you asking yourself as a CEO: What is the worst possible way that my technology could be used, and how do I anticipate that?
Kupor: Yeah, I think that’s right. I think we definitely are doing that, and I think that is a responsibility for the CEOs to do as well. It’s not even just what’s the worst possible way, but how may the benefits of this be perceived differently from different communities or different players in the ecosystem? I think we bear a greater responsibility to think about those things. We may not get it right all the time, I think that’s certainly the case, but at least I think these discussions are happening more at the board level, whereas I just don’t think in the past those discussions were front and center. I think, as painful as this process might be, I think it’s a good thing for us to go through and really understand and appreciate the consequences and implications of a lot of these new technologies.
Above, you’ll find the complete audio of my interview with Scott Kupor. There’s a lot of interesting stuff in there about how VC works, how it becomes more inclusive and why it hasn’t so far. It’s the latest in our occasional series “The Source Code,” where we give you the entire interview as it happened with some of our smartest guests. (May I suggest the one with William Gibson, which will always be my favorite.)
OK, let’s briefly turn to an unrelated link: yesterday was the Worldwide Developers Conference, and Apple rolled out about a million different updates, a new operating system for the iPad, an update to iOS on the phone, all kinds of features and fabulousness for the Apple Watch, even a whole new pro-level desktop and monitor. It split iTunes into three separate apps: one for music, one for TV and one for podcasts. May I just issue a little prayer right here that the podcast app gets its own team that actually cares about podcasts? And has a budget to make the app work better than it has so far?
Anyway. One thing I found super surprising was the lack of emphasis on iMessage. I mean, here you have Facebook about to pivot its entire business to messaging. You’ve got the most dominant platform in China — WeChat — all built around messaging. It’s, like, the social network killer. It’s a potential home for bot interactions and advanced digital assistant features, like Google is building.
It’s a developer’s conference, so there could have been app integrations with iMessage.
I know Apple is pivoting to more of an entertainment platform, but my phone is still a communications device, and I kind of feel like there’s a missed opportunity with iMessages here.
Maybe they’re working on it, but I thought it would at least get a mention.
I do like the period tracking in the Apple Watch app, though. Kudos on that.