The New Yorker recently has posted a piece covering Silicon Valley venture capital powerhouse Andreessen Horowitz, otherwise known as a16z, and its unorthodox founders, Marc Andreessen and Ben Horowitz. In the long-form profile article, The New Yorker’s Tad Friend had the opportunity to interview both a16z co-founders before sitting in on a formal funding pitch from San Fransisco-based data-analytics startup Mixpanel. The piece reveals the seemingly unique way a16z's co-founders, part of Netscape's original team, question entrepreneurs and then decide on particular venture deals.
One of the best quotes from the entire story reads:
A great V.C. keeps his ears pricked for a disturbing story with the elements of a fairy tale. This tale begins in another age (which happens to be the future), and features a lowborn hero who knows a secret from his hardscrabble experience. The hero encounters royalty (the V.C.s) who test him, and he harnesses magic (technology) to prevail. The tale ends in heaping treasure chests for all, borne home on the unicorn’s back.
While Mixpanel was pitching a16z, Andreessen measured the success of the startup and the a16z's likelihood of making an investment based on how it fit into a “system.” The key, Andreessen notes, is understanding how a company will grow and systemically adapt to changing technology trends as time passes. Following a pitch and during the deal review process with partners, Andreessen will plead for his team to envision a "new world. For the ride-sharing service Lyft: 'Don’t think about how big the taxi market is. What if people no longer owned cars?'"
On the other side, Horowitz sometimes asks startup founders about their general background, “Start at the beginning, where you grew up”. Horowitz will regularly redirect funding pitches to make founders think on their feet, deal with the unplanned and react to controversial questions — “It’s a stress test intended to elicit biography, resilience, and the real story,” Horowitz told The New Yorker.
“A16z wants to learn if the founder has a secret—a novel insight, drawn from personal experience, about how the world could be better arranged. If that new arrangement is 10x better, consumers might be won over,” Friend wrote.
a16z's reputation
As a firm, a16z is known for writing big checks and aggressively pursuing the companies and entrepreneurs they believe in. If a16z has a startup on its radar and vice versa — it’s a match — then the deal is almost inevitable. In general, a16z tends to invests early when it comes to enterprise but it waits when it comes to consumer companies. Andreessen said it was because these consumer companies will usually crash and burn or become massive successes, where the norm is failure. In 2013, a16z decided to pass on funding the A round of Oculus VR but later followed through with their Series B because they were concerned Oculus's product would not be able to overcome inherent motion sickness issues — Facebook would later acquire the company to the tune of $2 billion.
Founded in 2009, a16z is structured much differently than most venture capital firms. It operates as a “guild,” where each partner works with his own companies and then a small shared staff helps with general biz development and recruiting efforts. The end result is that general partners only make about $300,000 — compared to the Valley's VC average of $2 million — but are granted different responsibilities and individualized control. Because of this system, a16z saves money and can pay sixty-five specialists to focus on “executive talent, tech talent, market development, corporate development, and marketing.” Their strategy seems to be working.
In the beginning, Andreessen and Horowitz were careful about who they recruited as general partners. They decided to only bring on partners to their firm who had experience as founders or once managed a company.
When the firm first hit the Silicon Valley scene it didn’t have the capital or contacts to invest in high demand Series A rounds for trending brands, so it chose to invest in 80 seed round startups the founding team deemed of high potential — they also did not take a single board seat on any of those companies but would lead the twelve best towards a Series A round.
"It’s a delight when (entrepreneurs) look at you with contempt."
A16z were also first able to distinguish themselves by providing a unique "investment platform," the New Yorker wrote. By “treating the entrepreneur as a client” and taking the “long view” instead of a transactional one, a16z quickly became a recognizable force, locally. And in time, they become one nationally.
“Entrepreneurs want to raise money from us,” Andreessen told The New Yorker, “so the natural thing when we say ‘What if you did this?’ is to tell us what we want to hear. But we don’t want to hear what we want to hear. It’s a delight when they look at you with contempt—You idiot—and then walk you through the idea maze and explain why your idea won’t work.”
Andreessen went on to say, “we’re not funding Mother Teresa. We’re funding imperial, will-to-power people who want to crush their competition. Companies can only have a big impact on the world if they get big.”
