Marc Andreessen and Ben Horowitz of a16z (AP Photo/Paul Sakuma)
Marc Andreessen has proven to be one of the most important entrepreneurs and financiers of his generation and would see himself as another J. Pierpont Morgan. Andreessen initiated the growth of the internet as the technical expert and co-founder of Netscape which was sold to AOL for billions. He has since built his VC firm, called a16z, into one of Silicon Valley’s premier funds and is aiming to become a leader in other areas of finance with $55 billion in assets under management and tentacles in other areas of finance. Here are 9 lessons from Marc Andreessen:
#1. Focus on emerging trends. Andreessen pioneered the emerging Internet and Netscape, his pioneering venture, jump-started the Internet. Nearly every entrepreneur, from Sam Walton (Walmart) and Dick Schulze (Best Buy) to Joe Martin of Boxycharm and Brian Chesky (Airbnb), jumped on an emerging trend.
#2. Finance after Strategy Aha, the third Aha! There are 4 Ahas and the Top 20 VCs, which are in Silicon Valley, mainly fund after Strategy Aha. to gain an edge over other VCs, to replace the entrepreneur with a seasoned CEO, and to promote and build the business for an attractive exit. However, if you are an entrepreneur, wait for Leadership Aha!
#3. Respect your growth engines. Andreessen and Horowitz, his partner in a16z, have a policy of respecting entrepreneurs and their time. Their company’s VCs are fined if they keep business owners waiting. They recognize that entrepreneurs are key to bringing ideas to Aha.
#4. Flip quickly when valuations are sky-high. Timing is crucial in VC to get a high-quality exit through a strategic sale to gullible companies that recognize the potential but not the risks. This could be a reason why almost 70% – 90% of business takeovers fail.
#5. Expand in “easy” directions from a strong base. Companies expand in “easy” directions with proven products to new markets or new products to established markets. While most VC firms stick to their VC knitwear, a16z is diversifying into money management and investment banking – to combine home runs and base hits for increased returns and synergies.
#6. Smartly keep partners on the line. Not too tight. Not too loose. a16z lets its partners find new ways, but also monitors their companies to limit losses. This means that the partners can test new ideas with limited capital, invest more if it succeeds and do less if it fails.
#7. Learn to invest by proving assumptions. Gamblers trust their instincts. Savvy investors do their homework. a16z challenges its partners’ assumptions and requires them to test to minimize the risks. Except for senior partners, who have more leeway.
#8. No limits. Others may shy away from entrepreneurs with a dodgy past, but 16z doesn’t seem to have any such problems, including funding Flow, the new venture from WeWork infamy’s Adam Neumann.
#9. Constantly promoting. a16z is no stranger to PR, which helps companies like Coinbase. Airbnb, Affirm, Instacart, Netscape and Skype are relentlessly hyped and allow VCs to leave at skyrocketing valuations. Watch out below after they leave as valuations tend to drop.
MY TAKE: Andreessen and his firm seem to have found the right mix of positioning on emerging trends, testing new directions, and promoting relentlessly for high valuations. But Andreessen is human — after being an early investor in Instagram, his company invested in a competitor and avoided a later round Instagram funding. The competitor folded. Instagram became a unicorn.
The above also suggests some advice for the investing public: Invest with caution when the company is going through its hype cycle prior to, along with, or immediately after an IPO when the company, VCs, and investment bankers are in full promotional mode. Let the hype die down before considering an investment.
