The A16Z (AHo) Numbers

English: Mark Zuckerberg, Facebook founder and...
English: Mark Zuckerberg, Facebook founder and CEO, during his European Tour. (Photo credit: Wikipedia)

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........ Venture capitalists with a knack for the 1,000x know that true innovations don’t follow a pattern. The future is always stranger than we expect: mobile phones and the Internet, not flying cars. .... “The biggest outcomes come when you break your previous mental model. ...... en Horowitz, who sits next to his co-founder at the head of the table, is an astute manager who quotes the rap lyrics of his friends Nas and Kanye West to inspire fearless thinking—but he doesn’t try to manage Andreessen. ..... A16z was designed to be a full-throated argument about the future, a design predicated on its founders’ comfort with conflict. In 1996, when Horowitz was a Netscape product manager, he wrote a note to Andreessen, accusing him of prematurely revealing the company’s new strategy to a reporter. Andreessen wrote back to say that it would be Horowitz’s fault if the company failed: “Next time do the fucking interview yourself. Fuck you.” Ordinarily, relationship over. “When he feels disrespected, Marc can cut you out of his life like a cancer,” one of Andreessen’s close friends said. “But Ben and Marc fight like cats and dogs, then forget about it.” ....... He also tweets a hundred and ten times a day, inundating his three hundred and ten thousand followers with aphorisms and statistics and tweetstorm jeremiads. Andreessen says that he loves Twitter because “reporters are obsessed with it. It’s like a tube and I have loudspeakers installed in every reporting cubicle around the world.” ...... “We have this theory of nerd nation, of forty or fifty million people all over the world who believe that other nerds have more in common with them than the people in their own country. ...... Silicon Valley, the fifteen-hundred- square-mile shelf an hour south of San Francisco, was called the Santa Clara Valley until the rise of the microprocessor, in the nineteen-seventies. It remains contested ground. Armies of startups attack every incumbent, with early employees—and sometimes even their lawyers and landlords—taking deferred compensation, in the hope that their options and warrants will pay off down the line. Yet workers’ loyalty is not to a company or even to an idea but to the iterative promise of the region. “Uber is built on the efforts of thousands of people in the Valley,” the investor Naval Ravikant said. “On the back of the iPhone and Android and G.P.S. and battery technology and online credit-card payments, all stacked on themselves.”......... Apple and Microsoft got started with venture money; so did Starbucks, the Home Depot, Whole Foods Market, and JetBlue. V.C.s made their key introductions and stole from every page of Sun Tzu to help them penetrate markets. And yet V.C.s maintain a zone of embarrassed privacy around their activities. They tell strangers they’re investors, or work in technology, because, in a Valley that valorizes the entrepreneur, they don’t want to be seen as just the money. “I say I’m in the software industry,” one of the Valley’s best-known V.C.s told me. “I’m ashamed of the truth.” .......... they often follow one another, lemming-like, pursuing the latest innovation—pen-based computers, biotech, interactive television, superconductors, clean tech—off a cliff. ........ landing Sequoia, Peter Thiel, and a16z as seed investors “was a signal that was not lost on the banks we wanted to work with.” ....... The standard fee is “two and twenty”: two per cent of the fund each year, and twenty per cent of the ultimate profits. (The top firms, including a16z, charge thirty per cent.) ......... At the moment, venture funding accounts for less than 0.3 per cent of the U.S.’s G.D.P. “Venture is often called a rounding error in the economy” ....... the United States is as fossilized as Microsoft, and that the Valley has become stronger than Boston, New York, Los Angeles, and Washington, D.C., combined, Srinivasan believes that its denizens should “build an opt-in society, ultimately outside the U.S., run by technology.” ......... prescience. And then it’s removing every obstacle to the ferocious clarity of your vision: incumbents, regulations, folkways, people. Can you not just see the future but summon it? ....... A charismatic introvert, Andreessen draws people in but doesn’t really want them around. ..... has toyed with the idea of wearing a T-shirt that says “No hugging, no touching.” He doesn’t grasp the protocols of social chitchat, and prefers getting a memo to which he can e-mail a response, typing at a hundred and forty words a minute. He didn’t attend Netscape’s twentieth-anniversary celebration, because it combined two things from which he recoils: parties and reminiscing. ....... energetic and decisive, which makes him a valued counsellor. In 2006, Yahoo! offered to buy Facebook for a billion dollars, and Accel Partners, Facebook’s lead investor, urged Mark Zuckerberg to accept. Andreessen said, “Every single person involved in Facebook wanted Mark to take the Yahoo! offer. The psychological pressure they put on this twenty-two-year-old was intense. Mark and I really bonded in that period, because I told him, ‘Don’t sell, don’t sell, don’t sell!’ ” Zuckerberg told me, “Marc has this really deep belief that when companies are executing well on their vision they can have a much bigger effect on the world than people think, not just as a business but as a steward of humanity—if they have the time to execute.” He didn’t sell; Facebook is now worth two hundred and eighteen billion dollars. ......... Andreessen’s range of reference extends from Ibn Khaldun to “South Park,” yet he approaches new topics as if starved, eating through men’s fashion or whiskey-making or congressional politics until it has yielded every micronutrient. ....... He turns to theory the way a drinker turns to the minibar. ....... Horowitz also routinely forces a founder to abandon her script and regroup. It’s a stress test intended to elicit biography, resilience, and the real story...... the “idea maze”: you want the entrepreneur to have spent years thinking her idea into—and out of—every conceivable dead end ...... “we’re not funding Mother Teresa. We’re funding imperial, will-to-power people who want to crush their competition. ......... sixty-five specialists in executive talent, tech talent, market development, corporate development, and marketing. A16z maintains a network of twenty thousand contacts and brings two thousand established companies a year to its executive briefing center to meet its startups (which has produced a pipeline of deals worth three billion dollars). Andreessen told me, “We give our founders the networking superpower, hyper-accelerating someone into a fully functional C.E.O. in five years.” ...... They’ve moved into next-gen agricultural products and wearables and drone software ...... 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. ....... “Deal flow is everything” ...... “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 bottom three-quarters of venture firms didn’t beat the Nasdaq for the past five years ...... “Since 1997, less cash has been returned to V.C. investors than they have invested.” ........ most V.C.s subsist entirely on fees, which they compound by raising a new fund every three years ....... 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. ..... The tech publicist Margit Wennmachers built an eight-person marketing department and helped to orchestrate stories in Forbes and Fortune. ........ “In twenty-four months, Andreessen Horowitz was the talk of the town.” ...... house in Atherton, five minutes from a16z’s office ..... The toilet in the powder room is so visionary, and the surrounding dimmer lights so flattering, that I had to study it for some time to figure out how it flushed. ....... be aggressive and to fight your instinct to pattern-match. “Breakthrough ideas look crazy, nuts” ..... 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.” ....... “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. ..... 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. ................ Peter Thiel, who is four years older than Andreessen, observed that “the late nineties, for Gen Xers in Silicon Valley, was an experience as powerful as the late sixties was for the younger boomers. ....... “I always thought the entire venture thing was incredibly cool,” he told me. “Going to Kleiner Perkins”—the firm that funded Netscape—“with the high ceilings, the markers on the wall of all the great companies they’d I.P.O.’d, Larry Ellison walking through, and, at 11 A.M., the biggest buffet you’ve ever seen, at a time when I was eating at Subway? It was the closest thing to a cathedral for nerds.” 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.’ ” .......... “Every firm we talk to now is ‘Hey, we’re doing all this recruiting, and we’ll introduce you to big customers.’ It’s become the table stakes.” ....... 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. .......... “While Twitter is a lesser innovation than flying cars, it’s a much more valuable business. ........ 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. ....... “This is an ‘I missed Uber, I don’t want to miss the next one’ climate.” ....... “Ordinary people love the iPhone, Facebook, Google Search, Airbnb, and Lyft. It’s only the intellectuals who worry.” ........ “Would the world be a better place if there were fifty Silicon Valleys?” he said. “Obviously, yes. ....... Pessimism always sounds more sophisticated than optimism ....... 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.” ...... “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. ...... “Odds are, nothing your V.C. does, no matter how helpful or well-intentioned, is going to tip the balance between success and failure.” ........... “Over twenty years,” he continued, “our returns are going to come down to two or three or four investments ......... —you just don’t know which Tuesday Mark Zuckerberg is going to walk in.” ........ “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. ....... 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.” ......... “We’re imperfect people pursuing perfect ideas, and there’s tremendous frustration in the gap,” he said. “Writing code, one or two people, that’s the Platonic ideal. But when you want to impact the world you need one hundred people, then one thousand, then ten thousand—and people have all these people issues.” He examined the problem in silence. “A world of just computers wouldn’t work,” he concluded wistfully. “But a world of just people could certainly be improved.”

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