I've hit the 6 year mark at a16z!

A quick work update, what I'm up to in LA, the new games fund, and more

Dear readers,

whew — can you believe it’s gone by so fast? This month I will hit 6 years (!!!) at a16z. Everything has changed in just a few short years. I moved from SF to LA, wrote a book, drove around America in an RV during COVID and saw the vast red deserts, rocky coasts, and grassy plains of our wonderful country. I met and married my wonderful wife Emma after lockdown, after meeting online and then deciding at one point to spend a few days together in Austin. A snow storm shut down the entire city (yes, that storm), and we survived it and decided to spend all our time together after that.

When I joined a16z in 2018, the firm was ~100 people and we used to show up every day on Menlo Park for Mondays when we’d meet startups in bio/crypto/infra/consumer and everything else. I actually rented a little place in downtown Palo Alto just to able to get to the office every day. Now we have offices all over, nearly 600 people, and I’m far more specialized, spending all my time at the intersection of gaming and tech. This includes a move to LA where a lot of the industry resides.

Why the switch into games? Many of you have asked. In 2022, I made a big career decision to go deep rather than float in the very broad/horizontal ecosystem of consumer. I was a little nervous to do this initially, but decided that — just as in tech you might move from an on-demand startup to fintech to an AI startup and so on — I was just being chicken by wanting to stick to consumer. There was huge opportunity and no one had really figured out the best way to invest. I realized there would be a lot more upside/challenge/interestingness from building a new thing, and have never looked back. I’m learning a ton, and now am watching (and investing) through the birth of the AI supercycle with all of you — it’s potentially a big factor in the games industry.

At some point I’ll have to write all the lessons/ideas from the past 6 years :) But hard to condense and sometimes hard to look backwards like that.

In the meantime, also wanted to share a more big updates:

• Many of you saw that we raised $7.2B including $600M for the next Games Fund. The goal will be to lean into AI (duh, obviously) since it’ll utterly transform the industry and make it much easier to build games, and introduce a whole new generation of tools

• Marc and I did a chat together on why venture capital reinvent the games industry. It was published as a podcast and am linking it here with a couple topics so that you can follow

• We’re (very soon) opening the Santa Monica office for a16z and we’re also doing a lot more for LA more generally. I want to cover a bit of our efforts in LA

• Finally, I wanted to share some fun notes about how Hollywood/gaming industry people perceive the coming wave of AI, and why it’s an amazing time for startups to disrupt

I have a lot more to share of course, but I figure this is a good start :)

OK, let’s go to more detail.

The new fund
As I mentioned, we raised a new $600M games fund. I'm super proud of the team for putting this all together. Huge team effort. This is an all-new, next generation fund that is dedicated to the intersection of TECH x GAMES. It's equally sized to our debut fund that we raised in 2022, and we are excited to invest this new fund across many stages and sectors, from inception to Series A/B.

And from AI/infra, web3 games, VR/AR, 3D tooling, gamified apps, game studios, and much more. The fund targets a $300B+ industry that has spawned incredible companies over the past decade, and it's great to be able to build!

With this new fund, nothing is too early for us to get involved. We have a new accelerator, SPEEDRUN, where we fund $750k per startup, and plan to invest in several dozen companies each cycle. (In fact, if you have a relevant idea, apply now!)

http://sr.a16z.com -- note the May 19 2024 deadline

At later stages, we plan to continue investing in seed, Series A and B, and even later, for startups that have traction or a compelling product built. For Series A/B, the new fund will allow us to work with exceptional teams that have built and launched products, and want to scale their growth.

As we've done in the past, we will partner deeply, take board seats, investing tens of millions of dollars, and support companies through their entire journey. This is classic venture capital, and we're excited use these well-worn strategies to build this industry.

of course, putting together GAMES FUND TWO was a big collaboration across the firm. We are lucky to be able to work with our wonderful colleagues across American Dynamism, Apps, Infra, and Growth, and within the larger a16z platform to put together this raise.

It was a long time in the making, both myself and my fellow Games fund GP Jon Lai divided and conquered on behalf of our vertical.

Our cofounder Ben writes about the broader fundraise here (“New funds, New Era”), which I encourage you to read.

These new a16z funds are being raised just as a new tidal wave has emerged -- generative AI -- that will transform many product categories, but in particular, games and interactive entertainment. This shouldn't be a surprise, as gaming has been the driver of new killer apps for emerging computing platforms.

We've seen the historical precedent of GPUs, 3D, avatars, streaming, freemium, and other technologies that originate in gaming and then eventually conquer the rest of the tech world.

Today, gaming already brings together millions of people as multiplayer social experiences. But tomorrow, AI will solidify the dominance of gaming and immersive/3D apps for billions of consumers. We are excited to invest in all the technologies needed to make this happen, as well as the game studios that will directly build these new consumer experiences.

finally, the a16z Games Team is continuing to expand! When we initially started to raise our debut fund, we had two full-time investors (myself and my partner Jon) and a few folks on loan from other teams.

Today, we've built an exceptional group of folks from the games industry -- from companies like Blizzard, Twitch, Supercell, YouTube Gaming, Riot, Unity, Oculus, and many others. And we are hiring more, with open roles on our investment, talent, BD, and Tech Week teams.

A final note. Thank you to all of the our founders who have joined us on our journey into TECH x GAMES -- both via SPEEDRUN and our primary Series A/B investing motion. Thanks to our LPs for supporting us, particularly the new folks who have joined us for Fund 2. Thank you to the amazing team at a16z -- we're so grateful to be part of the broader family. And for me personally, thanks to the entire Games team that we've brought together over the past two years to build this new fund at a16z.

Marc Andreessen x Andrew Chen on games, AI and venture capital
As I mentioned, Marc and I did a talk earlier this year about the industry which you can listen to here.

A quick summary of some of the ideas we hit:

• Marc's personal experience bonding with his son over video games like Minecraft, Roblox, Kerbal Space Program, and Factorio.

• The history of gaming being at the forefront of alpha nerd technologies such as GPUs, 3D, avatars, VR/AR.

• Moral panics around new technologies throughout history, from electric lighting to bicycles to video games, and the current panics around AI and crypto.

• The roots of tech pessimism and self-hating technologists, especially among Millennials who experienced major events like 9/11 and the 2008 financial crisis.

• What a modern pro-tech political position looks like and how to effectively engage government in tech issues like AI regulation.

• Marc's hypothetical focus on the convergence of immersive entertainment/gaming and AI to create new art forms and experiences if he was exiled to work on any problem.

• How AI represents a fundamentally new kind of probabilistic, creative computer compared to past computing paradigms.

• The role of open source in democratizing AI and enabling startups vs AI consolidating among big tech incumbents.

• Why a16z decided to invest heavily in gaming as an industry that is evolving beyond hit-driven entertainment to long-term platforms.

• The potential for gaming concepts and technologies to transform other domains like education and healthcare by making them more engaging.

a16z’s new office and approach to Los Angeles
I've been working to beef up a16z's approach to the LA ecosystem since moving ~2 years ago. Some of the ways we're building our LA presence:

• we're running our SPEEDRUN accelerator starting July 29th, where we'll be bringing ~30-40 new energetic startups to town! We're investing $750k each at the intersection of TECH x GAMES and collab'ing with folks from entertainment/gaming/tech to make it a great experience. (Apply here: http://sr.a16z.com)

• the team's grown! we have ~50 employees of a16z based in LA now (!!!) including senior members of our leadership team who have homes here

• so has our portfolio in LA. We have two dozen investments across many sectors - fintech, commerce, consumer, gaming, web3, etc.

• LA Tech Week was kicked off in 2022 and it's just gotten bigger and better. The next one will be in October 2024 (alongside SF, and earlier in Jun, NYC), and will feature 100s of events and 10,000s of people visiting the city

• several of us have been investing in emerging fund managers in the LA region, who co-invest alongside us (and often before us) in great startups. We've supported a half dozen GPs -- some solo GPs, some in small teams -- with the goal of bringing the investing ecosystem together

• finally, we are opening up our flagship LA office which will be in downtown Santa Monica, in the next few months. Am very excited about this and to see all my colleagues more often

• Lots of great activity and energy in LA! I find myself back in SF on a monthly basis -- nothing can beat the amazing startup energy of the Bay Area -- but a lot is happening here which has been great.

Lessons from chatting with Hollywood/gaming folks about AI
Finally, as part of my time in LA, I’ve naturally bumped into a lot of folks who work in entertainment including business people but also talent, writers, etc. We naturally talk a lot about AI. And you’d think that AI would drive a boom for the entertainment/gaming industry. Instead, incumbents from entertainment are facing incredible friction as they attempt to experiment with generative AI.

Startups have a huge opportunity to reinvent entertainment and gaming as a result -- which is very exciting!

Why are big cos in entertainment + gaming not aggressively embracing AI? And why does that turn into a startup opportunity?

• Innovator's dilemma: If it works, don't fix it

• Desire to "bolt on" AI as a feature rather than AI-first

• Legal pushback from questions on IP ownership

• Pushback from creatives/designers

• It's hard to hire AI engineers

Let's explore each of these.

AI could be very powerful for entertainment and gaming companies, but it's also very much an Innovator's Dilemma -- or as some like to say, "if ain't broke don't fix it." In my conversations with folks across the entertainment+gaming industries, it's both clear to people that AI will reinvent their industries, yet a low will to proactively embrace the technology. After all, when you have a series of franchises and delivery channels that work, why take the risk with new tech that reaches a smaller audience, requires a lot of rethinking, and maybe not even work? Within gaming, this is why it's taken over a decade for bigco developers to embrace mobile and free-to-play. Call of Duty finally released their first mobile game in 2019, alongside Blizzard's Diablo Immortal mobile game in 2022, both more than a decades after mobile was released. AI-first gaming will be similar.

When new tech is embraced by incumbents, it's often "bolted on" rather than reinvented from scratch. That is, it's much easier to imagine what it's like to use AI in the backend production process to build games and films we already know and love. There's interest for cost savings from the business side there, but we'll discuss later why the creative arms of these companies are up in arms. However, AI will deliver more than cost savings and it's much harder to imagine brand new genres that haven't existed in the past. That will require experimentation and radical innovation, most likely coming from startups.

Timing plays a major role here. The gaming industry is in transformation, with a steady drumbeat of M&A changing the landscape, and a lot of RIFs as companies restructure. Hollywood has much the same happening, with a flat/shrinking film market transitioning to streaming. Who wants to take risk right now?

A metaphor here comes from the last generation of creative disruption, with user-generated content and services like YouTube and TikTok. In the same way, Generative AI innovates along a series of axes that bigco entertainment companies do not, and will not love. At it's core, this new generation of technology makes creative work both lower cost, highly productive, and available to a much wider base of creators. YouTube and Instagram might have made it easy for amateurs to distribute their low production quality vlogs and photos to the Internet, but generative AI will make it easy for amateurs to create content that's professional level. And amateurs will be able to make a lot more of it, too. And some of it won't be brand safe, nor follow intellectual property laws, or anything else. I've previously discussed the idea that a gal with a typewriter can write a book for millions of readers, but we don't currently have the conception of a gal with a laptop making a 2 hour movie for millions of viewers -- but this will happen.

Big technology dislocations like the type we're undergoing right now typically create huge opportunities to build new, strong form, "native" products. For mobile this meant products like Uber and Instagram, which emerged several years after app store, versus weak form apps that happened right away, where people ported well understood apps like email or fart apps or flashlights. AI-native gaming and entertainment experiences are likely to deviate significantly from our current understanding of the medium. They might be more meme-like and ephemeral, meant to be created in a few days and played for a week or two, alongside a major world event like the Super Bowl or a Presidential Election -- because there was a funny moment that became sort of a meme game. Or perhaps the game experiences themselves will target much smaller niche audiences, the same way that people often build websites for small groups. Perhaps there will be new genres, just as "6 second dance video" has become a new category. We'll likely see low-hanging fruit like AI sim games and narrative gaming -- anything with a lot of content, many characters and NPCs, end up being reinvented first.

The other big obstacle for incumbent game+entertainment companies comes from the way AI works -- in particular the fact that the models are trained on huge amounts of text/image/video/3D assets that are presumably "public domain" but what if they're not? The legal departments within many of these companies have held their product teams back because sometimes the models seem to spit out copyrighted content when prompted with the right set of prompt text. On the other hand, startups tend to run towards this type of risk and validate product/market fit first, as YouTube did early on with all their pirated music video and TV content. The assumption from many startups is to try and prove that consumers love this kind of content first, and then to put themselves in a better legal position as they grow. This may or may not be a good idea, but it's another thing that makes AI-first startups must more productive.

And of course, all of this makes the companies also reluctant to share their data with AI companies because they might suspect their IP will eventually get incorporated within the model. We dealt with some variations of these trust issues with cloud computing, and in the end a lot of companies put their email+data in the cloud and everything's fine. Or maybe we'll have lots of "on prem" AI models trained on small bits of internal data + big external public stuff, and companies will try to keep things within the firewall.

All of the IP in these gaming+entertainment companies are of course created by the vast numbers of creative workers within these companies -- the artists, writers, designers, and so forth. Maybe of these folks have a tough time grappling with the idea that these AI models are built from other peoples' work. Unlikely pure software companies, you might have a ratio of 3:1 artists:engineers within these organizations -- and thus the creative employee base is a very powerful one. There's already been examples, like the SAG-AFTRA strike, trying to head off AI as a disruptor in the industry. I'm sure we'll see more.

The most positive thing I can argue with the creative work force within these companies is to point them to the trajectory of the software engineer. Everything that's happened in the past decades -- open source, cloud computing, better languages, better IDEs, etc -- have made software engineers even more general and applicable to any problem. It's grown the demand for their skills, not reduced it. The world would not be better with 100,000 FORTRAN engineers -- it's better we have 10s of millions of devs that can tackle any field. I think that as creative workers are more empowered with better tools, we might see them able to develop entire prototypes or start companies themselves (no code!) and be otherwise even more valuable. And that might increase the demand for their skills. Similarly, you might just see them make more content, or try more things. All of these can be good outcomes -- not to say that there won't be winners or losers, but that some forms of creativity are likely to thrive.

All of this is further compounded by the simple fact that it's hard to recruit great AI engineers. It's difficult for everyone. It's hard enough for top-end tech companies that pay very well, or where there's significant equity upside. But it's even harder for older and more established companies that can't stretch using high-upside equity. If AI becomes as impactful as we all think it'll be, there's a major issue in simply getting good talent into incumbent companies.

These are all interlocking issues. This is why it's super hard for incumbents in entertainment and gaming to embrace AI. Although it's the obvious New New Thing, many organizations are fundamentally limited by their internal structure, legal liability, their desire to incrementally build their businesses, etc.