20VC a16z's Balaji Srinivasan on Why There Is A Financial Incentive For Truth In VC & Why The Best VCs Invest In Founder To Make Them Richer Than Themselves



In this episode of "20 minutes VC," host Harry Stebbings interviews Balaji Srinivasan, a multifaceted entrepreneur and academic with a rich background in technology and venture capital. Srinivasan, founder and CEO of 21 and a board partner at Andreessen Horowitz, discusses his journey from academia to entrepreneurship, emphasizing the importance of regulatory innovation and consumer education in advancing sectors like cryptocurrency and autonomous vehicles. He advocates for specialized innovation zones to test and demonstrate new technologies before broader adoption. Srinivasan also touches on his teaching philosophy, aiming to bridge the gap between technical expertise and business acumen. Additionally, Stebbings promotes mindfulness through Headspace and improved home Wi-Fi with Luma.

Summary Notes

Introduction to 20 Minutes VC and MojitoVC

  • Harry Stebbings hosts the 20 Minutes VC podcast and mentions his Snapchat handle.
  • MojitoVC.com is introduced as a new blog combining elements of Fred Wilson's and Freakonomics' styles.
  • The blog is described as fun, nerdy, and slightly naughty in its approach to venture capital (VC).

"I'm your host, Harry Stebbings at htebbings on Snapchat, and you can also find us on our new blog, it's absolutely fantastic, called mojitovc.com."

This quote introduces the host and the new blog, MojitoVC, setting the tone for the type of content listeners and readers can expect.

Introduction to Balaji Srinivasan

  • Balaji Srinivasan is the founder and CEO of 21 and co.
  • 21 and co focuses on building full-stack infrastructure for Bitcoin.
  • The company has received backing from prominent investors and figures in the tech industry.
  • Balaji has previously co-founded the genomics startup Counsyl.
  • He has also served as a professor at Stanford for a decade.
  • Balaji is described as one of the most intelligent guests to appear on the show.

"So joining us in the hot seat we have Balaji Srinivasan... The company that believes for bitcoin to succeed, we need to build the full stack infrastructure for bitcoin, from silicon to hardware."

Harry Stebbings provides an introduction to Balaji Srinivasan, highlighting his current venture in Bitcoin infrastructure and his background in genomics and academia.

Balaji's Educational and Professional Background

  • Balaji Srinivasan has a comprehensive educational background from Stanford.
  • He has taught computer science and statistics at Stanford.
  • Balaji co-founded Counsyl, a genomics company that tests a significant percentage of US births.
  • He has also been a general partner at Andreessen Horowitz with a focus on Bitcoin, biomedicine, and online education.

"Yeah, sure. So I'm a Stanford lifer. I got my BS, MS and PhD in electrical engineering and MS in chemical engineering, all from Stanford."

Balaji Srinivasan explains his deep ties to Stanford University, outlining his extensive academic qualifications which set the foundation for his professional career.

Founding of 21 and Role at Andreessen Horowitz

  • Balaji initially served as chairman of 21 in a part-time capacity.
  • He taught a popular course that combined technology and philosophy, aiming to fill knowledge gaps in business for technically skilled students.
  • Balaji joined Andreessen Horowitz as a general partner and later transitioned to a part-time role while becoming the full-time CEO of 21.

"Then after that, in 2013, I did three things. So first I helped set up 21, and at the time in 2013, I was just in a part-time role as chairman."

Balaji Srinivasan describes his involvement in the early stages of 21 and his multifaceted career in 2013, which included education and venture capital.

The Appeal of Andreessen Horowitz and Transition Back to Operations

  • Andreessen Horowitz offered a comprehensive view of the technology industry.
  • The VC firm provided a learning platform across various sectors.
  • Balaji highlights the role of regulation as a barrier to many businesses.
  • He emphasizes the shift in Silicon Valley's focus from purely technological improvements to regulatory challenges.

"So I think the great thing about Anderson Horowitz is it really is a vantage point from which you can see all of technology."

Balaji Srinivasan explains the advantage of working at Andreessen Horowitz, which gave him a broad perspective on the technology landscape and influenced his career decisions.## Evolution of Technology and Regulatory Risk

  • Over the last decade, companies like Uber and Airbnb have transitioned from digital spaces to engaging with the physical world.
  • The main barrier for such businesses is no longer technological but regulatory.
  • Balaji Srinivasan argues that regulatory risk is the primary challenge for modern tech companies, as outdated regulations impede innovation.
  • He suggests that billions in equity value are held back by these outdated regulations.

"The primary risk is actually regulatory risk. Evangelizing that point of view was basically my primary focus as a vc for about two years, and I think I was moderately successful in that."

Balaji explains that his focus as a venture capitalist was to highlight the impact of regulatory risks on technology companies. He believes that addressing these risks is crucial for innovation and growth in the tech industry.

"For example, if you think about Uber and Airbnb in 2009, if you were an investor, it would have been a remarkable thing to say that $100 billion in equity value is being held back by outdated taxi and hotel regulations."

Balaji provides examples of how outdated regulations have limited the potential market value of companies like Uber and Airbnb, suggesting that regulatory reform could unlock significant economic value.

The Concept of the Unseen

  • Balaji references the philosopher Bastiat and his parable on what is seen and what is unseen, emphasizing the difficulty in recognizing the value of what is not immediately visible.
  • He highlights the rapid construction of skyscrapers in China as an example of what is possible without restrictive regulations.
  • The concept of the unseen also applies to innovations that are held back by outdated regulations, which can now be observed in more progressive regulatory environments abroad.

"So Frederick Bastiat has this parable, and you can google it. It's called what is seen and what is unseen. And the basic premise is that it requires sort of more empathy and more imagination to think about the value that isn't seen."

Balaji introduces the concept of the unseen, which Bastiat's parable illustrates, to explain the hidden potential that exists beyond the constraints of current regulations.

"And so you're talking about, like, building 100 x faster than you can build in the US, which means they can put an entire city together in a month or so."

He uses the example of China's rapid construction capabilities to demonstrate the potential for innovation when not hindered by excessive regulations.

Societal Impact of Regulatory Constraints

  • Balaji argues that the value held back by regulations is not only financial but also has a broader societal impact, such as time-saving and employment opportunities.
  • He suggests that the true value creation of companies like Uber and Airbnb is much larger than just their equity value, possibly reaching a trillion dollars.
  • The discussion extends to questioning the impact of other regulatory bodies like the FDA, FAA, and SEC on innovation.

"So there's absolutely the employees themselves, but there's also the larger marketplace. And so then you get to really large scale. So a lot of utility is being created there."

Balaji emphasizes that the impact of companies like Uber and Airbnb is not limited to direct employment but extends to the larger marketplace, creating utility on a large scale.

"What is the FDA holding back? What's the FAA holding back? What's the SEC holding back?"

By questioning the role of various regulatory agencies, Balaji is prompting a re-evaluation of how regulations may be impeding technological progress and innovation.

Modern Regulatory Systems and Consumer Choice

  • Balaji proposes that new technologies can achieve the objectives of regulatory agencies more effectively.
  • He cites the real-time review systems of Uber and Airbnb as examples of responsive regulatory mechanisms.
  • The unbundling of regulatory regimes could offer consumers the choice between different regulatory systems without physical migration.

"And that's just much more responsive as a regulatory system than every six month or every year evaluation of a taxi medallion or a hotel license."

Balaji contrasts the real-time feedback mechanisms of modern platforms with the infrequent evaluations of traditional regulatory systems, highlighting the efficiency of the former.

"The customer can have a choice between different regulatory regimes. That's to say, they can hit a button and they can choose Uber, or they can hit a button or they choose Lyft."

He advocates for consumer choice in regulatory regimes, suggesting that technology can provide options that were previously only available through physical relocation.

Silicon Valley's Approach to Innovation

  • Balaji supports the Silicon Valley ethos of moving fast and taking risks to foster technological advancements.
  • He draws historical parallels with the CRC Handbook of Chemistry and Physics, where chemists took personal risks to contribute to science.
  • Balaji argues that being overly conservative in terms of safety can lead to systemic risks by maintaining the status quo.

"You don't get plane flights. You don't get aviation without test. We, we have to have early adopters."

Balaji defends the necessity of risk-taking and early adoption in technological innovation, drawing a parallel with the development of aviation.

"And there's a point at which too much conservativeness on that, like being too conservative on safety, actually leads to systemic risk."

He warns against excessive caution, suggesting that it can prevent progress and lead to greater systemic risks by failing to innovate beyond current systems.## Risk-Taking in Innovation

  • Innovation often requires taking risks, such as testing new planes or medicines.
  • Early adopters play a crucial role in the advancement of technology and medicine.
  • Incentivizing risk-taking can lead to significant benefits, like faster air travel or medical cures.
  • This approach can be applied to physical risks, similar to early adopters on the Internet.

"you don't take a risk. And then what happens is you don't test out a new plane. And so because of that, you lose, I don't know, millions of man years of time, which is basically lives due to having slower air travel."

This quote emphasizes the opportunity cost of not taking risks in innovation, such as the collective time lost due to slower air travel.

"there's got to be somebody who's the first person to try a surgery or somebody who's the first person to try a drug."

This quote highlights the necessity of risk-takers in medical advancements, where someone must be the first to undergo new treatments.

Carving Out Jurisdictions for Early Adopters

  • Balaji suggests creating special zones where early adopters can try new technologies with some degree of physical risk.
  • These zones would allow for experimentation without the constraints of current laws.
  • Successful experiments in these zones can be used as evidence to adapt regulations elsewhere.

"how can we carve out jurisdictions where you can actually have early adopters?"

Balaji proposes the idea of creating jurisdictions specifically for early adopters to experiment with new technologies.

Overhauling Regulatory Systems

  • Balaji prefers creating parallel systems for innovation instead of radically overhauling existing regulatory systems.
  • The success of these parallel systems can be showcased to gain political capital and influence changes in other cities.
  • He uses the example of Pittsburgh embracing self-driving cars as a forward-thinking experiment.

"So I'm definitely on the first. And the reason I say that is it's hard to convince people of what is unseen."

Balaji explains his preference for creating parallel systems over radical regulatory overhauls due to the difficulty of convincing people to accept unseen changes.

Consumer Education and Technology Adoption

  • Consumer education is crucial for the adoption of new technologies like ride-sharing and Bitcoin.
  • Education can show how new technologies work and demonstrate their advantages over outdated systems.
  • The utility of a technology can motivate consumers to educate themselves about it.

"Consumer education can mean different things. It can mean showing people how to use the technology."

Balaji clarifies that consumer education involves both instructing individuals on how to use new technologies and illustrating their benefits.

Balaji's Favorite Books

  • Balaji's favorite technical book is "The Princeton Companion to Mathematics" for its comprehensive coverage of math.
  • His favorite philosophical book is "The Sovereign Individual" due to its depth and thought-provoking content.

"The Princeton Companion to Mathematics... it's by this guy, Timothy Gowers..."

Balaji expresses his admiration for "The Princeton Companion to Mathematics" due to its depth and the author's credentials.

"The Sovereign Individual... one sentence, is so deep there that you could expand it into a whole book."

Balaji praises "The Sovereign Individual" for its profound insights that could be elaborated into entire books.

Tesla's Market Position

  • Balaji would not bet against Elon Musk and Tesla due to Musk's track record of success.
  • He discusses two models of innovation: the Paladin (capitalizing on popular concepts) and the Dark Knight (meeting undeniable market demand but facing potential bans).

"I wouldn't bet against Elon Musk, and I think he's proven the naysayers wrong enough times..."

Balaji expresses his confidence in Elon Musk and Tesla's potential for success.

"The Paladin takes some sort of thing which is extremely popular and tries to make it profitable... The Dark Knight... annoys enough people that it's not immediately popular..."

Balaji describes two innovation strategies, highlighting the challenges each faces—profitability for the Paladin and potential banning for the Dark Knight.

Reading Habits for Industry Knowledge

  • Balaji did not specify his favorite blog or newsletter, but he mentions that he reads extensively.
  • He suggests that his reading habits contribute to his industry knowledge and insider perspective.

"So I read a lot o"

This incomplete quote suggests that Balaji values reading as a source of knowledge, although he does not mention specific sources.## Reading Preferences and Information Sources

  • Balaji Srinivasan emphasizes the value of reading old books and technical journals over contemporary news.
  • He believes that understanding historical societal arrangements can offer insights for modern innovations.
  • Technical journals reveal advanced technologies that are not widely recognized by the public.

"I read a lot of old books, and I read a lot of technical journals."

This quote shows that Balaji Srinivasan prioritizes reading materials that provide long-term insights and deep technical knowledge, rather than focusing on the latest news.

"So old books are one big component, and the second is technical journals."

This quote identifies the two main categories of reading material that Balaji finds valuable: historical literature and specialized scientific publications.

Societal Patterns and Technological Innovations

  • Balaji draws parallels between societal trends from the past and potential future scenarios.
  • He suggests that the future might resemble the more decentralized society of the 19th century rather than the centralized mid-20th century.
  • Old societal solutions, like room sharing in the early 1900s, can inspire modern sharing economy models.

"I think in many ways, our future is more like our past."

This quote suggests that future societal structures may have more in common with historical patterns than with the relatively recent past.

"2030, I think, will be more similar to 1870 than it will to 1950."

Balaji posits that future decentralization trends may mirror those from the time before peak centralization in the 1950s.

Advanced Biomedical Technologies

  • Balaji highlights the significant advancements in life extension and brain-machine interfaces reported in technical journals.
  • He points out the public's lack of awareness about these technologies, partly due to regulatory hurdles.
  • Examples include mice being able to control devices telepathically and advancements in regeneration.

"You can do things with, for example, brain machine interface that's much more advanced than the general public realizes."

This quote emphasizes the gap between cutting-edge biomedical research and public knowledge.

Media and Reputation

  • Balaji criticizes Gawker's business model, which he perceives as damaging to individuals' reputations for the sake of clicks.
  • He contrasts Silicon Valley's incentive for truth with Gawker's incentive for sensationalism.
  • Balaji is pleased with Gawker's demise, viewing it as a victory for positive-sum institutions over negative-sum ones.

"Their basic business model was to try to destroy somebody's reputation for $5 in clicks."

This quote criticizes Gawker's approach to journalism, suggesting that it was destructive and profit-driven at the expense of truth.

Venture Capital and Truth Incentives

  • Balaji sees a strong incentive for truth within the venture capital industry, as VCs are financially motivated to recognize and learn from their mistakes.
  • He believes that VCs are fundamentally invested in building people up, which is the opposite of media models focused on tearing people down.
  • The venture capital model is characterized by an unusual elite that benefits from making others wealthier than themselves.

"A VC is very interested in whether they were wrong... there's actually a financial incentive for truth in a way that's unusual in other places."

This quote highlights the unique accountability and truth-seeking nature of venture capital, where admitting mistakes can lead to better investment decisions.

"VC is incentivized to make people richer than them to build people up."

Here, Balaji points out the positive-sum nature of venture capital, where success is achieved by supporting others to surpass the wealth of the investors themselves.

Future Plans and Digital Currency Application

  • Balaji teases an upcoming mainstream application of digital currency that is already in beta.
  • The application aims to enable people to earn money through their phones, contrasting with social media platforms that focus on social connections.

"We have an application where you can load it. And unlike Twitter or Facebook, where you click buttons to make friends, it's an application where you can click buttons and make money."

This quote introduces a forthcoming project that Balaji is involved in, which leverages digital currency to create economic opportunities through mobile technology.

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