Secrets of Sand Hill Road with a16z's Scott Kupor

Scott Kupor joins Ryan on this episode to talk about his new book, Secrets of Sand Hill Road. Scott is Managing Partner at Andreessen Horowitz and has been at the firm since it was founded. He has a long history with Marc Andreessen and Ben Horowitz, including working alongside them at Opsware in the early 2000s.

Ryan and Scott talk about...

How venture capital has changed over the past decade

“The biggest shift has been the massive amount of seed funding growth that has happened. Something like five hundred new firms focusing on seed have been formed in the last ten years in the US alone.”

Scott also points out that even though there has been an explosion in seed funding, it's still the case that less than 10% of all venture capital dollars are deployed at the seed stage.

“You’ve got this interesting dichotomy, which massive new company formation happening at the seed stage but a winnowing down of the opportunities and increasingly more capital going to winners in particular ecosystems as they mature.”

They also discuss the fact that companies are taking much longer to IPO now than they did in the past, and why that trend is here to stay.

Advice for founders in the new investment landscape

Scott talks about how founders need to adapt to the new investment landscape and walks through some of the biggest mistakes that founders make when they are trying to raise money.

“It’s cheaper than ever to start a company today and we’ve got incredible amounts of seed funding but it’s also more expensive than ever to actually scale the businesses because the markets you can go after are much bigger and people realize they have to look at international markets in parallel.”

The future of venture capital

Ryan asks what the biggest potential disruptor to venture capital could be in the next five to ten years.

“Capital is definitely no longer a scarce resource and therefore if you’re relying on capital to differentiate yourself in the market, that’s not a good place to be. Whether [the future] is ICOs or crowdfunding, I think we’ve permanently gone into a place where you have to provide something other than money to be competitive. I think we’re also going to see more blending between the private markets and the public markets.”

How to think about the long-term relationship between your company and your investors

“It turns out that most VC relationships will last longer than the average marriage in the US, which unfortunately only lasts about eight years. Sometimes you’ll be involved with VCs for ten to twelve years, so it really goes to this fundamental question of understanding the VC’s incentives but also being very clear as an entrepreneur what you expect from your VC.”

“We think about these financing rounds as though they’re episodic because they are, but they’re a part of a continuum and anything you do that doesn’t play well for subsequent investors is probably the biggest mistake I see on both the investor side and the entrepreneur side.”

How a VC thinks and how to understand their incentive structure

Scott pulls back the curtain on VC to explain how an early-stage investor thinks about evaluating your company.

“The question ultimately for an early stage VC is, imagine if this company worked — what could it become? And then the real question that follows from that is, why would I want to back this team versus any number of other teams that might have the same idea.”

Ryan also tells the story of walking into Andreessen Horowitz in sneakers and a Product Hunt kitty t-shirt to pitch the company and finding himself speaking to nearly twenty people.

We’ll be back next week so be sure to subscribe on Apple Podcasts, Google Podcasts, Spotify, Breaker, Overcast, or wherever you listen to your favorite podcasts. Big thanks to Monday.com and Embroker for their support. 😸