Andrew Lee of a16z on the coming AI Pixar, why gaming companies are pivoting from B2B, and consumer entertainment's AI wave

might do a handful. Yeah makes sense. Very cool. Well thank you so much for having great take care. Good to meet and uh we are ready for our next team or individual or investor or yapper. Who will it be? Who? We will be surprised because we are at YC demo day 2025. Welcome to the stream. How are you doing?

Good to see you. You already have the hat. Hi. Hi. How you doing? We're looking around for the camera. You're on live. You're on a live stream here. You'll need to wear this hat. Okay. You can wear your hat. You don't need to wear the hat. Whatever. Whatever. Yeah. Don't wear the hat. I'm John. John, what's up?

Andrew Jordy. How are you guys? Uh, introduce yourself. Hi. Um, my name's Andrew Lee. I'm a partner at Andre Horowitz. Fantastic. Um, both working in the games fund and also at A16Z speedrun. Very cool. Are there any games companies here today? Uh, there are no games companies here, which is somewhat sad.

Suck them all into speed. This is your fault. This is your fault. There's about four or five. I would say for for YC, there's about four or five consumer companies, which is pretty good. So, you can look at those. Oh, for sure. For sure. Four or five in the whole batch. I mean, there's like five or sixish.

Uh, but here's here's the good thing. I mean, like there were a couple companies who previously in the past were like B2B companies. They're like, you know what? This is really boring. I don't want to do this. and a number of them like ended up in gaming and they ended up in entertainment. So, that was exciting.

Uh, and then also, I just generally think that like if you're going to build something that's that, you know, your mom or your your your 17-year-old DGEN friend is going to go ahead and play, then yeah, you know, it makes sense for them to go ahead and build B2B stuff as well. Yeah.

Uh, I want to talk about the games fund. I I've been super interested in how hard it is to uh get into the hot games because they kind of blow up out of out of nowhere like Yeah. You're you're like getting on a plane to Sweden and you're like it's more like investing. By the time you get there, they've doubled ARR.

Yeah. Yeah. Like like there was this Batro game that was like a massive uh thing. There was uh Among Us. Was that the one? Yeah. Among Us.

I mean, that was probably one of the top ones ever played during co during co like these kind of like flash of the pan games that become very viral, but I I don't understand if they're like necessarily good businesses.

So like how are you thinking about finding great games or games related companies or even just consumer companies? like what are you looking for? Because the signal seems so much more noisy than in if there's noise around a like an enterprise dev tool company.

Like they're probably selling that and it's probably going to be pretty sticky. Whereas like Bellatro, I don't know if it seems like local funk I think his name is. Fantastic developer, but who knows if that's like a going to turn into like Activision.

I think fundamentally for us the way that we tend to think about it is there's there's like a couple different things that to care about. One is that if there's a large audience that has a bunch of folks that are going to play, that if you do one innovation in that audience, that makes sense.

For example, big fans of League of Legends, if you're all out there, if you're trying to create like a MOA, that sort of makes sense. But I I think that for us, honestly, the big wave we see is in the world of AI, right?

Whether it's like changes in 3D animation, we fundamentally think that the future of entertainment is actually going to be there's going to be an AI Pixar. Mark my words, someone's going to make an AI Pixar. It may not actually even be Pixar, right?

Because usually what happens is we tend to think that like an incumbent for example like you know Disney or something like that exactly is is gonna make like the next thing or or potentially take the next wave but I don't know if you guys seen any of these VO videos. Oh incredible.

I mean the Bible bros the whatever like like Stormtroopers vlogging all over the place. I'm like it's astounding and it's and I don't think that's something that could ever occur. There's like a sort of innovator's dilemma that's occurring with the existing folks.

So, even just from like a PR pressure, like I don't know if you saw that that show, The Studio, there's this whole sequence where they're very worried about the casting for this new Kool-Aid movie and then it is revealed that no one cares about the casting.

All they care is that they used AI a little bit and it's this really hot button issue. This massive PR backlash and so that's this counterpositioning where if you come to the market, you say like, "Yeah, we're we're an AI Pixar. We're just making AI stuff. " You you don't have the expectation.

People expect Pixar not to use that. That's right. How how are you thinking about investing at the at the game layer versus kind of the infrastructure layer?

It feels like there's a bunch of feels like there's a bunch of new tooling around just creating these generative worlds that could turn into games and is the is the roadblocks of AI roadblocks or is it something you know new?

Yeah, it's interesting because I think the thing is what we've seen is well we go where the founders go and it seems the number one area that the founders are going is into more tooling and primarily using AI. I mean, there was a bunch of stuff.

There's still a ton of, I think, experiments happening in the web 3 layer, potentially in the content layer, but the main problem is honestly is that distribution stuff. I don't know if you guys are like invest in any consumer companies lately, but it's hard.

It's hard because um there's a reason why every DDC company has basically had all their margin eaten by by all the big tech companies, right? Um and fundamentally, I think that's the same problem.

And Steam, which is like usually like the platform for folks who want to build games, is not nearly as liquid as it possibly could be.

Um, so as a result, I think the thing is the one thing I I think we've seen that's a very positive out there for liquid as in there's not enough demand coming from Steam itself or or really that like your ability to get more bang for buck, right?

Like that it's fast enough that you don't have to pay a huge amount of marketing spend. It's it's gotten a lot tougher and you have to be very good at it.

So there's great teams that are able there's a lot of gaming going on on there too with like wishlisting driving early sales and so you're paying people to wishlist your product and it's like there's kind of schemes on top of schemes right and the thing is like I think we could we could do it I mean like there's definitely people who do that but it just seems that if you create a 10x product that is able to grab some great cut consumers out there that seems to be something that has natural growth I mean I'm sure we're all familiar with midjourney um that was built it's built on Discord still in Discord.

It's not as if it was something that naturally would have grown. So the thing is I think the the and obviously I'm talking about VO because that's like my latest thing that I'm just doom scrolling on every single night.

But um when you can basically grow from zero to all of a sudden 120,000 followers with four videos over the course of like 2 days that's an astounding thing, right? And if someone can is able to do that, that shows me that there's like a natural consumer poll and that's the thing that's pretty interesting.

So mark my words. I still think that there will be an AI Pixar. also think that fundamentally the world of AI, tech, and entertainment are going to converge and we're going to basically see somebody create that 10x product that then hopefully just basically skips all the distribution problems. Sure.

But I don't know who am I. Are you are you seeing are you seeing enough are you seeing enough weird stuff, right?

like there's this concept of like you know kind of uh trying to leverage AI and the sort of existing paradigm but when you think about the intersection of like tech and AI and entertainment and and sort of like uh you know I can just imagine like entirely new ways of playing games.

you already have kind of seen this on some of these um you know people basically creating games within games, but but are people being are people being uh like is the average pitch you know really trying to rethink things from from the ground up or is it hey we have a we think we can build the next Candy Crush?

Yeah, I think a lot of well for us as a fund we'd want to obviously have people who are going to be willing to build the next Unicorn company but that doesn't mean that I think great developers out there won't create amazing experiences.

I definitely agree with you that you have to basically aim for the weird like you have to do things that are basically in the frontier of what's possible because otherwise then what you're doing is um you're you're mo most likely just like basically doing a me too which is then hard because in a distribution channel where you have to basically pay for your c customer acquisition that's like super hard.

I think something that that's m also pretty interesting that I was telling some folks about was that um the the one thing that's interesting about both consumer experiences and games is that if there's a limitation take for example on let's say that like you can only network 20 people on a server together right well the way you do that then is you just make it so your game has 20 people playing all at the same time and there's thing called Fortnite and then 20 people have to kill each other all and then eventually ends up with only 20 that you'll be able to go network with each other.

So the good thing is you can just basically change it's not like a bug, it's actually a feature. Um that's kind of interesting.

Um but I I think also generally what we're seeing in AI though is when it's uh you guys are probably familiar with this which is the the sort of cycle between B2B to the to the app side which is basically you have B2B infrastructure that allows you take for example to create really powerful video models that then allows you to have apps that use those video models and then create content that create new network models for example and then that leads into other things happening with the infra layer.

We're seeing a lot of that happen. Unreal Engine was a B2B play birth Fortnite. Uh and then there's another company in the Andre portfolio that does kind of like uh world scale sharding so that you can like basically build like a big MMO that you can walk through.

I forget what this company is, but they were doing like some scientific computing and some economic analysis. It was years ago. Uh but there's obviously a lot of work done on the infrastructure layer. And are they going to be the one to build the the the next great consumer game? Maybe, maybe not.

Maybe it built maybe it's built on top of their platform. What what are you seeing in VR? Oh yeah. Uh in VR let's see here. So um we have there is one great company that came through um before from from uh speedrun in the past and the very around the first one was this company called TR games. Okay.

So um you know it's it's one of those things where basically um I think just like people grew up in the mobile generation, you need to have people who grew up in the VR generation. So if you talk to anybody who's under the age of like 16, most of them will be like I play a lot of VR and it's it's crazy.

VR team that was like a bunch of teenagers who like they won a bunch of Apple awards and then they're just like look we just spent all our time in VR. So they built a a game that basically um uh is taking one of the bigger ones uh attacking one of the bigger ones which is Gorilla Tag.

They made a game um uh that is is astounding. Uh their their their most recent game actually uh um it's called YEPS. Um, Yeps actually has, you know, I I I can't describe it because I'm too old. Um, but basically it's like, you know, we're all in a world together and we get to go and do stuff together.

Um, but then we all collect yeeps. We yep at each other and it's like we'reing. Yeah, we're all the all the shout out to all the ees out there.

We're but but they're doing great because the thing is I think ultimately it's not just a hangout spot for a lot of these kids, but it is ultimately taking advantage of you know what VR and the the general install base.

I think I still think that like VR still needs like a shot to the arm in terms of, you know, we all know this that it probably needs more installs. It probably needs find a way there, but it it it needs like uh higher lower churn relative to the device sales. That's right. That's right.

Or or the device sales have to be way less expensive. Yeah. Um or find a way to, you know, just get as good of sales as the Meta Rayban glasses potentially. Right. We need VR games that are truly addicting, not just novel. Yeah. Yeah. I was really hoping for the first you probably shouldn't.

I mean I I I remember I remember I like ees though and the kids love it too with uh with the original like PlayStation like Metal Gear Solid that game was like a 100 hours or like Final Fantasy 7 that was a 100 hour experience GTA 4 that was like a 100 hour experience and and I've played a lot of VR games have yet to find one that it's like okay the progression in this game is so addicting that I need to keep putting it on to play.

It's like it's like more like okay it's a cool demo I said a high score okay I'm done. I'm not like I need to finish this. I need to know where the story goes. And and it's hard because it's very expensive investment.

I mean, I think that's why it's easier honestly if you're going to innovate in the world of entertainment to innovate on that B2B layer, right? Which is where we're seeing it. We're seeing a bunch of AI sort of video creation tools.

We had one company um Hedra who who came through who was honestly just astounding when the Studio Ghibli sort of content started exploding. Um people were like, well, how can I animate the Studio Jibly content? And then everyone was using Hedra as as a result. Yeah, I saw that. Your partner doing that as well.

Can we have a can we have a studio?

So the magic of Studio Gibli was that it could oneshot these beautiful outputs and and are has there been are you anticipating that kind of moment for sort of ephemeral gaming where I could like take a picture of the three of us and say like make a boxing game where we can like fight and you get swords and then it's like it creates that and it's like fun and viral.

Uh can that happen in the near like are you expecting that at all? Well, never say never. I think that ultimately um we have to get past this sort of distribution problem, but my hope is that it gets a midjourney mo moment like we've had in the past.

And the good thing is I mean I've talked to a lot of investors about this that I think a lot of folks are in that cycle right between B2B back to the sort of like app layer is a bunch of the investors are pretty interested in obviously the B2B AI side and I think that will then drive a lot of innovation which then gets you to 10x here and hopefully if someone builds a good network then you have sort of like unwarranted or really sort of um uh differentiated uh customer acquisition.

That makes a ton of sense. Well, thank you so much for joining. This was fantastic. You guys come on when there's