Andreessen on …

Marc Andreessen met with the editors of Venture Capital Journal on June 29 to discuss his new firm, Andreessen Horowitz. Following are some select quotes. You can read the entire Q&A on our website.Why he didn’t do another startup

“I’ve started three of them. That’s probably enough. It’s a high-stress endeavor to actually start one.”

Why he started a firm

“My partner and I have discovered over the past four or five years that we just love doing angel investing, we love working with companies, we love working with the great founders. And we have essentially been doing it for free. If you find yourself doing something for free and you seem to be pretty good at it and you seem to really enjoy it, then at a certain point going pro seems like the appropriate thing to do.”

Why he didn’t join an existing firm

“We see an opportunity to create a new firm. We think that the model for how these companies are getting built has changed.”

What AH won’t invest in

“Not cleantech, not energy, not biotech, not life sciences not nanotech, not rocket ships, not electric cars and not space elevators.”

Consumer electronics startups

“We think Flip [maker Pure Digital Technologies] is indicative of a wave of new companies that’s being formed in the valley that are basically new consumer electronics companies that are taking advantage of commoditized hardware and contract manufacturing. You can buy off-the-shelf, super fast DSPs or multicore CPUs, or communications chips.”

Franchise companies

“There are about 15 companies a year that are founded in the tech industry that will eventually get to $100 million in annual revenue. Those companies in total represent a very large percentage of the returns to venture capital. … We’re going to be investing in things that other people might think are a little crazy or at prices that people may think are too high, because that is part of the success formula for getting into those 15 companies that matter.”


“Valuation matters a lot, but the franchise companies tend to look overvalued at multiple stops along the way. And I’ve just seen a lot of emphasis over time of people who passed on things—whether it was people who wouldn’t invest in Google because it was $75 million pre [money]. There was a whole wave of VCs who passed on Facebook, that basically dropped out at $40 million pre [money]. … The real question is how big are the things going to get? Because valuation does matter and you don’t want to go crazy, but you want to focus on company quality more than negotiation. And I frankly think there are VCs with a finance background who get confused about that.”

The importance of market size

“The actual most important thing is the market size. If the market size is going to be gigantic, then a number of things follow from that. No. 1, if a company executes well, it’s going to be worth a ton of money. No. 2, a large market is wind at your back as a startup. It’s not that uncommon to see two startups, one of which actually has a better management team than the other but a worse market, and it underperforms the company with the worse management team and the better market.”

Product/market fit

“[A company] does sort of a state change when it achieves product/market fit, which is to say, it has successfully discovered and built a product that people want to buy. Startups almost always start out without product/market fit and at a certain point in time they either achieve it or they don’t. When they achieve it, then the investment thesis changes entirely. Up until then you’re speculating on product/market fit. Once you’ve achieved it, you then start speculating on total market size. … You can clearly point to companies that have achieved it. I think LinkedIn has achieved it, I think Twitter has achieved it, I think Digg has achieved it, I think Aliph has achieved it.”

Why AH will invest $50,000 to $50 million

“This whole thing where people say startups are cheaper is both true and not true. It’s true before product/market fit, but not true after. And we think in the mechanics of how you run these companies, the really smart entrepreneurs tend to keep the investment size really small and the team size really small until they reach product/market fit, and then they turn on the gas. So, $50,000 to $500,000 is the range before product/market fit and $5 million to $50 million is the range for market expansion.”

The VC industry

“It’s not an asset class. It’s feast or famine. There are 10 or 20 firms that produce great returns over time and then there’s everyone else. And as you know, everyone else is about 780 firms or something like that. … Institutional money that has wanted to get into venture capital couldn’t get into the top 10 or 20 funds, so invested in lots of others. And they now know they never should have done that.

An industry shakeout

“Maybe half of [existing firms] won’t be able to raise new funds in the next 10 years. … It’s not just that there are 400 extra venture funds. It’s that they then fund, I don’t know, 4,000 extra companies, none of which ever amount to anything. The model doesn’t work. So what you get is second-tier venture funds funding second-tier startups started by second-tier entrepreneurs building second-tier products. It doesn’t make any sense, so the swamp should get drained.”

His angel track record

“We’ve only been doing it part-time, so it’s been amateur hour. We’ve both had day jobs throughout that time period. In that portfolio, for the companies that have had events happen—such as a bankruptcy, an exit or another round—for those companies, it’s way up. But most of those are not yet liquid. … If we can’t do better doing it full time, then that will be an interesting learning experience.”

How long it takes to reach liquidity

“It’s entirely possible that we may be in an area here for a while where these companies go—it’s more like 12 to 15 years.”

VCs he most admires

“I have had the good fortune to work with two of them. John Doerr [of Kleiner Perkins Caufield & Byers] and Andy Rachleff [formerly a GP at Benchmark Capital] are the two I’ve worked with directly on my own companies. They have very different skill sets and very different areas of contribution, but both are just tremendously helpful. It’s just hugely valuable to have them involved in a company. And then, obviously, Jim Breyer [of Accel Partners] is just outstanding, just fantastic. Mike Moritz of Sequoia is also fantastic. And Aneel Bhusri [of Greylock Partners] would be a fifth. And then Danny Rimer [of Index Ventures]. If I had to pick six, it would probably be those six. I don’t think I could narrow it down.”

Advice from other VCs

“One fund told us: ‘Oh, you guys will never be able to raise $300 million. You won’t even raise $200 million. What you should do is raise $100 million. You should raise $10 million each from 10 other venture firms and you should give each of them one-tenth of the carry or 1% of the total.’ It was basically, like, ‘Why don’t you become our butt-boy?’”

Company founders

“For whatever other deficiencies they have, [founding CEOs] are living and breathing the product, and the market they are dealing with, and their company, and their competition. They’re just saturated with it 16 hours a day. As a board member or advisor or investor, you come in once a month or once every two months for three or four hours. Or you have a weekly phone call, or whatever. Your information is just—it’s almost insignificant compared to what the founder has in their head. So, in our view, you have to be really careful about the kind of advice you try to provide and the basis from which you’re providing it.”

Tactical vs. strategic advice

“Our role is to provide tactical help or tactical advice as opposed to strategic advice. [Strategic advice has to do with] what you’re doing as opposed to how you do it. What product you’re building, what market you’re going into, which competitors you’re worried about. … … Our views on product strategy are not that relevant to anyone we deal with because we just don’t know as much about [their product] as they do. And, by the way, if we’re wrong on that and we do know more than the founder, then we’ve made a serious mistake in who we’ve backed. Conversely, the how do it—how do you build the company, how do you hire the team, how do you manage the team, how do you run a more complicated product development process, how do you build a sales force, how do you finance the company?—those are all teachable from experience.”


“I don’t think Facebook’s valuation is anywhere near maxing out. The last preferred valuation was $10 billion. … The thing is already doing over $500 million in revenue this year. This calendar year they will do over $500 million in revenue. If they pushed the throttle forward on monetization, they would be doing more than $1 billion this year. There’s every reason to expect, in my view, that the thing could be doing billions in revenue five years from now. Whatever number of billions you want. So the ultimate value on the thing is potentially gigantic. So, generally speaking, the people who are selling their stock in Facebook right now are making a mistake.”

Not angel funding Facebook

“I’ve known them from the beginning. I probably could have if I had tried hard, but I didn’t. … It’s always an affirmative decision. You have to actually step forward and actually go after it. And things just really happen fast, and Facebook was happening at a super high rate of speed and things just didn’t click.”


“The economics of Twitter are that they’ve spent about $15 million. They have created already a global brand name. Ben likes to point out that the Bing ad campaign [by Microsoft] is $300 million of advertising. Would you rather own the Bing brand or the Twitter brand? So, what’s that worth? Two, they have a user base of about 30 million users now, growing very fast. And, three, they have that growth rate, so they have all the future acquisition. But even just looking at the current user base, they’ve spent maybe 50 cents per acquired user.”

Whether Twitter can make money

“Can they get 50 cents per user per year in terms of ads?’ Yeah, probably they could do that. So to go get that $15 million back seems really easy, and it seems like there’s a lot more upside beyond that.”


“Facebook has, I think, out-executed [MySpace] on product. Facebook is increasingly taking the network effect away from them. I think they’re aware of this, which is one of the reasons why they hired Owen [Van Natta as CEO]. … You could argue that MySpace focused too quickly on monetization. You could argue that you just saw the consequence of switching focus like that before you’ve taken the whole market.”