How Andreessen Horowitz Is Disrupting Silicon Valley
Just over the crest of the highest point on Sand Hill Road, amid a cluster of relaxed buildings that could easily pass as residential units, sit the offices of Andreessen Horowitz (A.H.). Inside, you enter a lobby that doubles as a library featuring some of the favorite books of Marc Andreessen, who originally made a name for himself as co-founder of Netscape, the early web browser, which sold to AOL.
There’s a wide array of books in the A.H. lobby – from highly technical tomes about coding to more popular and well-known best sellers that have been ingested by millions, like Built to Last by Jim Collins. Reflecting on the self-conscious nature of the book selection and placement, the receptionist describes how each book was selected for a reason. Each book has a story behind it, she says. There’s a lot of modern art, too, all around, and within the bowels of the offices once you’re past the reception, including Robert Rauschenberg paintings. It’s all part of the brand. Anyone who has worked in venture capital understands that the industry is driven by sales as much or more as by thinking or ideas. And, when it comes to marketing and public relations, one thing is certain: No Silicon Valley venture firm is as vociferous and aggressive with marketing these days as Andreessen Horowitz.
Ben Horowitz was a product manager at Netscape, then co-founded the software firm Opsware with Andreessen, which eventually sold to Hewlett Packard for $1.6 billion. Horowitz, who was chief executive officer of Opsware, is the effective manager, while Andreessen, who was the chief technology officer of AOL, is a technology genius. The two have been inseparable since launching Andreessen Horowitz in 2009, and the firm has raised about $4.0 billion since. That is an ungodly amount of capital raised, especially in such a short period of time. It took the firm where I once worked, Summit Partners, which is considered a top-tier firm as measured by returns, 15 years to get to that level. A.H. has done it in five. In a very short time, A.H. has become one of the hottest Silicon Valley venture capital firms with investments in Facebook, Twitter, Pinterest, Airbnb, Box, Foursquare, and Skype, a deal that earned A.H. investors a 4x return on the firm’s $50 million investment in 2009.
Nearly overnight, Andreessen Horowitz has leaped into the top-tier of Silicon Valley venture capital firms, and the firm’s momentum has only increased thanks to some combination of brilliant salesmanship and marketing — a new model that is highly differentiated as well as, it seems, more creative and more entrepreneur-friendly than the traditional venture capital firm model. We’ll get to that in a bit; Let’s start with the marketing.
The way Andreessen and Horowitz market their firm and themselves is by producing “thought leadership.” Horowitz penned a book about his experiences as an entrepreneur before becoming a VC entitled The Hard Thing about Hard Things: Building a Business When There Are No Easy Answers, which was well-received by everyone from Silicon Valley entrepreneurs to The Economist magazine. “These are halcyon days in Silicon Valley and other hives of entrepreneurship around the world,” the Economist review gushed, “Nobody knows this better than Ben Horowitz. One of the Valley’s most prominent venture capitalists, Mr. Horowitz was previously the chief executive of a prominent start-up and personally experienced what he dubs ‘the Struggle.’… Not all his advice is compelling, but there is more than enough substance in Mr. Horowitz’s impressive tome to turn it into a leadership classic.”
Meanwhile, Marc Andreessen is outspoken to say the least, and perhaps his most quoted phrase to date is, “Software is eating the world” (this even serves as the tagline on the A.H. company website). He jumped onto Twitter in earnest this past January, and hasn’t stopped tweeting since, accumulating over 25,000 tweets in that time-frame. He tweets about education, financial systems, political institutions, and, obviously, a lot about technology.
An analysis of Andreessen’s peripatetic tweeting revealed that Andreessen tweets between 50 and 200 times a day, with an average of 120 tweets a day. On one day, February 5th of this year, Andreessen tweeted over 500 times, including a lengthy discussion about the future of the news business. His feed is required reading around Silicon Valley, where Andreessen is highly respected for his intuition and insight especially about the Internet and software, according to my conversations with Andreessen’s fellow board members (Andreessen sits on the boards of eBay, Facebook, and Hewlett-Packard).
Andreessen takes to Twitter akin to how an impassioned preacher might take to the pulpit to deliver a big sermon on Sunday morning. Some refer to the Andreessen monologues as “rants,” while others refer to them as “meditations,” but regardless, a lot of people listen when he goes into pontification mode. He outlines his thoughts and points in sequential order, then pushes the tweets out one after the other, starting with “1/” then “2/” and so on. One recent example, from June 1st, involved robots and machines. Here is how it went:
“1/One of the most interesting topics in modern times is the “robots eat all the jobs” thesis; best book on topic: [a link to Amazon for the book “The Second Machine Age” by Erik Brynjolfsson and Andrew McAfee]” 2:10 PM — 1 Jun 2014
“2/The thesis is that computers can more and more substitute for human labor, thus displacing jobs and creating unemployment.” 2:11 PM — 1 Jun 2014
“3/At core, this is Luddism (http://en.wikipedia.org/wiki/Luddite ) — “lump of labor” fallacy, that there is a fixed amount of work to be done.” 2:12 PM — 1 Jun 2014
“4/The counterargument is Milton Friedman: Human wants and needs are infinite; there is always more to do. 200 years of history confirms.” 2:15 PM — 1 Jun 2014
“5/To avoid the Luddite mistake, must believe “this time is different”, that either (a) there won’t be new wants and needs (vs human nature),” 2:15 PM — 1 Jun 2014
“6/Or (b) It won’t matter that there are new wants and needs, most people won’t be able to adapt to contribute & have jobs in new fields.” 2:16 PM — 1 Jun 2014
“7/While it is certainly true that technological change displaces current work & jobs, and that is a serious issue that must be addressed…” 2:17 PM — 1 Jun 2014
“8/It is equally true, and important, that the other result of each such change is a step function increase in consumer standards of living.” 2:17 PM — 1 Jun 2014
“9/As consumers, we virtually never resist technology change that provides us with better products/services even when it costs jobs…” 2:18 PM — 1 Jun 2014
“10/Nor should we. This is how we build a better world, improve quality of life, better provide for our kids, solve fundamental problems.” 2:19 PM — 1 Jun 2014
“11/Make no mistake, advocating slowing tech change to preserve jobs = advocating punishing consumers, stalling quality of life improvements.” 2:20 PM — 1 Jun 2014
“12/So how then to best help individuals who are buffeted by producer-side technology change and lose jobs they wish they could keep?” 2:22 PM — 1 Jun 2014
“13/First, focus on increasing access to education and skill development — which itself will increasingly be delivered via technology.” 2:23 PM — 1 Jun 2014
“14/Second, let markets work (voluntary contracts and trade) so that capital and labor can rapidly reallocate to create new fields and jobs.” 2:24 PM — 1 Jun 2014
“15/Third, a vigorous social safety net so that people are not stranded and unable to provide for their families.” 2:25 PM — 1 Jun 2014
“16/The loop closes as rapid technological productivity improvement and resulting economic growth make it easy to pay for safety net.” 2:26 PM — 1 Jun 2014
Pause. Deep breath. Twenty minutes passed. Then, it seems, Andreessen got a second wind:
“1/The flip side of “robots eat all the jobs” not being discussed: The current revolution in the “means of production” going to everyone.” 2:47 PM — 1 Jun 2014
“2/In the form of the smartphone (and tablet and PC) + mobile broadband + the Internet: Will be in almost everyone’s hands by 2020.” 2:48 PM — 1 Jun 2014
“3/Then everyone gets access to unlimited information, communication, education, access to markets, participate in global market economy.” 2:48 PM — 1 Jun 2014
“4/This is not a world we have ever lived in: Historically most people in most places cut off from these things, usually to a high degree.” 2:49 PM — 1 Jun 2014
“5/It is hard to believe that the result will not be a widespread global unleashing of creativity, productivity, and human potential.” 2:50 PM — 1 Jun 2014
“6/It is hard to believe that people will get these capabilities and then come up with… absolutely nothing useful to do with them.” 2:50 PM — 1 Jun 2014
“7/And yet that is the subtext to the “this time is different” argument that there won’t be new ideas, fields, industries, businesses, jobs.” 2:51 PM — 1 Jun 2014
“8/In arguing this with an economist friend, response was “But most people are like horses; they have only their manual labor to offer.” 2:55 PM — 1 Jun 2014
“9/I don’t believe that, and I don’t want to live in a world in which that’s the case. I think people everywhere have far more potential.” 2:55 PM — 1 Jun 2014
Phew. I’m exhausted just re-pasting.
Evidently, Andreessen is a freak of nature when it comes to the ability to process inputs and outputs – so much so that Teddy Roosevelt might have had trouble keeping up. But when it comes to his own sense of himself and his operating philosophy, he seems quite clear. In fact, Andreessen’s Twitter bio says a great deal: “FOR creators & contributors to technology, science, art, ideas, a better world. STRONG VIEWS, WEAKLY HELD. Proud solutionist since 1994.”
It’s also clear that Andreessen takes to Twitter as both a preacher, and a listener/learner because he often engages with people who reply to his tweets, and as was mentioned the back and forth can take his number of tweets into the hundreds on any given day.
Andreessen’s public persona, stated as an artistic identity (or aspiration), stands in stark contrast to the way most venture capital firms are oriented. When I worked as a venture capital investor some ten years ago, the hot firms were Kleiner Perkins, Sequoia Capital, Benchmark, and Accel. All of these firms had charismatic leaders with a gift for sales and marketing. In fact, anyone who has worked inside the venture capital industry learns pretty quickly that sales and marketing skills are prized more than just about any other skill, even technical expertise, because you have to get deals by winning entrepreneurs over. If you don’t sell in venture capital, you lose. Inside the belly of the industry, I heard the quote: “Second place is first loser” for the first time. It’s easy to laugh about, but that’s the mentality of the industry. And, you’re only as good as your last deal.
John Doerr of Kleiner Perkins worked in marketing for Intel before becoming a venture investor. Cloaked in prestige, these firms got the best deal-flow, since partnering with Kleiner meant a Gold Standard seal of approval. Kleiner made hundreds of millions of dollars for investors on the first wave of the Internet as well as technology pioneers in general, with investments that included AOL, Google, Amazon, Juniper Networks, Symantec, Genentech, Intuit, Sun Microsystems, and Electronic Arts.
Today, Kleiner Perkins still has a premium brand, and John Doerr is widely respected, especially by the senior states-people of Silicon Valley. Yet, as someone who works with or speaks with countless entrepreneurs, Kleiner Perkins is rarely a topic of conversation these days. Kleiner is becoming old school. As I’m sure even John Doerr would admit, Kleiner is no longer the “hot” VC firm. If anything, Kleiner is seen as a bit stodgy (as stodgy goes in Silicon Valley). Kleiner is old power, if you will.
The predominant old way of thinking about venture capital is that you: a) build up a great brand and reputation with a large portfolio of investments, b) hire partners who have individually strong brands of their own, and c) collect hefty management fees on each fund. The industry standard is a 2–2.5% yearly “management” fee, a figure that gets pretty large on a billion dollar fund. And, in my experience, not surprisingly, the senior people get a disproportionate slice of that management fee. At the same time, the venture capital industry has been a glaringly poor-performing asset management group, consistently under-performing the S&P 500. (For more detail on the struggles within the VC industry, a recent article on the Harvard Business Review Blog by Diane Mulcahy, a senior fellow at the Kauffman Foundation, entitled “Venture Capitalists Get Paid Well to Lose Money” is well worth reading).
That was then. This is now.
In a white paper on the subject of old power versus new power, Henry Timms, executive director of the 92Y in New York City and founder of the social media movement #Giving Tuesday, along with Jeremy Heimans, CEO of Purpose, write that old power is scarce, held by a few. Old power acts like currency. It is top down, and hierarchical; it commands. The old power pie is fixed – either you have it, or you don’t. Think of Washington DC or Hillary ’08 as old power. New power, on the other hand, can be multiplied and acts like a current. It is collaborative, non-hierarchical, open and participatory. The new power pie can be expanded the more nodes are added to the network. Think of Twitter or Airbnb or Obama ‘08 as new power exemplars.
These days, the title new power in Silicon Valley would go to either angel investors writ large, such as YCombinator, or Andreessen Horowitz, and not just because they are marketing the hell out of themselves and their ideas. The team at Andreessen Horowitz plays down hierarchy and seeks to be inclusive as it expands to nodes at the periphery of its network. A.H. sees everyone as a potential contributor to its network. Members of the team who I spoke with emphasize that the power of a network lies in its external nods (i.e. distant acquaintances) – a nod to inclusivity and the need to constantly expand the network. The firm’s strategy is nearly perfectly positioned for what entrepreneurs look for in a partner today.
For one, the emerging generation of Silicon Valley entrepreneurs has learned just how confrontational the relationship between venture firms and founders can be. Nick Bilton, a reporter for the New York Times, detailed just how acrimonious things can get between founders and boards in his recent book Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal, which details the clashes between Twitter’s board and founders Jack Dorsey and Evan Williams. Savvy entrepreneurs naturally want to avoid acrimony as much of that as possible, and one of the main ways they try to do that is to partner with venture capital firms that are either led by entrepreneurs or very “entrepreneurial friendly” – meaning for simplicity sake that investors are nice people, who understand the realities and inevitable ups and downs of the creative process. A.H.’s mission and public relations strategy is squarely aligned with entrepreneurs.
It’s all about the ecosystem
Of course, every venture firm naturally tries to market themselves as entrepreneurial-friendly. What differentiates Andreessen Horowitz is something else, something very different than Kleiner, Sequoia, Benchmark, or Accel have done. Using customer relationship management software as a foundation, Andreessen Horowitz seems to be creating one of the largest, most networked, and powerful ecosystem platforms in the world. It is an astonishingly simple idea that yet is disrupting old power on Sand Hill Road and in Silicon Valley venture capital.
I received a detailed tutorial on the A.H. software system from a woman whose job it is solely to build out the A.H. network. Here is how it works. Let’s say you’re an entrepreneur who wants to sell into General Electric. Well, a host of A.H. relationship managers can type “General Electric” into the system and presto: You see dozens of contacts within the A.H. ecosystem working at G.E., including Beth Comstock, senior vice president and Chief Marketing Officer. The software also specifies who from A.H. is the primary relationship owner, and when the last contact was made. All interactions get tracked, even emails, so that anyone at A.H. can review the relationship history. And, the large and growing team only increases the power of the ecosystem as they contribute to it.
It starts to sound a little freaky, and it definitely felt a bit transactional when I thought about my name being just another A.H. contact, but this is not like the Wizard of Oz, here. The A.H. team, from the top down, is very open about the A.H. proprietary system and network for anyone curious to learn about it. And, some of the smartest minds in business, including G.E.’s Comstock, are paying very close attention. Comstock is also taking steps toward using a similar ecosystem approach with G.E., as I’ll touch on later.
Entrepreneurs value a few things from VC investors, namely the ability to help hire good people and the ability to access customers. Ron Conway, who like YCombinator is considered by many to be a premier angel investor in the Valley, used to be seen as the most networked person in the Valley. He kept track of all of his key relationships in Excel spreadsheets that he and his team then sent to the entrepreneurs he backed so that Conway can make introductions to potential new hires or customers.
A.H. takes the relationship management system to a whole new level. The firm sees itself as a talent management company, and the model that Andreessen and Horowitz used comes from a very surprising place as far as innovations in Silicon Valley go: Hollywood.
Hollywood? Yes, Hollywood. It’s counter-intuitive, I know, but here’s the quick story.
When Andreessen and Horowitz came together in 2009 to start a firm after their time together at Opsware, they focused on recreating a talent management model like the one pioneered by Michael Ovitz, the founder of Creative Artists Agency. Akin to CAA, yet unlike traditional venture capital firms, A.H. employs dozens of people whose job it is build relationships with people who can help Andreessen Horowitz companies. In Hollywood, Ovitz’s model of talent management, agents spend a great deal of time building up their clients and developing their talents; the focus is on using relationships to advance the talent’s best interests. A.H. puts that model into motion to support all that it does to source, develop, and support entrepreneurial ventures. I was at an event hosted by General Electric in San Francisco last year where I saw the model in action.
G.E. hosted the event in a cool warehouse space in San Francisco’s creative and highly entrepreneurial “Dogpatch” neighborhood. As backdrop, there was a giant G.E. aircraft engine lit by reddish mood lighting, and the purpose of the day was to help G.E. build awareness and relationships. I was there in part because I was a member of a small innovation advisory panel assembled by Comstock to help G.E. think out of the box. Ron Conway was there, and said hello. So was Eric Ries, a best-selling author who wrote a book called The Lean Startup, a book that building products and services by releasing ideas quickly and learning from fast iterations about what works and doesn’t for customers. The book has become required reading for both Silicon Valley web entrepreneurs as well as most G.E. employees, thanks in no small part to G.E. CEO Jeff Immelt’s glowing endorsement. You get the basic picture.
Anyhow, at the event, I also ran into Suhail Doshi, the founder of mixpanel, a hot start-up in the mobile analytics space. I had met Doshi, who is in his early to mid 20s, previously at a dinner hosted by a mutual friend. Not only did we share a lot of laughs, I was very impressed with him. He was clearly a very focused and talented entrepreneur, and he displayed all the characteristics – curiosity, collaboration, drive, and resilience – that you see in the most successful entrepreneurs.
After Jeff Immelt and Comstock spoke, Doshi and I hung out by the giant engine, and decided to snap a picture. There to take the picture, about 20 feet away, were two people from Andreessen Horowitz. These two A.H. employees were at the event seems to network like crazy, but their first job was to talk with Doshi about how mixpanel was going and what his needs were. One thing that Doshi wanted to do was meet Beth Comstock since he hadn’t met her yet. The A.H. partners offered to help but since I knew Comstock well, I was happy to make the introduction. Doshi and Comstock ended up speaking for about 10–15 minutes, as other executives, many of them older, from more industrial companies, waited.
Ron Conway can only cover so much ground on his own. The same is true for John Doerr. Either of those highly successful Silicon Valley investors would like to help their entrepreneurs in any way they can, I’m sure. But the fact of the matter is that Andreessen Horowitz is the firm that has dozens of people out there acting as catalysts, relationship managers, and dot connectors for an ever-growing ecosystem to support entrepreneurial value creation.
The A.H. software tool allows the team to further delineate a contact to show how that person can add value to the A.H. entrepreneurs: Say this person, someone like Beth Comstock, has “enterprise-level” purchasing ability (i.e. the ability to spend a large sum), or is an “early adopter,” or whatnot. Again, A.H. team members constantly emphasize that value is created at the edge of the network, so they are very inclusive in the way they develop their ecosystem. You never know where the next Mark Zuckerberg is going to surface, so the A.H. team visits 20 college campuses a year in search of talent, often accompanied by people from their portfolio companies.
Unlike the small, hierarchical teams at most venture firms, the A.H. team is chock-full of “partners,” all of whom are specialists: there are 26 investment partners, 16 partners specializing in marketing, sales and business development (i.e. people who help build sales teams), 12 partners specializing in “technical talent,” basically an in-house recruiting firm to identify and track the best technical talent, 7 partners who specialize in recruiting executive talent, 9 partners who are pure marketing specialists, 5 partners who specialize in corporate development (i.e. helping A.H. portfolio companies with their exits), and 22 partners focused on “operations” or making sure trains run on time.
Not all partners are equal
Of course, not all “partners” are equal. In addition to Andreessen and Horowitz, the firm has seven general partners, all of whom are men: John O’Farrell, Scott Weiss, Jeff Jordan, Peter Levine, Chris Dixon, Lars Dalgaard, and Balaji Srinivasan. That’s pretty old school, but people inside A.H. insist that they are trying very hard to recruit a female general partner, going so far as to say there is a list of 300 prospects. The supply side has indeed been limited when you factor in that GPs at A.H. have all started and grown successful tech companies. Diane Greene, founder and CEO of VMWare, would be great, but she doesn’t seem interested in becoming a VC, and there are only so many Diane Greenes. Big changes are brewing as new women-led venture funds have spun out of Kleiner and other big firms. It’s only a matter of time for the new generation of female founder CEOs to come of age and exit their companies, ready for the fields of venture capital and A.H.
All of that said, I cannot emphasize enough how different the A.H. model is from the traditional VC firms. When I worked in the industry, the people we were there to serve were the senior people in our firm, and help them to be more successful. On every email, the culture was to address our notes from the most senior to the least senior. Our firm was structured to help the partners succeed, and helping entrepreneurs came after investment sourcing. Success meant making money. Period. Of course, A.H. is focused on making money as well, but based on the firm structuring alone, A.H. has flipped the traditional staffing model on its head, and is clearly focused on finding ways to create as more and more value from its network – and, ultimately to make entrepreneurs successful.
It’s interesting to see that so many people are considered “partners,” a noticeable absence of the hierarchy that defines most venture capital firm cultures. Most venture firms are driven by a handful of partners, and supported by vice presidents, associates, and analysts. What’s more, while in the past, some Silicon Valley venture firms had hired one or two people to help with market development, those people were seen as a nice to have. At A.H. specialists are the firm.
What I find most fascinating about the A.H. ecosystem model is that, while it may feel transactional, most innovative businesses of the future are going to have to be highly networked, and enable large ecosystems. There was only one Steve Jobs. For every other company – such as G.E., let’s say – the ability to innovate and grow is increasingly dependent upon drawing the best talent and ideas into the company’s ecosystem. So, for instance, we heard a lot about G.E.’s focus on “big data” at that event last year. Well, then a bunch of entrepreneurs, industry thought leaders, and venture investors walked away with a clearer understanding of G.E.’s assets and needs – making it all the more easy and natural for them to call Beth Comstock with a hot lead or idea. G.E., not surprisingly, established G.E. Ventures, a venture investing arm of its own in Silicon Valley to take advantage of just these types of opportunities. Companies don’t innovate, people do. The more companies can learn to act as platforms for innovation, as Apple or Facebook do so well, the more innovations can flourish. A.H. is just a networked platform for innovation, with a mission to help entrepreneurs and creators capitalize on opportunities with the best people and customers quickly.
While it’s clear that Andreessen Horowitz has bounced into the top echelon of venture capital firms, at least with respect to ability to raise heaps of capital quickly (an unheard of $4 billion raised just 5 years into existence), deal-flow, and the premier brands it has invested in, the commercial success of the model is still far from proven. Time will tell whether playing for the long-term relationships will translate into superior returns. What’s more, because A.H. has raised an astounding amount of capital, which leads to more and bigger investments by blanketing Silicon Valley and beyond with bets, the team will get spread more and more thin. The key question is this: what do entrepreneurs get out of it? Perhaps they can get better served by going with a firm where the partners aren’t overwhelmed. It all depends on the people involved.
One thing is certain: The new firm in town has made all the other venture capital firms look like white sheep, upended from a steady state by the rise of angel investing, and Andreessen Horowitz, perhaps the blackest sheep firm of them all.