The Exchanges

Q I'm really intrigued there, because now you've had the perspective of both. What do you think makes the great CEOs, and then what do you think makes the great board member? You said you speak at less now in board meetings, so let's start with the great CEOs. What makes the great CEOs?

A I think a great CEO is someone who, over the long period of time, is able to continue to reinvent their business. Mark Leslie wrote a tremendous article about this that he published on the first round, excuse me, the first round review on the importance of reinventing your business. Every business is Has a phase of going up and a phase of going down. Some businesses, the phase going up is longer than others, but they're all ultimately going to decline. What really sets apart the special CEOs is they're able to layer on new businesses on top of the old businesses. If you think about Apple layering on top of the iPod on top of computers, and then the iPhone, and then the iPad, Adobe, Started with PostScript, which enabled what you see is what you get laser printers, but then they added Photoshop, then they added a PDF. Now they're offering a bunch of marketing tools. The really great companies that endure as growth companies over long periods of time continue to add new businesses, and that, that's what I think makes a really great CEO.

AI assessment note: “a great CEO is someone who... is able to continue to reinvent their business”

Q And I'd love to stay on the theme of reflection and look at the VC ecosystem on a macro perspective now. And discuss its evolution over the last 20 years. And so what have you seen as the fundamental transformations that we've witnessed in, in VC over the last 20 years?

A Well, the biggest change is the transition from investing in companies that have high technical risk and low market risk to companies that have low technical risk and high market risk. 20 years ago, we primarily focused as an industry on backing companies that attempted to gain their advantage Through price performance. They were examples of if you really could build what you said you could, you knew that people would want to buy their product because they offered a 10 X performance advantage or 10 times the storage or one 10th the latency or 10 times the bandwidth for the same amount of money. Our key challenge as venture capitalists was determining whether or not the entrepreneur could actually deliver What they said they could, and the reason that mattered was we knew that what killed our companies was market risk, not technical risk. If the dogs don't want to eat the dog food, it doesn't matter how good the people are, how good the management is, they're not going to succeed. Now, over the last 20 years, we've moved to a world dominated by software, and software has almost no technical risk, unless you're pursuing a very fancy algorithm. The challenge is that That you never know whether or not anyone wants what people set out to build. So it has very low technical risk and very high market risk. Market risk, as I said, is what kills investments. So the venture capitalists, …

AI assessment note: “the biggest change is the transition from investing in companies that have high technical risk”

Q And I'd love to stay on the theme of reflection and look at the VC ecosystem on a macro perspective now. And discuss its evolution over the last 20 years. And so what have you seen as the fundamental transformations that we've witnessed in, in VC over the last 20 years?

A Well, the biggest change is the transition from investing in companies that have high technical risk and low market risk to companies that have low technical risk and high market risk. 20 years ago, we primarily focused as an industry on backing companies that attempted to gain their advantage Through price performance. They were examples of if you really could build what you said you could, you knew that people would want to buy their product because they offered a 10 X performance advantage or 10 times the storage or one 10th the latency or 10 times the bandwidth for the same amount of money. Our key challenge as venture capitalists was determining whether or not the entrepreneur could actually deliver What they said they could, and the reason that mattered was we knew that what killed our companies was market risk, not technical risk. If the dogs don't want to eat the dog food, it doesn't matter how good the people are, how good the management is, they're not going to succeed. Now, over the last 20 years, we've moved to a world dominated by software, and software has almost no technical risk, unless you're pursuing a very fancy algorithm. The challenge is that That you never know whether or not anyone wants what people set out to build. So it has very low technical risk and very high market risk. Market risk, as I said, is what kills investments. So the venture capitalists, …

AI assessment note: “biggest change is the transition from investing in companies that have high technical risk”

Q Absolutely. And talking about kind of delighting customers and, and, uh, bringing a great service to customers, I do want to touch on, uh, an aspect, uh, very exciting today news. So I'll leave that to you to discuss. So talk to me, what is the news and what's the exciting updates coming out from you at Wealthfront?

A Well, a couple of weeks ago, we introduced a new service that we call our selling plan. Basically, this creates the opportunity for For rank and file employees to have a chance to sell their stock, their concentrated company stock position, in a way that only their executives had access to. Typically, executives can work with private wealth managers on something known as a 10 B five one plan, which is a way to rateably sell your stock over time. So we created software for employees who receive company stocks. To sell their stock, number one, commission-free. Number two, we do it daily over extended periods of time, and by doing this, we make it incredibly convenient because it's a set it and forget it approach. We minimize the taxes associated with those sales. Because we sell over an extended period of time, we minimize the regret someone might feel that they sold at the wrong time. This is a service that traditionally was only available through private wealth managers, and private wealth managers have minimums of 10 or five, 10, or fifteen million dollars. We're making this available to everyone. Today, or most recently, we just announced a new user interface or user experience for the entire Wealthfront client base that's built around financial planning, and we call this financial planning experience path. So, What we've done is made financial planning far more, number one, …

AI assessment note: “a couple of weeks ago, we introduced a new service that we call our selling plan”

Q And then you're a mentor to many, uh, but who would you say your mentor is, and how did that relationship come about?

A Closest mentor and best mentor is actually a contemporary. It's my partner from Benchmark, Bruce Dunleavy. So I met Bruce when we were classmates in business school. He was amazing in business school to the point that I said to myself, I have to work with that guy. And I entered the venture business directly out of business school in 84. I recruited him to join me in 1988 or 89. And He has unbelievable judgment and is the best influencer I've ever met, and people just adore Bruce, and I try to learn from him as best as I can. He's two years older than I am, but he's radically more capable than I am as a business person, and I have benefited amazingly from the association.

AI assessment note: “Closest mentor and best mentor is actually a contemporary. It's my partner from Benchmark”

Q You mentioned that competition and differentiation. How do you view competition? It's constantly one that I think about in terms of, is it a row your own race element of focusing on your core product roadmap and how you're going to execute Or is it a case of, as Andy Grove said, only the paranoid survive and being very much aware of the competition around you?

A You know, it's funny that you should bring up Andy Grove because I teach a case on this subject. Does competition matter? And the subject for the case is Netflix back when they competed with Blockbuster. And the reason that I chose Netflix is I had the good fortune to sit on the board of Reed Hastings company prior to To Netflix. I learned more of pure software Reed's prior company than any other company, and one of the things that Reed really taught me is that competition doesn't matter, that you should spend all of your time focusing on delighting the customer. Now, that sounds obvious, but very few people do it because most people believe in the Andy Grove philosophy of you have to be paranoid about your competition. Reed Hastings specifically says that If you're overly paranoid, you're distracted from delighting your customer, and if you don't delight your customer, you don't create a viral effect because delight is the greatest form of virality. So I am very much in the Reed Hastings camp, but there is far more leverage from spending your time on figuring out how to delight your customer than react to your competition. I'm from the Ricky Bobby School of Management. If you're not first, you're last. Reacting to competition doesn't ever get you to be first. And you can't win from behind in technology.

AI assessment note: “I am very much in the Reed Hastings camp”

Q You mentioned that competition and differentiation. How do you view competition? It's constantly one that I think about in terms of, is it a row your own race element of focusing on your core product roadmap and how you're going to execute Or is it a case of, as Andy Grove said, only the paranoid survive and being very much aware of the competition around you?

A You know, it's funny that you should bring up Andy Grove because I teach a case on this subject. Does competition matter? And the subject for the case is Netflix back when they competed with Blockbuster. And the reason that I chose Netflix is I had the good fortune to sit on the board of Reed Hastings company prior to To Netflix. I learned more of pure software Reed's prior company than any other company, and one of the things that Reed really taught me is that competition doesn't matter, that you should spend all of your time focusing on delighting the customer. Now, that sounds obvious, but very few people do it because most people believe in the Andy Grove philosophy of you have to be paranoid about your competition. Reed Hastings specifically says that If you're overly paranoid, you're distracted from delighting your customer, and if you don't delight your customer, you don't create a viral effect because delight is the greatest form of virality. So I am very much in the Reed Hastings camp, but there is far more leverage from spending your time on figuring out how to delight your customer than react to your competition. I'm from the Ricky Bobby School of Management. If you're not first, you're last. Reacting to competition doesn't ever get you to be first. And you can't win from behind in technology.

AI assessment note: “one of the things that Reed really taught me is that competition doesn't matter”

Q Absolutely. And talking about kind of delighting customers and, and, uh, bringing a great service to customers, I do want to touch on, uh, an aspect, uh, very exciting today news. So I'll leave that to you to discuss. So talk to me, what is the news and what's the exciting updates coming out from you at Wealthfront?

A Well, a couple of weeks ago, we introduced a new service that we call our selling plan. Basically, this creates the opportunity for For rank and file employees to have a chance to sell their stock, their concentrated company stock position, in a way that only their executives had access to. Typically, executives can work with private wealth managers on something known as a 10 B five one plan, which is a way to rateably sell your stock over time. So we created software for employees who receive company stocks. To sell their stock, number one, commission-free. Number two, we do it daily over extended periods of time, and by doing this, we make it incredibly convenient because it's a set it and forget it approach. We minimize the taxes associated with those sales. Because we sell over an extended period of time, we minimize the regret someone might feel that they sold at the wrong time. This is a service that traditionally was only available through private wealth managers, and private wealth managers have minimums of 10 or five, 10, or fifteen million dollars. We're making this available to everyone. Today, or most recently, we just announced a new user interface or user experience for the entire Wealthfront client base that's built around financial planning, and we call this financial planning experience path. So, What we've done is made financial planning far more, number one, …

AI assessment note: “we introduced a new service that we call our selling plan”

Q So when did the idea hit you and what was that aha moment for you?

A I retired from the venture capital business in the beginning of I had a life that was well beyond anything that I ever could have imagined, so I wanted to spend my time giving back, and I did that in the form of teaching at my graduate school alma mater, Stanford, by joining the board of trustees of my undergraduate alma mater, University of Pennsylvania, and my wife and I started an innovative cancer research funding initiative. As part of my responsibilities as a trustee at University of Pennsylvania, I serve on the endowment investment Committee, and one day I was sitting and listening to a presentation by the investment team on how they generate their outstanding returns, and I think that the Ivy League University endowments are the best managed large pools of capital in the world, and I was struck by how arcane their analysis methods were that they were done in spreadsheets, and I thought, God, you If you could do that in software and lower the minimums associated with the managers in which they invest, we could bring endowment style investing to the masses, which addressed a common problem I had faced over the years. Many of the people that I had recruited to my portfolio companies who had gone on to financial success would come to me for investment advice, and I could never advise them to do what I do because I was in the unbelievably fortunate position to be able to aff…

AI assessment note: “I was struck by how arcane their analysis methods were that they were done in spreadsheets”

Q I'm really intrigued there, because now you've had the perspective of both. What do you think makes the great CEOs, and then what do you think makes the great board member? You said you speak at less now in board meetings, so let's start with the great CEOs. What makes the great CEOs?

A I think a great CEO is someone who, over the long period of time, is able to continue to reinvent their business. Mark Leslie wrote a tremendous article about this that he published on the first round, excuse me, the first round review on the importance of reinventing your business. Every business is Has a phase of going up and a phase of going down. Some businesses, the phase going up is longer than others, but they're all ultimately going to decline. What really sets apart the special CEOs is they're able to layer on new businesses on top of the old businesses. If you think about Apple layering on top of the iPod on top of computers, and then the iPhone, and then the iPad, Adobe, Started with PostScript, which enabled what you see is what you get laser printers, but then they added Photoshop, then they added a PDF. Now they're offering a bunch of marketing tools. The really great companies that endure as growth companies over long periods of time continue to add new businesses, and that, that's what I think makes a really great CEO.

AI assessment note: “a great CEO is someone who, over the long period of time, is able to continue to reinvent”

Q And when you look at kind of a reflective stance now, and you look at your career in VC, and what are the fundamental learnings then that you took from that career in VC and have applied to Wealthfront?

A You know, it's interesting. Very little of what you learn in venture capital is applicable to being an entrepreneur. My teaching partner in one of my classes at Stanford, Mark Leslie, the founder of an incredibly successful company named Veritas Software, he grew it to about a billion and a half in revenues from nothing, was so excited when I became an entrepreneur because he hates venture capitalists, and he was very proud that I was finally a CEO, and he said, God, you would be such a better venture capitalist now that you've had this experience, and I said to him, I couldn't disagree more. And he was perplexed, and I said, being a CEO, the things that make you a very good leader have nothing to do with the things that make you very good at finding and choosing investments. I think that it can make you a better board member. I talk a lot less as a board member since I became a CEO, but 90% of the value added of a venture capitalist is finding and choosing the right investments. My mother could have been on the board of Google, and it would have been successful. Same thing with Facebook. The really big wins are big wins, no matter who's on the board. I think being a really good board member can make the difference between a three X and a six X outcome, but that doesn't really move the needle on the economics of a venture capital firm.

AI assessment note: “Very little of what you learn in venture capital is applicable to being an entrepreneur.”

Q I mean, I'm intrigued. What were the considerations and challenges then of making a smooth and successful transition? Having seen many successful transitions with With your time at benchmark and portfolio companies, what were the considerations that you really wanted to, to really contemplate?

A I'm trying to think about what led to a poor transition. I think the poor transitions were the result of the CEO being surprised with being fired. That usually created a lot of consternation. If there were two camps within the company where there were warring factions, where one Camp wanted one person to run the company and another camp wanted another. That would lead to a poor transition, but if both parties want the transition, that usually goes smoothly, and fortunately, I had been very involved in the business all along as the executive chairman. I spent about a third of my time with the company and had deep relationships with the management team and the rest of the people in the company, so It was very natural.

AI assessment note: “if both parties want the transition, that usually goes smoothly, and fortunately, I had been”

Q returning to Wealthfront, you previously said the best entrepreneur have a vision to To see the handful of things that will make or break them. With that in mind, and with kind of the rise, as you said, of the likes of APIs, which allow for a huge amount of new technology, what are the few elements that you think will both make or break Wealthfront in the coming years?

A The critical bet that we've made is that uniquely focusing on bringing services that were traditionally only available to the winning strategy. We are the only player in the automated investment space That is taking private wealth management investment and financial services and delivering them to the masses. We spend all of our engineering resources on delivering those value added features so that everyone can invest like a multimillionaire. That's really what's unique about us. Other people are taking our original investment service and adding scaffolding to make it possible to sell through other channels. We've kept the channel the same direct To consumer and added features to make it far, far more compelling, and time will tell whether or not that was the right bet. I think it really allows us to differentiate and adds far more value to our client.

AI assessment note: “The critical bet that we've made is that uniquely focusing on bringing services”

Q I mean, I'm intrigued. What were the considerations and challenges then of making a smooth and successful transition? Having seen many successful transitions with With your time at benchmark and portfolio companies, what were the considerations that you really wanted to, to really contemplate?

A I'm trying to think about what led to a poor transition. I think the poor transitions were the result of the CEO being surprised with being fired. That usually created a lot of consternation. If there were two camps within the company where there were warring factions, where one Camp wanted one person to run the company and another camp wanted another. That would lead to a poor transition, but if both parties want the transition, that usually goes smoothly, and fortunately, I had been very involved in the business all along as the executive chairman. I spent about a third of my time with the company and had deep relationships with the management team and the rest of the people in the company, so It was very natural.

AI assessment note: “if both parties want the transition, that usually goes smoothly”

Q But I do want to deep dive into a quick fire round now. So as you know, I say a short statement, and then you give me your immediate thoughts. How does that sound? Great. So let's do the most challenging aspect of being CEO.

A It's all consuming. This is the part that I didn't appreciate. It's funny that when I was a venture capitalist, I prided myself on being engaged with my portfolio company, understanding what they were doing, and being as helpful as I could, but not imposing myself on the company. But I could go home at night and attend a sports event, or go out to dinner with my family, or watch a movie and not think about it. I could turn it off. When you're the CEO, you can't turn it off. You're Always thinking about the business. It's just totally consuming, and I tell my former CEOs about this, and they laugh at me and say, what did you think we were doing? So that's the part that was really unexpected for me.

AI assessment note: “It's all consuming. This is the part that I didn't appreciate.”

Q on a really fascinating point for me personally, because before you said that you thought you were an investor and not a CEO, but what you realized recently is that you were a founder. So I'm intrigued with the recent transition from your role as chairman back to CEO. What was the realization moment and the reasoning behind the decision to move back into the role of CEO of Wealthfront?

A You know, starting a company is like having a baby. You feel an unbelievable emotion about it, and I think that Adam just did a superb job building a product strategy about which I'm very excited, and I think we're going to talk a little bit more about that in this podcast, but there were a couple of initiatives that I thought were really important to achieving our ultimate goal that I also thought I was in a far better position to drive, and Adam Was a prince about it. He understood my passion for those things. He agreed that I was the more appropriate person to make that happen, and he stepped aside. He stayed on the board of directors, so we still have a great relationship, but it was a passion about some things that I really wanted to make happen that brought me back.

AI assessment note: “initiatives that I thought were really important that I also thought I was in a far better position to drive”

Q returning to Wealthfront, you previously said the best entrepreneur have a vision to To see the handful of things that will make or break them. With that in mind, and with kind of the rise, as you said, of the likes of APIs, which allow for a huge amount of new technology, what are the few elements that you think will both make or break Wealthfront in the coming years?

A The critical bet that we've made is that uniquely focusing on bringing services that were traditionally only available to the winning strategy. We are the only player in the automated investment space That is taking private wealth management investment and financial services and delivering them to the masses. We spend all of our engineering resources on delivering those value added features so that everyone can invest like a multimillionaire. That's really what's unique about us. Other people are taking our original investment service and adding scaffolding to make it possible to sell through other channels. We've kept the channel the same direct To consumer and added features to make it far, far more compelling, and time will tell whether or not that was the right bet. I think it really allows us to differentiate and adds far more value to our client.

AI assessment note: “The critical bet that we've made is that uniquely focusing on bringing services”

Q Do you think we'll continue to see the monopoly-like characteristics of VC with your benchmark sequoias still taking home the top returns, you know, the one percent taking the 95. Do you think that will continue, or do you think we'll see the decentralization of VC returns?

A Well, it's happened for 40 years, so I don't see why it's going to change. And the reason that I don't think it's going to change is that The premier firms have a form of intellectual property. No one seems to understand us, and that intellectual property is the lessons of success. So I'm a big believer that you learn far more from success than you do from failure. I think you learn more personally from failure. You learn more professionally from success. The premier firms have had the benefit of investing in a number of companies That have been very, very successful. So when a new company comes in, they know what leap of faith to take to get the return, because without risk, there is no return, no outsized return. You have to take risk. The second tier firms would like return with no risk. Now, they don't know which risks to take. They just know which ones to avoid. They don't know which ones to take. And believe it or not, that is incredibly valuable intellectual property, and what I believe separates the premier firms from the second-tier firms.

AI assessment note: “Well, it's happened for 40 years, so I don't see why it's going to change.”

Q And when you look at kind of a reflective stance now, and you look at your career in VC, and what are the fundamental learnings then that you took from that career in VC and have applied to Wealthfront?

A You know, it's interesting. Very little of what you learn in venture capital is applicable to being an entrepreneur. My teaching partner in one of my classes at Stanford, Mark Leslie, the founder of an incredibly successful company named Veritas Software, he grew it to about a billion and a half in revenues from nothing, was so excited when I became an entrepreneur because he hates venture capitalists, and he was very proud that I was finally a CEO, and he said, God, you would be such a better venture capitalist now that you've had this experience, and I said to him, I couldn't disagree more. And he was perplexed, and I said, being a CEO, the things that make you a very good leader have nothing to do with the things that make you very good at finding and choosing investments. I think that it can make you a better board member. I talk a lot less as a board member since I became a CEO, but 90% of the value added of a venture capitalist is finding and choosing the right investments. My mother could have been on the board of Google, and it would have been successful. Same thing with Facebook. The really big wins are big wins, no matter who's on the board. I think being a really good board member can make the difference between a three X and a six X outcome, but that doesn't really move the needle on the economics of a venture capital firm.

AI assessment note: “Very little of what you learn in venture capital is applicable to being an entrepreneur.”

Q Do you think we'll continue to see the monopoly-like characteristics of VC with your benchmark sequoias still taking home the top returns, you know, the one percent taking the 95. Do you think that will continue, or do you think we'll see the decentralization of VC returns?

A Well, it's happened for 40 years, so I don't see why it's going to change. And the reason that I don't think it's going to change is that The premier firms have a form of intellectual property. No one seems to understand us, and that intellectual property is the lessons of success. So I'm a big believer that you learn far more from success than you do from failure. I think you learn more personally from failure. You learn more professionally from success. The premier firms have had the benefit of investing in a number of companies That have been very, very successful. So when a new company comes in, they know what leap of faith to take to get the return, because without risk, there is no return, no outsized return. You have to take risk. The second tier firms would like return with no risk. Now, they don't know which risks to take. They just know which ones to avoid. They don't know which ones to take. And believe it or not, that is incredibly valuable intellectual property, and what I believe separates the premier firms from the second-tier firms.

AI assessment note: “it's happened for 40 years, so I don't see why it's going to change.”

Q So when did the idea hit you and what was that aha moment for you?

A I retired from the venture capital business in the beginning of I had a life that was well beyond anything that I ever could have imagined, so I wanted to spend my time giving back, and I did that in the form of teaching at my graduate school alma mater, Stanford, by joining the board of trustees of my undergraduate alma mater, University of Pennsylvania, and my wife and I started an innovative cancer research funding initiative. As part of my responsibilities as a trustee at University of Pennsylvania, I serve on the endowment investment Committee, and one day I was sitting and listening to a presentation by the investment team on how they generate their outstanding returns, and I think that the Ivy League University endowments are the best managed large pools of capital in the world, and I was struck by how arcane their analysis methods were that they were done in spreadsheets, and I thought, God, you If you could do that in software and lower the minimums associated with the managers in which they invest, we could bring endowment style investing to the masses, which addressed a common problem I had faced over the years. Many of the people that I had recruited to my portfolio companies who had gone on to financial success would come to me for investment advice, and I could never advise them to do what I do because I was in the unbelievably fortunate position to be able to aff…

AI assessment note: “I thought, God, if you could do that in software”

Q on a really fascinating point for me personally, because before you said that you thought you were an investor and not a CEO, but what you realized recently is that you were a founder. So I'm intrigued with the recent transition from your role as chairman back to CEO. What was the realization moment and the reasoning behind the decision to move back into the role of CEO of Wealthfront?

A You know, starting a company is like having a baby. You feel an unbelievable emotion about it, and I think that Adam just did a superb job building a product strategy about which I'm very excited, and I think we're going to talk a little bit more about that in this podcast, but there were a couple of initiatives that I thought were really important to achieving our ultimate goal that I also thought I was in a far better position to drive, and Adam Was a prince about it. He understood my passion for those things. He agreed that I was the more appropriate person to make that happen, and he stepped aside. He stayed on the board of directors, so we still have a great relationship, but it was a passion about some things that I really wanted to make happen that brought me back.

AI assessment note: “a couple of initiatives that I thought were really important to achieving our ultimate goal”

Q Can I ask, Andy, with such democratization that you offer now to, as you said, only traditionally available to private wealth managers, what does the future of democratized finance look like to you, potentially in a, in a ideal world, but, you know, 10 years down the line, what does democratization of finance mean to you?

A Well, it means that everyone has access to the industry standard best terms and services. Software levels the playing field, and that's one of the reasons why I loved being a venture capitalist was that, A, I got insight into new technologies that leveled the playing field, and B, I got to be part of that. It's a wonderful feeling to do good, to do well by doing good, and And that's one of the fun things about Wealthfront, and one of the things that motivates me about Wealthfront is I started this company to do a social good. Software is doing an awful lot of good about giving everyone access to services that previously they couldn't afford access to.

AI assessment note: “Well, it means that everyone has access to the industry standard best terms and services.”

Q Can I ask, Andy, with such democratization that you offer now to, as you said, only traditionally available to private wealth managers, what does the future of democratized finance look like to you, potentially in a, in a ideal world, but, you know, 10 years down the line, what does democratization of finance mean to you?

A Well, it means that everyone has access to the industry standard best terms and services. Software levels the playing field, and that's one of the reasons why I loved being a venture capitalist was that, A, I got insight into new technologies that leveled the playing field, and B, I got to be part of that. It's a wonderful feeling to do good, to do well by doing good, and And that's one of the fun things about Wealthfront, and one of the things that motivates me about Wealthfront is I started this company to do a social good. Software is doing an awful lot of good about giving everyone access to services that previously they couldn't afford access to.

AI assessment note: “it means that everyone has access to the industry standard best terms and services.”