Link to podcast + transcript. 1 February 2023.
Venture is our craft and Marc Andreessen is one of its shokunins. So when the Shokunin speaks, you stop everything and listen, or in my case, read (the transcript). Dwarkesh Patel asks some very good questions to PMarca in this wonderful podcast. I particularly enjoyed reading PMarca’s riff on managerial capitalism vs bourgeois capitalism, and venture as the managerial firm that is a catalyst of bourgeois capitalism. Really good 2 or 3 pages or so. The other ones I enjoyed was his take on what ultra mega rounds could do to spark new forms or scale of problem solving, and thereby startup models, sharing Bill Janeway’s posit on why software and biotech are the hero sectors of venture, and, channelling Andy Rachleff on why he thinks venture is overstaffed, but it is a feature, not a bug.
PMarca’s favourite quote
PMarca: His favorite all time quote on being a startup founder is from Sean Parker, who says —“Starting a company is like chewing glass. Eventually, you start to like the taste of your own blood.”
Bourgeois capitalists and managerial capitalists
Interesting riff by PMarca that managerial capitalism with separation of ownership and management is the end state of bourgeois capitalism (where ownership and management go together).
PMarca: “I view it as — the economy is like 99% managerial, and if we can just keep the 1% of the old model alive, we’ll keep getting new things. By the way if venture capital ever gets snued, it’s outlawed or whatever, it just fails and there is no more venture capital, there’s no more tech startups or whatever then at that point the economy is going to be 100% managerial. And at that point, there will be no innovation forever.“
What kind of innovation could a 100-year fund spark off?
Pmarca: “…the problem with a 100 year timeframe, or even a 50 year time frame, or even a 20 year timeframe is that new things don’t tend to go through a 20 year incubation phase in business and then come out the other end and be good. What seems to happen is they need milestones, they need points of contact with reality…Contact with the real world is dicult every single time. The real world is a pain in the butt. And mark to market your views of what you’re doing with the reality of what anybody’s actually going to want to pay for, requires you to go expose yourself to that. I
The other way to get to the underlying question would be — what if you just had more zeros on the amount of money? What if instead of funding companies for $20 million, you could fund them for $2 billion, or $20 billion? In other words, maybe they would operate on the timeframe of today’s companies, on a ve or 10 year timeframe, but you can fund them with 20 billion of venture nancing, instead of $20 million.
I think that’s a more interesting question. It’s possible that there are pretty big fundamental things that could be built with larger amounts of money in this kind of entrepreneurial model.“
William Janeway, and why Software and Biotech are the hero sectors of venture capital
Bill Janeway is a PhD in Economics turned venture capitalist at Warburg Pincus and later wrote a book called Doing Capitalism in the Innovation Economy where he says the two big categories that have worked in venture are software and biotech, and both had 50-70 years of basic research behind it, and productized the research that was sponsored or funded by government. None of the categories like Cleantech have worked from a return viewpoint because there hasnt been this similar amount of basic research in the filed.
Pmarca: “And so he says, if you want to predict the future venture capital, you basically just look at where the previous 50 years of basic research, R&D has happened, federal research funding has happened. He has a strong form of it, there’s no shortcuts on this. And so if you’re trying to do venture capital in a sector that doesn’t have this big kind of install base of basic research has already happened, you’re basically just tilting at windmills.”
PMarca: “I’ve always believed and I was an angel investor in Twitter back when it rst got started. I’ve always believed that the public graph is something that should just be titanically valuable in the world. The public-follow graph. In computer science terms, Twitter is what’s called publish subscribe to the idea of a one way public follow graph. That ought to be just absolutely titanically valuable, that ought to be the most valuable content, loyalty brand signal in the world.”
Is VC overstaffed?
Pmarca: “My friend Andy Rachleff, who is the founder of Benchmark and teaches venture capital at Stanford, I think his description of this is correct. He says — Venture capital is always over staffed and over funded. His estimate is that it is overfunded by a factor of 5. It should probably be 20% of the size that it is. It should be 20% of the number of people, it should be 20% of the number of funds, it should be 20% of the amount of money. And his conclusion after watching this for a long time and analyzing it was it’s basically a permanent 5x overfunding, overstaffing. It goes to what I referenced earlier which is, the world we live in just has a massive imbalance of too much money chasing too few opportunities to invest the money productively. There’s just too much money that needs long run returns that looks to venture as part of their asset allocation.
The thing you will hear from LPs is every LP says they only invest in the top ten venture capital funds and every LP has a different list for who that is. They all kind of know that the whole sector is overfunded, but they all kind of know that they suffer from a real lack of… where else is the money going to go? And then, it’s always possible that you’ll have some great new fund, there’s some great new sector that will open up. A huge advantage that venture capital has is the long dated part of it. It means you don’t suffer the consequences of a bad venture capital investment upfront. You get a ten year lease on life when you make a venture capital investment. You’re not gonna get judged for a long time. And so I think that causes people to invest more in this sector than they should.”