Jan 2, 2019 · 1h 0m · a16z
a16z Podcast | Mellody Hobson and Ben Horowitz Talk Investing, Career, and Star Wars!
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of the a16z Podcast, venture capitalist Ben Horowitz interviews business executive and investor Mellody Hobson about Ariel Investments' long-term value strategy, corporate governance, talent retention, and creative dealmaking insights from Star Wars creator George Lucas.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The host as informed peer 3.5 Guest teaching 5.5 Guest disagreement 1.8 The host pushing back 2.1
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 45:17 Correcting Star Wars Deal Myth
Mellody explicitly rejects Ben's factual framing of George Lucas's Star Wars deal, telling him his facts are off before correcting the budget and contract history.
Hardest push from the host ▶ 13:44 Challenging Cheap Tech Stock ThesisBen pushes back on Mellody's low P/E value criteria by arguing that tech companies selling at steep discounts are almost always bad investments.
Biggest teaching moment ▶ 45:17 Disproving the Star Wars Origin StoryMellody thoroughly educates Ben on how 20th Century Fox traded away Star Wars sequel rights simply to hit quarterly targets rather than because Lucas took zero upfront pay.
The host holds their own ▶ 27:34 Analyzing Silicon Valley Talent RetentionBen demonstrates strong industry domain expertise by laying out the extreme hiring standards and unavoidable two-year turnover dynamics unique to tech engineering.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Ariel's Patient Investment Philosophy and Logo | 4 | 5 | 1 | 2 | Ben prompts Mellody to explain Ariel's turtle logo and long-term investment philosophy, offering knowledgeable interjections about Radio City and the Knicks. Mellody educates the audience on Ariel's MSG investment thesis, highlighting time arbitrage and structural barriers to entry. | |
| Market Velocity and Changing Holding Periods | 3 | 5 | 2 | 3 | Ben pushes on how Ariel handles panicked public shareholders during long lockouts or losing streaks. Mellody reframes the concern by pointing to sold-out ticket data and explains how mutual fund holding periods have shrunk from ten years down to three. | |
| Career and Management Philosophy on Money and Time | 2 | 6 | 1 | 1 | Ben asks about Mellody's core career advice regarding making decisions based on time rather than money. Mellody delivers an instructive narrative about founder John Rogers' early mistakes of letting top talent go to save short-term cash. | |
| Private Market Value and Turnaround Scenarios | 4 | 6 | 3 | 3 | Ben challenges Mellody's low-multiple value investment criteria, arguing that discounted tech stocks are usually bad buys. Mellody counters with Microsoft's turnarounds and explains Ariel's private market value modeling. | |
| Early Identification of Talent and Executive Mentorship | 3 | 5 | 1 | 2 | Ben shares his own observations of founder John Rogers' introverted personality while asking how he identified Mellody so young and retained her. Mellody explains Rogers' mentorship style, early leadership assignments, and his rule that staff must bring solutions rather than problems. | |
| Employee Retention Strategies and Analyzing Executive Tenure | 5 | 4 | 1 | 2 | Ben details the hyper-competitive tech market realities where two-year turnover is common among software engineers. Mellody compares Ariel's strict policy against job hoppers with Silicon Valley's mercenary talent pool. | |
| Public Market Dynamics, CIA-Style Interrogations, and Bristow | 4 | 6 | 2 | 2 | Ben brings up the public market pressures that discourage tech IPOs, citing Facebook's Instagram acquisition. Mellody educates him on how Ariel uses ex-CIA interrogation techniques and presumptuous questioning during management interviews. | |
| Leadership Criteria and Investment Elimination Process | 3 | 5 | 1 | 2 | Ben asks probing questions about CEO honesty rates and investment screening priorities. Mellody outlines Ariel's process of elimination, capital allocation standards, and behavioral finance traps. | |
| George Lucas, Star Wars Dealmaking, and World-Building | 3 | 8 | 4 | 2 | Ben retells the famous Star Wars deal narrative as an example of an entrepreneur no one believed in. Mellody directly corrects his factual premises regarding budget, deal timing, and 20th Century Fox's short-term quarterly motivations before sharing details of George Lucas's meticulous world-building. | |
| Technology's Role in Art and DreamWorks Board Governance | 4 | 5 | 2 | 2 | Ben offers analogies for private board dynamics and press scrutiny. Mellody outlines her strict governance role as DreamWorks board chair, explaining how she challenges controlling founders by asking if decisions would differ if private. |
Statements from this episode (22)
Hobson: Core of Ariel Investments' strategy is time arbitrage
“And we feel very strongly that, ah, the core of what we do is play time arbitrage.”
Hobson: Madison Square Garden has an unreplicable real estate moat in NYC
“You could not rebuild Madison Square Garden in New York City if you tried, because of the size of the number of city blocks that it, exactly. So we said there's a barrier to entry here that is pretty significant.”
Hobson: Madison Square Garden raised ticket prices 40% during Linsanity
“And, you know, they raised all of their ticket prices by 40%. Dropped right to the bottom line.”
Mellody Hobson: Average mutual fund holding period dropped to three years
“The average mutual fund investor held a fund for 10 years. Then it dropped to seven. Now it's more like three.”
Mellody Hobson: ETFs replaced mutual funds for algorithmic trading due to pricing delays
“The thing about mutual funds is the delay In pricing, so what has really taken the place of that are ETFs.”
Hobson: People undervalue time and overvalue money when making decisions
“I believe people undervalue time and overvalue money. And because of that, they make a lot of decisions that are actually not rooted in the right set of circumstances.”
Hobson: The Ariel Fund grew from $500,000 in seed capital to $2.5B
“He started the Arial Fund, which is now a 2.5 billion dollar publicly traded mutual fund, and that, that was to get 500,000 dollars together to have a track record.”
Hobson: Early frugality cost Ariel talent that would have accelerated growth
“That was making a decision based upon money, and he probably lost people who would have accelerated the growth had he hired them.”
Hobson: Ariel buys companies at a 40% valuation discount or 13x forward earnings
“We want to buy companies when they're selling at a 40% discount to what they're worth. That, to us, creates a margin of safety for us. And or 13 times or less next year's earnings, which is why a lot of your companies don't fall into our purview unless somethi…”
Hobson: Microsoft's valuation multiple once dropped to 10x earnings
“Microsoft was in that from an earnings, from a P ratio, absolutely, I think got down to 10 times.”
Hobson: Spice sales are counter-cyclical as consumers season cheaper foods during downturns
“In a bad economy where people can't buy maybe as upscale an item like steak or shrimp or whatever it might be, they buy cheaper Items that they season more. So it ends up being counter-cyclical in some ways”
Hobson: Ariel Investments automatically rejects resumes from job-hopping candidates
“So when we read resumes, we nix job hoppers. If you've had too many jobs, we throw out your resume. Because we say you're not going to be the person who comes and stays here.”
Horowitz: Startup employees with short past tenures usually leave within two years
“They were only at their last job two years, You know, do you take them, or do you not? And more often than not, people take them, and I think that more often than not, they're gone in two years, so.”
Hobson: Ariel Investments uses ex-CIA agents to train team on management questioning
“We actually use an organization called BIA Associates, Business Intelligence Advisors, ex-CIA agents, who help us in, in questioning.”
Hobson: Bristow Group stock trades below the liquidation value of its fleet
“The stock is trading for less than all the helicopters if you sold them. Interesting thing about helicopters, they don't depreciate the way other vehicles do, because every five years you have to replace the engine and the rotor. You basically have a new helic…”
Hobson: Ariel's small-cap fund will not hold more than 40 stocks
“Our small cap product is about 400 stocks, but we only own 40. And if we found a new name, we wanted to buy it would force a name out of the portfolio. We can't, we won't go over 40.”
Hobson: Debt is poison for small-cap companies without strong cash flow
“Debt is poison if you're small cap and you can't, you know, you don't have the cash flow or you can't finance it. It's a disaster.”
Hobson: Fox gave Lucas Star Wars sequel rights to hit quarterly earnings
“They gave him the sequel rights in order to make their quarter. To make their quarter. They were a million dollars off, which was George's fee.”
Hobson: George Lucas sold Pixar to Steve Jobs as a medical device company
“He sold Pixar to Steve Jobs when it was a medical device company.”