Andreessen Horowitz, 10 year Investment in Silicon Valley

 Andreessen Horowitz has already been listed or is preparing to go public this year. They recognized their potential early and put this venture capital (VC) behind them.

It's not new to them, as there are 105 exits on Instagram, Facebook, Twitter, etc.

Lyft, Pinterest, Airbnb, Groupon. These unicorns have something in common.

The company, which is celebrating its 10th anniversary this year, is seeking change by changing its industry to a certified investment advisor (RIA) instead of a VC.

*Authorized Investment Advisor (RIA): Refers to individuals or companies that provide securities-related advice by the Securities and Exchange Commission. This is read as a move to create a new wave, as did social media ventures in the past, by actively investing in high-risk assets such as cryptocurrencies.

In keeping with Andreessen Horowitz's changes, we reviewed the company's operating process, investment philosophy, and future direction for the past 10 years.

Developing founders into true CEOs

Founding and partnering of Andreessen Horowitz:

Andreessen Horowitz was founded in 2009 by Mark Andreessen and Ben Horowitz.

The two of them are serial entrepreneurs.

Marc Andreessen developed the web browser Mosaic and co-founded Netscape.

Selling Netscape to AOL. Ben Horowitz served as vice president of Netscape, and after the sale of Netscape, joined AOL.

 

[caption id="attachment_5075" align="aligncenter" width="530"] Marc Andreessen and Ben Horwitz[/caption]

 

What is the profit that professional founders from engineers turned into VCs?

Their experience of running around to get investment as founders and facing VCs had an impact.

They knew the feelings of the founders better than anyone, so they tried to create a VC that supported what they really needed.

This has been shown to be a differentiated operation plan from traditional VCs. In his 2013 Fortune interview, Ben Horowitz describes the direction he was thinking of:

[caption id="attachment_5135" align="alignleft" width="320"] Ben Hororwitz[/caption]

“We wanted to help our founders become the best CEOs.”
“The founders have a lot of knowledge, they are dedicated and passionate.”
“We found it difficult to apply these advantages to the company.”
“So, I wanted to become a VC who taught how to help founders become (real) CEOs.”
“We also took into account that professional CEOs have a huge network.”
“They know a lot of people they can bring to the company: journalists, customers, executives.”
“We wanted to give the founders a better network than other professional CEOs.”
“To do that, we had to build a deterministic network in Silicon Valley.”
“Through these two ideas, we were able to differentiate ourselves from other VCs.”

"Startup, we will manage it in Hollywood style"

 

To realize this direction, let's take a closer look at how Andreessen Horowitz specifically differentiated itself from existing VCs.

'Hollywood style' management level for Andreessen Horowitz:

Hollywood entertainment agency level corporate management Just like a celebrity manager, we support everything necessary for corporate operation, such as recruitment, marketing, and public relations.

It is truly a talent management system. For recruitment applications, for example, we created a database of designers, coders, and executive talent pools to help fill the needed workforce.

For example, if you want to sell your company to General Electronics (GE), you can enter GE in the relevant DB and see dozens of contacts.

In addition, through the Management Briefing Center, the management team of Fortune 500 companies and promising startups were connected.

In an interview with Fortune, Mark Andersen revealed that in addition to creative artist agencies, Allen & Company and JP Morgan in the 1910s and 1920s were also referenced as role models.

Allen & Company is a boutique investment bank. The company's corporate culture, operating method, and value system are consistent and continuous over time.

 

J.P. Morgan has the advantage of playing a fundamental role in providing the necessary finances to build American industry.

Business management experts in recruitment, marketing and PR:

Andreessen Horowitz employs 150 people. Among them, there are 15 real investors (general partners) and many non-investor partners.

Bloggers, podcast producers, finance people, security experts, etc.

Their fields of responsibility are also diverse.

As I was supporting companies at the level of a celebrity agency, there were various experts in recruitment, marketing, and PR.
The company team is divided into 7 teams.
(Excluding Board of Directors and Special Advisors)
Investment, market development, management ability, technology, marketing, corporate development, operation, etc.

Peter Sims, the founder of Parliament, explains the difference between Andreessen Horowitz and traditional VCs in his Silicon Valley Build article.

“When I worked in the (venture) industry, the company was structured for the success of its partners.”
“Helping entrepreneurs was second to investing.”
"Andreessen Horowitz will also focus on making money, but he is also focused on creating more value through the network."
“We focus specifically on how to make entrepreneurs successful.”

Treating partners with a little vulgarity:

Although he was a successful VC in Silicon Valley, he was also stingy in the treatment of his key manpower, the general partner.

The salaries of new general partners are lower than normal.

A significant portion of the commission goes to a service team with marketing, business development, finance, and recruitment experts who support businesses.

I was referring to the creative artist agency model. In this organization, members were initially not paid for several years.

I used the fees I received from actors and screenwriters to build the platform.

As a result, Mark Andersen and Ben Horowitz also said that they did not get paid in the early days.

There were also rules not to promote partners.

 

But as the company grew and the investment portfolio changed, so did this culture. There is also a culture in which partners are promoted.

Attitude to respect entrepreneurs:

The company also reflects the attitude of respecting businessmen and their time in the company rules.

If a partner is late for a meeting with a business person, he is fined $10 per minute.

[caption id="attachment_5082" align="alignright" width="300"] Attitude to respect entrepreneurs[/caption]

Ben Horowitz said in an interview with Fortune that he felt that VCs lacked understanding and respect for entrepreneurs.

Entrepreneurs worked under pressure all day, and had to wait 45 minutes to meet with VC officials to attract investment.

What makes struggling entrepreneurs wait for a long time is the lack of consideration.

In response, their organization tried to show 'they really respect entrepreneurs' from the smallest detail.

Use of active media:

Andreessen Horowitz founders and partners actively use media such as social media, blogs, and podcasts to communicate with the public.

Each channel also deals with advice such as the latest technology agenda, hot topics, growth, and investment attraction. Mark Andersen once tweeted

He spoke out about politics, the economy, the media, and technology. The average number of tweets per day was about 120.

It was like TMI, but it was content that needed to be read on the Silicon Valley line.

Mark Andersen and Ben Horowitz also appear on podcasts from time to time. Andreessen Horowitz's podcast was established early on as a channel that industry insiders must listen to.

It is useful in that you can access the thoughts of leaders in the VC industry and hear stories of investment portfolios.

Investment considerations for each stage of startup and possibility of investment selection

In 2017, CNBC was asked by startup Stripe Atlas about Andreessen Horowitz's investment strategy.

At this time, I would like to examine Andreessen Horowitz's investment direction and perspective through Mark Andersen's answers.

Seed stage:

When a startup is in its infancy, it is said that investment decision variables are entirely up to people.

We pay attention to who they are and see what makes us expect them to make something special.
We value what startups are doing is new and exciting. Qualitative evaluation takes precedence over quantitative evaluation.

Venture stage:

Even if a startup has a prototype or initial product, it is not always fully functional. Even at this time, the composition of the people is considered as important. The suitability of the product and the market is closely scrutinized, focusing on whether there is any reason to believe that their product can make a good leap forward in the market.

Growth stage:

It is said that when a startup enters the market and increases sales and marketing activities, it is important to consider the financial characteristics of the business and unit economics.

Specifically, to see if the company can profitably sell its products to customers.

Number of presentations and selection rate:

Andreessen Horowitz listens to the announcements of 2000 qualified inbound companies each year.

Among them, the number of companies that have decided to invest is said to be about 20 to 40 each year.

Only 1-2% of startups announced by meeting with Andreessen Horowitz officials are selected.

America's top VCs make 200 investments every year.

Of these, 15 companies are said to generate 90% of their return on investment.

Andreessen Horowitz also considers these figures when selecting and applying for investment companies.

Importance of VC Network:

Mark Andersen says VCs can only invest in people they already know.

The reason is that the formation of relationships between entrepreneurs and VCs is the basis of network capabilities.

VCs also want to be recommended by people in their network.

Mark Andersen says VCs are the most accessible people in the world.

The competency required to connect with them is the same as the ability to access customers, suppliers, distributors, and the media.

Those who can't find a network with a VC are unlikely to find the network they need to make their company successful.

 Possibility of investing in overseas startups:

Andreessen Horowitz primarily invests in American companies. In the case of overseas companies, it is necessary to establish a R&D system in their own country, but to establish a sales, marketing, and financial system in the United States.

If a company has the 'Israel model', they invest. Startups from Canada, China, Brazil and Argentina are also building this model these days.

How to avoid bad VC:

It is emphasized that startup founders should check the investment history of VCs.

VCs should also provide a list of people they have worked with in the past.

If there are VCs who are reluctant to do this, I warn them to be careful.

Honest attitude to failed projects:

When you meet with investors, you may be reluctant to talk about failed projects.

Marc Andersen says being honest about it shows determination and ability to respond to changing circumstances.

If an investor finds out that he has hidden this, he can think, 'That person will hide his failures in the future'.

How do you plan for the next 10 years?

As SoftBank Vision Fund dominates the VC industry with a $100 billion large technology fund, Andreessen Horowitz's status is not as overwhelming as it used to be.

It is also said that the number of VCs who learned from Andreessen Horowitz's operation method increased.

In the meantime, the strengths of Andreessen Horowitz are no longer unique to the company.

In addition, as the craze of social media ventures, which used to be fun as an investment in the past, is fading, the need for companies to build new and strong portfolios is growing.

Andreessen Horowitz, intensifying for investing in cryptocurrencies:

Looking at recent trends, Andreessen Horowitz seems to be looking at healthcare and cryptocurrency.

A separate fund was created to invest in these industries.

Last month, it gave up its venture capital status and switched to RIA.

This analysis is highly symbolic. Unlike VCs, which only invest in unlisted companies, RIAs can invest in both listed and unlisted companies.

During the VC days, the proportion of high-risk assets such as cryptocurrencies should not exceed 20%, but RIAs can be invested without restrictions.

Andreessen Horowitz has always emphasized the importance of cryptocurrency and blockchain, so it is expected that more aggressive investments will be made than before.

In 2014, Mark Andreessen said in an interview with The New York Times.

He expressed strong belief that “cryptocurrencies and blockchain will solve the long-standing problems of the Internet.” Andreessen Horowitz, who pioneered the Internet era with a web browser, is curious what kind of wave he will create in the VC industry by utilizing his RIA position.