Hard Things

By editor on January 28, 2018 — 2 mins read

We now need to spend time in hard things. And hard things are dominated by established legacy durable businesses. That’s why they’re hard. They were able to stand the test of time, and they solved things. But they are now going to face an existential crisis.

When people see your results in your portfolio, investors want to come through your door, and want to get to know you. These guys have huge pools of money. I’ll talk about a sovereign wealth fund I was just in. They have $680 billion of assets. And I always start the conversations with the following:

“You should be prepared to understand that every asset you have is either already impaired, or will be impaired. What you haven’t uncovered yet is the technology that’s going to do it.”

I think corporates face many of the same challenges.

Look at the automotive industry. You look at all of these corporate balance sheets, and you look at all of these corporations that have been producing and manufacturing really complicated things in a highly complex supply chain environment at scale for decades, and generating hundreds of billions of dollars of topline revenue: they have a very specific skill, but they’re clearly under threat. The best thing for them to do is to not have some grandiose vision that they present at the board and say, “We’re going to solve this problem ourselves.”

That’s bullshit. Doesn’t happen.

No great engineer is ever going to go work for GM or Ford; it’s never going to happen.

What they can do, is they can find those pools of people in Silicon Valley that can be those magnets, and then partner. They can use their shared balance sheet. That’s where you can create some very innovative ideas and ways of allocating capital that don’t exist today.

It happens a lot in private equity, but it doesn’t happen enough in venture. The reason is because most VCs have a very brittle definition of their job, and, at the end of the day, they aren’t managing their own money. They’re managing somebody else’s money, so their propensity to take risk is non-existent.

Corporates can find a handful of folks — Lonsdale is an excellent example, we’re a reasonable example, and Andreessen with their market development team is a good example — and say, “What are our true strategic problems?” And then you go and have some of us be the actual tip of the spear that goes and actually solves them.

We actually just did this with Ford. Ford has a big autonomy problem. There’s a repeat entrepreneur that made us a lot of money in 2013 and 2014. He’s going to set up the software layer that sits on top of these ADAS (Advanced driver-assistance systems). Us and Ford; it’s great.

They got a right to buy, and we’ll see if they exercise that right. We negotiated a framework that we thought was fair. I would do that 50 times in a row.

https://www.youtube.com/watch?v=Nqy6CcU84Xs (21:55)

Posted in: v2

Editor's Note

These are Chamath Palihapitiya's words. They are probably some of the best thoughts on VC, business, and life, but were scattered around the Internet. They live now in this archive.