Bubbles and Brainstorming With Marc Andreessen One of America's most important venture capitalists talks tech bubbles, delayed gratification and his firm's efforts to hire a female partner.

Internet pioneer Marc Andreessen is one of America's most active venture capitalists. He also is one of its most influential, rarely mincing words when it comes to everything from technology to economics to politics.

This past Wednesday night in San Francisco, Andreessen sat down for an interview with Fortune senior editor Dan Primack, in front of an invited group of Silicon Valley CEOs and investors, as part of a walk-up dinner to our annual Fortune Brainstorm Tech conference in Aspen. What follows is a lightly-edited transcript of the conversation, in which Andreessen addresses bubbles, robots and his own firm's dearth of female partners. But we begin with current events…

Dan Primack: I wanted to start with two things that are in the news today. The first one is Mark Pincus returning to the CEO chair at Zynga. Can he turn the company around?

Marc Andreessen: Both Don Mattrick and Mark are friends of mine, and I respect them both enormously. That said, I always do get a little bit excited when the founder comes back. It kind of warms my heart.

There's new book coming out on Steve Jobs at Apple — the book is fantastic by the way — and one of the things that the book sort of makes very clear is just how screwed Apple was in 1997. Like just like absolutely in the pits. And we seemed to have erased that from our collective memory but it really was 90 days away from bankruptcy and the products really were terrible and all kinds of things had gone wrong. Nobody actually thought it would necessarily be possible to turn Apple around. And today Apple, being the shiny pinnacle of American capitalism and technological innovation, to me it's a story — it's a story of Apple, but it's also just a story of what's actually possible through innovation and what's possible through very aggressive people going after very big goals.

And so I think for sure he has a shot. There's no reason he can't do it.

There was a report yesterday or this morning that Google had taken a look at Twitter and that Twitter had hired Goldman Sachs to advise it. There also have been rumors of Facebook, where you are a director, having interest. In a year from now, do you think Twitter is an independent company?

So, I don't want to comment specifically on Twitter. I will say, I have been shocked in the last five years how little M&A there's been as compared to what I think that there both should have been and will be. And I think there are a lot of big companies that are on the wrong side of various kinds of technological shifts. And there are a lot of acquisitions that kind of everybody knows should happen.

Then why aren't they? What's the big impediment?

So I don't think this applies to Facebook or Google as much because Larry and Mark can kind of do whatever they want because of how the companies are set up. But, generally speaking, we're in this environment of just extremely intense risk aversion on the part of public companies in particular. And we're in this kind of mode where public companies are being basically forced by pressure from activists and their investors to give back huge amounts of cash instead of investing it in their business.

And so, one of the things that's so striking about the current environment is public companies are so risk averse and then, as a consequence, a very large percentage of kind of interesting new, innovative high-ambition, high-investment things are happening on the private side.

It's just gotten very extreme. On both sides. Historically in a period like this, there would be a lot more combinations. I would expect at some point for M&A to really pick up because there's a lot of this that does ultimately have to happen. But it is very striking that it's not happening as much as you would think.

There's this argument, the Bill Gurley argument, that private companies should go public as soon as they possibly can. Do you feel the other way — stay private as long as possible because once you go public, you have all those issues you just talked about which can retard growth?

If you go public in this environment under the single-class share structure and a board that gets reelected every 12 months, God help you. You're chum in the water. And, in particular — God help you if you're a young company and you're not actually fully financed, and if you're going to need to raise money again, God really help you because they will come at you and they will basically short your stock and basically drive your stock price down, preventing you from being able to raise money again and give you a self-fulfilling bankruptcy, which is always an interesting process to go through. I almost got there, in a prior life.

There's never been a more dangerous time to kind of be an unprotected public company. That said, Facebook demonstrates, Google demonstrates, and there are others — there are protections you can wrap around these companies. You can do a "dual class stock." You can do other kinds of voter control things.

And you can basically build — I call it sort of building a fortress. You can build a fortress around a company when it's a certain point to have it be safe as a public company. It's just something — I would advise our founders just to take very seriously. It's not "don't go public." It's just "take it super-seriously." Very different than when I came up in the '90s.

A couple of years ago, when Andreessen Horowitz was really starting to grow, there was a lot of blame thrown on you. There were a lot of "Andreessen Horowitz is driving up prices" complaints. Both on the companies you were bidding on, and then on peers. So let me ask: Are you to blame? Are current valuation your fault?

I can only quote the great thinkers, James Franco and Seth Rogen in The Interview: I believe they were simply peanut butter and jealous. So — in all seriousness, I actually think we weren't overpaying. Deals that we did at the time that were considered extreme, we invested in Facebook at $35 billion. Facebook today is worth $250 billion. We invested in Twitter which was considered crazy at the time, for $4 billion. Today it's $30 [billion].

I actually think it was untrue at the time that we were overpaying, and I think some of the investments actually bear that out. And then the other thing that happens is — and this is just facts — we routinely walk from deals over valuation, from price. We do that all the time.

Do you do that more now than you used to?

No, I think — well, it really started picking up — people forget that we started in March of 2009. So we started the firm, completely coincidentally, at the low point of the NASDAQ after the financial crisis. So people were miserable, and there was sort of this real flash to risk aversion. It was a dark time. The darkness didn't last that long but it was dark while it was there. And so we certainly do walk on valuation more now than we did then. It was just — valuations were just less hot then as well.

You're starting to see companies announce big valuations when they announce financings. Domo did that today. In the past, as a reporter, you used to have to beg for a valuation. One of the arguments is that, particularly the enterprise sector, potential clients suddenly think you are stable if you announce that you're a billion dollar-plus company. It's similar to the old case for going public, that you're taken more seriously. Do you think that that's a valid argument for raising at high prices?

I don't know. So, for sure this was always a reason to go public. And by the way, it still is a reason to go public, which is big companies would prefer to buy strategic technology from other public companies. That gives them a lot of assurance.

I don't know that it actually helps that much on the customer side. I think where it helps a lot is on recruiting. And I think there's this kind of ego — it's sort of this ego-driven kind of thing that looks like it's ego-driven and it actually goes to recruiting — sort of for the cream of the crop engineers in this environment has a lot of choices — and so I think it's sort of this arms race thing. I think the feeling is if somebody else has a valuation at a certain level and you don't, you're going to be at a recruiting disadvantage.

That's part of the current environment I'm not such a big fan of. I don't think valuations should be like the main topic of discussion. I think the substance of these businesses should be the main topic of discussion, and it's actually the interesting thing that's happening, and I think when employees are looking for companies to go work at, I think that they should think about the substance of the companies they're going to.

So that's what we always tell people, but there is no question having this sort of bright shining spotlight at the top of your website, with that big number on it. At least people right now think it helps.

You've said repeatedly that while you think certain things might be overpriced, you're not concerned worried about this being a 2000 sort of bubble? There are a lot of things which seem to be playing into valuations rising, not even just in tech, but in public markets, too. Things like interest rates, energy prices, etc. When you analyze this and say we're not in a bubble, or at least not in anything extreme, how do you strip out those macro factors into your analysis?

Yeah, there's a couple of things. One is that tech is really small. From a macro standpoint, tech is really tiny. So all of venture capital is $20 to 30 billion a year. All private tech investing right now is $50 billion a year, and there's a lot of these bubble articles that talk about, "Oh, my God, $50 billion a year, how can you possibly put that much money into new companies?"

So against that, the S&P 500, just the top 500 companies in the country, will give back $1 trillion in the next 12 months in the form of dividends and buybacks. And so, total private tech investing is 1/20th of just dividends and buybacks out of the S&P 500. Is 1/20th that too much, is that too little? It doesn't feel like it's too much. It feels like there should be some level of growth and innovation in the world. It seems like maybe 1/20th of the amount of money being returned from the big companies might be appropriate.

The other really striking thing about the macro environment, and you talk about interest rates, there's now over $5 trillion of government debt on the bond market trading at negative yields. In fact, the Swiss Central Bank today for the first time I think in history issued new 10-year debt that carries with it a negative yield on Day 1. Where you literally have to pay the Swiss Central Bank every 6 months for the honor of holding their debt.

Did you buy some?

No, I did not buy. I mean compared to that, if you've got a strong enough lock on your door and a big enough mattress, holding cash is actually a good idea. The point being that tech is just this tiny little thing on the side as compared to these kind of big macro forces, and at least I've never met anybody who can kind of try to figure out how to navigate the micro of tech while trying to figure out the macro of this.

To start with, I've never met anybody who can predict anything macro. The Federal Reserve, all the big officials in Washington all thought the housing market was just fine in 2007.

If rates start to rise, are you worried as a VC that these large mutual funds, etc. will bail on doing the later-stage rounds for your companies?

Just again put it in context. The big mutual funds like — my friend Will at Fidelity that does a lot of this… that's a $120 billion fund. Right? It's like the total amount across all of tech investment is less than that this year. And so it's just a very, very, very small amount of money. And so I think it's hard — I haven't seen anybody who can construct a theory under which you might somehow calibrate against what's happening in the macro environment. Itgoes back to substance. If we're building high quality companies, if the customers like the products, if the technology innovation is real, then the substance is going to win out in the end.

Let me go back — and I mean way back. You grew up in Wisconsin, correct? So actually I should ask, was Monday night hard for you?

No, I'm fine, thank you.

Okay, good. You did a sit-down with the FT earlier this year, and one of the things you talked about was how a lot of your family was involved in farming, and that it kind of taught you delayed gratification. And you said that that served you very well as an engineer early on. Is that ethos, that willingness to have delayed gratification, present today in Silicon Valley among younger entrepreneurs?

So I think there's a schizophrenia, and I think there's always been a schizophrenia to high-tech startups. There's the core of what we all do, the core of it is hardcore innovation that that takes a very long time to play out. And a lot of the things that are working today are things that have been developed, literally over decades. The Apple Watch, right? One way to think about it is it's a UNIX computer. UNIX was invented in the mid-'60s, and here we are 50 years later and they're finally going to get to the point where they can put it in a device as small as a watch.

So these are very kind of long-term things. And the engineers who work on these things work on them for a very long time. And that's where deferral of gratification is a very big deal.

However, it's also true that most engineers in the lab are not going to build the company by themselves that is then going to have the impact on the world that a company like Apple can or that many of these new companies can. And so — and the way I always describe this to engineers is just — you'd like to believe that if you build a better mousetrap, the world beats a path to your door. The reality is the world is a really, really big place, and there's a lot of people running around with a lot on their mind. And you really have to figure out how to build a company that can put on a message that can actually reach people and have an impact globally. And that requires the other side of things which is being able to go out. The extroverts. And the hustlers and the sales people and the marketing people, and that whole side of things. When the Valley works well, there's a calibration between the two mindsets.

Do you think that calibration is in the right place today?

I think we're in the zone. In 1999 it got reset almost entirely over to just sales people, and then in 2004, it got reset all the way over to just engineers. And I think the entrepreneurial community has been battling to try to figure out what is the optimal blend. I think it's pretty good.

You've talked a lot about this idea that technological advancements are going to destroy labor. That we're going to have a bunch of people sitting around being served by robots. But you hear that, and you fight back against that by insisting that technological destruction improves productivity and creates new opportunities. Two places, though, where you saw we've seen too little innovation – thus not enough destructive creation – is education and healthcare. But your firm doesn't invest much in the education or healthcare. If those are the areas so ripe for innovation, why aren't you putting money there?

Yeah, so let me restate kind of the thesis of why I said what you said I said, which is healthcare and education — everybody complains, everybody complains. "Oh, my God, robots are going to kill all the jobs and this is going to be terrible and we need less innovation because of that."

But then simultaneously everybody complains, "Oh, my God, look at the rising cost of healthcare and the rising cost of education." And in fact, healthcare and education costs are rising much faster than inflation, and if anything, faster now than ever before. The economic explanation for that actually is insufficient productivity growth in education and healthcare, which is to say insufficient technological innovation in education and healthcare. So that's why we have these incredibly labor-intensive healthcare systems, incredibly labor-intensive schools.

If you want to bring down the prices of healthcare and education, the answer will be more innovation, more technology, which will then have the effect of freaking everybody out and saying, "Oh, my God, you're going to kill all the jobs." And it's like, "Well, what do you want? Do you want cheap healthcare or lots of healthcare workers?" Like, take your pick, but like there is a trade-off.

Now what ends up after that, which doesn't result in all those jobs actually getting destroyed is other things happen, which is to say if you bring down the price of education or bring the price of healthcare, it turns out there are a lot of people in the world who need what we would consider modern healthcare, modern education, who today can't afford it. If you bring down the price, you'll have elasticity and you'll have a huge explosion of demand globally for healthcare.

But to do that, we've got to create and fund new companies that do that.

To do that, we need innovation. To do that, we need technology. To do that, I think we need new companies. We need tech startups in education, healthcare. We are actually active in both. We've been active in education, kind of the whole time. Healthcare we're getting deeper into now and we have a couple of new people in the firm who are focused on that. Those markets are very attractive because they're so big, and the opportunity is so clear.

Does the regulatory piece scare you off?

Yes. They are very daunting because they are so regulated and so heavily dominated by governments. It always takes a special founder to make one of these companies work, but it takes a particularly special founder to navigate their way through and figure out how to have a company in one of those sectors work.

One of the big issues here over the last month or so was obviously the lawsuit, the Ellen Pao vs. Kleiner Perkins suit, and the gender issues that it raised. From your perspective, what can VCs explicitly do to kind of address these issues, both at their portfolio companies and within their own firms? As a corollary to that, when are you guys going to hire a female partner?

I'm so glad you asked. Our firm is 107 employees, 107 total staff, partners today, other levels. 52% women. Not just that, the high performers in the firm, in the performance reviews, a substantially higher percentage of women, which is…

Does that mean — well, you have 8 GPs, so you guys are the low performers?

Yeah, well, I'm sure there are certain opinions on that — 7 actually, but yes. And then 20% black and Latino, and so we've had a big, big internal push on this. I'll come back to the GP thing which I'm sure you'll bring back up. There is — I think — there's a lot that venture capital firms can do, and tech can do, and then there's a lot that we probably can't do.

And let me just start by saying, I don't think I'm an expert on this, and so I don't propose to have all the answers. What we've been focusing on is two areas in particular: Pipeline, which is just to say increase the numbers, just more training, more experience, get more people coming up. And then the other is access, and what we think so much of the next step for people who get qualified is then do you know the right people? Are you able to get connected to the right opportunities at the right time?

So there's a bunch of things that we do. In the last two years, we've done 32 events touching thousands of people. We focus on three segments for what we call "inclusion, women, under-replaced minorities, and veterans." We also work particularly closely with three outside organizations that we work to support, and we donate to Code 20/40 for minority entrepreneurs and Girls Who Code.

And then Hack the Hood, which is a great organization up in Oakland, also for entrepreneurship. We're going to do more on all these fronts. We're going to crank up all of our efforts. And we're actively looking for more outside organizations to work with.

If you happen to be a woman or a minority or a veteran and you're not connected to our network and you'd like to be, please tell me. If you know incredibly high-potential people who are in those groups please let me know and we would love to plug them in. So there's a lot more that I think we can do. But again I would go back and I would say like I certainly would not propose to have all the answers, and I think that we're probably scratching the surface of what ultimately has to happen.

So I'll go back to that GP question that you said I'd come back to.

The female GP thing has been very frustrating. Our very first offer of a GP at our firm after Ben and me was a female partner, and she has turned us down I think now five times. And it's been driving me crazy.

She a CEO somewhere, or something else?

No comment.

No comment?

No comment. She's fantastic. I won't name her. We're still trying to get her. We have offered to several other women and we have so far had them all turn us down. There's a very interesting phenomenon taking place there. For the kind of thing that we do, for the sort of thing that we're looking for, the background we're looking for, the way we set our firm up — and this is true — I think this is true in other firms, and I think this is true at the CEO level as well, is when you talk to female CEOs, they get so many offers. Because there are so few and the need is so intense, they get so many offers, that they're just drowning in opportunity, which is why we think so much of the work has to be at the pipeline and access level, which is we have to get more people developed. We have to get more people rising up the ranks. We have to get more executives.

Another program we just did that I think is going to help a lot on this is we just did something with Stanford called the Directors College. Female Directors College, Women Directors College. We did a whole training program. So Stanford runs a Directors College that kind of teaches people how to be directors of companies. And it's sort of considered a credential for corporate directors.

We did it specifically for women in tech, who've reached a certain level in their career who now would have the opportunity to go on their first board. It's actually something we came up with, and I think is fairly clever, which is we basically do two things. One is we created a credential, and so now there's something that says, "I am qualified to be a director on a board," that is an unambiguous thing connected to a credible institution like Stanford. And then the other thing we did is we created a network — and we announced it and we made it very public, and Diane Greene and I did a whole thing there. We put it out as a podcast, it's traveled pretty far.

Diane's on the boards of Google and Intuit and has amazing advice. So now we're getting a lot more companies — both big companies and small companies — saying "a ha, i need more women directors on my board. i didn't think i knew enough people, can I get connected to this network?" So I think the answer is going to lie a lot in that sort of thing.

In 2012 you supported Mitt Romney for president. Do you have a candidate yet this time around?

I'm really struggling between between the anti-science party and the anti-economics party. I'm highly tempted to sit this one out. I don't know what I'm going to do.

You just became a father. You're also a very busy person, running a VC firm and on a lot of boards. Do you feel you'll have to give something up or cut back somewhere. As it's often asked to women, can you have it all?

I don't know. The truth is that we're in a fortunate enough situation economically where there's trade-offs that we don't have to make that a lot of other people have to make. On top of that, I think if I were doing what I was doing 10 years ago, when I was traveling so much, I think that would have been a big problem. Now, I'm home and our firm is very Silicon Valley concentrated, so I'm hopeful that I'll be able to balance it.