I just listened to this podcast with Marc Andreessen, Chris Dixon, and Benedict Evans. And since the post I was going to write today is now delayed until tomorrow, I will simply run the podcast as my post of the day. Lot’s of great stuff in here. I particularly liked the bit (about 17.5 mins in) where Marc says “there’s no public market bet on bitcoin, there’s no public market bet on crowdfunding, etc, etc”.  We’ve got those bets and I hope we can share them with the public markets someday 🙂

#stocks#VC & Technology

Comments (Archived):

  1. jason wright

    ‘the price of everything, and the value of nothing’ – you must get that a lot when negotiating to get in on deals with entrepreneurs.

  2. William Mougayar

    I’m not sure I fully understand that statement “there’s no public market bet on bitcoin”. Does he mean “public stock market” or “public” as in people in general?The anomaly with Bitcoin-related funding and investment is that it’s currently tilted towards non-VC types of investments, via 1) currency/product sales, e.g. Mastercoin, Ethereum (upcoming), or 2) tokenized investments in decentralized Apps, e.g. MaidSafe (sale opens tomorrow April 22nd)I’m willing to bet that in 2014, traditional VC investments into Bitcoin/Crypto companies will be less than the crowd-funded methods for that same sector.

    1. fredwilson

      what he means is that public market investors (hedge funds, mutual funds, etc) cannot make bets on bitcoin companies

      1. William Mougayar

        Yes and No. They could buy into it via the 2 methods I mentioned above: a) buy new currencies, b) buy tokens when they go on sale.

        1. awaldstein

          Buying tokens and playing the market, and investing in companies are not the same thing to me.

          1. William Mougayar

            But that’s how several Bitcoin companies are getting funded. It’s a new thing, and it’s a valid investment method. You can’t buy equity in these companies.

          2. awaldstein

            Crowd sourcing works sometimes for some things for certain.But buying coins to me is like buying futures in gold not a seed investment I put into a company.Different to me.

      2. jason wright

        is that a regulatory inhibition?

  3. JimHirshfield

    “…since the post I was going to write today is now delayed until tomorrow…”Ooooh, big announcement pending?

    1. jason wright

      WHAT a tease.

    2. Abdallah Al-Hakim

      I guess we have to wait!

    3. William Mougayar

      It sounds like it 🙂

      1. pointsnfigures

        He’s going to do a comedy tour, and post it on Soundcloud with cloudsourced jokes.

        1. JimHirshfield


          1. pointsnfigures

            you certainly could, but I was referring to Fred’s blog tomorrow.

    4. JimHirshfield

      Could it be what was just announced an hour ago?…cc @fredwilson:disqus @wmoug:disqus @jasonpwright:disqus @pointsnfigures:disqus @abdallahalhakim:disqus

    5. ShanaC

      meh..i just wish I knew what happened in advanced 🙂

  4. JimHirshfield

    You waking up at 4am nowadays?

    1. fredwilson

      today i woke up at 3am

      1. JimHirshfield

        Me too. But I rolled over and went back to sleep. ;-)Well rested from the weekend, so I was up a few times, but I don’t get up before 5. Take a nap after lunch!

      2. jason wright

        do people ‘wake up’ at 3am?at 3am is being ‘woken up’, by something internal or external.i went to sleep at 8:30pm last night, and woke up at 8am this morning. so refreshing. it’s a public holiday here today.

        1. JimHirshfield

          It’s just awake.

          1. jason wright

            at 3am is not ‘just’ – it’s not natural, it’s not healthy.

          2. jason wright

            then i’m unnatural :-)the bbc even more so.

          3. JimHirshfield

            Duly noted.



    2. Matt A. Myers

      Great time for meditation or yoga. 🙂

      1. JimHirshfield

        I prefer swimming. 🙂

        1. Matt A. Myers

          At 3am? That can be fun too..

          1. JimHirshfield

            Well, no. Closer to 5:30/6.

          2. Matt A. Myers


  5. Mike

    Do you know how the Brooklyn Castle Chess team is doing this year?

    1. fredwilson

      no, but i can find out. should i inquire?

    2. Mike

      Maybe funding will be restored by the new administration and they won’t need to seek donations for the next school year.

  6. jason wright

    i can imagine the benefit to them of having this discussion in private, but what is the benefit to them of recording it and then publishing it to the web?

    1. Andrew Kennedy

      To show how they think. Really attractive to potential companies in my opinion. It’s very magnetic.

      1. jason wright

        …and so i wonder how much prep there is beforehand, and the self-awareness aspect of the message they are wanting to send out to the market, rather than just navel gazing? this podcast is a product, for a consumer, in a market.

        1. Andrew Kennedy

          it’s a good product. here’s a look at inside baseball at a16z.

          1. jason wright


          2. Andrew Kennedy

            was saying the attached is a good product. serves that purpose.

    2. sigmaalgebra

      They are getting publicity. Thus, they get more deal flow and get smiles from their LPs. With more deal flow, they might also get higher ROI and, thus, more money in their next fund. They are ‘doing their job’.

  7. Andrew Kennedy

    Great podcast. Love how those three riff off of each other in this. BE is great addition.

  8. Richard

    Great discussion on bubbles, though It seems misplaced to discuss a bubble in seed stage investing. With total seed stage investments still less than 1 billion/yr (I believe) with essentially no small investor participation, i don’t see how the bubble paradigm fits.

    1. Jonathan Sandlund

      It’s a bubble. Absolutely, positively. No clue when it will burst—no one does—but it will. The proof is simple: incentives.- VCs have every incentive to pump valuations in the private markets and exit to the public markets (via acq by public internet co or IPO). They effectively have zero downside. Retained equity is often less than 50%, and locked up less than a year. Intentionally or not, they’re getting in, pumping, and getting out. Misalignment of incentives is how all bubbles are inflated, and it’s a recipe for disaster.Some may counter that healthy, fair public valuations are in the long-term interests of VCs. But this assumes individuals behave in their best long-term interests. Which, of course, we know they don’t. Human nature, we’re insanely short-sighted.The question in my mind: are some VCs doing this intentionally—maliciously? I think some are. They know exactly what they’re doing, and could care less; they’re making massive amounts of money while the music plays, and will pay nothing back when it stops. They’ll stick the losses to the everyday investor. Despite their rhetoric, they’re no different than the charlatans at Goldman and JPM.That said, having spoken with many, many VCs—particularly between the coasts—I think very few are doing it maliciously. Most VCs are following, not leading: Valuations set on the coasts drive behavior everywhere else.It’s not if, but when. And when the public realizes its been sold a BS story, and calls for real earnings in exchange for all the hope they’ve been buying, public internet valuations will be decimated*. Our friends, our family will be pay the price. While select VCs—cash in bank—drive down 101 into the sunset.It’s deplorable. 2008 all over again—high finance riding & accelerating the highs; avoiding the lows—except this time it’ll be Andreessen, not Goldman.* I’m bullish networks (LNKD) with real competitive moats; bearish products (P, GRPN, EXPE).** Some internet co’s are good businesses but it’s all moot when valuations are whack. (Which most are.) When Expectations normalize to Reality, prices will plummet.

      1. CJ

        Unintentional bubble maybe. Fred said it weeks ago but there is no where to park money nowadays to generate a return except VC, so with a ton of money to invest the valuations get crazy. When monetary policy returns to an emphasis on savings – meaning I can get a CD for more than 1% return then valuations will start to decrease as other investment vehicles become attractive again. Or something like that.

        1. Richard

          No other place to park money? Have you looked at the Equity Markets since 2008? This market is the Rodney Dangerfield of Bull Runs and could very well “the” great bull run for the Gen X, Gen Y generations. VC investing correlates with bull markets not bear markets.

      2. Richard

        Equating this market and andresson to goldman and 2008 is like looking at the tree and forgetting the size of the forest. Andresson has $3 billion dollars under management. The interest rate derivatives market alone in 2008 was north 400 Trillion (Yep, that’s Trillion).The forest that we are in is one for ages. Believe in Innovation. This time won’t be any different from the last three great productivity booms.VCs invest in but do not run companies. Could Groupon have been a great company? Yep. They had every chance. They blew it. Why? Bad hiring.

        1. Jonathan Sandlund

          Sorry, should have clarified. I’m not equating the size of the market. I’m equating the practice of packaging, inflating and selling an overvalued asset to an unsuspecting public. (ABSs then; overhyped/overvalued internet co’s now.) Same story, different actors.Banks maximized and rode the highs, stuck the losses to the people. VCs maximizing and riding the highs today, and will stick the losses to the people as well.Again, I use “VC” generally, and perhaps unfairly. I’m not anti-VC. But I believe some know precisely what is happening, and what they’re doing. They’re conjuring growth stories, illusions, they know are bollocks. But they could care less how many overvalued assets they peddle to normal people.

        2. andrewjude

          Politely disagree. The economics of the Groupon business model were poor and as a result they suffer in the public markets and too much competition led to enormous margin erosion.The other major issue? Very high marketing costs. At one point they were the biggest buyer of Google Adwords in Europe and were spending ÂŁ400k (yes that is sterling) per day to acquire customers. Further, If CAC > COGS you’re going to lose hugely even if you have massive revenues. Combine this with super high marketing costs and its not going to end well.I’m not sure bad hiring was the reason. Over hiring most definitely but not bad hiring. Unless bad hiring = building a business worth north of $1bn in three year.FYI: I was a former employee.

          1. Richard

            I agree. But in the end GRPN had a window of opportunity to change commerce. They tripped. Sorry, this squandered opportunity was due to a team who just couldn’t innovate.FYI: I was a former customer.

  9. pointsnfigures

    The valuation market in Venture is inefficient (with respect to Efficient Market Hypothesis). I don’t think it’s realistic to compare the value of today’s stock market with the value of Venture backed companies because we have far less IPO activity. In the late 1990’s, everyone listed-it was much easier to list prior to Sarbox.if you believe the EMH of Fama, there is no such thing as bubbles in efficient markets. Therefore the stock market isn’t in a bubble. Because VC valuations aren’t efficient, they could develop bubbles.Even Second Market doesn’t provide efficiency to illiquid VC backed companies.Based on data I have seen, I don’t think there is a bubble in VC. Wrote about AirBnb today at my blog. Only bubble I see is Vegas overvaluing the Bulls prior to yesterday’s game.

    1. Aaron Klein

      I’m highly skeptical of efficient market theory. You might be able to convince me of “somewhat efficient market in well publicized and known investments” theory.

    2. sigmaalgebra

      > if you believe the EMH of Fama, there is no such thing as bubbles in efficient markets.It’s an ‘hypothesis’. If it were true, then much of the Hamptons would be just a sand bar. Thus, it’s not true!The hypothesis might be roughly true, or generally true, or mostly true, or in some broad sense, setting aside ‘small cases’, approximately true.Or, it’s a first-cut. simple ‘model’ that might be one step toward being true.Or, it’s ‘research’ or what follows from the assumptions of the research. Then if the conclusions of the research are not true and the deductive work of the research is correct, then, presto, we have learned something — the assumptions of the research are false!Or, it’s ‘applied science’ in that Fama is famous and, likely, is making money from the work!

      1. pointsnfigures

        No, you are confusing academic terminology with definitions from Merriams. EMH has been proven again and again. Active traders never do as well as passive traders, especially when fees are added in. Fama has been proven right. There was a great video of the discussion of his theory here;

        1. sigmaalgebra

          Yes, what I wrote was too short!I watched the video.The academic people in economics and finance want to have some simplistic theories that ‘explain’ what is going on. That way they get tenure and fame. The world, however, does not get much that it can use: E.g., when a hydrodynamics guy uses computational fluid dynamics to predict the drag on a racing sailboat, people take the results seriously. Similarly when a civil engineer designs a safe dam or a mechanical engineer designs a safe bridge. But from the 1929 crash to the present, the economy of the US, other countries of the world, and the world have gone through many wild and harmful swings, and one reason is that people take crystal ball readers only slightly less seriously than the professors. In simple terms, those professors don’t much know what the heck they are doing.If as Fama claims the market makes full use of all information quickly, then there should be no way to make exceptional returns. That is, for risk, that is, variance of return, using the quadratic program of Markowitz based on the matrix of variances and covariances of returns, can construct a portfolio that effectively ‘diversifies away’ the (at least the ‘non-market’) risk. What is left is essentially, from W. Sharpe and his capital asset pricing model, CAPM, a ‘market’ return.Since the Hamptons are there and the market return won’t fund the Hamptons, Fama can’t really be correct.I’d very much like to hear from James Simons just what he did and why it worked so well.Fama, Sharpe, and Markowitz, if their work is to be directly relevant in practice, are assuming that there is a very good way to estimate expected returns and variances and covariances of returns, and this is one heck of an assumption. There remains the possibility that, in effect, some investors, even if they don’t know the difference between (A) a closed polytope from a finite intersection of closed half spaces and (B) a hangnail, could do better making the estimates and, thus, get higher returns.Or difference of opinions is what makes horse races and wide differences in ROI.E.g., the world of business speeches, articles, and books is awash in wildly different ways to evaluate a CEO, and we do have to suspect that a CEO can have a lot to do with what the company does in 1, 5, 10 years.The Fama assumption that the market makes full use of all information quickly, if taken seriously and literally in detail, is also worse than five day old fish: Even if traders are making nearly all the trades and nearly all the traders are constantly watching CNBC, CNN, and their Bloomberg terminals with their analysts constantly reading the SEC submissions on Edgar, there can be many other sources of information, even ‘public’ information, for some seconds, minutes, or even months poorly used by the market as a whole.That it can be tough to beat Bogle’s Vanguard does not mean that the market is actually, fully efficient.While some of the work in exotic options might push us into stochastic differential equations, e.g.,Ioannis Karatzas and Steven E. Shreve, ‘Brownian Motion and Stochastic Calculus’,the work of Sharpe and Markowitz, and maybe also Fama, is basically some not very complicated derivations in ‘applied probability’. In this sense, the work is like a small airline in the South Pacific that will take you from one island to another. The origin island has all the assumptions; the airplane is fueled by derivations in applied probability; and the destination island has all the amazing conclusions. The problem, then, is getting to the origin island with all of its astounding assumptions.E.g., to estimate an expectation, the usual approach is to assume that the expectation exists and that we have samples that are independent and identically distributed (i.i.d.). Then we apply the law of large numbers — the weak law is sufficient here.Okay, let’s consider independence: If real valued random variables X and Y are independent and Y has an expectation, then the conditional expectation E[Y|X] = E[Y]. Moreover, for any real valued Borel or Lebesgue (must be an effect of all that good French wine) measurable function f of a real variable, still E[Y|f(X)] = E[Y]. Tough assumption to justify and not so easy even to test effectively.Yes, for the weak law of large numbers, covariance exists and is 0 is sufficient, and of course independence (when expectations exist) implies covariance exists and is 0, but, still, covariance 0 is also difficult to justify.So, estimating the expectations is a bit much to swallow.I suspect that in a broad sense, Fama is roughly correct. Mostly his work looks to me like just some ‘research’ that is one more step toward understanding the stock market.But Fama’s work is so lacking in detail that it does not rule out a few investors doing much better than his claims. Indeed, apparently Simons made a bundle in the markets thus showing that Fama is not completely correct.

          1. pointsnfigures

            Can the average investor at home beat the market? Or would they be better off in a no-load mutual fund that replicates the market?Fama has done a huge service to the average investor, which makes up most of the market. He has published many papers since 1962, had this theory backed up by independent study, and has massive amounts of data behind it. Just because you don’t believe it doesn’t mean it’s not true.If you want to talk about the owners of Hampton’s homes, if they were traders, they had some sort of advantage in timing, speed, information or just dumb luck they could exploit over the rest of the marketplace.

          2. Richard

            The advantage of the institutional investor is the size location and size of his pipes.

          3. sigmaalgebra

            Apparently we largely agree:> Can the average investor at home beat the market? Or would they be better off in a no-load mutual fund that replicates the market?Of course, your second option.> Fama has done a huge service to the average investor, which makes up most of the market. He has published many papers since 1962, had this theory backed up by independent study, and has massive amounts of data behind it.I agree.> Just because you don’t believe it doesn’t mean it’s not true.I believe and have indicated that I believe that it is generally and roughly true. But James Simons and the Hamptons indicate that his theory is in some respects significantly wrong.> If you want to talk about the owners of Hampton’s homes, if they were traders, they had some sort of advantage in timing, speed, information or just dumb luck they could exploit over the rest of the marketplace.I agree, but what you are saying essentially contradicts Fama’s assumption, observation, belief, evidence, or whatever that the markets incorporate all the public information quickly. What could he mean by “quickly”? Too quickly for anyone to beat the market. Again, here Fama is broadly and roughly correct; but he is wrong enough to permit James Simons and the Hamptons, and for an individual investor taking investing seriously, Fama is really significantly wrong.Fama has a broad theory of the market that is roughly correct. But too many people, at one time including myself, too soon drew the conclusion that the Brownian motion assumptions and consequences, the ‘random walk’ argument (Brownian motion is essentially the ‘pure form’ of a random walk with some just astounding properties), the Markowitz and Sharpe arguments, and Fama’s EMH were too close to correct to permit making money investing in the market. Simons, to his credit and high benefit, apparently didn’t believe that stuff.Look at it this way: There are a lot of sudden ‘forces’, i.e., ‘shocks’, e.g., essentially stochastic point processes, e.g,, the Poisson process (e.g., see Cinlar’s ‘Introduction’), various ‘renewal’ processes (see Feller, volume II), [ah, no guys from Chicago but two guys from Princeton; I’m not against Chicago since Billingsley and Halmos were there and Doob was not far away] on the market by individual investors. Clearly, each of those shocks disrupts the ‘efficiency’ of the market.E.g., at least in principle and maybe at times in practice, some shock in foreign exchange or commodities can make the prices on the NASDAQ wrong. Then some ‘trading’ is needed to get the prices back ‘in balance’, i.e., in simple terms, so that there is no (statistical) ‘arbitrage’. Each trade, however, in simple terms, is just in one instrument. Bummer because, as computational experience and iterative algorithms in non-linear optimization overwhelmingly show, such ‘trading’ will be a quite slow, ‘computationally’ inefficient, way to get all the prices back where there is no arbitrage. So, the idea that the market is always without arbitrage is a bit much to swallow.Or, the reason Wall Street and other trading is so active is that it takes a lot of trading to keep down the arbitrage opportunities, and otherwise, and for a while, they will exist.Or, some foreign exchange evidence indicates that the US economy will be less good at Easter which can mean fewer hams will be bought which can mean that fewer hogs will be bred which will mean that fewer pork bellies will be available in the highly inelastic market for pork bellies — so, at about the right point, go long 100 cars of bellies. And that means that more people will be eating chicken which means to go long soy beans and fish meal. I’m writing software for my project and not investing in commodities, but some people do and make money at it with some of their thinking like what I outlined.

        2. Dave Pinsen

          Public markets are mostly efficient most of the time. If they were completely efficient all the time, as Sigma Algebra suggested, no professional investors would beat the market.

  10. Brian Manning

    Andreessen makes an excellent point in the last 30 seconds around enterprise entrepreneurs assuming that they can build a great product and the customers will come. As he notes, businesses do not buy this way. I see lots of enterprises taking this approach and learning the hard way that they need to take sales a lot more seriously (b2b distribution is much different than b2c distribution).

    1. FlavioGomes

      How do businesses buy?

      1. Brian Manning

        The short answer is that buying is easy for a consumer to do (assuming they have the $$) and hard for a business to do. Big businesses need their hand held. They generally can’t buy something without help.I wrote a post a while back comparing the process of a consumer buying an iPhone to a large company buying an iPhone that might help explain.

      2. pointsnfigures


        1. Matt A. Myers

          I’ve got this old fork I’m selling. It’s cheap. Just $2,000 per month.

      3. Abdallah Al-Hakim

        Selling to business is really more like ‘group’ selling and depending on your demand type (new concept, new paradigm, established market) you need to have a good sales-marketing alignment to nurture and convince the buyer of the product. It is a long process and in addition to a great product requires a solid sales team and a great marketing team.

      4. CJ

        I buy based on need and then based on visibility. So a combination of marketing(for awareness), reference checking(to make sure I’m not buying crap), and a sales guy who can work with me to navigate the bureaucracy to get the deal done. Most internal processes have multiple layers of hell to navigate and each layer requires a different toll. A good sales guy can spin and formulate demos and documents to appeal to each particular layer of hell to ensure the deal isn’t squashed before the final signature is dry.

        1. Brian Manning

          “…a sales guy who can work with me to navigate the bureaucracy to get a deal done.”That piece is often overlooked. Big companies need external help (from salespeople) to buy things. It’s often too hard for a company to buy something on their own. b2b is a totally different world in that sense.

          1. CJ

            > It’s often too hard for a company to buy something on their own.This is so true and so sad. The right company can make a killer though, when we signed with ServiceNow their contract was one page. ONE PAGE. Talk about a breath of fresh air. Legal still had one change though, but only one change and the turn around was hours rather than days.

          2. FAKE GRIMLOCK


          3. Brian Manning

            100% agree, there’s definitely a startup opportunity there — buying in is a huge problem for big companies. Software that would automate the complex decision making process would be huge.

          4. FAKE GRIMLOCK




  11. Kirsten Lambertsen

    Great way to put on my makeup this morning :)Really appreciated Benedict’s crystal clear description of the 2000 bubble. I’ll be able to reuse that.For people who would like to get Andreesen’s tweets put into a single blog post format, there’s a good blog called “pmarca says”.

  12. howardlindzon

    Agree on Bitcoin and crowdfunding…always thought Angel List or Betaworks should be public…hope they see it that way too.

  13. Jonathan Sandlund

    If public internet valuations massively decline / correct in the next 5 years, will it still be unfair?ps. Glad i found your blog. Really enjoyed “A Calling.” I’ve struggled with many of the same questions…

  14. Jonathan Sandlund

    “Actively, knowingly.”Agreed, that’s the distinction. But if they are knowingly embellishing the story they’re selling—which I believe some are—they’re frauds.As for the SEC — VC also receives unfairly soft treatment. Look at the JOBS Act. Outside a couple blog posts, from a few VCs, is not suspect how disengaged VC has been with democratizing access to their markets?They preach open, transparent and fair markets. Except, it seems, when that means more competition for them.

  15. Jonathan Sandlund

    I’ll circle back when the bubble pops. After billions of dollars of retail wealth is lost. Our friends, our family, victimized by a game that was rigged against them from the start. By design.A16z et al. will claim ignorance when it happens of course. How could they have known; the stories they sold, it was what the market would bear; and all sorts of BS arguments. And at the end of the day, they’ll have already pocketed all their gains. Enough to last a thousand lives over. But I hope you know better when you see it.Maybe then you’ll agree.