Top VCs Debate Rising Startup Valuations [Video]

The venture capital valuations for still-have-that-new-car-smell startups like Quora, FourSquare, Blippy are reaching unprecedented levels, and we wanted to find out why. Top VCs Marc Andreessen, Ron Conway and David Hornik came by the TechCrunch offices to debate the issue.

Four month old Blippy is worth around $38 million. Quora, still in private beta, is valued at around $86 million in its most recent round. And Foursquare will be worth $80 million or more when it closes the round it’s negotiating now.

These are all young, basically pre-revenue startups. A year ago these valuations would have been unthinkable. So what’s driving the feeding frenzy? The IPO market is still mostly closed to startups, and most acquisitions are still in the low tens of millions of dollars. There’s no clear profitable exit for VCs who invest at these valuations.

Andreessen says there are very few “main event” startups, pointing to a study that says Silicon Valley creates an average of fifteen startups a year that eventually get to $100 million/year in revenue. Those are the startups venture capitalists are aiming for, and valuation is secondary to just getting in the deal. Those deals tend to get bid way, way up.

He also says that the hottest deals tend to have valuations at 4x what comparable startups can command – meaning some intangible factor pushes the valuation of a startup way beyond what the numbers will support.

Hornik also says that history has proven some crazy valuation deal to be very smart in hindsight. He uses Greylock’s investment in Facebook at a $500 million valuation as an example. At the time a lot of people said they were crazy. Now, it looks like the deal of the decade.

“Silicon Valley has a very short term memory,” says Hornik, saying that overpriced deals that eventually go south are quickly forgotten. And smart deals tend to be remembered.

Conway says that venture capitalists need to do their due diligence. He invested in Google at a $75 million valuation in the late 90s, and the company had no revenue and no business model yet. But the search engine was so exceptional, he says, that the investment made sense when they looked deeply at the team and the product. Obviously, he was right. Good diligence plus good deal flow equals a good portfolio, he says.

What’s most interesting about the talk is that none of these guys seem particularly concerned with rising valuations. Getting a piece of the hot deals seems to be of crucial importance.

This was a 30 minute conversation and there were lots of great side discussions as well, such as how they deal with entrepreneurs who want to sell out of a startup instead of going the distance. And near the end I hounded Andreessen on when Skype might go public. The full transcript is below.

Mr. MICHAEL ARRINGTON: This is Mike Arrington. I am here with Marc Andreessen, Ron Conway and David Hornik. Welcome, guys.

Mr. DAVID HORNIK (Partner, August Capital): Thanks.

Mr. MARC ANDREESSEN (Co-Founder, Andreessen Horowitz): Hi, Mike.

Mr. RON CONWAY (SV Angel): Hello.

Mr. ARRINGTON: Just quick bios. Marc, you co-founded Netscape and I’ll say brought internet to the masses in the mid 90’s. You also founded Opsware, which was sold at HP in 2007 for 1.6 billion.


Mr. ARRINGTON: And you co-founded Ning. In 2009, you co-founded Andreessen Horowitz, a new venture fund and you’ve made a big splash already with a number of investments including Skype and Zynga and that seems to be your full-time job now as a venture capitalist.

Mr. ANDREESSEN: It’s a big – it is a very big deal and we’re having a lot of fun with it.

Mr. HORNIK: And you enjoy quiet walks on the beach.

Mr. ANDREESSEN: I really do and I like puppy dogs and ice cream.

Mr. HORNIK: Excellent.

Mr. ARRINGTON: And you brought doughnuts to the office…


Mr. ARRINGTON: And made you an instant hit in the TechCrunch offices. Ron Conway, who didn’t bring doughnuts today, is the most…

Mr. CONWAY: Sorry, cupcakes tomorrow.

Mr. ARRINGTON: Is the most successful prolific angel investor in Silicon Valley. I think – I think both of those are actually true. You’re the most successful – arguably the most successful, clearly the most prolific. You – one of the first investor…

Mr. HORNIK: He’ll trade though.

Mr. ARRINGTON: Well, one of the first investors in Google and pitching your startup for Ron Conway – and your team – is clearly a right of passage in Silicon Valley. Would you guys…

Mr. CONWAY: Yup.

Mr. ARRINGTON: Your investments include just about every successful startup you’ve ever heard of. Name a few?

Mr. CONWAY: Oh, PayPal, Ask Jeeves, Way Back.

Mr. ARRINGTON: Google.

Mr. CONWAY: Google. Facebook.

Mr. ARRINGTON: Facebook recently.

Mr. CONWAY: Twitter.

Mr. ARRINGTON: All of them literally.

Mr. CONWAY: Zappos. Great – great, great companies. Ad Mob…

Mr. ARRINGTON: Any of the big ones you’ve missed?

Mr. CONWAY:, Zynga. That list probably is as long but…

Mr. ARRINGTON: David Hornik is a partner of August Capital. Your investments include Ohai, Six Apart, StumbleUpon, VideoEgg, Blippy, which we’re going to talk about in a little bit – and Gravity. Another investment, Aardvark, was recently acquired by Google for how much, $6 million?

Mr. HORNIK: I don’t know that was ever reported.

Mr. ARRINGTON: You guys are a great group to talk about the main thing I want to talk today, about – which is freaking Silicon Valley out – which is these valuations on these private companies. So, Blippy is your investment, you invested a few million dollars at a $38 million post is my understanding. Is that confirmed or…

Mr. HORNIK: No. But… it’s a theory.

Mr. ARRINGTON: It’s a theory.

Mr. HORNIK: Theory. We’ll go with it as a theory.

Mr. ARRINGTON: Another startup Quora founded by ex-Facebookers, 86 million rumored valuation. Haven’t even really launched it yet.

Mr. CONWAY: Is it pre or post money?

Mr. ARRINGTON: That’s post money to my understanding, haven’t even really launched it yet. In fact they only went into private beta in January. FourSquare, the rumor is 80 million-ish. Actually, Marc, you’re rumored to be involved in that deal and maybe we’ll talk a little bit more about that. FourSquare probably has somewhere between five hundred thousand and a million users but not much in the way of revenue yet. And if you go back a little bit, you’ve got Zynga and Facebook and Twitter all in the billion plus range as well. I think even Ning was valued at over a billion in its last round.


Mr. ARRINGTON: Half a billion

Mr. ANDREESSEN: That would be dramatic.

Mr. ARRINGTON: It was valued at half a billion.

Mr. ANDREESSEN: If true, but not true yet.

Mr. ARRINGTON: What’s driving this? I mean, are you guys alarmed or not alarmed? Is this – what’s going on?

Mr. CONWAY: Well, I think it’s turning from a buyer’s market to a seller’s market for the right company or for the right idea.

Mr. HORNIK: I guess, the question is why though? I mean, in fact, if anything there is less money, the decreasing amount of money, the market is getting tighter, so it shouldn’t be, right? It should be a buyer’s market. It shouldn’t be a seller’s market.

Mr. CONWAY: VCs have a lot of uncalled capital.

Mr. HORNIK: But we always have.

Mr. CONWAY: VCs have plenty of – there’s plenty of money out there.

Mr. ARRINGTON: What’s different now? It’s just there are as many good deals. Marc, you’re in the FourSquare deal. At least you’re rumored to be one of the four firms in that. Let’s assume that was true without you confirming or denying the rumors. What makes you interested in a startup that young and small at that high of a valuation were you to be in it, in that deal?

Mr. ANDREESSEN: Yes. So, obviously, I don’t want to talk about a deal that we’re not actually in, or you know, investment that is not yet, that is – where the company’s raising money. But, in general the theory is that every year there’s a small number of companies that have the potential to be incredibly important, incredibly important companies. Those are also the companies that have the potential to be very financially successful and to me like, important and financially successful in this industry turns out be the same thing. Those companies are started by the founders who have the ability to build big, important and successful companies. If you look at the math over a 20-year or 25-year period, Andrew Rachleff who is a good friend of all of us from Benchmark, did the analysis on this. Well, actually, in Stanford Business School. If you look out over time basically what you’ll see at the long run is that every year the tech industry creates about 15 companies that ultimately will end up doing 100 million in annual revenue or more and those are the companies that are the big important franchise companies such as the Googles and Salesforces and Facebooks and so forth. And you know, those companies are the main event. And so, when you know as an investor, when you think you have an opportunity to invest in a company that has that kind of potential, you know, if you’re the kind of VC that wants to invest to those kinds of companies, then, those are the types of companies that you go after and those companies are naturally going to be A, in demand. And B are, you know, merit the prices, now, assuming they work. You know, the nature of VCs is sometimes they work, sometimes they don’t, and the nature of startups is sometimes they work and sometimes they don’t. But there were plenty of investors all through Silicon Valley who passed on Google due to the valuation, there are lots of VC’s who passed at 30, 35, 43, you know, who now very much wish they can go back in time. And we found out there’s investors who passed on Facebook at similar valuations and wished they could go back in time. So you know, when you think you have one of those then it makes sense to pay a rational, but a meaningful price.

Mr. CONWAY: Especially since the day you invest in that company after you’ve done the due diligence, after you’ve competed for a high priced round, you really do believe that they’re going to be one of those 15 companies that’s going to do a hundred million a year.

Mr. HORNIK: So, I mean, that is precisely the dynamics, right? Ultimately it is. You can talk yourself into pretty much any valuation. You can march your way up to… because at the end of the day if it’s the multi-billion dollar outcome, then having done it, you know, done around it a hundred million pre- is sort of irrelevant. The difference between 50 million and a hundred if it’s the same multi-billion dollar company is nonexistent. The only problem is, do you get it right? And if you do that every time, right, if you’re certain of that every time, will you end up with a successful portfolio? And that’s, I think that’s the math that everybody needs to do because I think, it’s very simple to say, gee, when David Sze invested out 500 million dollar valuation in Facebook everyone thought he was insane and he’s like, ah, you know. I mean there were lots of justifications for it that weren’t this is going to be a good investment. And then, it turned out, it was a monumentally good investment in all likelihood, a monumentally good investment. But if you carry that to the extreme, we will all invest at any price. And then, the question is, which are the good deals? I mean, if there was a slightly larger spread on that, maybe then we could keep prices down. We all seem to agree on what the things are that might be those interesting deals and that’s driving up the price.

Mr. ANDREESSEN: Well, actually let me actually quibble with one part of that…

Mr. HORNIK: Yeah.

Mr. ANDREESSEN: Which is that, we’re finding, you know, we’re fairly early to actually be a professional venture capitalist so, you know, limited data on this but we’re finding just anecdotally in the market as much as a 4x spread in valuation and multiples on any factor you try to look at – correlating to hotness. Now, by the way, that doesn’t mean that you should not invest in you know, in the super hot deals if they really are having in a little bit high quality. But you know, for everyone of these that’s on your list, you know, we’re seeing another set of what we think are very – let’s say comparable – quality companies and nobody knows about them just because they’re not hot, they are not covered on TechCrunch and they’re not just talked about all that much. For a fourth of the price.

Mr. HORNIK: So, we should only do those.


Mr. HORNIK: Right. And so, basically, if they’re as likely to be successful, if there are in fact as high quality, but are not hot, then the logical thing to do is never invest in a hot company.

Mr. ANDREESSEN: Well, I don’t think that follows because the reality is that there is a very small number of companies that have the ability to actually get to the point of…

Mr. ARRINGTON: How much is the marketing play a role? You invested in Skype, right off the bat – right after the launch. From a marketing standpoint it’s like wow, Marc is going – is a player, he’s not messing around…

Mr. HORNIK: Because before that you were a schmuck…

Mr. ANDREESSEN: Amateur.


Mr. ARRINGTON: And Zynga as well has a very high valuation.

Mr. ANDREESSEN: So, we made both investments because we think we’re going to make a lot of money on that.


Mr. ANDREESSEN: Skype actually did not work quite the way that we’ve been talking about. The initial reaction was, what a bunch of freaking idiots to invest with in thing with that litigation, right? The initial reaction was.

Mr. ARRINGTON: But actually, you worked all that out in the background.

Mr. ANDREESSEN: Well, we knew we’d be able to work it out – or we had very high confidence that we’ll be able to work it out. But actually, the initial reaction was not, not what you would refer to as positive.

Mr. ARRINGTON: Well, TechCrunch is actually highly positive on that.

Mr. ANDREESSEN: You guys might have been. We’ve got a tremendous amount of phone calls from people including some of our investors. They were like, oh, my god!

Mr. ARRINGTON: We might have asked a couple of questions.

Mr. ANDREESSEN: Well now it’s working out fantastic. We are very confident that our investors are going to be happy with the outcome but, you know…

Mr. CONWAY: Because you did good due diligence.

Mr. ANDREESSEN: Well, we’ve studied the situation, yeah, extensively. I mean, we spent a long time, and a lot of effort. You know, making sure we understood what we’re getting into.

Mr. ARRINGTON: But, you know Zynga…

Mr. ANDREESSEN: But you know I will qualify that. I will say that was a provocative investment, you know, when those work, it’s great…

Mr. ARRINGTON: There also was all this drama around it as well, but from a marketing standpoint, you’re saying, it was actually neutral to bad because people were questioning your…

Mr. ANDREESSEN: I would say it started out bad and now it’s a good, yeah, you know…

Mr. HORNIK: But I think you have a point, I mean, you said, they’re great when they work but if it turns out it doesn’t…. And it’s interesting because, I actually think that Silicon Valley has a very short memory. And I remember this thing called ‘It’ that turned out to be a Segway. You know, it’s like, wow, that thing’s going to be – hype hype hype! – yet… oh, it’s a Segway. You know, it’s like a replacement for people who don’t want a bike. You know, but Silicon Valley doesn’t care, we’ll moved on…

Mr. ANDREESSEN: Although it helped in that case. John Doerr you know – one of the legendary great all time VCs, invested in Segway and Google and right around the same time, right around the same terms, right around the same amount of money.

Mr. CONWAY: He knows how to hedge.

Mr. ANDREESSEN: You know, and one of them, you know, made his LPs, you know, I don’t know five or 10 million dollars and the other one lost them 25 million. So you know.

Mr. ARRINGTON: Speaking of hedging. What with this rumor that we – actually we’ve just confirmed it now – with the Facebook investment by those guys – what’s their names?

Mr. HORNIK: The Russian guys.

Mr. ARRINGTON: Elevation Partners, $90 million in Facebook we hear, at a 20 billion dollar valuation. Are you guys in this as well?

Mr. HORNIK: No. I heard nothing.

Mr. ARRINGTON: Nothing?

Mr. CONWAY: Well, I’m an investor in Elevation, but I swore myself to confidentiality…

Mr. HORNIK: Is this direct or…

Mr. ARRINGTON: We’ve heard they’ve invested in the secondary market. They bought $90 million of stock in secondary market. That might be their hedge and the rest of their funds which include some of, the companies aren’t doing quite so well.

Mr. CONWAY: It depends on the valuation they paid.

Mr. HORNIK: at 20 billion? That’s the hedge?

Mr. ARRINGTON: That’s what we’ve heard, yeah.

Mr. ANDREESSEN: I can’t comment.

Mr. CONWAY: Says Facebook.

Mr. HORNIK: That makes sense.

Mr. ANDREESSEN: I just can’t talk about it.

Mr. ARRINGTON: Because you’re conflicted eight different ways.

Mr. ANDREESSEN: Yeah, well, no, specifically I’m on the board of Facebook, so I think that would be inappropriate but…

Mr. HORNIK: Do we want to talk today about the SEC and Facebook or should we do that in another future show, Mike?

Mr. ARRINGTON: I’d love to talk about that.

Mr. HORNIK: We’ll do that in the future. Oh, well, that’s not fair to Marc.

Mr. HORNIK: Well, come back at some other time…

Mr. ARRINGTON: Well, Marc, you did bring the Facebook financials with you.

Mr. ANDREESSEN: Yeah, they’re in my back pocket…

Mr. HORNICK: They’re under the whatever, the doughnuts.

Mr. ANDREESSEN: (unintelligible).

Mr. CONWAY: They’ll be up on the screen as a commercial break.

Mr. ANDREESSEN: Well, I’ve brought them Ross Perot style on little cards to hold up to the camera.

Mr. ARRINGTON: Let’s do it.

Mr. ANDREESSEN: Well, oh darn, I forgot.

Mr. ARRINGTON: Ron, you’ve invested in Google in what valuation?

Mr. CONWAY: Seventy-five million pre with KP and Sequoia.

Mr. ARRINGTON: And that worked out very well?

Mr. CONWAY: It worked out very well. But at the time it seemed like a lofty valuation, if you did not do your due diligence. But at the time we had…

Mr. ARRINGTON: What year was this, ’99?

Mr. CONWAY: 1998.


Mr. CONWAY: Yeah, I think ’98.

Mr. ARRINGTON: So, they don’t have monetization. I don’t think they had any revenue at all.

Mr. CONWAY: No, they were – Larry and Sergey were very honest and said, you notice, that at the end of the presentation there is no financials and nothing about a business model because we don’t have one.


Mr. CONWAY: And…

Mr. ARRINGTON: And, so they hadn’t monitized well till then. They haven’t come up with this model of monetizing it so.

Mr. CONWAY: Well, Ask Jeeves had and we had just taken Ask Jeeves public.


Mr. CONWAY: So… and Ask Jeeves was a very lofty IPO, So, the minute we saw the Google Search Engine, I’ve took one of my partners with me and I talked to Larry and Sergey while he played with the engine. And I had always heard that based on page rank and relevancy, that was what, Larry and Sergey were talking about. I said, wow! Those are pretty interesting criteria to be searching by, you know, page rank and relevancy. If it’s as good as they’re saying it is, I want to invest in this.


Mr. CONWAY: So, my partner was doing searches that he had thought about before. And I said, you know, once you do the searches against Ask Jeeves, if it’s good, give me a nod and we’ll keep that meeting going until we come to some closure.

Mr. ARRINGTON: So if you want this…

Mr. CONWAY: Because KP was already in the deal.


Mr. CONWAY: Sequoia had not been contacted yet.


Mr. CONWAY: And I helped with that because they wanted Sequoia in the deal…

Mr. ARRINGTON: That’s the first time they built investors.

Mr. CONWAY: …for the Yahoo relationship.

Mr. ARRINGTON: Yeah, is that right?

Mr. CONWAY: In a while, it would fall in between.

Mr. ARRINGTON: So, my point is this, you’ve invested, early… made a lot of money. All these companies…

Mr. CONWAY: But we did diligence. It’s all about good deal flow…


Mr. CONWAY: Good diligence usually equals a decent portfolio.

Mr. ARRINGTON: But you tend to get in really early even, you know, regardless of the due diligence. Now, all these companies – I mean, are you an investor, you’re in FourSquare, right?

Mr. CONWAY: Yeah.

Mr. ARRINGTON: You’re in Blippy, right?.

Mr. CONWAY: We sure are.

Mr. ARRINGTON: You work in Zynga, but you were in… what valuation do you invest in Facebook?

Mr. CONWAY: Well, in Facebook, I’m actually an adviser, so…

Mr. ARRINGTON: Oh, you didn’t put any money then.

Mr. CONWAY: It’s common stock.


Mr. CONWAY: It says at the time, Marc thought I did a lot of work. He did not want me to pay for the stock.

Mr. ARRINGTON: You’re in Twitter?

Mr. CONWAY: That’s exactly what he said at that time. So, why should you have to pay for this stock when you help?

Mr. ARRINGTON: You’re in Twitter?

Mr. CONWAY: Yes.

Mr. ARRINGTON: So other than Zynga and are you in Quora?

Mr. CONWAY: I’m not going to comment on that.

Mr. ARRINGTON: That’s interesting.

Mr. CONWAY: I’d like to be in Quora.

Mr. HORNIK: And there’s the comment.

Mr. CONWAY: Who wouldn’t like to be in Quora?


Mr. HORNIK: And there’s the negotiation.

Mr. ARRINGTON: Four of the six companies – even putting Quora out – that – are now in sort of big valuatiobs. You got in at what valuations here? A few million dollars at most, right? A few hundred thousand dollars?

Mr. CONWAY: Well, Twitter, Twitter, Twitter funny enough. Ev Williams was the first angel in Twitter. Ev funded Twitter for the first couple of million bucks. So Twitter, the first round that any investors were in was really like a series A or series B. So Twitter was more like 20 million when the first investors outside came in.

Mr. ARRINGTON: Their last round was at a billion, right?

Mr. CONWAY: Yes, I think they’re worth every nickel of it.

Mr. ARRINGTON: So, are you – do you ever sell in these big rounds. I mean, these guys are just getting in to some of these bigger deals. Are you – do you ever sell on those rounds or do…

Mr. CONWAY: I don’t. I like to see him through to – whatever the liquidity is that the founder gets his money is when I want to get my money.

Mr. HORNIK: Well, the founders…

Mr. CONWAY: I had criticized people for doing that. I – but I like to see it through.

Mr. HORNIK: The founders are getting plenty of money in these secondaries, right? I can’t speak to all of these, but many of these deals, the founders are getting…

Mr. CONWAY: Well, Evan Williams hasn’t sold as far as I know and Mark Zuckerberg hasn’t sold. I’m talking about the founder and the visionary. Those people typically want to see it through, you know, through to the IPO or an M&A deal.

Mr. ARRINGTON: Is Crowley trying to take money out of FourSquare?

Mr. CONWAY: I hope not, but I don’t know and I – but I highly, highly doubt it.

Mr. ARRINGTON: He’s actually sealed his lips together now.

Mr. CONWAY: I highly doubt it based on the quality – based on the quality of that entrepreneur, I’d be shocked if he was…

Mr. ANDREESSEN: He’s a very high quality entrepreneur.

Mr. ARRINGTON: And Blippy? Blippy, those guys are…

Mr. HORNIK: They are high quality entrepreneurs.

Mr. ANDREESSEN: They are, by the way – those guys are great.

Mr. ARRINGTON: But you passed on the deal.

Mr. ANDREESSEN: We didn’t do that deal but I think it’s a fantastic deal.

Mr. ARRINGTON: It’s just not 38 million dollars fantastic.

Mr. ANDREESSEN: If I were an LP… put it this way… if I were an LP in August, I’ll be happy they did the deal.

Mr. ARRINGTON: If you were an LP in August, how happy would you be if the Aarkvard guys sold out at 60 million dollars?

Mr. ANDREESSEN: Well, so, I don’t want to second guess anybody’s individual decision. I would say in general, I – in general, I’m in business to help people build big important franchise companies. So my preference is that companies go the distance.

Mr. ARRINGTON: And going the distance, isn’t selling to Google for….

Mr. ANDREESSEN: Well, going the distance is to basically find out how big your market really is. If it turns out that it’s big, go get it, like go win the market. If it turns out the market is not that big, which you discover in a lot of these things at a certain point in time, that a market is just not that big, in that case, it didn’t make sense to do a strategic transaction, put it in the hands of somebody who has maybe more market throwaway, which is actually what we did with (unintelligible). But in general, we’d like to help people build franchises, the kind of entrepreneurs we like are the ones who build franchises. So, in general, we prefer that people persist over a longer period of time.

Mr. CONWAY: But if an entrepreneur ends up wanting to sell, you can’t step in the way of it.

Mr. ANDREESSEN: Yeah, you have to – you have to help. You have to put your weight behind helping them do that because without the entrepreneur, you wouldn’t have a company…

Mr. CONWAY: Right.

Mr. ARRINGTON: Yeah, but isn’t it a sort of – almost a bargain made for the entrepreneur and the VC where, you know, you kind of have an agreement at the start, that you’re going for something and not going to sell at 60 million?

Mr. CONWAY: You try. You try.

Mr. ANDREESSEN: In general, you try to but, you know, but sometimes things go sideways for one reason or another.

Mr. CONWAY: I think Angels are different though. We actually invest in companies where we actually have a discussion with the entrepreneur where I will say this is probably a 50 or a hundred million dollar business.


Mr. CONWAY: The realistic market size. Do you understand that your liquidity is probably going to be an M&A event? The entrepreneur says yes and this is the size of market that I want to go after right now. So we’ll invest knowing that this is probably going to be an M&A outcome, it’s probably 25 percent of our portfolio.

Mr. HORNIK: So, we won’t – I mean, I’m with Marc.


Mr. HORNIK: That’s not our business.

Mr. CONWAY: Typical…

Mr. ANDREESSEN: Yeah, VCs don’t…

Mr. HORNIK: But the reality is that I think entrepreneurs start companies – even the ones who don’t say, oh, this is a 25-million dollar business for me, a hundred million dollar business, whatever. At any given moment, at any point in time, they sort of recalibrate. Oh, OK, not necessarily what’s the market, right? You know, the market for Aardvark was massive, there isn’t any question, but ultimately, you know, what are the risks, what are the challenges, these types of things? And so, going through that process – and frankly the guys who built Aardvark said, you know, here’s an opportunity to build something big and interesting and get it launched and get it out there and they viewed that as valuable, and so in combination, they thought that those were, you know, the factors that made sense and – well, you know, at the end of the day, we do what the entrepreneurs want to do because we’re not – you know, I wasn’t the CEO of Aardvark. I was a buyer, but in the end, I’m happy for them to have found a, you know, an incredible place to build the company.


Mr. CONWAY: I’d like to go back to the Blippy, Quora, FourSquare. You look at those three deals and you say, our valuation is getting out of control. And I say, you know what? You have to look at each one of those individually. Blippy, based on hearsay, I think, did get into what might be called a bidding war, where there were a couple of firms and somebody decided to, you know, lay down the gauntlet.

Mr. ARRINGTON: That was the Elevation Partners is my understanding as well, is that they…

Mr. HORNIK: In Blippy?

Mr. ARRINGTON: In Blippy, yeah.

Mr. HORNIK: I wouldn’t know anything about it.


Mr. CONWAY: I thought they were going after big stuff.

Mr. ARRINGTON: I may be wrong.

Mr. CONWAY: So, at Quora, I really don’t know what the story was but…

Mr. ARRINGTON: Oh, I’m sorry, it was Quora who was with Elevation Partners. I got that wrong. Yeah. Who – I’m sorry, you told me before – but Blippy? Who was it that you were bidding again?

Mr. HORNIK: It’s always amazing to me that you – this obviously works sometimes.

Mr. ARRINGTON: I apologize for anything – I’m sorry. Yeah.

Mr. CONWAY: The interesting dynamic is one where I know a little bit more and I admire what’s going on is FourSquare, where I believe – unless I’m being mislead and I don’t think I’m being mislead. In the case of FourSquare, I believe that it’s a very mature entrepreneur who does not want to conduct an auction…


Mr. CONWAY: For dollars. He is conducting an auction for value add services to his company, which I think is pretty awesome…

Mr. HORNIK: But I would say that they’re not typical. I’m sure that’s true, except for the fact that the price has already started at a very high price. And so, what – here’s what I think has changed…

Mr. CONWAY: But the price could be double. I’ll bet you FourSquare, if he held an auction, would be double the price he will end up with.

Mr. ARRINGTON: A hundred and sixty million dollars.

Mr. HORNIK: I think that’s – I think that’s extraordinarily unlikely. I think that chances that…

Mr. ARRINGTON: Are you saying 160 for FourSquare?

Mr. ANDREESSEN: I can’t…

Mr. CONWAY: Is there an investor out there that would?

Mr. ARRINGTON: Later on. Later on.

Mr. CONWAY: I bet you I could find three.

Mr. HORNIK: Really?

Mr. CONWAY: I’m dead serious.

Mr. HORNIK: So, this is what’s interesting to me about what’s going on right now.

Mr. CONWAY: And they’d be private equity firms.

Mr. HORNIK: So, I actually don’t think that’s true at all, but let’s assume it is. What’s interesting to me is that…

Mr. ARRINGTON: Did you just call Ron a liar?

Mr. HORNIK: No, I said I didn’t think it was – yes, I did. No, you can disagree. But the bigger point is that there are great firms out there with good reputations, all of whom… all of the firms rumored to be interested in investing in FourSquare, and frankly, there were many more that were interested in investing in FourSquare, are great firms. Right? So, the idea – you know, we’re looking for value.. well, everybody talking to him right now could provide real value and these are firms that have great reputations, and they have money, they have a future. So, I understood when it was a time when there were firms that were needed to make their reputation or they had challenges or whatever that were all.. I’ll bid up because all I have is to compete with is price. But what happens now is that there are so many top tier firms that are excited about these companies that it’s price and value. It’s not just value.

Mr. CONWAY: No, the value that each firm offers is night and day different. How many of the firms understand the location based service market? Are they passionate about it? Can they go help FourSquare in their relationship…

Mr. HORNIK: I – believe me, I believe in value added investing as I’m sure Marc does…

Mr. CONWAY: This is the kind of stuff that I think Dennis is looking for at FourSquare… he’s going – OK, money is money. I want to have somebody who can mentor me and add true value and grow my business. I’m just pointing out that that’s a really mature attitude, you know, that he’s not conducting an auction.

Mr. HORNIK: I understand what you’re saying. I’m just saying that whether you’re conducting an auction, oh, gee, here’s the price, beat it or not. When the prices get to these lofty values, with a set of excellent investors, then, you know, call it what you want, ultimately this is – this is a supply and demand problem, right, which is, there is a very small supply…

Mr. CONWAY: Yeah, Gowalla, Loopt, there’s all kinds of LBS companies out there.

Mr. ARRINGTON: What I’m hearing here is that…


Mr. ARRINGTON: Normally prices are getting high, but you also have only the best firms, you can even get into these deal.

Mr. HORNIK: This is the interesting situation.

Mr. ARRINGTON: Second tier firms. But you guys all happen to be first tier, so you don’t have to worry about that problem. Marc, you have to talk a little about… what excites you about FourSquare as a user?

Mr. ANDREESSEN: Let’s talk about a different one.

Mr. ARRINGTON: As a user?

Mr. ANDREESSEN: As a user? I just – I think that the product makes total sense. I mean, I think it’s just … it’s the kind of thing that I’d describe as obvious in retrospect. Before Dennis did it, it wasn’t obvious to anybody, but now that he’s done it you look at it and, of course, like this makes just total sense.

Mr. CONWAY: FourSquare in its space is Twitter three years ago. So, Twitter three years ago, you know, had just developed the API. Nobody was developing products around it. I think FourSquare could be the next Twitter of location based services. And I think that’s why people are so interested in it.

Mr. ARRINGTON: And how about Quora?

Mr. CONWAY: Rock star team with a rock star product.

Mr. ARRINGTON: Did you look into…

Mr. CONWAY: What’s wrong with that?

Mr. ANDREESSEN: Quora – without commenting on the specifics – Adam and Charlie are two of the best guys from Facebook, outstanding pedigree, really, really talented guys, the product is outstanding.

Mr. HORNIK: So, the other thing that’s interesting is we’re all on these services. You can actually see what people find exciting because we’re all on it. Right? In fact, you know, when the Gowalla financing was happening, we were all checking in – you could see – they were even checking in where they were visiting. So, you could see where Josh was pitching because he’d go, oh I’m at August Capital, right? And so, we’re on Quora, we see -we answer questions for each other, you know, oh, this is fun. You know, we’re on Blippy, I could tell you all the people who may or may not be interested in Blippy, by oh they’re tracking their transactions. You know, the thing that’s interesting about the consumer stuff is that we get to use it and the people who are really engaged in the market love it. I mean, we don’t just invest… I bought the company. I love this so much, you know, I bought the razor company. So, it’s really interesting, I mean, and it creates this a very interesting dynamic where, you know, when you’re on a service that you’re excited about and you like what it is, you can see everybody else is excited as well.

Mr. ANDREESSEN: And this why – this all true and this is also why we also like investing in the things that people never heard of because there are services that people don’t use themselves, so, there’s – any number of other things like that.

Mr. ARRINGTON: What investments do you have coming up that you haven’t announced?

Mr. HORNIK: Right, what are those?

Mr. ANDREESSEN: Oh, for example, we are very, very interested and active right now in the enterprise software and a very large number of professional investors think enterprise is dead and, you know, we just think that is absolutely not the case.

Mr. ARRINGTON: It certainly isn’t as fun as FourSquare.

Mr. ANDREESSEN: Well – so there are some incredibly high quality entrepreneurs, we just – it’s not been announced – but we just backed an incredibly high quality entrepreneur. With a great track record…

Mr. HORNIK: Someone who is awesome.

Mr. CONWAY: Can we co-invest?

Mr. ANDREESSEN: He’s building a fantastic – he’s building what’s going to be a great – he’s going into a huge market, you know, going up against incumbents, you know, all the incumbents in the space have been bought by the likes of Oracle and… he’s going up against, you know, incumbents that are not going to make the shift to the next generation nearly as aggressively as he is and there’s all kinds of market demand for this and numerous companies. But none of us are ever going to use the product – it’s not that kind of product.

Mr. HORNIK: Well, this is the thing – right, actually, one of my most interesting companies right now is this company Splunk, which is a search engine for your data center. Does anyone have any idea what Splunk is? No, but on the other hand, it’s pretty exciting. So, call me. Call me.

Mr. ARRINGTON: IPO? Just say it.

Ms. SARAH LACY (Off camera): Skype IPO


Ms. LACY: Jesus Christ.

Mr. ARRINGTON: I thought you say Stopio – I’m like is that the name of the company.

Mr. ANDREESSEN: Maybe it was Stop BO or something like that…

Mr. ARRINGTON: When will we see the Skype IPO? Just give us that one…

Mr. ANDREESSEN: No specifics but the company is in great shape…

Mr. ARRINGTON: They could go any time.

Mr. ANDREESSEN: The company could go basically any time they want to.

Mr. ARRINGTON: They’ve got the technology worked out now.

Mr. ANDREESSEN: The whole litigation is long settled, they’ve got the band back together and the company is growing very fast, from the numbers I’ve read. I mean, Skype was a great idea on the day it was founded, Skype is a great idea when they first raised money.

Mr. ARRINGTON: They had a lot of trouble raising money…

Mr. ANDREESSEN: I know they did.

Mr. HORNIK: Wekk it was that same kind of like litigation and it was like – hey, I’ll meet you on the corner and such and such, I mean…

Mr. ANDREESSEN: There were some – and it was in Europe and the engineers were in Estonia and it wasn’t completely, you know, it wasn’t like you could go visit it in downtown Palo Alto. But it was a great idea every step of the way, they executed marvelously every step of the way and the thing, it’s a classic network effects business and it just keeps growing.

Mr. ARRINGTON: So, from a point of view – this is our last question – on a scale of one to 10, where one is we’re in a terrible industry right now, every VC we know is going to go out of business, and 10 is we have more money that we can count and we’re all going to make a billion dollars this year, where do you think the VC industry is right now? Is it a six, seven? Is it OK or are we – are things looking down because of the valuation?

Mr. HORNIK: You can’t talk – I mean, the problem is you can’t talk about the VC industry right now as a whole…

Mr. ARRINGTON: How healthy is the market right now?

Mr. HORNIK: So, I think that we would all say that we are, you know, eight, nine, 10s about how our portfolios are doing, how the market for great entrepreneurs is, all of that stuff. So, to judge the market as a whole, I think that there’s all sorts of money that’s come into the venture market that, you know, will have a hard time finding its way back out. But on the other hand, I think that, you know, I feel good that I’m going to do well for my LPs and I would happily invest with these – I would happily be an LP in their funds. So, I think sitting around this table, you know, we’ll give it a – what do you think, a nine? I’ll give it a nine because, you know, I’m an enthusiastic positive kind of guy.

Mr. ARRINGTON: You’ve only been doing this a… well, you’ve been investing forever, but you’ve only been a full-on VC for a year. You like it…?

Mr. ANDREESSEN: Oh, yeah, I love it. It’s great. As a profession, it’s a great profession because you … basically you get to be educated by all the smartest entrepreneurs right now on all of the most interesting projects which is great.

Mr. CONWAY: I agree with Marc, you get to talk to people who are telling you through their crystal ball what’s going to happen.

Mr. ARRINGTON: And you haven’t gotten tired of this? I mean, you’ve been doing it…

Mr. CONWAY: Hell no – 20 years.

Mr. ARRINGTON: All right. Thanks, guys. Thanks very much.

Mr. HORNIK: Thank you.

Mr. ANDREESSEN: My pleasure.