VC Corner: Ben Horowitz of Andreessen Horowitz (Genius, TransferWise, Foursquare)

Ben Horowitz is a cofounder and general partner of the venture capital firm Andreessen Horowitz and The New York Times bestselling author of The Hard Thing About Hard Things, which is now available in over 16 languages. He joins us for the latest installment of VC Corner, presented by Pivotal Labs.

Prior to a16z, Ben was cofounder and CEO of Opsware (formerly Loudcloud), which was acquired by Hewlett-Packard in 2007 for $1.6 billion, and was appointed vice president and general manager of Business Technology Optimization for Software at HP. Earlier, he was vice president and general manager of America Online’s E-commerce Platform division, where he oversaw development of the company’s flagship Shop@AOL service. Previously, Ben ran several product divisions at Netscape Communications. He also served as vice president of Netscape’s widely acclaimed Directory and Security product line. Before joining Netscape in July 1995, he held various senior product marketing positions at Lotus Development Corporation.

Ben has an MS in Computer Science from UCLA and a BA in Computer Science from Columbia University.

Ben serves on the board of 21, Capriza, Databricks, Foursquare, Genius, Jawbone, Lytro, Magnet Systems, NationBuilder, Okta, SignalFX, Tidemark, TransferWise, and Usermind. He is also on the board of Columbia University and CODE2040.

Ben Horowitz headlines the Startup Grind Global Conference in 2014 for an interview that covered everything from the Struggle of founders to winning in the rap game. Read on for our highlights and watch the full video here.

Mark Suster, VC at Upfront Ventures: You were a successful entrepreneur and did angel investing after that. What drove you and [your co-founder at a16z] Mark Andreessen to decide this start of venture capital fund?

I was a successful entrepreneur eventually. I started out as a "kind-of-a-little-bit, but not successful entrepreneur" and the company did not go well at first. And in getting to success, there is a couple of big conclusions I came to.

One was, [entrepreneurship] was hella hard. The company had gotten into major trouble, and had to be turned around and fixed. We changed markets - we did a lot of really hard things - and even changed markets while we were public. It occurred to me that since I had made all the mistakes, because I had all the knowledge, because I kind of caused what went wrong - it was easier for me to reverse out of it than anybody else. In fact, there was no way we could have hired a professional CEO to replace me, despite how much I F'd everything up. So it occurred to me that founders should run their own companies, because they know what's wrong with them and they can continue to innovate, to fix them. 

But the model of venture capital at the time was to replace the founder with the professional CEO. That was the core competency [of most VC firms], as opposed to helping the technical founder learn how to be CEO, which is basically my own background.

Mark and I looked at all the great companies that we admire - companies like HP and Google and Intel and Microsoft, and the companies that had been really long lasting, good tech companies - we were like, wait a minute: they are all run by their founders.

It seems like you have to be the founder to continue to innovate on the business, yet the whole venture capital model was replaced by founder. So the basic idea was, we'll create a venture capital firm that helps the technical founder become the CEO. We didn't think that existed and that was the motivation to starting up.

And you just weren't keen to go back and punish yourself again as an entrepreneur?

Well, it's torture. Being an entrepreneur is hard, and you smile while you're doing it.

"How's your startup going?" "It's going great."

I'll help: it's, "we're crushing it." But you decided to start a VC - worthy cause - and seems like you have done OK. Tell me about the meeting in which you and Mark decided how to brand your firm.

So, at the time we started the firm, you have to understand a little bit about venture capital to get why this [business and brand] make sense.

The history of venture capital is very different than other asset classes in that the returns tend to be very very persistent across a small number of firms. In every other industry, the top firm in the 80's is not the top firm in the 90's - but in venture capital, the top firm in the 80's is the top firm of the 90's and the 2000's. And the reason for that is the best entrepreneurs will only work with the best venture capital firms - those that have the best brand. And there hadn't been a new kid on Sandhill Road, full frontal assault competitor that got to the top tier in decades.

You know, there was Benchmark, but they were actually a recreation of Merrill Pickard. They carried on the brand and a lot of the brand of the partners but there hadn't been a new one since like 1982 or something. So for our mission, which was to make things better for founders, we had to be that kind of a firm - so the branding problem was a daunting one.

It was made worse by the fact that neither Mark nor I had ever made a single capital investment, as opposed to angel "seed money" investments. We have no track record, so how do you create a brand out of nothing?

I got this idea: well, we already have a brand. It's Andreessen. You have to understand, he was much more famous than me: he was Beyonce and I was Kelly Rolands.

I said, let's name the firm Andreessen. He said, no way - it has to be Horowitz Andreessen.

We wrangled about which name would go first. The headline on it to me is, "it worked," and now that it did, there are guys in the inner circle who insist we're egomaniacs. I'm like, as long as it worked.

I never wanted my name on it. And if there's anyone who's going to say insane things when he's 70, it's Marc.

One of the biggest trends these days is people joining accelerators. I want to take a minute to hear your view to help people with their decision process.

On the positive side, accelerators have made it easier for people to connect with capital, surround themselves with a peer group, and meet people they would have a hard time meeting.

On the flip side, it encourages group think, incrementalism, and a focus on things that are easier to present and do well on at demo days.

What are your views of the pros and cons of accelerators?

First, from a magnitude standpoint, I think that the pros are like somebody gives you a brand new Buggati, and the cons are like, they left some cigarette butts in the astray - so I generally think they are a good idea.

The reason I think they are a good idea is that, before accelerators, if you were like 20 and had a breakthrough idea, it was almost impossible. If you guys jump that bar - Bill Gates and Larry Ellison jumped that bar - but very few 20-year-olds took their genius breakthrough idea and made it a company. 20 to 25 year olds have a disproportionate number of breakthrough ideas because they are not steeped in the way things work today. They really don't even understand them.

But there is no path to get there. If you are coming from that perspective, accelerators have created that path, and that to me is really high impact. 

If some of my friends have come out of that - Brian Chesky or Drew Houstin - then, wow, to get Brian and Drew into it, I'd give up all the negatives over that.

Now having said that, I think all those negatives are real. You can get caught up in the culture of the accelerator, the culture of the startup world - and if you're an innovator, thinking like other people is the worst thing you could possibly do. You have to think of something that nobody else does - it's sort of the Peter Thiel test: "What do you believe that nobody else does," and like if you can't get to that, if you're looking at whether other people believe in, then you've lost that whole 25 year old advantage. You're not going to get a break through by copying somebody else - it's just not ever going to work.

You wrote the Struggle, and I believe that we all went through it. I feel like the stresses are even greater now, especially in the public world after an IPO, or with the Twitter peanut gallery. I'm wondering where you encourage founders to get support, as it's difficult to turn to investors and the board because you don't want to create the impression that you're going through this. What outlets are available to people, and how did you deal with it?

Well, I can really identify with this because when I was going public, Business Week brought out a cover story called IPO from Hell - and that's about my company, by the way. I am the IPO from Hell. It was one of many, and these things hurt my feelings.

It's lonely, but I think most of the stress doesn't come from what people in the press think and say, but more how the people in the company start to feel about it. You've brought all these people in, they believed in you, things aren't going as sold and. You feel that first, and all the more since it's going badly, and then it's amplified if they read that you suck in the press - as they did about me many times.

I didn't care if they said I was an idiot. What bothered me was the people who worked for me would go home and their spouse would go, "your CEO is an idiot. I just read it here in Business Week - very accurate reporting." 

So in terms of support, I never had a good outlet for that as an entrepreneur, I might have to say.

Probably one of my best outlets is a friend, Bill Campbell, that has had bad experiences when he was running a company calleed Go. I used to talk to him about it and, knowing he had been through some bad stuff, he would understand - but it didn't help that much and it's still a struggle. You just have to focus your mind on what you can do, not what you can't do.

Peter Thiel has a great point in his startup class: he said - look, there are people who believe in statistics, who believe that there is a probability that certain things will happen, and all you can do is run the process. And then there are people who believe in calculus, and who believe there is a right answer. If you are a startup CEO, you have to believe in calculus, you have to believe you can find the answer and that's all you can focus on. There is an answer out there somewhere, and trust me, there is always an answer and hopefully God willing you have enough time to get to the answer. But that's really all there is, and there is not that much comfort out there. 

I talk to entrepreneurs all the time, I tell them how bad it was for me - it sucked - and they say, "that was then, this is my company now - I don't care about you!"

Tell us about your book, "The Hard Thing About Hard Things". I want to talk about a few hard things: one of the hardest is selecting co-founders and how to deal with issues as they arise.

I think there are a few principles.

The first and most important is when you're founding a company: there is a little anxiety involved, and some of you guys may have experienced this. You're feeling very uneasy and so there is a tendency to grab the closest co-founder you can find to say, "oh, okay, it's not just me now - I'm not by myself," and that's a big mistake. You don't want to let your anxiety drive your decision: that's probably the number one most important thing.

Beyond that, there is something that John D Rockefeller said that I have found very useful: "I have found that friendships based on business are far more long lasting and profitable than the reverse." So just be careful about going into business with your buddies because that's generally the wrong reason to do it.

Then thirdly, there used to be these two bands in the 60's: one was called the Beatles and the other was called called The Monkeys. The Beatles were some guys who knew each other, respected each other, formed a band and became one of the greatest bands of all time. The Monkeys were a band that was literally put together by the record company: they said, "you and you and you - you all look cool together, you have the same haircuts, let's make you a band called The Monkeys." The Monkeys were actually pretty successful for a little while, but there were something just fundamentally off about them. So you kind of are generally better off being the Beatles than The Monkeys with the startup to really work with people who you've worked with for a while and respect and feel can be teemmates for a long time.

Then on founders splits, if you're not willing to equally split the company from an equity standpoint with your founders that's probably a mistake. 90/10 splits and 75/20 splits tend to worth less than 50/50 splits. Someone does have to be CEO, though, regardless of split. It's a question of courage, and a shared command question: if you share command, it's because you can't decide who should run the company. But everyone in the company is going to suffer because of that because decisions have to get made twice. 

When Reid Hoffman stepped down from LinkedIn, it was very smart, because Reid was just not interested in being CEO - and that would be a real problem. The CEO has got to want to do the job because the CEO's job consist of 90% of the things that you have to do and 10% things you want to do. It's a grind of a job, a startup grind for CEO's, you have to be on your grind.

I want to ask about one more hard thing, so people can get a tip. How do you handle things when it's time to fire somebody?

My problem with management is that every book I read on it is not that useful because the things they cover aren't the hard things. It's about how to write smart objectives, competitive strategy, and that's not that hard. Not as hard as firing your best friend who helped you build a company and now he's run out of scale and you've got to fire him - now that's really hard. And there's an almost unlimited amount of these hard things.

In my whole career, I never fired somebody too late - I can tell you that. When you ask yourself the question, then it's probably already too late. It's quite a good rule of thumb because, basically, what's happening is, everybody else in the company is trying to send you a message in subtle ways and they are suffering and have been suffering for a long long time. You have to know the individual must be sacrificed for the good of the whole - that's just how it is when you're running a company.

The big thing for me is, at the point where you don't want to do it, when you can't face another day being CEO - that's really the time to step down. I think when you think that you're not good at it, I would just keep in mind that nobody is good at being CEO when they start out as CEO. 

I certainly wasn't any good at it and I'm embarrassed about some of the things I did when I started as CEO. It's a job with the very unnatural notion that you have to learn on the job, and it takes a lot of on the job training. There is no book that you can read, and go, "Ok, I'm ready to be CEO now." It's a very, very detailed high scale position that you can't learn without doing it - you can be a general manager, a VP of Engineering, but that's not CEO. CEO is a very different job, and I would just say that the tragedy is when people lose confidence who shouldn't lose confidence in themselves. So if you think better than anybody else around to do it and you still want to do it provided that you're not horrible at it, then I think at that point the company is generally better off with you staying in the slot.

What I worry about is when I meet founders who worry too much about being disliked, because often the decisions that you have to make are about disagreeing with different consituencies that don't see eye-to-eye and they are looking for a leader to weigh in and resolve issues. How do you think of the issue of liking versus respect?

It's a little tricky, in that I think if you end up doing a good job as CEO over a long period of time, they will often be disliked but respected even if they are not liked in the moment. This is the hard thing about being a CEO and why it's an unnatural job: it means going against our anthropological desire to be liked - it's actually in our survival interest for people to like us us so they don't  kill us since cave man days

As CEO you do have to do a lot of things that make people not you in the short term in particular. A few people not liking you so that the larger group can get what they need will happen, and then there is sometimes people who don't like you because there is just too big a knowledge gap between what you know and what they know for confidentiality reasons, but often it's too hard to articulate. And that's where the job takes courage: the ability to make an unpopular decision.

So if you go with the crowd, then nobody will think badly of you even if you're wrong - because they all thought that, too. But if you go against the crowd and you're wrong, then you're the biggest idiot there. That's where courage and real leadership comes into play. The number one thing that separates a leader from a politician is the ability to do things that are very unpopular, and you have to do them even on a small scale as CEO. For example, you might have to fire an executive, and that's going to be very unpopular with that person but it will make the team much more happy.

Steve Jobs was pretty dickish at times if you've read the book, but people at Apple love him. Jeff Bezo's book on Amazon just came out, and there are some mean question marks. But people like him - they love Jeff Bezos because they know that over time he's getting them in the right direction, and that's what you have to strive for.

One of the existential topics young companies think about the most is fund raising. How do you think about it, in terms of terms, in terms of how much capital to raise, and from whom?

When raising money, a lot of things you do in the company, you want to view it through the lens of what happens when things go wrong as opposed to what happens when things go right.

To give you an example, if you hire an executive and you think, "Well, when we're Facebook scale with a billion users, then this person will be really valuable." That's a really dumb way to think about it, because if you get to Facebook scale, anybody is going to succeed at this job. The question is, if the wheels come off and you need somebody to help you get out of dire trouble, is this person going to continue to be great when things are hard. And that's the same thing with the money.

Capital markets swing around a tremendous amount. In the public market, the multiples change by an order of magnitude routinely, and private markets are even worse. So you may be worth, on your numbers, $500 million today, and $20 million tomorrow - and that's not crazy times, that's regular times.

I raised money at $700 million dollar pre-money evaluation in June of 2000 and by December of 2000, when I had tripled my bookings rate, I couldn't raise money at all - not at all. I had to go public to raise money because the private markets were completely shut.

In that fundraising environment, you just have to deal with the fact that that's the way. So when you raise month, you want to raise with the thought that, if capital markets get way worse on my next round, then I need to think about the amount and the funder because the best funders are the ones who can see through troubles and external circumstances, and who can see beyond other VCs not liking the deal even though it's a good deal and can think for themselves. And that's extremely valuable in that scenario.

Now if everything goes well and the capital market stay up, it might not even matter who your investor is. But when things go badly it can matter a lot and it’s hard to find.

In fact, my favorite joke is, "what do you get when you cross a herd of sheep with a herd of lemmings?"

"A venture capitalist," and so it's hard to find one that thinks for themselves.

What is a pitch meeting in Andreesen Horowitz look? Run me though a meeting with, say, Rap Genius.

The first thing about a pitch meeting at Andreesen Horowitz is everybody will be on time. If they are not, I fine them $10 a minute for being late. The reason that we do that comes from my experience as an entrepreneur: when you're an entrepreneur, you're living and dying with that company, and you're working extremely hard. The last thing you need to do with your time is sit in the lobby of a venture capital office add wait.

The second thing, is people aren't going to be on their iPhones or computers or Android devices or anything. They are going to be listening to you - and I also hold that in very high regard. If they do whip out their devices, I fine them $100 per use. I'm very big on fines: I find them to be extremely effective even with rich people because it's just so embarrassing to have to take out your wallet. Although we are now accepting Bitcoin for fines.

The third thing that we do is, when you want to start with the pitch, you'll start with your complete background: where did you grow up, how did you get to this point, how did you come on to the idea, where do your co-founders grow up, why are you guys working together, what is it about? That's very important to me because I'm looking for a few things: one is the nature of the idea - what is the founder-market fit? I mean, is this something that you would die for? You don't just want to do it - you have to do it. Or is this something that you are thinking about as, "all my friends are starting companies, I need to start a company, so I thought of this great thing." We're looking for, was this an idea you were searching for, or was it that you've lived your life with this problem and you had to solve it and you had to solve it for the world. Then I'm looking not for management skills - almost none of the people we invest in have what I would consider high management skills - but I am looking for leadership. Did they develop leadership qualities in their life and what does that mean? It's really to Marc's point, which is "are you telling me things because I want to hear them or are you telling me things because you believe them?" That's a big test and often times we'll try to get an entrepreneur off their idea: we'll say, "why aren't you doing it this way," and if they agree that's actually a bad sign because it shows a lock of courage which is critical to leadership.

As an example, for the Rap Genius guys, I met with them a few times before I brought them up to the General Partners, because they're very different. So, 3 founders: one of them has a law degree from Stanford, a very kind of unusual character. Another one was a programmer and a math major. The third was a writer on DeadWood, which is maybe the greatest written television show of all time. It was a very interesting mix of guys was Rap Genius. I really had an advantage because I understand, of all VCs other than Marc, rap music. The software doesn't just annotate lyrics, but giving the definitive, canonical accurate explanation of every rap lyric ever written. That's just an amazingly hard thing to do - you're getting into incredible depths of the culture, including some very odd things.

For example, when JZ says "it's a dream team, meets a Supreme team and all our eyes green only means one thing,". It's a double entendre. What he's talking about with eyes green is that they're after the money, but there's something else: there's a drug dealer named Supreme who has green eyes in New York who is very famous - Rap Genius got that nailed, with a picture of Supreme, the whole thing. They had a secret: they had figured out how to get to every person they thought knew something, putting up their feedback on this huge body of work by building a community and technology platform that found the true scholars in the community. It's like Wikipedia down to a single lyric in a single song - and led by these 3 very unusual guys. This isn't just Rap Genius, this is the Tolmud of the Internet - it's an explaination of everything that's going on. They started Rap Genius and it grew from there into a very organic thing to solve a real problem.

Like the musicians, what's your advice to young entrepreneurs? It gets more competitive each time in this industry, right?

In the early days of startups, maybe it was easier - and now everybody wants to start a company. So how do you break through the noise? I think the key has always been to have a breakthrough idea that's yours. If you're in the noise, if you listen to the noise, if you have an idea that's a variation on a theme, then it's incredibly hard to succeed. There is just too many people out there. But the thing that you have to give to the Beastie Boys or Randy MC and so forth is when they did hip hop nobody thought it was a good idea.

So that just being in hip hop was breakthrough to some extent. When Microsoft started in software nobody thought software was a good idea and just doing software was a big deal. IBM thought it was so unimportant that they refused to pay engineers to write software: they said, "if you write it in your spare time and we sell it we'll give you a royalty on it" - that was literally IBM up to 1980.

So now the breakthrough isn't going to be, "I'm going to write software" because that's obvious now. Instead, you have to come through with an original idea - and there are always original ideas. I mean, in music, you have Kendric Lamar, but the guys who come out and sell better than everyone else have a very hard time breaking through, too - you have to have something new to say or something new to do.

How do you think Silicon Valley could benefit entrepreneurs outside of Silicon Valley? They have great talent, but few resources. What's the best way to break these barriers? Do they have to move here, or can they build startups elsewhere?

So the biggest resource is actually not money - it's people. The reason that Silicon Valley is the easiest place to build a new company is because that's where all the people who know how to build companies live. If you're a great engineer, where are you going to go live? Changes are it's going to be Silicon Valley, too. If you're a great tech executive, it's Silicon Valley. There is a network effect that is extremely strong and growing.

So if you decide to do something outside of Silicon Valley, then it really has to set the bar high on originality, because it's going to be much harder when a Silicon Valley company does the same thing and you might lose just because it is very hard to compete with the resources that they have. In particular, the human resources are the biggest deficit - meaning the talent here - so it really has to be even more out of the box. For example, Rap Genius is a New York company, Skype is in Estonia, but those are pretty far out ideas. If you're building  a variation on a social network it's a lot harder to do outside of here, but Snapchat is in LA so it's not impossible.