emily: greylock is behind some of the biggest successes in tech history. since landing in silicon valley, it has backed hit after hit. they have backed 170 public companies, four of them worth more than $10 billion. joining me today on studio 1.0, partners david sze and john lilly. you have been at the firm for 15 years? guest: 16.

emily: john, you put greylock on the map in silicon valley. how did you do that? john: it was a partnership effort. it is a team effort. in the early 2000's, we made a move to say every partner should have an operating background. that allowed us to connect better to entrepreneurs, to build companies. emily: john, you were the ceo of mozilla. you started at apple? john: i was doing experiments around the edges. emily: why greylock? john: i wouldn't want to work at most firms. emily: why not? guest: i like people who make things. everyone at greylock valued making products. it is characteristic of david to enter the question like, no, it was everybody else. emily: you did find facebook and linkedin.

you convinced reid hoffman to join the firm. how did you do that? john: again, it comes down to -- we believe if you come from product and you have that background, there is an authenticity. most people do not remember, but in 2005, when facebook took the investment the valuation was $500 million. which seemed, to most people -- emily: there were just students on it at the time. john: and not that many. it seemed like an insane valuation. i think many people looked at that and said, dave sze and greylock lost their minds. not just from the outside. partners from the inside said this is insane, not what we do. emily: who said that? david: we had partners. one of the characteristics of our partners is we like to

disagree. we like to push each other. there were partners saying, this will ruin the firm. this is a huge mistake. emily: facebook is going to ruin the firm. david: ruin the firm. emily: do these people still work at greylock? david: some do, some retired. not because of that. emily: john, you are behind some of the newer hits -- dropbox, instagram, tumblr. how do you fill the big shoes of david sze? john: what i learned is you probably don't try. instagram is a good example. i brought it in and people did not love it. emily: really? john: reid was not sure it would work. i believed in kevin and had enough affinity for the category and the product that i really wanted to do it. emily: why didn't reid think it would work? john: i don't know. he said some words, and who knows exactly what he meant? he thought it was interesting, but not huge. emily: is there a science to it, a formula to these things? john: with kevin, it took me a while to convince him to raise money. i chased him for the better part of six months. david: airbnb is another example. i was like, i don't get it. i don't get it.

reid was on the other side pushing really hard to make it through. we think that dialectic, combined with respect for each other, allows us to get to good outcomes. emily: good that you own that. david: i have lots of things to own. 15, 16 years in this business, if you're not making some mistakes like that, you're probably not doing your job. emily: the new yorker article about marc andreessen, in that piece, he called bill gurley of benchmark his newman. who is your newman? do you have a newman? david: we may be each other's newman. john: i don't think about vc's very much. i like being a company that likes being a company. emily: is there competition between you guys? david: john and i come at things from different perspectives. there are times where john is like, i do not understand what you're talking about. we will hash it through. emily: i understand disagreement can lead to better outcomes. but does it create tension? john: of course. our partner neil is ceo of workday, one of the biggest sas companies in the world. you argue about the merits of a sas company. you bring in a social network

company, you have to argue with reid or david, so that is stressful. on the other hand, do you want to play in the big leagues or not? emily: how would you rate competition for deals right now? john: intense at every level. emily: more competitive than ever? john: a pretty competitive four years to me. david: on some level i would say it has never been more competitive. on the other level, when you get underneath that a little bit, it is the same five or six firms. maybe minus one or two, maybe plus one or two. there is too much money out there right now. i think the risk is mispriced. there is not a lot of fear. just a lot of belief and not a lot of fear. those are worrisome times. they can be dangerous if unchecked. on the other hand, if you look at it, there are only a handful of firms we find ourselves competing with again and again. there is a sort of down three to that.

john: it is easy to start a company, but not to get them to the finish line. reid and i spend a lot of time thinking about what it means to scale. what order of magnitude scaling really is. emily: bill gurley says we are in a risk bubble. companies and investors are taking on too much risk. how would you describe it? david: we are taking on a lot of risk. there's a lot of a lot of money, a lot of optimism in the system. that is causing pricing to be higher, causing expectations to be higher. i think we are asked to take higher risks since 1999 or 2000. on the flipside, i believe mobile is a fundamental shift and is only in the third inning. you can see how it is changing the world where businesses that would have been terrible businesses, uber and airbnb, are enabled by mobile in ways that were not possible before. you can look at public companies as a benchmark and say it is not so clear that they are overvalued looking at their multiples. there are a bunch of mixed signals that lead to an environment where risk is mispriced for us. emily: would you use the term "bubble?" david: we don't sit around and talk about a bubble. we talk about prices being

expensive, but we make our decisions on a micro basis based on if it is a great entrepreneur to be with or not. as long as we're finding the entrepreneurs and opportunities, yes, the prices are higher and we are taking on risk, but we are finding great entrepreneurs, and we're excited about what they're doing. john: we are trying to create companies in tens of billions or more of value. it doesn't matter too much if you are overpaying. you really have to keep your eye on what your target is. emily: it does not matter if you overpay? john: in the early, early stages. emily: why take on risk if it's too expensive? david: we have companies that are out there, exciting companies, losing money with

huge bankrolls because they were raising at such non-dilutive levels and bringing in capital, almost unprecedented. that is the opportunity for the companies to build real businesses within the capital constratints. but that is also the risk. at some point, the music stops, the chairs stop. you are sitting down or you are not. emily: are we in a bubble? john: there is a new google to be built. a new office suite, microsoft, to get built. there are some really important companies that feel expensive and turn out to be cheap. the truth is, some stuff is overpriced and will look obviously so in retrospect. other stuff that feels wildly overpriced that will look the opposite in retrospect. david: i just want to make sure ours are not the ones. john: ours are priced exactly right. emily: you invested in dropbox but did not get a board seat. why did that happen? john: we were the b round. a wildly expensive b. but it'll turn out in retrospect

to be a good bargain for us. they were riding a very large wave that just got bigger and bigger. emily: how do you protect yourself as investors? how do you hedge your risks? david: we do not tend to use financial engineering. emily: you do not have liquidation preferences? david: you're talking about unusual liquidation preferences. as a protection. downside protection we do not do anything fancy. our biggest thing is alignment with the entrepreneur. those tend to misaligned the entrepreneur. that comes out at these times at the weirdest moments, when you don't want it. misalignment can hurt you. we tend to manage risk by picking well and having a diversified portfolio. emily: there are always these unicorns worth more than a billion dollars. are they really? because of the liquidation preferences.

and does that mean the values are inflated? john: the truth is, valuations are just numbers about how much capital you put in and how much you diluted. until these become liquid markets, until you have buyers and sellers, you do not know what the numbers are. david: if you want to be a public company, you will have to cross the chasm of being held and evaluated on public company metrics. if you cannot cross the chasm, valuations you are carrying from the early days, particularly if they're at higher levels, can really hurt you. then there is the opportunity to be acquired. you need acquirers willing to value you for strategic or whatever reasons and have the wherewithal to buy you and justify that. if you do not have those things, you get in trouble. emily: what about burn rates? do those concern you? john: sure. what else matters, really, besides product, how much people love it, and how much you are spending? emily: have you been warning companies? david: yes, we have. at the end of the day, private companies run losses. that's why venture capital exists. we have a weird situation where we have companies with so much

capital because they have been able to raise it that it becomes hard to frame the burn rate too high. even at that burn rate, they have enough capital to go on for years. emily: is there too much arrogance in silicon valley? john: there has always been too much arrogance. look at guys like andy grove or steve jobs. people who will change the world but believe in themselves robustly. move out of my way, i will make this happen. there is a lack of fear. that is a little scary. but not too much arrogance. emily: you said twitter is a big mistake that you did not invest. what do you think about their future now? ♪

emily: i want to throw a few examples out there. uber at $50 billion. would you put money in uber at $50 billion? david: i have not looked at uber's financials in recent times. hard to say. it would be a high bar. there are not a lot of public

companies at that level. there would have to be numbers where you can see them crossing that chasm already. emily: john? john: i am looking for companies where i get 5, 10, 15 times returns. i could imagine them as a $500 billion company, i suppose. emily: really? john: but it is probably not where i would put my dollars today. i think it is a big opportunity, but i would not invest venture dollars right now. i would put it somewhere else. emily: let's talk about companies you know. what could disrupt facebook? david: if they cannot stay current in providing value, that is their biggest risk. john: the only thing that could unseat them is a platform shift. they nailed it moving to mobile. they had some missteps, but the strength of their network gave them a little more time. on mobile, who else is there? emily: look at history. microsoft beat ibm, google beat

microsoft, facebook are beating google in mobile. john: mark is using market cap. he used 10% of his market cap to buy whatsapp. he is aggressively using the asset that he has, market capitalization, to find the next wave and make sure he is there. david: and in most of those examples, complacency snuck in. mark is the least complacent guy you're going to meet. emily: chamath palihapitiya, early facebook employee, just said he thinks the facebook killer is going to be built in two or three years. john: i do not think that is right. you really need a new platform to emerge. it is not obvious to me what the platform is. we are early on mobile. what is possible is that we are starting to internalize what it means to have a tiny supercomputer connected to the global internet in our pockets all the time. strapped to your wrist or whatever. it is not vr, ar, that will suddenly disrupt the market. something that looks like a toy for a little while. but i do not think the next two or three years will be when that

happens. david: i am a big chamath fan, but he has been known to exaggerate at times. emily: can snapchat disrupt facebook? john: it is unlikely to displace facebook because it is not the same thing. they will be big companies for a long time. emily: you said twitter is a big mistake, that you did not invest. what do you think about twitter's future now? there is a lot of questions as to what their place in history will be. david: any time you have been a successful company and you carry a high public valuation, you have a target on your back. you will be criticized. they have time to figure out how to stay relevant, how to stay valuable. john: i think we forgot how transformative twitter has been. now with periscope and meerkat, you can see things real time, live. that is likely to persist. the way early twitter users used twitter is not the way that users use it today. there is something twitter is losing moving away from that.

but being a global place where people can talk about things is a neat, unique position. emily: why is meerkat not dead? why does it have a chance? john: meerkat is doing really well. madonna released her latest single on it. one button and you are broadcasting to the world. it feels like an opportunity space that is very large. david: i think it is too early to write the story of the winner or loser in that cycle. emily: there has been a rise in angel investing. angel list has created a structure by which you can invest in a person who invests in companies. how does that impact you guys? do you worry about that? john: there are more companies getting created no matter how you look at it. our goal is to figure out which ones are interesting. emily: that is a politically correct response. john: it really isn't. when you have a billion dollars to deploy, you can cash in different places and still be fine. focusing on signal and not being

distracted by noise is the challenge. emily: what do you do on a daily basis to make sure you are connecting with the entrepreneur you want to back? david: there is a lot of shoe leather. a lot of going out and hitting the street and connecting. finding that moment. you want to hit the moment the person is ready to start a company. you have to be there at the right time. john: everytime we touch somebody, we try to say, how can we help? how can we make this a valuable meeting for you? emily: venture capital firms have had a problem with succession. how do you make sure greylock is around for another 50 years? ♪

emily: what are the hot trends now, what are you most excited about? where's the next opportunity? john: search and intent. how you find what you want. the search engine we started from scratch coming out is called jack mobile. if you ask 100 people whether

google is perfect for search, 99 will tell you it is finished. but you ask, every question you asked google, it knew the answer? then they say, that is not really true. there are a lot of questions, in this age of context, that google is not good at answering. google is all about web and documents. the old world. david: for me, the future of digital media is social networking. or i stay close to home on those topics. john: we will probably not do meal replacement drinks. emily: there are five different kinds of munchery. david: that one we think is real. we have a company called sprig that is growing like crazy. emily: there are 5, 10 companies that do what they do. munchery, doordash. john: but how many restaurants

are there? people eat multiple times a day. practically every day. this one feels to me like, when you're investing in things, what you're trying to do is frequency and habits, things that are foundational. there will be competition. how do you make great food people love and be operationally excellent at scale? that's the key. emily: what about wearables? you are wearing the apple watch. john: i am wearing it. i do not know what to make of it. i think they will ultimately be important. there is interesting population data on what people did to live five years longer. as a consumer category, they are a puzzle. i am an apple fan boy, for sure. i think this will not be a great product for a little while. version two and three, when you do not carry a phone, just a watch, that feels like a real thing. emily: are there any apps in the future? what is the future of apps? john: the naïve view is things stay proprietary and open. since we grew up in the era of

the web, that's what a lot of people think. i think it's unlikely to be true. i think something new will happen. some new platform will happen. there are too many smart people with access to too many consumers for interesting explosions to come out of left field. emily: ellen pao versus kleiner perkins trial. what did you see in that? david: let's see. i guess i would see a no-win situation for anybody. it was a tragedy all the way around. emily: why? david: it is something that is not good for venture, not good for kleiner, not good for ellen. it turned out to be something where there is a lot of drama and a lot of pain. i am not sure what good came out of it. i am hoping there will be some. there are some good lessons there about how you treat employees.

maybe some lessons about document retention. maybe some thoughts about how you build your firm. john: at the meta-level, the pressure it puts on our industry is to make sure we are representative of full diversity is very good. david: until a firm votes with their feet and their wallets, they can be judged harshly. emily: part of the reason kleiner found itself in this position is venture capital firms have historically had a problem with succession. how do you make sure greylock is around for 50 years? david: greylock at 50 years could sometimes get told it is too old or stodgy. the reality is, over 50 years, you cannot continue to survive and thrive unless you make innovative changes. like some of the partners surprising me and saying, we should do facebook, it is the look towards innovation and willingness to change that keeps us going. emily: john lilly, david sze, thank you for joining us. it has been great to have you here. ♪

charlie: tonight, we continue our exploration of the magnificent human brain with a look at gender identity and the biology of the brain. gender identity is a person's subjective experience of their own gender. it may or may not correspond with the sex assigned with them at birth. the term transgender describes somebody who feels his or his body and gender do not match. about 700,000 transgender people live in the united states. one of them joins me today to share his experience. ben barres is a professor at stanford university.