A new chapter for venture investing?
In our tech-obsessed world, there is so much focus on “startups”, “scaleups” and “unicorns” that we rarely take the chance to assess the institutions that stand behind them, driving their success.
“Unicorn-maker” Andreessen Horowitz is one such firm. Founded in 2009 by Marc Andreessen and Ben Horowitz, a16z (as it is affectionately known) has thrived in recent years, making its partners (and LPs) rich beyond their wildest imaginations. Only recently, the firm announced two new funds, an early-stage $750 million fund and a growth-stage $2 billion fund.
It’s the firm that other VCs love to hate – and do all they can to emulate.
A new model
Andreessen Horowitz is not your average VC. In fact, it’s different in many ways.
Instead of having GPs who specialise in a specific industry vertical, each Andreessen Horowitz partner covers all of its portfolio companies. This is an approach borrowed from the playbook of Hollywood talent agency CAA. It’s smart, because it magnifies the network effects of every partner and founder on the firm’s books, and it throws up fresh perspectives from industry outsiders who aren’t fatigued by working on the same thing all day, every day.
Furthermore, Andreessen Horowitz doesn’t just follow the classical VC approach of placing small bets on a large number of companies, seeking outlier returns. Instead, it combines capital with agency-like services, helping its portfolio companies with tricky things like talent acquisition, marketing and strategy – things that often aren’t the strong suit of product-oriented technical founders. In this way, Andreessen Horowitz cultivates a community of developers, designers and management gurus to help its start-ups succeed and scale. This approach has now been copied by many other firms, with much success.
A new chapter
And by the looks of it, having disrupted venture capital once before, Andreessen Horowitz is setting out to do it all over again, further distinguishing itself from the industry that it helped to create.
Earlier this year, the firm announced it was restructuring as a registered investment adviser. Others are doing the same, with SoftBank and Foundry Group also registering as RIAs.
This is a response to regulatory constraints designed to restrict VCs to being, well, VCs. Traditionally, firms have been able to experiment with other investment categories through LP agreements with their own investors, but they have faced a 20% cap on such activities – things like buying public market securities, investing in other funds, issuing debt to fund management buyouts and acquiring equity through secondary deals. Rumour has it that Andreessen Horowitz has been getting increasingly frustrated at the lack of flexibility it has to operate in the crypto market and has decided to restructure its business in order to look at more opportunities in that space. The argument goes that by registering as an RIA, Andreessen Horowitz can do away with the restrictions.
This is yet another example of a traditional category being broken down. Investment vehicles that used to play in discrete verticals are diversifying their operations into new segments in order to capitalise on market inefficiencies and economies of scale, causing headaches for regulators, not to mention new opportunities (and risks) for investors.
A valuable lesson
Here at Origin we’ve really benefited from working with our small, select group of investors. And the experience has taught me a valuable lesson – investors don’t pick winners, they create them.
Obviously, the raw materials need to be present, and by that, I mean a good team, a good idea, good tech and of course, good timing. But the best VCs have a wealth of talent in-house and a vast ecosystem of other startups and corporate partners who have built businesses and can effectively mentor founders, allowing them to grow their portfolio companies into superstars.
Our investors have made an indelible impact on our business and our advice to founders is to pick your investors as carefully as you pick your team, as they really do become a part of your team. And as Andreessen Horowitz proves, when it works, it works wonders.