a16z Launches Its Own College | The Best & Worst Time to Build | When the VC Music Stops

I think right now what we're playing is this gigantic game of musical chairs. And I think there's a set of firms who essentially have their hand on the chair and they're just like, well, no, whenever the music stops, I already have a chair. I think the real danger in musical chairs is if you don't have your hand on a chair, you're at risk. But I think there's a set of firms in our industry who have a chair and no matter how this turns out, they're going to remain in business because of their brand, because of their performance, because of their relationships with LPs. For other reasons. And I think that's very different. I think then you can be like, we're just going to go full maxi and we're just going to keep dancing because we don't need to be ahead of the music stopping.

It's the week of September 21st. Welcome to The Learning Corner, a Precursor Ventures podcast. Welcome to The Learning Corner by Precursor. I'm Mia Farnham, and I'm joined by our GP and managing partner, Charles Hudson, where we will be talking through the articles and Goodreads that caught our team's attention. Over the past week. Our first piece comes from the Wall Street Journal, written by Katherine Binley, and also probably a million other threads that you saw on social media. This piece in particular is titled, The Tech Elite Is Funding an Alternative to College. Andreessen Horowitz is putting $35 million behind the Horowitz Andreessen Academy, an unaccredited 2-year program in San Francisco for students aged 16 to 22, led by Udemy co-founder Gagan Miani with Anthropic, Google, Meta, NVIDIA, and OpenAI signed on as founding partners offering compute software and access to their offices. The pitch is essentially don't drop out to start a company, come do school with us instead. With up to 80% of students' time spent on project-based learning like building an AI model or shipping a product, plus co-ops with those partners who've joined on, the founding class starts a tuition-free 1-year program in fall of 2027 and the full 2-year version pending regulatory approval will carry tuition in line with elite private universities. There was so much chatter on this in the past 24 hours, and skeptics like Brown University's John Friedman pointed out that proven track records and learning alongside people whose paths look nothing like yours still matter. But Eric Thornberg framed the logic plainly from his point of view. Quote, venture is the discovery and cultivation of talent, and that's what universities are too. Obviously wanted to pause for your thoughts and reactions to the news and just the trend of education changing more broadly.

I think this is going to be an interesting experiment. I think the history of VCs trying to disrupt education has been difficult, particularly for folks who've tried to come in and tech-enable everything, that the track record of those ventures hasn't been great. In some cases, the things they pioneered or tried out ended up making their way into other institutions. And so, I don't know, I went down the rabbit hole of the Montessori school thing in the New York Times. And I think education is one, other than healthcare, actually, I might argue education is even even more sensitive issue for families than healthcare.

Yeah.

I think this school has one thing going for it that most of the other attempts at education reform or like new models haven't had. I think before people were like, yeah, I'm maybe dissatisfied with the status quo, but the status quo still feels like the most safe, predictable, reliable way to become a successful person. And I think with a lot of the AI doomerism and a lot of the, I think not just doomerism, justified skepticism or questions about what does this mean for humanity and education, there's a window to try things that are more radical, both within the system and outside of it. And I think in some ways, my hope for this school is that I talk to a lot of younger folks who, they prefer project-based learning. They like being hands-on. They learn by doing, not learn by being lectured to or talked to. They want to like get their hands dirty. Not every student, but I think for students who learn that way, this could be a really great opportunity to get that. And I think that's a, that's a message that's percolating its way through higher education more broadly. I think anytime Andreessen Horowitz puts their name on something, it's going to attract attention. It's going to attract attention both from their fans and from their haters. It's interesting, you know, we're in campus, and I think that team is, in my opinion, doing amazing work to make on-ramps to higher education affordable and accessible for people who couldn't do it before in a way that doesn't leave them saddled with debt. And I personally like models where you don't have to destroy the existing ecosystem. So for me, the big experiment will be how much does the— can I call it the BAA or the BHA? HAA.

The HAA.

I gotta get the acronym right. How much will this school color inside the lines? And I think things like accreditation are important. And how much will they play within the regulatory norms of education? And how much will they behave more like a startup and break things? And I think in education, Sometimes the point of experiments isn't to build new institutions. It's to move existing institutions in new directions by showing them new ways that things can be done. And I think there is absolutely an audience. The audience for this might be mostly people in 94XXX and 10XXX zip codes, but for a first couple of cohorts, I'm sure they'll learn something. And I hope that students who want different educational pathways have more high-quality options.

That's what I was thinking of is I don't necessarily think for the first cohorts it's gonna be people who've never thought about dropping out before. I know that there is some discourse in the threads of like, this is gonna encourage students to drop out. I'm like, I think the people who are gonna join this were always thinking about it, and this will be a great opportunity for them to go try it out. And there's such great funding behind this that they should, if that's what they're thinking of, and now they have an opportunity to do it. It will be interesting to see that first cohort of people who— I'm thinking about the person who is not from Coastal. zip codes who maybe is like a first-gen university-goer who hears about the school through their own web surfing and is like, could this be for me? And is not inside of the tech bubble. When that shifts, I think that'll be like a strong indication of other universities should take note.

Or I think about the person who's like, hey, I'm the only entrepreneurial tech-oriented person in my small town.

Yeah.

And all of the like local inputs I'm getting aren't giving me the encouragement. that I want. It's, but it's interesting. I mean, you and I were talking earlier, I think about the Thiel Fellows I've met, or I think about the people I've met through the folks at 1517 Fund. There are really talented people for whom traditional education is just not the right frame. And I'm glad that there are pathways for those folks to become successful. You know, we have Thiel Fellows in our portfolio and a couple of them, I was like, yeah, I can't envision you as a college student. I don't think that would have been the right move for you, but I don't know that that's the right move for everybody.

Yeah.

My hope is that we have more options for people whose pathways look different, but that those options are high quality.

Talking about education more broadly, where do you think this trickles down in terms of entry level? Like how young could you go to kind of change the way that education looks? I think we're talking about it so much at the higher education level. What's the appetite do you feel like to come earlier and earlier to reenergize what that looks like? I think you said it before, probably healthcare and education are some of the most like important family decisions that people would make for their kids. At what point do you as like a parent Do as a family start being more open to untraditional ways of that earlier on when it's just, you're a parent and you have a young child, you have full control over what that looks like. Higher education is the first decision I think that kids can act like adults and make their own decisions for most of them.

I think probably like somewhere around late middle school, high school. I, yeah, I have a, I have a kid. I think there's 2 things. The older your kid gets, the better you understand who they are. And I think the longer these institutions are around, the better you understand, well, what happens to the people? It's like every time a startup founder in our portfolio is like, I got accepted to this accelerator. I'm like, great. Tell me what happened to the last 3 batches of companies that went through it. They're like, what do you mean? I'm like, well, you're going to end up statistically, you're going to end up wherever they ended up. If you like the outcomes of the last 3 batches of that accelerator, it's maybe worth doing. If you're just like, oh, I don't admire or want to be like any of those companies. I'm like, well then don't join their club. And I have a feeling that like that will be the same thing here as these alternative pathways become better understood and people say, oh, you can do XYZ. thing, you can then push earlier because people will say, oh, if I like opt out and get on this alternative track, I kind of know where this ends. Right now we don't know where this ends.

Everything is like opportunity cost too.

Yeah.

It's sort of like you can do this or you can do this. I'm honestly super interested to see what people decide with a broader menu of options. Like, I like seeing that.

I think it's also, this has nothing to do with it, but I think it's also just like the Nikole Hannah-Jones thing in the New York Times about School trip. I think there are people who are like, I am willing to run educational experiments with my family, but those experiments need to be well constructed. And I have to be willing to accept the risk that I'm part of an experiment where by the time I find out the outcome, I must live with the outcome. It's a one-way door. I can't go back in time and go on a different branch. And I do think there are people who are already spending a lot of time and money, wealthy families spending a lot of time and money. Constructing these types of experiences for their children outside of what they get at school. And if they could find a school that provided those as part of the core curriculum, I think there's not— and you need what, like 100 families to make this work? Or 100 kids?

Yeah.

So I think there's probably 100 kids out there who would say, I'm willing to bet that this will be a more impactful, transformative experience for me than traditional education. And depending on their family circumstances, it might be like the floor on the outcome of my life is already quite good. So if this ends up being the equivalent of a gap year, I was gonna do it anyways. I was gonna do it anyway, or, or a detour for a person who's already likely to be successful. I wonder if this also like signals an increased appetite for venture capitalists to like rethink. You know, education goes through these cycles. Everyone's like, we should put money into education. Like, oh, you can't get any money out the other end. And I think maybe this will be a signal that there's renewed interest in investing in this category.

Well, our next read this week was a short post on Exum Signal making the case that right now may be both the worst and best time to start a company. The opportunity surface is essentially infinite. Because AI keeps collapsing the cost of building, experimenting, and entering new markets. The catch is that the durability of any individual advantage is collapsing even faster, and anything obviously valuable gets copied, bundled, or commoditized before you can even blink, making it harder. The big players are shipping super fast too. The post said, quote, founders are running downhill while Meta, OpenAI, Anthropic, and the rest are driving behind them even faster in a giant luxury bus with the high beams turned on to the max. Pairing this together With our conversation last week about Dario's recent memo as it pertains to being an AI application layer founder. Do you think it's starting to become more of a suboptimal time to be a founder now than ever?

I have been thinking about a lot of the themes in this post for a while. And one of the things I've concluded is this search for the universal moat ex ante. It was even in the before times, the pre-AI times, they were hard to identify. But I think oftentimes once you get into a business, you start to learn, oh, the moat is our customer service, or it's like we figured out distribution channel. And I think if you're on the outside looking in, you're like, why would I start a software company ever? Everybody has the same tools. Everybody has the same, and we've gone through everything. Taste is a moat. Effort's a moat. 996 is a moat. Network. We've gone through all of the, and I think what I've concluded is I think if you put 10 people in the same room and gave them the same tools and described the problem, Their life experiences and their perception of what's important, and you came back in a year, I bet you those companies would all look quite different, which doesn't make the choosing the right one at day zero exercise any easier. But I do think we have companies that I'm like, well, what's the difference between you and that company? They're like, well, here's what we believe and here's what they believe. I'm like, oh, those are pretty, actually pretty profoundly different beliefs about what your customer actually cares about and how to solve the problem. And yes, you're competing for the same customer dollar, but you're attacking it really, really differently. And I've been surprised at how different companies, even in the same category, can look and feel. And so I think it can feel like from the outside looking in, like, well, why even bother starting a company? Everybody can copy everything feature-wise. And I'm like, yeah, but that doesn't mean that they'll put the same level of effort. It doesn't mean that they like will put the same level of priority. It's always been the case that like, if you were building a consumer, Meta could copy what you were doing. They copied Stories. It didn't kill Snapchat. It hurt Snapchat. For sure. It didn't kill Snapchat. And so I don't know, I think to me it's a good reminder. If you're going to start a company, you have to be wildly insane enough to believe that like you can win. And I think AI has meant that for the first year, you're probably going to wade into a pool that feels very crowded of other people bouncing around, talking about doing things. I think the other funny thing is this idea that everything should quote unquote just like work immediately has dramatically shortened entrepreneurial attention spans. And so I think for some people, I'm like, if you're willing to work on this for a year, some chunk of the people you're competing with today are gonna quit. They're gonna not get instant traction and they're gonna go look for something else that, that feels like it's hotter. Oh, Instinct and Town are hot. Quick, I'm gonna go pivot into personal AI assistants. I'm like, well, you're too late. And then when they realize that that's too hard, they'll find something else that feels hot. And so it'll be being willing to work on a problem over time. I think in a year you'll look up and be like, oh wow, there actually aren't that many people who hung around and kept playing. Me and a relatively like small number of people, but you have to believe that when you start.

And balance at the same time of knowing when to iterate. I was just talking to somebody else on the phone. We had talked previously about a company that we'd like demoed as like a team. And I was like, where are they right now? And he was like, they've really pivoted. They've gone in this direction. They're now like a network connector. And I was like, wow, as crowded as that market is, it's deeply impressive that people still continue to find opportunities of, I'm gonna take a shot at this. I'm gonna take a shot at this. And I find in this environment, knowing when to do that strategically versus when to hold on to What your original idea was is quite fascinating to watch unfold. It does come down to how passionate about the area that you initially came in to disrupt are you, and are you willing to pop your head up to know when the time is to make a move? That feels really center of the conversation today, but has always been inherent to venture and startups of knowing that there are going to be competitors behind your back and just knowing when to shift.

Yeah.

So like that's always been part of the game, but now it just feels so much easier to start something and get it going, whereas previously you really had to think deeply about what the risks would look like before jumping.

I also, on Friday, had a long talk with one of our portfolio companies who sent me this like crazy update. They'd been working on a problem and, and they had like 1 or 2 customers, but like, it just, it wasn't a bad idea. It wasn't a great idea. It was like an okay idea. And he sent me an update and I was like, wait a minute, you have a customer now. We're in their first project. That first project, it's bigger than the combination of all of your ARR for the last 2 years. He's like, yeah, well, well, I don't wanna give away what this company does. But it's broadly in the AI data licensing hygiene space. And he was just like, oh, well, we were chipping away at this problem. We started noticing this like adjacent problem that people that we talked to about our core problem were like, I don't have that problem, but you know what problem I do have? It's the other problem. So we just decided to take 2 people from the company and work on this other problem. And he's like, uh, how much of our energy should we put on the new problem? Like 100%.

Yeah.

You got 100% of it. And it's fascinating because I don't think there's any way he would have reasoned his way And this is, I think, the thing that I have come to really appreciate in this environment. I don't think there's any way he would have reasoned his way to this problem from scratch. It's like not something you would have sat down and said, oh, this is a problem. And had they not worked on this adjacent problem, they wouldn't have a running head start on how to solve it. There is a certain amount of being in the right zip code of a good idea. And I think it is also important more than ever in this environment to just accept the person I'm backing, the thing they're doing, they probably will, will stick to something that's similar.

Yeah.

It will probably not be the exact same thing.

And luck, timing, truly timing. One of our founders, she has really like grown dramatically this contract that she's landed with one of her customers over the past handful of months. And it's, it's wonderful for the business. And a large reason why she's winning it, of course, is because the product's working and it's resonating, but there's a champion on the customer side who is like, this is single-handedly the most important thing to me.

That's it.

If that person didn't work there, If that person worked at a different company or took a different job, this conversation would look very different. And so like, that's part of it that sometimes you can't control. And I think like, yeah, honesty around that is quite real. And we, I keep on saying this to the founder of like, oh gosh, we gotta find—

Another one of those.

Let's say her name's Abby. Like, we need to find an Abby at every single customer. And the answer could be like, maybe they don't exist, but then you have to be like, how can I communicate what they think is valuable to all the other companies? And you can just use it as a case study to be like, this does work and resonate, but a A lot of it is like luck and timing of finding that hidden gem within your customer, of unlocking that and then capitalizing on it quickly. Well, our last piece this week is a post on X from Venky Ganesan of Menlo Ventures titled When the Music Is Playing. Venky opens with Chuck Prince's infamous 2007 line as the previous CEO of Citigroup, quote, as long as the music is playing, you've got to get up and dance. Obviously, there's a lot of different threads of how you can interpret this quote if you know how it all spun out for him, but he called this the most disorienting period in venture He can remember, with some portfolio companies growing faster than anything he's seen, while teams with no product raise billions at ten to fifty billion valuations. He uses George Soros's idea of reflexivity to explain it. In AI, valuation has stopped being an output of the metrics and has become the metric where nobody is discounting cash flows; they are discounting the last round. He then splits the dance floor into two groups: early investors playing with house money and late investors writing huge checks out of FOMO, which is exactly why nobody can talk anyone. else off the dance floor. His takeaway is that the winners of the next decade will treat position sizing and portfolio construction as seriously as sourcing, because you can be right about the company and still be wrong about the price by a factor of 10. He closes with the line, quote, the music will stop. It always does. Dance if you must, but know where the chairs are. I wanna talk about the piece around he believes portfolio construction and coming in is really important. But we've talked about this a lot internally. Who is actually going to grade everyone for the performances at the end of this? And have we seen this happen in a similar fashion in previous bubbles? It just feels like everyone is getting, everyone gets rewarded for showing up to the dance and being a part of it.

I think this is the second week in a row where someone has made a reference to the GFC and I'm like, I don't know if that is my favorite. Maybe a great thing, whether it was Dario talking about embedded regulators in financial services or Chuck Prince. I was like, it's worth noting that like The mortgage-backed securities crisis, barring a government bailout, there would be no more Citibank. I don't know if that's the best analogy in terms of outcome. The quote captures the tension in venture right now. And I've, I've talked to our team about this. I don't talk about this outside of our team as much, but I will share it here. I think it depends on fundamentally, do you believe that there's a corrective grading force in venture? And what do I mean by corrective grading force? A corrective grading force is an entity or set of entities that will punish people for bad behavior. Now, if you go back to the GFC, the government bailed out a bunch of banks. As far as I know, relatively few people went to jail, but a lot of people, like, it was pretty hard to get back into the financial services industry if you were a highly prominent person who was associated with, with that stuff. But they also made a lot of money along the way and nobody clawed back, as far as I can tell, went back in time and clawed back all those mortgage-backed securities-related bonuses. The real question in venture is like, well, what's the penalty for dancing? And I think the chairs analogy is a good one because I think there are some people who have, if you think about it, maybe not as a, what's that game, you know, where you go around and you take their—

Musical chairs.

Musical chairs. I think right now what we're playing is this gigantic game of musical chairs. And I think there's a set of firms who essentially have their hand on the chair and they're just like, well, no, whenever the music stops, I already have a chair. And in the context of venture, I think it dramatically changes your behavior. You're like, my firm's longevity is probably not tied to the performance of this investment cycle for one of two reasons. You could be like Venky at Menlo. I'm like, we are in the company. We are in the company in a significant way. And this being in the company and having our next fund done means that we have like gotten ourselves a lease on life for at least probably 2 to 3 fund cycles.

And in your analogy for musical chairs, guarantees mean a chair.

I got a chair. I got a chair and I got a chair. I'm fine. No one needs you. There are other firms where they're like, our brand is such that even if we're not in all of the quote unquote companies, our brand is such that we will persist. And this was what happened in 2021. You know, we overdid it on SaaS and people overpaid for a lot of companies. And I think the real danger of musical chairs is if you don't have your hand on a chair, you're at risk because when the music stops, your lack of a chair could come from Many reasons. One could be performance. LPs could be like, hey, you just didn't, you didn't achieve what we needed performance-wise. Another reason the chair could go away is that the people who gave you money have no more money. And that they're just like, you did nothing wrong other than the people who support you, like their situation was precarious. But I think there's a set of firms in our industry who have a chair and no matter how this turns out, they're going to remain in business because of their brand, because of their performance, because of their relationships with LPs, for other reasons. And I think that's very different. I think then you can be like, we're just going to go full maxi and we're just going to keep dancing. 'Cause like we don't need to be ahead of the music stopping. We, we are confident that our, our destiny is not tied to the outcome of this cycle.

So then the real challenge is figuring out, or being honest with yourself, if you're a fund manager, do you have a designated chair yet? Yeah.

If you, if the answer is no, if you don't know, if you don't know that you have a chair, you don't have a chair.

Exactly. It's like that again, it's the haves and have-nots. We talk about it a lot in startup founder land. It's the same thing here. If you don't know what bucket you are, you're in the have-nots. And that's just like a very honest conversation you have to have with yourself.

And things can change very, very, very quickly.

Well, we are all out of time. Thank you, Charles, for jumping in. Thank you to our listeners as well. Please like and subscribe and we'll talk with you all soon. Thank you.

Bye. Thank you. Bye.