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- 2009.06.17 - SiliconBeat - The Curious Case Of Marc Andreessen
For most people around here, Andreessen is viewed as rock star, who has moved from one success to another. My view of him is a bit more shaded. When I see Andreessen (and I’ve never met him), I see two people.
There’s Marc Andreessen, tech genius and Web visionary. He developed the first commercial browser and started Netscape to commercialize it. He understands, perhaps better than anyone, the rapidly evolving dynamics of how the Internet is changing our lives and the economy. He’s a geek’s geek, and wise, a deadly combination.
And then there’s Marc Andreessen, the businessman, who seems to me to be — how can I put this charitably? — a bit of a dud.
Andreessen’s take from [the Opsware] sale was $98.2 million, while Horowitz took home about $60 million. Not bad for a company that never came close to breaking even.
Losing money indefinitely isn’t just a financial failure. It represents a failure to truly understand how a service or product is creating value for a customer, how to communicate that value, and how to persuade the customer to pay above and beyond for that value.
That, all too often, is where the valley still falls short: Failing to innovate around the business to same degree it innovates around the technology.
- 2012.04.26 - Felix Salmon - The problem with Marc Andreessen
- Andreessen Horowitz does provide a bit of expert advice and name recognition, but at heart it doesn’t make anything at all; its sole predictable income stream is the management fee it skims off while investing other people’s money. Those investors, in turn, are not particularly interested in creating long-lasting standalone companies which have large profits and create jobs. Instead, they’re primarily interested in buying into any company, no matter how flash-in-the-pan, where Andreessen Horowitz can exit its investment for a large multiple of whatever it bought in at. (...) In many ways, Andreessen’s entire fortune has been built on the greater-fool theory: if you build something trendy enough, there’s probably going to be a huge lumbering company out there somewhere willing to overpay for it.
- Andreessen’s also very shilly, when it comes to his own businesses: when Ning finally died, for instance, he put up a blog post all about how the team there had “brilliantly executed a dramatic transformation of the company”. The fact is, as a close reading of the Wired interview will attest, that while Andreessen does have a lot of good ideas, brilliant execution is not at the top of his list of abilities. His own social-media company went nowhere, and his consolation prize — a seat on the Facebook board — is so important that Mark Zuckerberg didn’t even bother to consult him before dropping $1 billion on Instagram. His main job there is to ensure that Mark can do whatever he wants, to provide a layer of insulation between Zuckerberg and shareholders. Meanwhile, the Twitter guys didn’t let Andreessen Horowitz invest in their company, forcing AH to buy its stake in the shadowy secondary market instead.
- While Andreessen is very good at making money, then, he’s much less good at creating lasting value for the long-term shareholders of his companies. In his world, buy-and-hold public shareholders are the patsies, the people left holding the bag when the fast money has long since departed. He’s smart; the rest of us are chumps.
A correspondent writes:
"Firms such as his have been leading truly insane rounds lately, sometimes in excess of $100 million. This is a different kind of investment than traditional venture capital. Under the old model, a hundred companies raised a million dollars each. Market competition then (theoretically) selected the best. Under this new model, kings are made, and there is no competition. Who would compete with a company that just raised $100 million in a day? Who would invest in a company that would dare to compete with such a sudden colossus?
This kingmaker strategy (also at work in the payments world, see Square) is the opposite of portfolio diversification. It encourages the formation of massive bubbles. And it locks out true innovation to the extent that the kingmakers choose incorrectly–which they often do."
2012.04.26 - Wired - The Man Who Makes the Future
- This is a great interview, it's full of lots of useful information.
- Q: How were you able to see the future of the web so clearly?
- A: It was probably the juxtaposition of the two—being from a small town and having access to a supercomputer. Where I grew up, we had the three TV networks, maybe two radio stations, no cable TV. We still had a long-distance party line in our neighborhood, so you could listen to all your neighbors’ phone calls. We had a very small public library, and the nearest bookstore was an hour away. So I came from an environment where I was starved for information, starved for connection. (...) Trying to do dialup was miserable. If you were a trained computer scientist and you put in a tremendous amount of effort, you could do it: You could go get a Netcom account, you could set up your own TCP/IP stack, you could get a 2,400-baud modem. But at the university, you were on the Internet in a way that was actually very modern even by today’s standards. At the time, we had a T3 line—45 megabits, which is actually still considered broadband. Sure, that was for the entire campus, and it cost them $35,000 a month! But we had an actual broadband experience. And it convinced me that everybody was going to want to be connected, to have that experience for themselves.
- Lesson: Experience potential futures and decide whether 1) everyone will want to have that experience, 2) whether it's feasible to get everyone to have that experience.
- At the time, there were four presumptions made against dialup Internet access, and after Mosaic took off I could see that they were all wrong. The first presumption was that dialup flat-out wouldn’t work (too slow). The second presumption was that it was too expensive—and that it would always stay as expensive as it was. The third presumption was that people wouldn’t be smart enough to figure out how to get it working at home. But the most interesting presumption was the fourth one: that consumers wouldn’t want it, that they wouldn’t know what to do with it. (...) I thought it was obvious that everyone would want this and that they would be able to do lots of things with it. And I thought it was obvious that the technology would advance to a point where you wouldn’t need a computer science degree to do it.
- Lesson: Look for technologies that are facing these issues now.
- I think that Mosaic helped address a few of the problems at once. It did make the Internet much easier to use. But making it easier to use also made it more apparent how to use it, all the different things that people could do with it—which then made people want it more. And it’s also clear that we helped drive faster bandwidth: By creating the demand, we helped increase the supply.
- A: It was probably the juxtaposition of the two—being from a small town and having access to a supercomputer. Where I grew up, we had the three TV networks, maybe two radio stations, no cable TV. We still had a long-distance party line in our neighborhood, so you could listen to all your neighbors’ phone calls. We had a very small public library, and the nearest bookstore was an hour away. So I came from an environment where I was starved for information, starved for connection. (...) Trying to do dialup was miserable. If you were a trained computer scientist and you put in a tremendous amount of effort, you could do it: You could go get a Netcom account, you could set up your own TCP/IP stack, you could get a 2,400-baud modem. But at the university, you were on the Internet in a way that was actually very modern even by today’s standards. At the time, we had a T3 line—45 megabits, which is actually still considered broadband. Sure, that was for the entire campus, and it cost them $35,000 a month! But we had an actual broadband experience. And it convinced me that everybody was going to want to be connected, to have that experience for themselves.
- Q: "Do you still think that the web and browsers will render computer operating systems a “poorly debugged set of device drivers”?"
- My answer: From having used various types of software, this is my impression: there is pressure to make the internet work better, but there's also pressure in the opposite direction, which is the cost associated with making the internet faster. And there are lots of different applications, which require various degrees of computing power and other factors (like latency). So, for example, videogames are still stored locally because latency is very important.
- The idea for Loudcloud:
Andreessen: (...) When electricity first came to factories, every factory had its own generator. But eventually that didn’t make any sense, because everyone could draw electricity off the grid. At the height of the first dotcom boom, we saw the exact same thing happening in Silicon Valley. You’d raise $20 million of venture capital, and then you’d have to turn around and write $5 million checks to Oracle, Sun, EMC, and Cisco just to build out your server farm. It was literally like everybody building their own electrical generator over and over again. (...) Our pitch was, you should be able to buy all this software by the drink, instead of having to shell out for the bottle up front. By capitalizing on economies of scale, Loudcloud could provide higher levels of service than you could get in-house, and a startup could get its product to market almost instantaneously. It could spend its time and energy building the actual product instead of trying to figure out how to host it and keep it live. That was the pitch.
In retrospect, we were five or six years too early. Besides the rebound in the startup economy, there have also been two huge developments in server technology. The first is commoditization: We were running on expensive Sun servers, but now you can buy Linux servers at a fraction of the cost. The second is virtualization, which makes managing the servers and apportioning services to clients far easier than was possible back in 1999. And that’s why Amazon’s cloud service has been so magical. It’s the same core concept—but with supercheap hardware, which makes the economics far more attractive for everybody, and with virtualization, which makes the entire environment far more adaptable.
- Q: What changed between 1999 and 2009 that made Groupon—and Facebook, and all these other profitable consumer Internet companies—possible?
- A big part of it was broadband. Ironically, it was during the nuclear winter, from 2000 to 2005, that broadband happened. DSL got built out, cable modems got built out. So then you started to have 100, 200, 300 million people worldwide on broadband. Also, the international market started to really open up: China, India, Indonesia, Thailand, Turkey.
On identity on the internet:
Andreessen: I often wonder if we should have built social into the browser from the start. The idea that you want to be connected with your friends, your social circle, the people you work with—we could have built that into Mosaic. But at the time, the culture on the Internet revolved around anonymity and pseudonyms.
Anderson: You built in cookies so that sites could remember each user.
Andreessen: But we didn’t build in the concept of identity. I think that might have freaked people out.
Anderson: It might still.
Andreessen: Yeah, I’m not sure at the time people were ready for it. I don’t think it was an accident that it took, you know, 13 or 14 years after we introduced the browser for people to say, “I want my identity to be a standard part of this.”
Anderson: And it took Mark Zuckerberg to figure out how to make it pay off.
Andreessen: It was really a generational shift—a group of young entrepreneurs, including Andrew Mason and Mark Zuckerberg, who weren’t burned by the dotcom boom and bust. I came to Ning with all these psychic scars. They just looked at the Internet and said, “This stuff is really cool, and we want to build something new.”
- Software is eating the world. The Internet has now spread to the size and scope where it has become economically viable to build huge companies in single domains, where their basic, world-changing innovation is entirely in the code.
- I have another theory that I call the missing campus puzzle. When you drive down highway 101 through Silicon Valley, you pass the Oracle campus and then the Google campus and then the Cisco campus. And some people think, wow, they’re so big. But what I think is, I’ve been driving for close to an hour—why haven’t I passed a hundred more campuses? Why is there all this open space?
Anderson: What categories are next?
Andreessen: The next stops, I believe, are education, financial services, health care, and then ultimately government—the huge swaths of the economy that historically have not been addressable by technology, that haven’t been amenable to the entrance of Silicon Valley-style software companies. But increasingly I think they’re going to be.
- "we look at Lytro and we look at Jawbone and we see software expressed as hardware—highly specialized hardware that will be hard to clone."
- 2015.04.10 - Fortune - Marc Andreessen on innovation and diversity
- Great stuff, as usual with Marc.
- Q: Can the founder of Zynga turn it around?
- A: Remember Apple: it was 90 days from bankruptcy. So it's definitely possible.
- 2:00 - Q: There are some rumors
- A: There should be a lot more M&A happening. Public companies are being forced to give huge amounts of cash back to their customers.
- 3:00 - Q: Something about going public
- A: Going public in this environment can be dangerous.
- 4:20 - Q: Bubble question: There were a lot of stories when a16z got started that you guys are driving up prices and contributed to the bubble.
- A: We routinely walk from deals because of overvaluation nowadays.
- 6:00 - Q: You're starting to see companies announcing valuations.
- A: One of the reasons to go public is that public companies feel more comfortable acquiring other public companies. High valuations help with recruiting.
- 7:30 - Q: You've said you're not worried about a '99-'00 bubble. How do you strip out macro factors from your analysis?
- A: All of VC is 20$ bill a year. All of tech investing is $50 b a year.
- - There's now more than $5b of bonds trading on negative yields.
- - So VC investing is just a tiny piece of these macro things.
- 10:30 - Q: You've said your family taught you delayed gratification and that served you very well. Do you think that's in SV today?
- A: I think there's a schizophrenia.
- - People think if you build a better mousetrap people will beat a path to your door, but the reality is that the world is a really big place and people have a lot on their minds, so entrepreneurs really need to think about how they're going to reach everyone.
- 13:00 - Q: People talk about automation leaving people worse off. You guys don't invest much in education and health care.
- A: Everyone complains about robots / automation, but they also complain about the rising cost of health care and education. The economic explanation is insufficient innovation.
- - Health care and education markets are very attractive because of how big they are, but they're also very daunting because of how much they're regulated.
- 15:30 - Q: When are you guys hiring women?
- A: We're now 52% women, a big proportion of the high performers are women, 20% black and latino.
- - We've been focusing on pipeline and access.
- 20:15 - Q: Do you have a favorite for the presidential election?
- A: I may just sit this one out.
- 20:40 - Q: Do you feel you're going to be cutting back now that you have a kid?
- A: I'm not traveling as much as I was in the past, so I'm hopeful that I'll be able to balance it.
- 2015.05.18 - New Yorker - Tomorrow's Advance Man
- I need to categorize the information below.
Each year, three thousand startups approach a16z with a “warm intro” from someone the firm knows. A16z invests in fifteen. Of those, at least ten will fold, three or four will prosper, and one might soar to be worth more than a billion dollars—a “unicorn,” in the local parlance. With great luck, once a decade that unicorn will become a Google or a Facebook and return the V.C.’s money a thousand times over: the storied 1,000x. There are eight hundred and three V.C. firms in the U.S., and last year they spent forty-eight billion dollars chasing that dream.
...
The firm’s fourteen-person deal team also enables it to rapidly assess any new technology, making a16z a kind of Iron Man suit for Andreessen as he pursues his flights of fancy. Jim Breyer, who led Facebook’s first venture round at Accel Partners, told me, “I spend most of my time trying to connect the dots for what the future will look like in five to seven years, but I don’t believe I scale as well as Marc and Ben and their team. They’ve moved into next-gen agricultural products and wearables and drone software, where a lot of us don’t have expertise or networks.”
Andreessen and Horowitz launched the firm in 2009, when venture investment was frozen by the recession. Their strategy was shaped by their friend Andy Rachleff, a former V.C. He told them that he’d run the numbers and that fifteen technology companies a year reach a hundred million dollars in annual revenue—and they account for ninety-eight per cent of the market capitalization of companies that go public. So a16z had to get those fifteen companies to pitch them. “Deal flow is everything, ” Andreessen told me. “If you’re in a second-tier firm, you never get a chance at that great company.” A leading investment banker who has taken numerous software companies public told me, “I put ninety per cent of my effort into seeking out deals from the top eight venture firms, ten per cent into the next twelve, and zero per cent into all the rest.”
The dirty secret of the trade is that the bottom three-quarters of venture firms didn’t beat the Nasdaq for the past five years. In a stinging 2012 report, the L.P. Diane Mulcahy calculated, “Since 1997, less cash has been returned to V.C. investors than they have invested.” The truth is that most V.C.s subsist entirely on fees, which they compound by raising a new fund every three years. Returns are kept hidden by nondisclosure agreements, and so V.C.s routinely overstate them, both to encourage investment and to attract entrepreneurs. “You can’t find a venture fund anywhere that’s not in the top quartile,” one L.P. said sardonically. V.C.s also logo shop, buying into late rounds of hot companies at high prices so they can list them on their portfolio page.When a16z began, it didn’t have even an ersatz track record to promote. So Andreessen and Horowitz consulted on tactics with their friend Michael Ovitz, who co-founded the Hollywood talent agency Creative Artists Agency, in 1974. Ovitz told me that he’d advised them to distinguish themselves by treating the entrepreneur as a client: “Take the long view of your platform, rather than a transactional one. Call everyone a partner, offer services the others don’t, and help people who aren’t your clients. Disrupt to differentiate by becoming a dream-execution machine.”
Believing that founders make the best C.E.O.s—look at Intel, Apple, Oracle, Google, Facebook—Andreessen and Horowitz recruited only general partners who’d been founders or run companies. Then they began constructing the illusion of authority, taking offices on Sand Hill Road and filling them with paintings by Robert Rauschenberg and Sol LeWitt—another page from the book of Ovitz, who commissioned a Roy Lichtenstein painting for C.A.A.’s lobby that was so large the firm had to leave it behind when it moved. They were studiously punctual (partners are fined ten dollars for each minute they’re late to a pitch), used glassware rather than plastic, and said no quickly and explained why (unless the reason was doubts about the entrepreneur) in a handwritten note. And, while most V.C.s were publicity averse—Sequoia’s slogan was “The entrepreneurs behind the entrepreneurs”—a16z banged the drum to draw startups. The tech publicist Margit Wennmachers built an eight-person marketing department and helped to orchestrate stories in Forbes and Fortune.
Andreessen and Horowitz believed that it would take them years to get great deal flow. So instead of fighting for A-round financings—the most competitive round, because it’s when you can buy the largest chunk of an up-and-coming company—they planned to make seed investments in eighty startups. They wouldn’t take the customary board seats (otherwise, they’d each be sitting on forty boards), but they’d help all eighty companies and then lead the A round for the twelve best.
The strategy had flaws. Entrepreneurs want V.C.s on their boards, and so do L.P.s: that’s how you really learn a company. The firm would be sending a huge negative signal about companies it didn’t reinvest in—hardly an entrepreneur-friendly stance. Furthermore, by making so many investments, a16z would create significant opportunity costs. In its first year, it put two hundred and fifty thousand dollars into a company called Burbn, which soon pivoted and became Instagram—but a16z couldn’t increase its share, because it had also taken a position in a short-lived photo app called PicPlz. Though the firm made 312x when Facebook bought Instagram, the huge multiple amounted to only seventy-eight million dollars. Elizabeth Obershaw, a managing director at Horsley Bridge, a prominent L.P. that invested in a16z after some debate, told me, “Our list of cons was that we didn’t think their original model would work at all. The pros were Marc and Ben—we decided they were learners and adapters and would realize the model wasn’t workable fast enough to fix it—and an industry that was ripe for reinvention.”
They
They learned fast. After a16z raised a three-hundred-million-dollar fund and opened shop, in July, 2009, it did a lot of seed rounds, but it also spent fifty million dollars to buy three per cent of Skype. Two years later, Microsoft bought Skype, and the investment returned 4x. Andreessen believed that everyone had underestimated the size of the Internet market, so in 2010, after raising a much bigger second fund, the firm spent a hundred and thirty million dollars to acquire shares of Facebook and Twitter at unprecedented valuations. Other V.C.s sniped that a16z was trying to buy its way in: Skype was an established company, not a startup, and the Facebook and Twitter deals were mere logo shopping. But, as Ron Conway, Silicon Valley’s leading angel investor, noted, “In twenty-four months, Andreessen Horowitz was the talk of the town.” The firm won a hundred-million-dollar A round for the coding company GitHub, which Conway called “the most hotly contested deal in five years.” Chris Wanstrath, GitHub’s co-founder and C.E.O., said that a16z’s services were a major attraction: “It’s like a buffet—they offered a bunch of great dishes, and we wanted to sample them all.”
After six years, Andreessen believes, a16z is meeting—and winning—enough new clients to place it “comfortably in the top three” V.C. firms. (This is not far off from the consensus in the Valley.) Its first fund has already returned 2x, and contains such powerhouses as Slack and the identity-management company Okta. The fund’s internal rate of return, a calculation of annualized profit, is fifty per cent, which places it very high among funds raised in 2009. (Sequoia’s rate for its corresponding fund is sixty-nine per cent.) The firm’s second fund includes Pinterest and Airbnb, and its third fund includes Zenefits, GitHub, and Mixpanel; both funds, on paper, are well into the black. A respected L.P. of the firm told me, “They’re one of our top performers.”
...
He pushed a button to unroll the wall screen, then called up Apple TV. We were going to watch the final two episodes of the first season of the AMC drama “Halt and Catch Fire,” about a fictional company called Cardiff, which enters the personal-computer wars of the early eighties. The show’s resonance for Andreessen was plain. In 1983, he said, “I was twelve, and I didn’t know anything about startups or venture capital, but I knew all the products.” He used the school library’s Radio Shack TRS-80 to build a calculator for math homework. In 1992, as an undergraduate at the University of Illinois at Urbana-Champaign, he neglected his job—writing Unix code for $6.85 an hour—to team with another programmer to create Mosaic, the first graphical browser for the Web. After graduating, he moved to Silicon Valley, where he and a volatile serial entrepreneur named Jim Clark launched Netscape, to make the Internet available not just to scientists but to everyone. John Doerr, the V.C. who funded their A round, said that the genius of their browser was that “it was like putting photos on the menu at Howard Johnson. You didn’t need to know the language; you could just point.” The story underlying that story, Arrillaga-Andreessen told me—the secret—was that “Netscape was based on my beloved’s own inability, as a child, to access knowledge in a small town.”
Netscape Navigator, released in 1994, quickly claimed more than ninety per cent of the browser market, and Andreessen predicted that the Web would make operating systems such as Microsoft’s Windows “irrelevant.” When the company went public, in 1995, its stock rocketed from twenty-eight dollars a share to seventy-five dollars, and Andreessen was soon on the cover of Time, barefoot on a throne. But Marc 1.0 was very much in beta. Having given up coding, his first love, to manage coders, he scarfed Pepperidge Farm Nantuckets and Honeycomb cereal straight from the box, skipped meetings, and blazed up without warning. “You’d see him vibrating, and it would inspire a combination of excitement and terror,” Jason Rosenthal, a manager whom Andreessen actually liked, recalled. A favorite Andreessen response to underlings’ confusion was “There are no stupid questions, only stupid people.” Jim Barksdale, the company’s C.E.O., said, “I’d tell Marc after meetings, ‘You don’t have to tell a dumb sumbitch he’s a dumb sumbitch.’ ” Andreessen told me, “I needed Netscape to work, it had to work—it was my one-way door—so I was absolutely intolerant of anything that got in the way”—meaning, he clarified, “people.” He could never relax: “I am very paranoid. And the down cycle hurt a lot more than the up cycle felt good.”
The down cycle began when Microsoft bundled its own browser with its operating system, making it the nation’s browser of convenience, if not of choice. Netscape shifted from marketplace to enterprise, and began selling browser and server software, but it was fortunate to get bought by AOL, in 1999, for ten billion dollars. Peter Currie, the company’s C.F.O., said, “We made a difference, we invented cookies and pioneered downloading software from the Internet, yet Netscape is an asterisk in business history. Maybe the best way to think about it is as a classic tech story: a company creates, invents, succeeds—and gets bypassed.”
(...)
He pointed at the screen, where Apple’s Macintosh was making its début at the trade show. “Hello, I’m Macintosh,” the machine said. Andreessen laughed and continued, “They were doomed from the start, because Apple in Cupertino”—in Silicon Valley—“had spent three years building that. I’ve been totally determined to be on the other side of that dynamic by being here, because success in software follows a power-law distribution. It’s not Coke and Pepsi and a bunch of others; it’s winner take all. Second prize is a set of steak knives, and third prize is you’re fired.”
(...)
Andreessen’s telepathic method—extrapolating the future from current trends—may be the best available, but it has had doubtful results. Of the eighteen firms that V.C.s valued at more than a billion dollars in the heady days of 1999-2000, eleven have gone out of business or have been liquidated in fire sales, including @Home, eToys, and Webvan. A16z bought into Zulily, an online marketer, at a valuation of a billion dollars; it soared to a market capitalization of five billion dollars, and has since slumped to $1.3 billion. Another billion-dollar a16z company, the bargain-shopping site Fab, recently sold for about thirty million dollars. On the other hand, the firm wrote off the gaming company Slack to zero—and then it became an office-messaging app that’s now valued at $2.8 billion.(...)
The key to investing, Andreessen contends, is to be aggressive and to fight your instinct to pattern-match. “Breakthrough ideas look crazy, nuts,” he said, adding, “It’s hard to think this way—I see it in other people’s body language, and I can feel it in my own, where I sometimes feel like I don’t even care if it’s going to work, I can’t take more change.” Andreessen believes that the major barrier to change is sociological: people can embrace only so many new ideas at once. “O.K., Google, O.K., Twitter—but Airbnb? People staying in each other’s houses without there being a lot of axe murders?”A16z passed on Airbnb’s A round in 2009. Reid Hoffman, the Greylock V.C., who led that round, and who is a friend of Andreessen’s, said, “Once something like Airbnb gets going, Marc can get a very good sense of it, of the economic system—but he’s not necessarily as good at the psychology of why it would get going in the first place.”
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Brian Chesky, Airbnb’s co-founder and C.E.O., told me, “In 2011, when we were starting to get some traction, Marc and Ben did a one-eighty and were very humble. Marc said he now saw it through the lens of eBay: buying stuff from strangers.” A16z led Airbnb’s B round. Soon afterward, the company was battered by headlines about renters who trashed a San Francisco home. It wasn’t axe murders, but, Chesky said, “It was a P.R. nightmare. We had just expanded from being ten people living in a three-bedroom apartment and we had no idea how to be a billion-dollar company. Marc came to our office at midnight and read the letter I’d written to our community about the Airbnb Guarantee, and the two changes he made changed the company forever. I’d said we guarantee five thousand dollars for property damage, and he added a zero, which seemed crazy.” Andreessen also added the proviso that claimants would have to file a police report, which he correctly believed would discourage scam artists. “And he told me to add my personal e-mail address. He gave us permission to be bold.”
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In venture, it’s not batting average that matters; it’s slugging average. Boldness is all. When Google Glass appeared, a16z joined a collective to seek out investments, and Andreessen declared that, without the face shield, “people are going to find they feel, basically, naked and lonely.” Google withdrew the product in January. But, he would argue, so what? His thesis is that such a16z failures as Fab and Rockmelt and Digg and Kno are not merely a tolerable by-product of the risk algorithm but a vital indicator of it. It’s fine to have a lousy record of predicting the future, most of the time, as long as when you’re right you’re really right. Between 2004 and 2013, a mere 0.4 per cent of all venture investments returned at least 50x. The real mistakes aren’t the errors of commission, the companies that crash—all you can lose is your investment—but those of omission. There were good reasons that a16z passed on buying twelve per cent of Uber in 2011, including a deadline of just hours to make a decision. But the firm missed a profit, on paper, of more than three billion dollars.
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Then the tech boom hit, and it was ‘We are going to do amazing things!’ And then the roof caved in, and the wisdom was that the Internet was a mirage. I one hundred per cent believed that, because the rejection was so personal—both what everybody thought of me and what I thought of myself. I was not depressed, but I was growly. In retrospect,” he concluded, “we were five or six years too early.”
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Mark Zuckerberg told me, “When Marc started Andreessen Horowitz, I asked him why he didn’t start another company instead, and he said, ‘It would be like going back to kindergarten.’ ”
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A16z was designed not merely to succeed but also to deliver payback: it would right the wrongs that Andreessen and Horowitz had suffered as entrepreneurs. Most of those, in their telling, came from Benchmark Capital, the firm that funded Loudcloud, and recently led the A rounds of Uber and Snapchat—a five-partner boutique with no back-office specialists to provide the services they’d craved. “We were always the anti-Benchmark,” Horowitz told me. “Our design was to not do what they did.” Horowitz is still mad that one Benchmark partner asked him, in front of his co-founders, “When are you going to get a real C.E.O.?” And that Benchmark’s best-known V.C., the six-feet-eight Bill Gurley, another outspoken giant with a large Twitter following, advised Horowitz to cut Andreessen and his six-million-dollar investment out of the company. Andreessen said, “I can’t stand him. If you’ve seen ‘Seinfeld,’ Bill Gurley is my Newman”—Jerry’s bête noire.
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Bill Gurley declined my requests for comment, but he has publicly bemoaned all the money that firms such as a16z are pumping into the system at a time when he and many other V.C.s worry that the tech sector is experiencing another bubble. So many investors from outside the Valley want in on the startup world that valuations have been soaring: last year, thirty-eight U.S. startups received billion-dollar valuations, twenty-three more than in 2013. Many V.C.s have told their companies to raise as much money as possible now, to have a buffer against a crash.
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One morning, as I sat down to breakfast with Andreessen, a rival V.C. sent me a long e-mail about a16z’s holdings. The V.C. estimated that because Andreessen’s firm had taken so many growth positions, its average ownership stake was roughly 7.5 per cent (it’s eight per cent), which meant that to get 5x to 10x across its four funds “you would need your aggregate portfolio to be worth $240-$480B!” You would, in other words, need to invest in every Facebook and Uber that came along. When I started to check the math with Andreessen, he made a jerking-off motion and said “Blah-blah-blah. We have all the models—we’re elephant hunting, going after big game!”
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In addition to assuaging various slights from V.C.s, Andreessen is attempting to assuage the wound of the 2000 crash, by maintaining that it was an isolated event. “The argument in favor of concern is cyclical,” he told me—busts follow booms. “The counterargument is that stuff works now. In 2000, you had fifty million people on the Internet, and the number of smartphones was zero. Today, you have three billion Internet users and two billion smartphones. It’s Pong versus Nintendo. It’s Carlota Perez’s argument that technology is adopted on an S curve: the installation phase, the crash—because the technology isn’t ready yet—and then the deployment phase, when technology gets adopted by everyone and the real money gets made.” So the 2000 tech crash prefigured not the next crash but a sustained boom. And Andreessen’s portfolio, like the entire Sand Hill Road enterprise, wasn’t so much overpriced as underappreciated.
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Still, he recently tweeted that startups were spending too much. When the market turns, he wrote, “nobody will want to buy your cash-incinerating startup. There will be no Plan B. VAPORIZE.” And, come to think of it, maybe it wasn’t prudent to raise too much, either. In one pitch meeting where a portfolio company sought a billion-dollar growth round, Andreessen raised his arms overhead and made an explosive sound to warn of what can happen when your valuation vastly exceeds your revenues: “Thanks for playing—game over!” The company went on to secure its round, with only a token contribution from a16z. Andreessen later said that, as in an increasing number of deals, growth investors had paid one round ahead of progress—paid in other words, for the results they hoped to see in the following round. Though the company’s lofty valuation buoyed a16z’s portfolio, his body language suggested that buying at such valuations was maybe not smart—“but, as long as they’re sophisticated investors, it’s not our job to moralize on whether they’re overpaying.”
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Andreessen applied a disinfecting wipe and said, “Let me ask you a question I know the answer to. In 1999, there was no more flaming debacle of a business than grocery delivery online. You were probably twelve at the time of Webvan?”“Thirteen,” Mehta said.
“So why now?”” [NW: My answer: Grocery delivery is unlike other early internet companies in that it actually has a substantial real-world presence near its users (the vans). That means you need to have a bunch of people in roughly the same area who are comfortable spending money online. And in 1999, not only was the Internet still not as pervasive as it is nowadays, but the idea of spending money online was still relatively new. PayPal was just getting started. Here's a great article on why Webvan failed; basically they burned through their money before they figured out how to make it work.]
“The main reason is you have access to labor through smartphones. It’s the same reason Uber and Lyft exist now.”
Andreessen nodded with satisfaction: “You can orchestrate the entire supply chain through your phone.” Webvan was what he called a “ghost story”—a cautionary tale that still frightened investors. But Instacart proved that even haunted houses could be rehabilitated.
Another partner asked about competitors, including Uber, TaskRabbit, Amazon Fresh, and Fresh Direct. “The other, older models can’t do instant delivery,” Mehta replied. “And the newer ones don’t have anywhere near our coverage and range of data in groceries. So if you want slower delivery and smaller selection, go with them.” Andreessen smiled, savoring the contempt.
At the deal review, Jeff Jordan, who sits on Instacart’s board, praised Mehta’s progress, while noting concerns about unit economics—how he’d get to profitability on each delivery. Referring to the venture community’s enthusiasm for the round, Jordan went on, “This is an ‘I missed Uber, I don’t want to miss the next one’ climate.” Balancing everything, he recommended that the firm put in ten million dollars.
Horowitz argued for a bigger investment. Mehta’s moat against competitors “is really fucking deep—he already has Whole Foods, monster of monsters. It’s the biggest market of all time, incredibly huge.”
After other partners argued that the valuation seemed high, Andreessen looked at Horowitz: “Ben, I think you’re making an even more provocative point than people understand. It sounds like you’re saying this could be an Uber for real.”
“I think so,” Horowitz said. “What makes unit economics really scary is if you’re in a competitive market. He’s in a monopoly.”
Andreessen said, “We could go to the well, and go in higher.” He beckoned, coaxingly. Horowitz thought it over, then said, “I don’t want to override Jeff.” Andreessen, too, seemed content to temper his enthusiasm and to share the round with other firms. (Mehta eventually raised two hundred and twenty million dollars on a valuation of two billion.) He’d like to make twenty times the investments the firm does, but every opportunity comes with an opportunity cost, and even $1.5 billion doesn’t last forever.
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In March, Andreessen and his wife announced the birth of their son, who’d been carried to term by a gestational surrogate. (...) He added, tongue in cheek, “I’m going to teach him how to take over that world!”
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He told me, “It wasn’t that I felt misunderstood or badly treated; it was that I was so completely different. I wasn’t seeking understanding. I wasn’t indexing myself against the people around me.”
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Jeff Fagnan, of Atlas Venture, which is the largest investor in AngelList, said, “Software is already squeezing out other intermediaries—travel agents, financial advisers—and, at the end of the day, V.C.s are intermediaries. We’re all just selling cash.”Andreessen sometimes wonders if Ravikant is onto something. He’s asked Horowitz, “What if we’re the most evolved dinosaur, and Naval is a bird?” Already, more than half the tech companies that reached a billion-dollar valuation in the past decade were based outside Silicon Valley. And as Andreessen himself wrote in 2007, before he became a V.C., “Odds “Odds are, nothing your V.C. does, no matter how helpful or well-intentioned, is going to tip the balance between success and failure.”
He still believes that—but he also thinks that a16z can cut a company’s time to success in half, and time is money. He also believes that venture will maintain its incumbency because computers can’t yet introduce you to just the right engineer or chief information officer at eBay, and machines can’t yet come to your office at midnight to future-proof your letter to perturbed customers.
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One Sunday afternoon, as he sat alone at the head of a16z’s conference table, he said, “Chris Dixon argues that we’re in the magical-products business—that we fool ourselves into thinking we’re building companies, but it doesn’t matter if we don’t have the magical products.” And magic could not be summoned, only prepared for. “Over twenty years,” he continued, “our returns are going to come down to two or three or four investments, and the rest of this”—his this”—his gesture took in the building full of art, the devotions of more than a hundred eager souls, even the faux-Moorish rooftops of his competitors down the road—“is road—“is the cost of getting the chance at those investments. There’s a sense in which all of this is math—you just don’t know which Tuesday Mark Zuckerberg is going to walk in.”Yet math was no help with mass psychology. “Even if we could do perfect analysis, we just can’t know the future,” he said. “What if Google Ventures had access to all Google searches—could you predict hit products? Or perfect access to all of people’s conversations or purchases? You still wouldn’t know what’s going to happen. How is psychohistory going?” he went on, referring to Isaac Asimov’s invention, in his “Foundation” novels, of a statistical field that could predict the behavior of civilizations. “Not very fucking good at all! Which, by the way, is part of what makes this job really fun. It’s a people business. If we could revise the industry completely, we’d just dump all the business plans and focus on people—the twenty-three-year-old Mark Zuckerberg, Bill Gates, Steve Jobs.”
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- 2016.09.14 - Wired - Silicon Valley’s Secrets Are Hiding in Marc Andreessen’s Library
When they started their firm, they went to Ovitz for advice. “Call everyone a partner, offer services the others don’t, and help people who aren’t your clients,” he said. “Disrupt to differentiate by becoming a dream-execution machine.” They did all that. And, in contrast to typical Silicon Valley VCs, they hired a whole team of publicists who guided Andreessen Horowitz stories into Fortune and Forbes. They hung some Rauschenbergs around the office—just like CAA. And when people pitched them, they drank from glassware rather than plastic. The books complement the Rauschenbergs and the glassware. They, too, lend authority.
- Later, as she rose to fame at MGM, the star machine didn’t just change her name and her clothes and her voice. It remade her story. She wasn’t Julia Jean Mildred Francis. She was Lana. She wasn’t discovered at Currie’s drinking a Coke. She was discovered at Schwab’s Drugstore drinking a chocolate malted, because that sounded better. The studios were shameless about spinning things their way, and the press was shameless about spinning things the same way to keep on the good side of the studios. This This is how Silicon Valley works too. It makes stars, shaping their origin stories into legends like the one about Lana Turner and Schwab’s Drugstore.
- Andreessen says that Joseph P. Kennedy Presents, which chronicles the banker’s time as a Hollywood movie mogul, is one of his favorite books, and he calls Kennedy “the one who wasn’t like the others.”
- “If everybody obeyed the rules all the time,” Andreessen says, “nothing would ever happen.”
- The books in A16Z's library
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