Three New Andreessen-Arrillaga Inclusion Grants

This morning my wife Laura () and I are tickled pink to announce three Andreessen-Arrillaga Inclusion Grants. These three Inclusion Grants total $500,000, and go to three stellar young nonprofit organizations working to grow inclusion in tech.

  • Code2040 () helps high-performing black and Latino engineering students begin amazing careers with top tech employers.
  • Hack The Hood () provides low-income youth of color with training and mentoring in computer and business skills.
  • Girls Who Code () catalyzes girls in junior/senior years of high school to gain computing skills and connect into the tech industry.

Laura and I couldn’t be more excited to work with all three amazing groups to help them scale their programs over the next several years. We think there’s a huge opportunity to include more people, including/especially underrepresented groups, into the tech field and industry.

Finally, a big thank you to the Queen Elizabeth Prize for Engineering. My 2013 prize money helped fund these grants. Sign up now for ‘s Stanford philanthropy MOOC course starting this week, she taught me everything I know!

Source Tweets: 1,2,3,4,5,6,7,8,9

My Interview With Bloomberg Markets

Bloomberg Markets was nice enough to publish an interview with me this week, mostly on finance and banking topics. Since the interview is correct but abridged, took place in early April, and is just coming out now, I offer a few additional thoughts.

Unbundling banks: I think banks are getting unbundled with or without Silicon Valley or Bitcoin due to market changes plus regulation.

Any big bank executive will tell you: Over time, the ratio between what non-banks can offer vs what banks can offer is steadily increasing. Post-crisis reforms like Dodd Frank are accelerating the unbundling, whether that’s what regulators intended or not.

But Dodd Frank is a double-edged sword: It also makes it harder for new entrants to the core banking system. Banks both protected and restricted.

Bitcoin and regulation: Since the interview in early April to the present, there’s been substantial movement by many regulators on Bitcoin. There are plenty of discussions and disputes between market participants and regulators but overall, I think a lot of progress is happening.

Finally, much like the Internet 20 years ago, Bitcoin as a technology can and will be adopted by both incumbents and new market entrants. We are seeing a rapidly escalating level of engagement and interest in Bitcoin and cryptocurrency by large financial services companies. The opportunity is clear and present for both big companies and startups to use new technology to improve financial services broadly.

Since the interview, the other huge earthquake to hit the financial services industry is the launch of Apple Pay. Between Apple Pay and Bitcoin, I predict more changes coming in financial services and banking in the next 3 years than in the last 20 years.

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13

The Challenge of Threading The Needle

In response to Cash Burn Rates at Startups, one of the responses was a question asking, why isn’t this just hypocritical venture capitalists overfunding reckless founders of out-of-control startups? In fairness, there is probably some of that, though we and the investors we respect try hard not to indulge in recklessness and irresponsibility. But while it’s irresponsible to vaporize cash and your company, it can also be irresponsible to NOT invest to become #1 in a big new market. Particularly now, since there are SO many more people on the Internet and SO many more businesses that can consume cloud/SaaS vs 15 years ago.

Tension: Over invest, escalate burn, risk down round, vaporize when the market turns OR under invest, starve growth, don’t win the market and implode. Why is this so important? In tech-driven markets, the overwhelming economic returns tend to go to the company with the highest market share and the winning company with the highest market share can invest the most in research and development to build the best and most advanced products. This is the prize.

Via Glengarry Glen Ross: The reward for market position #1 is 90% of the economic value. #2, a set of steak knives. #3, you’re fired.

The challenge for CEOs and boards of tech startups is to thread the needle. Make just enough of an investment to take the #1 position, but not more. Meeting this challenge has resulted in thousands of venture-capital-backed companies creating millions of jobs over the last 50 years. This challenge becomes more difficult when money is flowing freely, since more competitors get funded. It’s very tricky and requires deep judgment. BUT opting out of the race generally guarantees you won’t be #1 or even #2. It’s not a good idea either and is just as serious a risk as blowing up.

There is no single answer. It’s up to VCs, CEOs, boards, and later-round investors to think very carefully about this for each specific circumstance.

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13

Cash Burn Rates at Startups

Recently and have sounded a vivid alarm. I said at the time that I agree with much of what Bill says and I want to expand on the topic further. New founders in the last 10 years have ONLY been in an environment where money is always easy to raise at higher valuations. THAT WILL NOT LAST. When the market turns, and it will turn, we will find out who has been swimming without trunks on. Many high burn rate companies will VAPORIZE.

High cash burn rates are dangerous in several ways beyond the obvious increased risk of running out of cash. It’s Important to understand why:

  1. High burn rate kills your ability to adapt as you learn and as the market changes. The company becomes unwieldy and too big to easily change course.
  2. Hiring people is easy; layoffs are devastating. Hiring for startups is effectively a one way street. You can’t change once you’re stuck.
  3. Your managers get trained and incented ONLY to hire, as the answer to every question. The company bloats and becomes badly run at same time.
  4. Lots of people, a big shiny office, and high expense base equals a fake we’ve made it! feeling. This removes the pressure to deliver real results.
  5. More people multiplies communication overhead exponentially which slows everything down. The company bogs down and becomes a bad place to work.
  6. Raising new money becomes harder and harder. You have a bigger bulldog to feed, need more and more cash at higher and higher valuations. Therefore you take on an escalating risk of a catastrophic down round. High-cash-burn startups almost never survive down rounds. They VAPORIZE. Further, to get into this position, you probably had to raise too much cash at too high a valuation before; this escalates the down round risk even further.
  7. Even if you CAN raise an up round, you are increasingly likely to incur terrible structural terms like ratchets to chin the bar. That nice hedge fund investor willing to hit your valuation bar? Imagine him owning 80% of company after a down round. How nice will he be then?
  8. When the market turns, M&A mostly stops. Nobody will want to buy your cash-incinerating startup. There will be no Plan B. VAPORIZE.

Finally, there are exceptions but if you’re reading this, you’re almost certainly not one. They are few and far between. Worry.

Reference Material:

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18

Next Generation Movie Theaters

Next generation movie theaters could be so much better, charge a premium and dominate financially (like ArcLight Hollywood).

Convenience: Reserved seating, valet parking, warm embrace of Lyft and Uber including ride-pooling, on-site daycare.

Experience: No commercials before movie; super-comfortable chairs and sofas; food delivery directly to seats; sparkling clean bathrooms.

Food and drink: High-quality food with healthy options; sit-down dining on site; full bars (Lyft and Uber make more practical and safe now).

Variety of screening experiences: Silent, or noisy, or use of phones allowed, or families + kids, or all kids, or dining + movie together.

Use of crowdsourcing and crowdfunding for special screenings; full embrace of group and corporate events; all-you-can-view subscriptions…

Source: 1,2,3,4,5,6

Responses:

The Difference Between Technical-Founder/CEO vs Professional CEO

In tech, we talk about difference between technical-founder/CEO (product/eng background) vs professional CEO (sales/marketing background).

Our general theory is: It’s easier to teach product innovator how to manage, than it is to teach sales/marketing operator how to innovate. There are many exceptions in both directions, of course. The mountain is hard to climb either way. There’s lots of work/learning/adaptation required.

I propose another lens on the dynamic: The difference between knowing What and Who, vs knowing How, Where, and When. Bear with me… Great tech founder/CEOs tend to focus on What and Who: What product to build, and Who to hire/train/retain/motivate to build it. Great pro CEOs tend to focus on How, Where, & When: How = processes; Where = geographic expansion; When = optimizing business across time.

To succeed at scale, each needs to learn the other skills and hire people who have them: Founder/CEO -> How/Where/When; Pro CEO -> What/Who. The challenge: It’s usually easier to hire skilled business professionals who know How/Where/When than What/Who. This is fishing from unbalanced pool. The trap: Only nailing What/Who can carry startup a long way, but only nailing How/Where/When = slow road to zombieland and company death. Ultimately = team-building for both paths. But dynamic different and differently challenging in each direction; requires open discussion.

Addendum: The Why = the mission, ideally beyond just “the company’s success.” This is increasingly important for all paths.

Addendum: The truly great tech CEOs have mastered all of these: What, Who, How, Where, and When… and Why.

Source: 1,2,3,4,5,6,7,8,9,10,11,12

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6 Reasons Not to Crap on The Hard Work and Efforts of Founders and Startup Teams

I really don’t get people who go out of their way to crap on the hard work and efforts of founders and startup teams. The simple form of such crapping is pure sour grapes. The advanced version is “Silicon Valley is not trying to solve big problems”.

In honor of today’s outstanding YC demo day, I’ll reprise some thoughts from my July 7 tweetstorm on this cynical and pointless canard. There are six logical problems with the false choice of “make trivial apps for 20-something SF hipsters” vs “do things that matter”.

  1. “Make trivial apps” vs “do things that matter” are not actually in conflict-there’s plenty of room and plenty of money to do both.
  2. It’s often hard to tell which is which up front. Almost all big world-changers were dismissed by critics as trivial at first.
  3. Observer bias: Only read consumer tech blogs, only go to consumer tech conferences, think SV only works on consumer tech.
  4. Battling cynical critiques: Founders who articulate the big vision for changing the world get called arrogant and vainglorious. Both criticisms are leveled with no cognitive dissonance: Founders are either not pursuing big ideas, or are out of control egomaniacs if they are.
  5. Subtext often that communication tech/apps in particular somehow aren’t important or don’t matter, vs energy, education, etc. Why? Communication is the foundation of collaborative work, which is how all the important problems gets solved. People working together.
  6. Anyone who thinks SV can be doing more/better/different, come join us and participate in building new things, products, companies.

The central truth of Silicon Valley is that there’s always more to do, and there are always new opportunities to build and contribute. I couldn’t be more proud of today’s YC amazing demo day crop, spanning more problem domains than ever. Silicon Valley spirit is thriving.

Sources: 1,2,3,4,5,6,7,8,9,10,11,12,13

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