Partners at Andreessen Horowitz venture firm are fined $10 for every minute if they’re late for the meetings. This is one of the firm’s rules which suggests that entrepreneurs’ time has to be respected.
This venture firm gets ranked in top positions in almost every list that has to do something with venture capitalism and most influential investors. It had invested in Pinterest, AirBnB, Foursquare, Lytro, Belly, and other high-tech companies. Its most recent investments are Buzzfeed, Stack Exchange and Distelli. Among its exits are Groupon, Instagram, Skype, Zynga, Nicira and Oculus VR. The company can be reached at its headquarters in Menlo Park, California, and it’d be no exaggeration to say it sets the rules of the game for the startups in Silicon Valley.
So what distinguishes them from the rest of similar firms and why are they so successful? Competition is fierce: venture business is extremely risky but once you’ve managed to grab the right opportunity your profits are likely to skyrocket.
Well, what makes them unique from the customer’s point of view is that without this venture firm we wouldn’t be able to have a Skype chat, hang on in Facebook, tweet about the most interesting things happening today, post several dozens photos in Instagram in 10 minutes and much, much more. In fact, the list of their portfolio is so impressive that it just doesn’t make sense to list everything here but you can check them right here if you like.
In this article we will take a closer look at what makes Andreessen Horowitz so successful and why entrepreneurs line up to get spotted by these two gentlemen.
Focus on technology
The most surprising in the firm’s success is the backgounds of its founders, neither of whom had ever been venture capitalists before. Marc Andreessen, however, has a rich experience in computer science: co-author of Mosaic, the first widely popular Web browser, and co-founder of Netscape Communications Corporation and Opsware (where Ben Horowitz served as CEO).
In one of his interviews Marc said that at a certain moment he felt it’s been more rewarding to help entrepreneurs, rather than be one of them. The second notion to create what is now one of the most successful venture firms was that he saw an opportunity to start a venture capital firm he himself would borrow from had it existed. So despite neither Marc, nor Ben were VCs, they did understand what it felt like to desperately need the funds to grow further.
Image credit: JD Lasica
They often say they only invest in things they understand. Most often, those things deal with the technology of Silicon Valley style. Marc and Ben say it works best precisely because there’s that direct and live communication, common culture, shared values and the unique spirit that help to build a strong team that knows what it wants to achieve.
What differs them from the rest of the venture firms?
There are two things Marc believes were crucial to his firm’s success. Both of them provide a different perspective on what a venture capital firm should do to make an unknown startup into a world famous company.
First, Marc aimed at teaching founders how to be CEOs rather than replace them with a professional CEO. Both he and Ben genuinely believed that the founders have that deeply ingrained passion for caring about their ideas, the vision of what the product should be like and commitment to reach the end goal. But to achieve it they need some guidance and expertise. So here’s where Marc and Ben step in. In other words, they help founders to shape their firms right from the start.
Who are the best people to teach someone being a CEO? Apparently, the ones who’ve already been CEOs themselves. So this is the second critical issue Marc was looking for: the investing partners just had to have CEO’s experience. First, it means knowledge. Second, it means a powerful network of useful acquaintances in industry, media and customer base. For this reason Marc decided to build up an extensive network of invaluable connections directly in Silicon Valley. This way he could give founders something bigger than just money but access to a community of highly skilled professionals that could serve them better than any CEO.
Three businesses Marc Andreessen finds most inspiring
The first one might seem to have little in common with venture capitalism – it’s Creative Artists Agency, a talent firm extremely successful in Hollywood in 1980s and 1990s, and particularly Michael Ovitz, its talent agent (who is now one of investing partners at Andreessen Horowitz). As Marc and Ben often emphasize, CAA is the most important role model for their own business.
The next one is Allen&Company, the boutique investment bank operating since around 1920s. Marc and Ben often stress they learned a lot from them and admired their unique culture and value system which the executives always stuck to, although operating strategies were changing so as to respond to the market.
The third business Marc draws inspiration from is JP Morgan. The principle of “the first-class business done in a first-class way” is appealing to him as it embraces the idea of working together with skilled and ethical people to deliver the highest value.
The fact these three businesses operate in various industries only confirms how valuable other people’s experience is, even if it seems to be totally different. It’s an incredible source of fresh ideas and new perspectives which, in fact, any business can benefit from.
What does it take a business to be spotted by Andreessen Horowitz?
First of all, it’s the idea. But Andreessen and Horowitz wouldn’t grab any good, or even brilliant idea: they will grab only a breakthrough idea. This means the idea has to suggest something so new and ahead of its time that it seems absurd, insane or totally useless.
While no one is going to argue that a lot of ideas are really like this, it’s clear that only the breakthrough idea can make a big difference. So here’s the trick: to find the breakthrough ideas that will be crazy enough to nail it. An example of such idea is, say, AirBnB (an online service for short-term accommodation rent across the world) which at the time was rejected by many.
An entrepreneur with the idea
The next equally important thing is the entrepreneur – someone who produces the breakthrough idea and is eager to defend and promote it.
The firm looks for brilliant entrepreneurs, but not necessarily the ones with a college degree. In fact, they’d sooner support someone without it. Marc and Ben believe that college dropouts have a very important quality – courage. It takes courage to drop out of college, stick to the idea one believes in and be ready to face immense difficulties as it’s the only thing that can be guaranteed to happen.
So there has to be the breakthrough idea and the brilliant entrepreneur. Next, Andreessen and Horowitz look for the market opportunity. The market has to be mass. For some ideas it might not seem mass at first. For example, which market you’d say was bigger when Facebook only started: “a communication network for college students” or Indian food? Yes, Indian food seemed to be the correct answer but look at Facebook now.
And the last one, which is the business model
Once the three elements from above are figured out they must be organized somehow, or materialized, if you like. What Marc and Ben are saying is not to focus too much on what the experts and critics are saying. If you can suggest something revolutionary to people’s needs, you will find the way to organize it all in the most efficient and profitable manner.
For example, this is what The New York Times wrote in 2007 about the idea of blurting out 140-characters-long messages (which is Twitter):
“…Whether [sending and reading tweets are] universal enough to make Twitter really popular, and whether the service can be made into a sustainable business, are quite unknown. I’m skeptical”.
Twitter’s market cap is around $23 billion.
Of course, the scope of their activity and the brands they help to develop speak for themselves. Thanks to this venture firm we are now able to do plenty of things which would otherwise be impossible. In fact, everything from the above can be summed up in a few words: the startups Andreessen Horowitz supports define how the future of mass communications, IT and computer science will be shaped.