#Asia There is no tech bubble: Ben Horowitz


There are things that are overpriced, but that doesn’t mean things are systematically overvalued like in the last bubble, he says


We had the pleasure of speaking to Ben Horowitz, one of the most famous entrepreneurs and venture capitalists, in a recent visit to Israel.

Opsware, which he co-founded and where he served as CEO and President, managed to survive the dot-com crash in 1999 (then it was named Loudcloud), go public at a time when no one was willing to invest and, by 2007, get acquired by Hewlett-Packard for US$1.6 billion.

He and Marc Andreessen, who co-founded Netscape (and where Horowitz served as one of their first product managers), went on to co-launch one of the most prominent venture capital firms, Andreessen Horowitz. It has invested in some tiny companies you may have heard of such as Facebook, Airbnb, Github, Zenefits, Lyft, Twitter and Pinterest.

He came to Israel for the launch of the next generation Capriza platform. Capriza is the first Israeli company to raise significant investment from Andreessen Horowitz and is developing a mobile platform for the business application layer that can turn every business application to a mobile scenario that you can operate with a few clicks.

While Ben Horowitz told Geektime that board partner Boaz Chalamish is looking at interesting companies in Israel, beyond Capriza they haven’t made any significant investments yet, nor do they have plans to announce these investments in the near future.

Even though 100 per cent of Andreessen Horowitz’s activities are based in Silicon Valley at the moment, he did say that, “The next country we’d go into would be Israel. It’s not the biggest — China is creating bigger and more companies — but Silicon Valley is culturally close to Israel, per capita productivity of the startups in Israel is the highest anywhere outside of Silicon Valley and we feel like we understand it.”

The most surprising element of our discussion with Ben Horowitz was that he does not actually think we’re experiencing a tech bubble. This is why:

Yaniv Feldman: “The unknown bubble” everyone keeps talking about. What’s going on in the private markets? The later-stage valuations are sky high. Is the party close to over? When you look at Uber and Dropbox, these are awesome companies, but the valuations don’t make sense when you compare them to giants in the tech industry. I mean, US$50 billion for Uber, come on?

Ben Horowitz: You’re looking at the valuation but not the value, which is a bit out of context.

There are a number of phenomena that drive the bubble talk. The valuations are high, but, by the same token, the businesses are like super impressive having seen the numbers, the scale and how big the potential with something like Uber is extremely large.

The growth rate on its size, we’ve never seen a company grow at that size at that rate. The CEO in 1999, 2001, 2002 (during the dot-com bubble and crash), you didn’t have underlying numbers that justified the numbers in the same way.

Uber in no other time in history would be a private company. There weren’t US$50-billion private companies. Nor Dropbox. People don’t know the revenue and earnings numbers and a lot of the stuff that comes out is inaccurate. One VC who’s typically not invested says that’s crazy, and everyone else goes, genius VC.

‘We’re not anticipating a massive crash’

We are dealing with a new phenomenon in the late-stage private markets and there are things that are overpriced, no question.

But that doesn’t mean things are systematically overvalued like in the last bubble. Cisco was valued at half a trillion. Who did the Uber round? Blackrock, Fidelity, the same guys in the public market.

I think people are being unrealistic in their reporting. It’s not like Fidelity doesn’t know what’s going on in the public market: They’re the biggest public market investor there is.

There are other things in private deals that make headlines not true. Long story short, prices probably floated up a fair amount and will adjust down in places and different segments, and we have seen that already, but we’re not anticipating a massive crash. Talking to public market investors, while headlines on a lot of these things are saying they’re taking their money and going home, and they’re telling me, “I made 10 deals last week.”

‘I think people are losing track of a different thing’

I think people are losing track of a different thing, which is there’s never been companies that have gotten this big this fast because you’ve never been able to reach a private market this quickly. Like Facebook. Here they are, they started in 2004, and now they are a US$20-billion revenue company and have 1.5 billion users. Who’s ever done that? No company.

Everyone has a super computer in their pocket, so now someone can come out of nowhere, be a death threat to every taxi company, and span the market.

In 1998, at Netscape, we had 50 million users. Fifty-five million people were on the Internet, and half were on dialup, and that was the whole market. There’s now 3 billion people on the Internet. And all parts of the equation have improved dramatically as well.

When you compare Loudcloud to AWS (Amazon Web Services), now it’s 500 times cheaper to run, the market is 50 times as large, and things are working.

How much are Uber’s and Airbnb’s revenues?

Uber works, and Airbnb works. I can’t disclose where they are [financially], but they have over US$1 billion in revenue each, and fast. This is different from then (1999), where you had companies that had no way to make their economics work. The pattern that I hear is ‘traffic is up’. Is it a boom or a bubble? Both look the same.

No one was more traumatised than me by the bubble. Now, you have total capitulation. No one was saying there was a bubble back then.

Yaniv: In terms of private markets, private investors are willing to put so much money now in deals that have much more risk. What changed?

A series of things happened in the public markets that precipitated change in private markets. Long story short, it became much more dangerous to be public. It’s a very asymmetric situation where investors are hugely powerful, and short sellers are too, while companies are extremely restricted.

When I was CEO, a hedge fund made up story that were were losing our largest client Citigroup, he called a reporter, called a short seller, called investors, and got someone to write it. I couldn’t say anything because it was illegal, I would have to write a press release. Our stock went down 25 per cent, cost customers we were selling to question the company. We made the quarter, and in the earnings call, I could explain it.

‘You don’t go public if you don’t have a lot of cash’

The other thing is that tech businesses started to really work. People like Fidelity are hearing about Facebook, Twitter, and so forth. Well, they say we want to invest in something that’s growing. If you go back to 2012, nothing in the public market was growing more than 20 per cent. Well they have to invest in growth, so that’s what drew them into the private market.

The nice thing about the public market is there are lots of rules, so when someone writes a half a billion dollar check to a company that doesn’t have a CFO, what could go wrong?

Yaniv: Magic Leap?

Aptly named (he laughs).

It’s not all fraud. It’s very obvious that Uber is a real thing.

Laura Rosbrow: What tech trends are you most excited about?

This concept of the full stack startup we find extremely intriguing.

If you knew that every consumer had a super computer and a high speed network that connected to unlimited computing capacity, which businesses would you redesign?

There’s this idea that companies that used to sell software to taxi companies and hotel companies, those companies can just be those companies. Airbnb might have sold software to hotels, it now can be a hotel.

Now, Zenefits is the biggest insurance company. Honor, which we recently invested in, now they can just do elder care better.

Software is the key differentiator, and key to customer satisfaction. That’s a large trend.

We think drones are going to be extremely important. We’re on the first generation of drones. They’re in their first evolution, radio control helicopters.

Once you get stabilisation and communication and processor on board, you can imagine a very advanced computer vision.

Yaniv: We have a few in Israel that do that

Yeah. We think that’s important, and we’ll open up that market, which is already very large.

A smaller trend is the rise of the developer and devops. There were a lot fewer software engineers in the world. If you look at Github, we think the market is much larger even though it’s the same product. The way development and operations work has changed. We have investments in Signal FX and Pager Duty and ride along that trend.

The start of ‘Nerd Nation’?

Related to that, we have this concept called ‘Nerd Nation’, which is that engineers have become a more important cultural force. That led to an investment in Soylent, a food substitute product.

Engineers liked it because it wound science so that it’s a science-based food substitute, it’s perfectly scientifically designed. And for people who are young and don’t have a lot of time, pursuing their work, it’s a super efficient way to eat.

Those people are a little bit like musicians were when we were kids, a little bit the cool kids. That’s even hard for me to say.

Yaniv: Geeks are the stars of our generation

The article According to Ben Horowitz, there is no tech bubble first appeared in Geektime

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