Sunday Conversation #6: Chris Dixon, Andreessen Horowitz


[Note: Full audio and transcript below, scroll down.] Welcome to the sixth “Sunday Conversation,” this week featuring Chris Dixon of Andreessen Horowitz. Many of you reading this will already know of Chris and have read his blog many times. Dixon was the first “tech writer” I followed when I began to get interested in this stuff back at the end of 2009. Since then, Dixon has started a seed fund, built and sold a company, written some of the most influential blog posts on the investing climate and venture capital, and recently made the big move to the west coast to become a general partner at Andreessen Horowitz. When the news went down, I pinged Chris and suggested we do something, and the timing finally worked out for us to catch up and have this conversation. For those of you interested in Dixon’s writing and the transition from seed investing to venture capital, these videos are a must-watch. ♦

Part I, The Step From Angel To Institutional VC (4:15) — Dixon explains the key differences between angel investing versus institutional investing as a venture capitalist. ♦

Part II, Lessons Through Angel Investing & AngelList (5:29) — After investing for over seven years, Dixon explains how he developed a pattern recognition for companies as an angel. Separately, on AngelList, Dixon offers his views of the platform. ♦

Part III, On The Future Of AngelList (2:38) — Dixon suggest VC firms could soon bringing A-round institutional deals to AngelList to syndicate a part of the round to the marketplace for investors and other directions the platform could go. ♦

Part IV, On How VCs Approach Markets (5:31) — Dixon explains his thought-process around market analysis in the context of a venture capital investment, especially investing in markets which don’t exist today. (Looking back, this answer references this old post.) ♦

Part V, On An Old Blog Post, “Climbing The Wrong Hill” (4:06) — This is my personal favorite blog post in Dixon’s archives, so I asked him to explain his application of hill climbing to one’s career path. I’m going to write more about this topic next year. ♦

Part VI, On Twitter Conversations and New Discussion Forums (5:17) — Dixon uses Twitter less than before and argues the medium has changed, and has become more promotional and less conversational. ♦

Part VII, How Dixon Began Angel Investing (5:17). ♦

Part VIII, On The Level Of VC Engagement (3:30) — Dixon articulates his views and expectations on how he, as an investor, interacts with his portfolio, particularly through the lens as a former entrepreneur. ♦

Audio Recording, Full Conversation via SoundCloud

Full Transcript

@semil Shah: Hi, I’m @semil Shah, and I’m here at Andrews and Horowitz with general partner Chris Dixon. Chris, great to see you.

Chris Dixon: Yeah, great to see you. Thanks for having me.

@semil: Thought we’d talk about a couple of topics. I haven’t talked to you in a while. I guess the first one, congrats on the new gig.

@cdixon Thanks, yeah.

@semil: I want to know, I know you’ve been a successful angel investor, and then going to a large VC firm. What’s a big step up from an investment mindset? Going and making probably in more of, like, a people flow business of angel investing, and looking at people or things at a very early, where you don’t have a lot of data, to making a lot fewer, more concentrated bets?

@cdixon Yeah, I think there’s multiple aspects in which it’s different. One is, as you said, you have fewer. Typically, one general partner might make ten-ish… invest like, ten board seat kind of investments. So it’s far fewer than a typical angel investor would do. The stage, we do at Andreessen and all sorts of… we run the gamut of stages, including later stage kind of stuff that I wouldn’t have done as an angel investor, which I can talk about more, but that turns out to be, I think, a very different activity than seed stage investing, which is what I’m used to.

What else? I was based in New York before. Now I’m back and forth, but here, mostly. And just the kind of dynamics of being at the center of Silicon Valley ends up being a different experience.

I spent a lot more time, as an angel investor, kind of going out and sort of finding interesting investments, as opposed to… I think here, a lot of them will just kind of come to us. So it’s sort of a different process.

@semil: So I’d just be curious, as your transition to larger VC, what’s been the thing that helped you from all your experience angel investing that you think gives you a leg up, or sort of an advantage, as you move into VC? And on the other side of the coin, what has been the steepest part of the learning curve for you, making that transition?

@cdixon Yeah. I mean, it’s funny, because it’s, like, I also… the same activity, in the sense of maybe, I don’t know, I don’t follow sports, but let’s say you were a player and now you’re a coach or something. I mean, you’re still… it’s the same game, fundamentally. And the same with angel investing and starting companies and larger VC investing, right? So at the center, it’s all the same game. And sometimes it’s really helpful for me to say, “Wait, remember when I was a new start-up? Would this have made sense? And how should I look at it as an outsider?” And so that context is very helpful.

But that said, for example, at the seed stage, it’s pretty much a bet on people. That’s 90% of it, maybe the kind of general trends and other kinds of things. As you get to Series A in some cases, but more so B and C, it becomes… I sort of thing of it as a continuum between seed investing and let’s say public market investing, like hedge funds do. And public market investing tends to be all around the numbers, the finances, defensibility, business model. Early stage is people, and then in between it’s kind of this interesting blend of the two. And since I hadn’t done much of the kind of public investing, numbers-driven stuff, that’s an adjustment for me.

@semil: And do people still reach out to you to do seed investments, or you pretty much have to change your approach on that, on sort of targeting larger opportunities?

@cdixon Yeah, because we… so one of the things is that we had a lot of VC. Like, VCs have a policy of only investing in the venture stage, in one company kind of per category. Seed is more complicated, and there’s a whole long story there. But for that reason, we basically want to make larger, kind of concentrated investments. And so, yes, I’ve seen a lot of stuff which I would have done in a second, would have invested as an angel investor, and just doesn’t fit the model here.

@semil: What maybe did you learn through your experience of angel investing that you feel you gives you a unique advantaged or helped you start off, maybe not at ground zero, in terms of writing larger checks? Was it just like the actual throughput of how many deals you were a part of?

@cdixon Yeah. It’s a difficult business because 99% of the information is never disclosed publicly of like what actual happens at companies. You know, what the investment looked like at the time, how it turned out, all the internal things that go on. I mean, you really, like, if you just read the TechCrunches of the world, you get just such a tiny sliver of what’s actually going on. It’s just the reality and I don’t know if that’s a good or a bad thing, but that’s just the reality.

And so just having, I think it’s been seven years now I’ve been angel investing. Just having between my personal investments and Founder Collective, which is a seed fund that I co-founded, have seen probably on the scale of hundreds if not thousands of investment opportunities and have made a number of those and seen how they played out and just sort of, people talk about pattern recognition in this business and just having had some of that pattern recognition I think is helpful. Although, that said, there are a lot of people in this industry who have been doing VC their entire careers, and like anything, I’m sure that’s helpful, right? So it’s still, for me, a pretty big adjustment.

@semil: Second question, on this topic broadly, I would just love to get your initial thoughts on Angel Investing. I know it just made a pretty big turn. Still going to take years to figure out all the nooks and crannies of it?

@cdixon Yeah.

@semil: But just, your perspective, one, as a civilian, two, as a former Angel Investor and now three as a larger VC. What’s your view on it?

@cdixon I think one is it’s super interesting. It’s one of the most interesting things that’s happened in startup investing in a long time. I think it will be very powerful as we see crowdfunding in everything from kickstarter to all sorts of other interesting lending club and all sorts of things like this it’s been a very powerful model. I think it’s so early in it that it could take five to ten years to kind of figure out what really works.

The danger with a lot of investment models, and this includes Angel Funds and VC’s, there’s lots of opportunities to introduce adverse selection into these things. By that I mean situations where people don’t fully understand what they’re doing. They don’t have the right sort of vetting process and you end up building a mechanism that attracts the wrong people to each other and leads to bad outcomes.

For example, you can imagine a scenario where doctors and dentists, people say, the people that are sort of casual investors become a heavy part of the funding of the backer crowd and don’t really know what they’re investing in. I have situations all the time where things go wrong. People have to raise more money. People shut down. And I’ve seen this, for example, in my own investing. You’ll say you have ten investors, five of whom are professional investors, and five aren’t.

And let’s say something goes wrong. The professionals are used to it. They’re supportive. And sometimes the other people freak out and there’s, in the worst case, law suits or difficult conversations. Having seen that already play out just in my own experiences, you take that and you magnify it. So I think there will be lots of interested issues like that. That’s what I want to say. I’m very excited. If the next investment I make, obviously it’s up to the entrepreneur, but I would love to make some portion of it, something on angellist or something. I think it’s something I really want to start exploring. But I think it’s early. I haven’t talked to Naval about it, but I assume he would say it’s early as well.

@semil: Absolutely. And there’s so many regulations too, right?

@cdixon The regulatory stuff. Well, that’s the thing. At the limiting case, in some sense you can say we do have a system of crowdfunding companies. It’s called the public markets, right? And so they said, let’s let people list the stock and sell it to anyone. And then they discovered over the course of a hundred years and all the regulatory stuff that happened in the thirties that once you do that, there’s lots of opportunities for companies to mislead people and so then we developed a system where basically… which we have until the jobs act, which is the bifurcated system, where accredited investors, which is a regulatory word for wealthy people, are allowed to do whatever they want. Unaccredited ones go through the public market.

And the idea is the regulations protect the unaccredited investors. The theory being the accredited ones, sort of buyer beware. They have money they can afford to lose. And so they’ve developed those regulations. The worried case is that you start doing crowdfunding of private start ups. You start to discover their issues. You start to add regulations. The next thing you know, you have all the regulatory burdens that you have now in public companies. So part of the advantage of being a private company is you don’t have to do that. You don’t have to do your quarterly reports, you don’t have to do auditing, you don’t have to do the Sarbanes-Oxley? And is that sort of like, is there a happy medium? I guess is the question?

@semil: So on the topic of Angellist, do you envision a future where, actually, institutions will go on and start leading syndicates, not inside car funds but actually… or I guess a better question is, do you suspect people will do more creative things on the individual level on a platform like Angellist?

@cdixon You mean sort of like institutions like us would work with it?

@semil: I mean, it could be you, it could be another one.

@cdixon Yeah, I like for example, here’s a very common scenario. So I think there’s sort of like different levels of engagement you could imagine.

@semil: Um-hmm.

@cdixon Like here’s a lightweight level of engagement that’s like a no-brainer to me, which is we often will do an investment. They’ll say it’s a $10 million dollar series A or something, and the entrepreneur will say, “Hey do you have any interesting people who could co-invest, you know, in smaller amounts, let’s say, like, you know, $50,000 checks or something, who might be helpful to the company?” Right?

So we have our methods and our spreadsheets and we may know people, but it’s, but thankfully it’s unsystematic. Right? And you know, let’s say it’s a company that’s doing something in you know aerospace or something. Right? Like we know a lot of people in the technology business. We might not know aerospace. It’s sort of technology, but a different technology, so we may not know those people or whatever. So if we could have a mechanism to like say, “Hey, we’ve got a million dollars of this round available.”

@semil: So it opens up the marketplace to you.

@cdixon Yeah, you could get some. And I’ve had friends actually a friend who did this on Angellist and they said they found great people.

So like, so I think if you can do that and like you get a list of all the people who applied to invest and then you pick the ones you think will actually be valuable. So that’s a no-brainer level of engagement, to me.

@semil: So let’s, let’s

@cdixon I’m not saying that the limits to Angellist but that’s an easy way of arrangement.

@semil: Sure. You say it’s the logical next step, right?

@cdixon Yeah. But like next month I’d want to do it. Or something. Whenever we do our next, you know, like that near term.

@semil: Right. Well, that actually brings up some interesting issues because, let’s just say the hypothetical example, it doesn’t have to be you, it can be anybody.

@cdixon Yeah.

@semil: They have a $10 million dollar round. They’re doing a car buy, even if it’s 500K and it’s something very unique. And typically they may have passed that around with friends who may not add direct value into the company, and now it’s opening up the marketplace to find that needle in a haystack so to speak.

@cdixon Um-hmm. Yeah.

@semil: Right. That’s kind of what you’re getting at.

@cdixon Yeah, and it seems like that’s just, that’s just what the Internet is built for. Right? It’s like routing between people that have some common interests, but didn’t know they did or something. Right? Now, now, that’s just the first level of engagement. Down the road, you can imagine everything from people just completely replacing you know VC’s to all sorts of things. And like…

@semil: Yeah, and I’ve heard, I mean you can, I guess technically you can spin up ad hoc fund for every investment, right, if you wanted to, at a smaller level.

@cdixon Yeah. And so that may be, and that’s really interesting too, so.
@semil: So a slightly different question, which is, just to be curious, as an angel investor, you’re primarily looking at people and products early, a larger investor taking in more data into the calculation. How do you approach studying markets? You wrote a great post a couple of years ago about how important the narrative is when an entrepreneur is trying to partner with an investor. But from a more market-based approach, how have you now thought about that as you look in? I know you’ve made interesting investments in an around Bitcoin, around Drone, around 3D printing. Obviously, those are all huge markets. Just curious to get your take on how you think about that.

@cdixon That’s a broad question. There’s a lot of ways you could answer that question. That’s a good question.

@semil: Any way you like.

@cdixon So, I think that people just vary in how they think about technology and the future and everyone has their own kind of approach to it. I think that…

@semil: For example, I heard on the radio like a month ago, it just happened to be on the program, this is after you guys made the investment in the Drone company. And the guy was on there saying, “Yeah, you know, once these things hit commercial, it could be an $80 billion plus market.” And I just kind of stopped and said I’d never even fathomed that.

@cdixon Yeah. I think that’s a good example. So a lot of these things that we do in this, unlike other styles of investing, we invest in markets that, in many cases, don’t exist yet. No one, people are paying for drones now but it’s all basically military and we’re not investing in military drones. So we’re investing in the commercial drone market, which is mostly nonexistent today. And so I think you can’t go and look up a Mackenzie or Gardner report, and they’ll make up some number and they’ll draw lines, but it’s kind of useless.

To think about it fundamentally, it’s the intersection of two things, which is in some ways, just supply and demand, which is, the demand being “Are there useful things to do with drones?” as an example. And in the case of drones, there are. So, for example, there’s a whole story about, if you’re familiar with precision farming, which is basically that we’re running out of land and water and all these other things and that it turns out if you use your farming resources, water, fertilizer, et cetera, more efficiently, you can get far greater yield out of the farms. And it turns out that aerial imagery is a super valuable part of that and drones can do that.

And so that alone, from a demand side, this is all sort of early stage, instinct-driven, but it seems like a very interesting application. And then on the supply side you ask question around the technology. Is the technology finally here? And so in the case of drones, because as an investor you want to hit the intersection of the two, the two things come together. There’s demand for this aerial imagery, which is the primary use of the commercial drones and there’s supply in the sense of all of the components to make a reasonably-priced drone are now here.

And they’re basically here because of cell phones, because if you look at a drone, it’s a device, the flight controller which is kind of the core. I mean, it’s got wings and everything and the airframe, but then the flight controller is essentially a processor with wireless connectivity, with a GPS, with accelerometers, it’s a lot like a phone. And what’s happened is, because of the cell phone arms race, is that these components have decreased in price many orders of magnitude and the quality has gone way up. So you kind of have, in the case of the drones, this convergence on the demand and the supply side that make it seem like it’s a viable time. Now if you categorize venture investments there are things that are kind of near-term and things that are long-term. I think our investments in Airware, the drone company, is what I would put in the long-term bucket, so it’s more speculative. I think if you modeled it out on a finance point of view, it has a much higher variance, both on the downside and the upside.

@semil: True.

@cdixon But we look at things in terms of a series of investments in a portfolio, and we want to invest in things that are really kind of future…

@semil: So, to kind of sum that up, when you’re thinking about new markets, as a VC, you’re thinking markets that don’t exist, could be dynamic, could merge supply and demand.

@cdixon That satisfies a need. If you go back, that great LinkedIn Powerpoint that Reid Hoffman put up the other day, it was their series B Pitch back from 2004. I remember, I was in tech back then and I remember Facebook and everything else, and people were like, “If you did a standard market size analysis it’s like zero. There’s no market for social networks.” However, there is a big market for finding a job and there is a big market for socializing with your friends and things. And so with a lot of these things, you have to sort of think of them, the real competitor for Facebook was bars and clubs, and socializing.

@semil: So you’re almost taking a narrative approach like in that post you wrote.

@cdixon You kind of have to. I don’t see how you can do it any other way. You have to look at it from a, whether it’s narrative or people call it thematic kind of thinking. I think there’s some lightweight economics in this, when I talk about supply and demand I’m not saying it’s heavy-duty economics but some sense of thinking about that and where the world is going. I think also, at least as a firm, we bias toward things that have a heavier technology component, which sort of answers the “Why now?” question. You could say “Why haven’t there been drones for the last fifty years if there’s such a demand for them?” Well you couldn’t build them cost- effectively and sufficient quality and everything else.

@semil: So actually more of a selfish question for me, because this was like my favorite post that you wrote.

@cdixon Thanks.

@semil: You’re probably one of the first people I read when I got interested in this stuff, but I’d just love you to kind of unpack the post you wrote, “Climbing the Wrong Hill.”

@cdixon Yeah, yeah.

@semil: And just sort of how you got the inspiration for that, what the feedback’s been around that and then how have you applied that to sort of maybe retrospectively some moves you’ve made.

@cdixon Yeah. It’s funny, so the idea behind that post is, it actually comes from computer science, which there’s a whole field in computer science. It’s called hill climbing is sort of the simple word for it or whatever. But basically the idea, imagine like a terrain with like various hills at different points and imagine you’re dropped at a sort of random place and you’re goal is to climb to the highest point.

Now the sort of naive way to do that is just to sort of say, “Okay, here I am. Let me walk, wherever I am, walk upwards.” The problem with that is that you might have randomly landed on a smaller hill, right? And so like it turns out that more sophisticated computer science algorithms add some randomness into it. So there’s a very famous algorithm called simulated annealing, and the idea is you’re kind of walking up the nearest hill but then you’re also like, dropping yourselves around at different places.

And the way simulated annealing works is at the beginning of the process you kind of do more randomness but then eventually you sort of say, “Okay, I’ve now explored six hills. I’m just going to climb the tallest one I found,” right? So you sort of switch the algorithm over time. And I was thinking about it and I think it kind of relates, it kind of is analogous to people’s career paths and I think other aspects of people’s lives.

So if you believe that algorithm, it turns out the optimal… like let’s say you’re a 21-year-old out of college and you’re trying to decide what to do. This algorithm, you know, for your career, this algorithm suggests try two or three or four different fields, probably very widely varying fields. So, you know, I have this love for international finance and for journalism and for computer science, and to really kind of experiment there. And then as you sort of find something then you sort of pursue that and climb that hill.

And I just observed… so I, as an entrepreneur, I would hire a lot of people who were earlier in their career and I would see this repeated pattern, which is, you know, I would try to recruit somebody out of Google, let’s say, right? And you ask them a question like, “What do you want to do in five to ten years?” which is actually a shockingly revealing question. Like, when people come to you for career advice, ask them what they want to do in ten years and you’ll be shocked at how often what they want to do next doesn’t at all align with what they want to do in ten years.

And so like they’ll be at Google and they’ll say, “What do you want in ten years?” “I want to be running a startup.” “Okay, and so what do you want to do now?” “Well, I’m thinking about taking this PM job at Google.” “Like, how does that get you there?” “Well, it doesn’t, but it pays more and it’s got more responsibility, and so I figure that’s a good thing.”

And so the point there being that they’re sort of- this person is stuck on a low hill, not the hill they want to be on, but it’s so seductive to like, have kind of this near-term reward of like, you’re climbing this hill. And you see lots and lots of people like that. I just see this pattern over and over.

@semil: Yeah, sure.

@cdixon And so that post was meant to draw that analogy between kind of this… you know, I think there’s a lot of opportunity. I think I do this a little bit, I think some other bloggers do, which is a lot of the people who read our blogs are engineering types, and I think there’s just a rich kind of metaphorical well is to go and… I think Ben Horowitz always says this actually. I think he explains management in engineering terms, because an org chart is a form of a machine, and like…

@semil: Sure.

@cdixon I think a lot of engineers sort of come at it like, “What’s this weird human stuff people are doing?”

@semil: Right.

@cdixon “I like computers. They’re doing all this human…” but it turns out all the human stuff is actually much more engineering-like than you think. And so, that was sort of in the spirit of that post, was of sort of trying to explain a career trajectory in a computer science framework that people that read my blog might have some affinity to or something, you know.

@semil: It’s just curious, how I discovered you years ago, and started reading your blog. You’re really active on Twitter?

@cdixon Mm-hmm.

@semil: And now I’m sure you have a lot less time, doing stuff. How has your use of Twitter changed as you’ve moved out West, and as you have more demands on your time? You’re not doing as much angel investing, obviously.

@cdixon Yeah. I actually think Twitter has changed, I would argue. Part of it is just Twitter got more popular. And then it also got… For me, the golden days of Twitter were 2010, maybe? 2011? Where it was a bunch of early adopter, startup people. I think you were on there then.

@semil: What you’re saying is maybe the nature of the conversations were a little more…

@cdixon It changed, and I think, first of all, everyone just realized that now everything we say is going to… If you say something wrong, it’s going to be excerpted and put on Business Insider or whatever. So it used to be this thing, it was sort of public, but the only people really watching were other entrepreneurs, so you could have this little chat room among entrepreneurs.

@semil: So now it’s hyper-public.

@cdixon Yeah, it’s just so public, stuff get excerpted and blasted out. I think everyone is vastly more on guard, and it’s just not as fun. It has become more of a promotional… I love Twitter and I use it all the time.

@semil: I agree with you.

@cdixon I use it more than any other service, but it’s become more promotional.

@semil: That’s why I wanted to ask you the question; actually, because I use it a lot, it’s how I got interested in all this, over many years. I sort of tune it out between 9:00 and 6:00 p.m. because I feel like most people are going into work, as it’s becoming more popular, and just pushing their own stuff. People are addicted to feeds, so that’s what you do.

@cdixon Which it’s great for, and I still use it all the time for… I get my news from there, and it’s great for that, people tweeting out links and stuff. But I just find the conversation… I don’t know.

@semil: I know you’ve been writing about different other forums that maybe don’t have the best moderation, or don’t have the best community around it, right? It seems you’re almost looking for that, where you feel there’s a space in the market for it.

@cdixon I think there’s a life cycle. I think if you go back to the old days of Usenet and BBS and everything, I think almost every kind of web community has sort of a natural life cycle, probably like a bell curve, where it starts off, no one’s there, and it’s a ghost town. Then it gets to a certain point where it’s awesome. Hacker News was like this, three years ago. And then what happens is the trolls and haters and the whatever come, and it goes downhill.

@semil: Eternal September.

@cdixon Yeah. We talked to… Joel Spolsky is very sophisticated on this topic. You know, he started Stack Overflow. He believes this, I think I got this from him. I don’t want to misquote him. For example, Stack Overflow, they’re very strict about what you can do, like you can’t go and chat about using Ruby or Python on Mars and having a theoretical religious battle over computer programming stuff. It’s all stuff like what problem did you have at work, and give me a solution, and vote for the best solution, and no snark, and no trolling. Because he’s like “this is a utility, and I’m going to keep it that way, and I’m going to fight the natural life cycle of internet discussions. I’m going to keep it at the peak of the curve by instituting all of these mechanisms.” I think that he’s right. I think you have to do that, because these things just have this natural life cycle. Look, I love Hacker News, it’s a great idea, I love Paul Graham and Y.C., but it’s amazing, you put up there “Superman Kills Godzilla,” or “A Nun Saves 20 Blind Children,” the most heart-warming story in the world, and there’s a bunch of trolls critiquing the way it happened. It’s incredibly negative.

@semil: So where do you go, then… That behavior to converse, or talk with people, where is that now shifted for you? Or do you more just do it in the hallway here?

@cdixon Online, I feel like I’m sort of missing something right now. I don’t know, what do you think? I think in the startup thing, Quora has some good stuff sometimes, Twitter…

@semil: With Quora, I’ve converted more to search, because it’s harder to find and discover things there. I find I use twitter just late at night or when people are on who are really doing stuff. That’s just my own thing.

@cdixon I have a few, a friend of mine who has a private Facebook forum.

@semil: I do one private Facebook group, with fifteen people who just want to talk about early stage stuff.

@cdixon That’s kind of a nice format, because you can actually feel like you can speak honestly.

@semil: The way I set it up was, I’m going to broadcast here, and you can feel free to leave the group or stay in or communicate, but there’s no pressure.

@cdixon I think comments on certain blogs, like Fred Wilson’s…

@semil: His discuss a lot. It’s kind of reverting back to discuss for me.

@cdixon That’s nice, because Fred’s website is probably at the good point in that curve. Everyone’s civil and trying to be helpful.

@semil: He also moderates, right?

@cdixon He moderates it, in a way, that’s an ad hoc, whatever, on demand kind of little social group. That can be nice.

@semil: Actually, that’s probably the answer to the question, that’s where I spend more time.

@semil: So let’s say you roll back the time clock and the year ’25 is now here. It’s Silicon Valley. You’re interested in investing. You have nothing in your portfolio. How would you start up this, Chris Dixon, today?

@cdixon Well, I think a little bit of how I tell by my own experience is so I started my own company which is Site Advisor, which then was acquired by McAfee in 2006 and I was excited to start angel investing. So I called up Ron Conway who was an angel investor in my company and I said, “I want to angel invest. What do I do?”

He said, “Well, here’s a list of companies. Go talk to them.” So I actually flew out – I don’t think I’ve ever told this story – but I flew out to California, and I met with two companies. It was Mint in the seed round, and it was a company called Rupture which was a Shawn Fanning company. And those are the two companies I wanted to invest in. So, up until mid story, Rupture never raised around they were acquired.

So Mint, I went and met with the founder, and I said on the spot, “I want to invest.” He said, “Well, you know what? It’s oversubscribed. I have too many people. Let me get back to you.” Then he got back to me. He said, “Look. I’ve got too many people to invest. You did some security company, whatever.” It’s not relevant. “I’m sorry. I don’t have an offer for you.”

So that sort of, for me, was like a light bulb of saying, “Okay. I think I can pick companies pretty well, but this game is not about just picking. It’s about being invited to invest because basically the good companies tend to be oversubscribed, getting more investors interested than there’s opening for funding.

So then I called back Ron. I said, “What do I do?” He said, “Well, what you do is you invest in some companies that you can invest in and then you work your ass off to be helpful. And the next time this happens you say to Aaron, “Hey, Aaron, go call these other three people and see what they say.” So that was sort of the strategy, and basically I almost think of like a video game where you do that and then you level up. As you level up then you can sort of invest in more companies and sort of have more abilities. And also if you do it right, as you level up you can actually help the companies more because you now know more people in the industry, have more experience, and things like this; so, it kind of works in both dimensions.

@semil: The root currency of that is actually just the entrepreneurial reference.

Chris. It’s the entrepreneurial reference. That is the entire thing. People just say it’s like blogging and marketing. It kind of helps, but the reality is any reasonable entrepreneur is going to either have heard from another entrepreneur or actually call up an entrepreneur, and that is the basis of both angel and VC investing is the reference from other entrepreneurs.

The nice thing is I think the system kind of works in this sense in that there’s no shortcut to that. The only way when an entrepreneur – when they’re speaking one on one to another entrepreneur will recommend somebody is if you’re actually helpful. And I think that’s one of the things about this whole system that works very, very well is that it aligns kind of personal interest with kind of public interest or something that will be visibly working well.

@semil: Okay. If someone out there is…

@cdixon That’s the thing. It’s like a full time job really, and I did it as a part-time thing. I’m not sure that was always a good idea, but it should probably be a full time job, and it should all be about helping. That’s 90% of it. It’s being the one that’s perceived as being helpful.

@semil: The main things, at least in my experience, I found in the year of doing it there’s the companies, they want to meet great people to potentially hire. It’s like the number one thing and then new customers and basically help to prepare for the next round of investing.

@cdixon By the way, that aligns exactly with what all of our staff here does. That’s almost exactly the list of the primary functions that we perform.

@semil: For someone out there who’s investing on their own, right?

@cdixon Jason Horowitz is that applied at the institutional level.

@semil: I see.

@cdixon But as an individual, yes, you need to do that. The reality is like an individual you are probably going to get the highest leverage out of BD type stuff, high level business development introduction like, “Hey, I know so and so who runs that division at eBay” that kind of thing. On the hiring it’s hard as an individual to really have a pipeline of – every company invests in and wants engineers – so I’m really not going to help with that. I think that the way you help probably is more on the – like a lot of what the smarter companies do is they wouldn’t ask people like me for leads, but they would ask me to talk to the engineer to close him. So they use you on the “sell” side not the “buy” side. I would say.

So there’s a whole bunch of different things you would do as an individual to help you scale versus things you would do… Like a lot of what I would do is as an angel investor and I would tell people very explicitly upfront is one of the things I will be able to do is help you on your next financing round. I’m not going to tell you product advice.

I’m not going to come in and tell you to make that button purple because I frankly found out annoying when I was an entrepreneur and someone would swoop in once a month and give me detailed product feedback. But when the time comes for these key – Ron calls it a deflection point – like, “I’ll be there and I’ll give you advice and I’ll perform certain high value functions that I can reasonably promise.”

@semil: So the final question is just moot. Again, I feel like I’m on the seam of you moving from angel to a larger VC, but just for the more concentrated bets you’re going to make and the entrepreneurs that you’re going to partner with, what type of level of engagement should they expect from you and what are you expecting? It’s a general question and it’s going to change from entrepreneur to entrepreneur, but how are you expecting to engage?

@cdixon Yeah, I think it kind of relates to… I’m a big believer, having had boards in my own companies, I’m a big believer that there are certain things that board members can be helpful with and certain things that they should not do. I think of it as kind of the model of breadth versus depth. The entrepreneur is very deep into a certain product and category and market and the investor is, if they’re good, hopefully very broad. They’re seeing lots of companies and meeting lots of people. I believe investors should help with breadth.

“Hey, you’re trying to solve this problem and we’ve seen companies in analogous areas have success with this method and this method, maybe you should look into them, right?” You’re almost like a McKinsey consultant who’s like the bee spreading the pollen across the flowers. You’re giving that kind of breadth advice. You’re also obviously helping with governance things, high level hires, financing issues, sometimes M and A, things like that. I believe keep it… I have companies that I’m an investor in and I have strong thoughts on their product. I deliberately don’t give it to them because I think it’s not helpful. Then they take it like… In reality I’m one data point, but they’re like, “Oh, he’s a board member, an investor, I’d better…” Then you get this Frankenstein thing.

@semil: There also just seem to be a lot more firms operating within the company sometimes, or even the investor operating in the company at times. More hands on investment.

@cdixon Maybe that works for some people. I think one of the misunderstandings about Andrews & Horowitz is that none of the things we do are meant to replace internal operations of the company. We don’t have designers and engineers and all this. We’re very deliberate about that. We don’t think we should be doing that. Everything we do is around network development, meaning networks of recruiting, networks of business development, networks of customers. That’s my belief. I happen to have that belief before I joined here and that’s one of the reasons I joined is I share that belief.

It’s a very distinct set of activities that we can be helpful with, generally involved around networks in the world and not trying to replace… Now look, there are plenty of investors, especially like angel investors, who are deep operators, who have relevant experience, who go and roll up their sleeves, and that’s great that they do that. I think that’s generally the exception, not the rule. I think if you talk to a lot of entrepreneurs, they’ll tell you that when investors did that, it more often worked out badly than well. But that’s my own bias.

@semil: Great. Well, Chris, thanks for making the time, and great to hear your thoughts, and congrats again.

A special thanks to the team at Scaffold Labs for sponsoring the Sunday Conversation series on Haywire. Scaffold Labs is a boutique technology advisory firm based in Silicon Valley which designs and builds scientific and predictable talent acquisition programs that helps technology startups hire great people. Scaffold Labs has previously partnered with companies such as Cloudera, Appirio, and Nimble Storage, among others. For more information, please visit

Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2017 Semil Shah.

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