The ‘Constructively Skeptical’ GP of Andreessen Horowitz

Everyone knows Marc Andreessen and Ben Horowitz. Now, the media savvy founders of Andreessen Horowitz are beginning to raise the profile of their other two GPs, beginning with John O’ Farrell, who joined the team last year and is credited for many of its later-stage deals. (O’Farrell also manages a new $200 million “co-investment” fund that allows the firm to put more money into late-stage deals it’s backing as part of its second, $650 million, fund, closed six months ago.)

O’Farrell talked with reporters for the first time when that co-investment fund was announced early last month. Today, I was invited down to the Rosewood on Sand Hill Road to talk with him further about his role at Andreessen Horowitz.

It wasn’t the easiest conversation. The affable O’Farrell – who most recently ran business development at the smart grid company Silver Spring Networks and was previously an executive VP of biz dev at Opsware – is almost aggravatingly circumspect, particularly compared with fast-talking Andreessen. Then again, he says it’s their differences that make the firm click. Part of our conversation, edited for length, follows.

You’ve spent a lot of your working life with Ben and Marc, including at Opsware. While on the one hand, that suggests you get along well, I wonder what you make of the notion that people who think differently in a venture firm decrease its chances of heading down a rat hole.

Well, I’ve worked with Marc and Ben for 7 years out of 52, so I wouldn’t say it has dominated my life. I think the reason we get along so well is that we don’t agree on a lot of things. Our interactions are characterized by vigorous debate. Marc is the big-picture visionary; he thinks in extremely large terms. Ben is highly operational and strategic. I tend to be more along the lines of constructively skeptical. The reason we work well together isn’t because we think alike but because we respect one another’s ways of thinking.

You work primarily on the late-stage side, where the names in your portfolio, many of which have come through secondary acquisitions, are well-known brands. Which of them have been vigorously debated and why?

With late-stage deals, the debate is less about whether the company has staying power but whether it still has the upside we want to see. In our current portfolio [of late-stage names], no one has had any reservations.

Including, presumably, Groupon, which many view as a no-brainer, but whose continued growth seems very dependent on how well it expands internationally.  No one at the firm had concerns about that? Reports say that it’s getting crushed in China, for example.

We try to love our children all the same and not single any of them out. But what we’re looking for are companies that have pioneered a model and are market leaders and that still have a massive opportunity ahead of them.

[I’m not commenting on Groupon or China] but I think it’s important to note that not everything that we read in the press is true.

Andreessen Horowitz has just three board seats to show for its eight late-stage investments, many of which have been massive, like its $80 million acquisition of Twitter shares. What do you say to skeptics who say it’s a stretch to call what you’re doing venture capital?

Whether we take a board seat or not is purely situational. We are fundamentally [chasing] after the greatest companies, no matter what stage they’re at. As long as we think these are great companies that are building global franchises and that can generate the kind of returns our LPs are expecting, we want to be in them, and we want to contribute to them in whatever way makes the best sense.

It’s too early to declare ourselves successful, but pioneers will always have arrows in their backs.

How many board seats do you hold?

Just one; I’m on the board of the online gaming company TinySpeck [which just raised $10.7 million from Andreessen Horowitz and Accel earlier this month]. But I came on at the tail end of the first fund, and a lot of our late-stage deals that I’ve driven don’t involve board seats. I’ll be on a handful of boards over the next 12 to 18 months.

The firm also participates in lots of seed-stage investments in which it doesn’t take a board seat. What do you make of the types of rounds in which it’s participating, rounds that often include tens of other investors?

I don’t think ‘headless’ rounds make sense beyond the seed stage. Some entrepreneurs are pretty well set. They have a lot of experience already and an established business concept and they just want to prove it out and get to an A round. What they may be looking for is funding plus some relationships, versus hands-on, day-to-day guidance on how to build a team. So I’d say if you’re a first time entrepreneur, it’s more important to have a lead investor in the seed round, someone who can help get it off the ground. Otherwise, we think headless or multiparty rounds provide entrepreneurs with a multiplicity of relationships, so we often multiparty.

You were embroiled in clean tech while at Silver Spring. Might we ever see Andreessen Horowitz make a cleantech investment?

It depends on how one defines cleantech. The way I define it – projects that have a heavy dependence on public policy for their success or failure — we wouldn’t. Silver Spring meets our screen in terms of being very tech intensive, for example, and in applying Internet technologies to a new and gigantic problem. But where it fails the screen is public policy. In my view, to be a smart investor, you have to understand public policy and track it at the state, federal, and international level, and that’s not something you can do part-time.