Ask Marc about bubbles - we dare you. As co-founder of the legendary venture capital group Andreessen Horowitz, Marc and his team sift through 3,000 referrals to make 20 investments each year in companies with huge markets, differentiated technologies, and courageous, genius entrepreneurs with a will to power. The a16z portfolio includes Slack, GitHub, Medium, Zenefits, AltSchool, Pinterest, Soylent - and those are just investments made in 2015. Big wins you will know include Oculus, Skype, Instagram, and Box. The core of the a16z thesis is simple: the best is yet to come, and technology will lead the charge.
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Marc chooses his words with great precision: “technology isn’t in a bubble,” he argues, “it’s in a deployment phase.” From the advent of railroads to algorithmic trading, every technology has experienced three phases: a resource-intensive investment phase during which a new technology is created; a bust that follows an exuberant but careless spread of the technology; and a deployment phase during which the technology matures into an infrastructure on top of which new technology is built.
Marc didn’t get to play philosopher king the easy way: for decades, he worked in the trenches building this very infrastructure, which even Silicon Valley now takes for granted:
At Mosaic, Marc research the world’s first widely used web browser, which he later commercialized as Netscape with co-founder Eric Bina. It would be a key factor in the mass adoption of the internet.
Not long after Netscape was acquired by AOL, Marc co-founded Opsware (originally Loudcloud) with Ben Horowitz, Tim Howes, and In Sik Rhee. It would become one of the world’s first software as a service businesses and among the first to commercialize the concept of business in the cloud.
The road to Opsware’s $1.6 billion sale to HP was a bumpy one, building a lifelong partnership between Marc and Ben Horowitz, chronicled by Ben in The Hard Thing About Hard Things. It would be this foundation of trust and mutual counterbalance that led the duo to build Andreessen Horowitz.
Marc has also been involved as co-founder of Ning - a social network builder - and continues to sit on the boards of HP, eBay, and Facebook. His work has made him one of six ever inductees to the Internet Hall of Fame, next to pioneers like Tim Berners-Lee.
A through Z of Silicon Valley History
Marc Andreessen gets a lot of credit for predicting the future, but some of his most inspired positions are counterpoints to history.
On Silicon Valley’s first ever meeting with venture capital (affectionately introduced as “vulture capital”), the industry was anything but founder-friendly. Imagine, if you can, an era before AWS hosting, modern developer tools, GitHub, or StackOverflow. Products were so incredibly difficult and expensive to build that many companies relied on selling just the idea. These sales-heavy companies of the Internet bubble were nothing short of IPO “bomb runs”, says Marc. It was an era in which a startup with no product, no customers, and no revenues would raise millions of dollars and try to keep the lights on until it could IPO -- or flame out before it ever launches. It was a cutthroat business in which mercenary founders would get the boot from investors to put even more hard-driving sales CEOs at the helm, and real technical discoveries would often be lost in the noise. It was a technology climate that had more in common with China’s venture scene than the Silicon Valley of today.
Though things have changed, the scars of the bust remain: both markets and investors remain skittish since the crash of 2001 - not insomuch that they avoid tech investing, but in that they do everything possible to derisk their investments, leading to large rounds for iterative technologies rather than bold innovations. But looking at the data, we’re in a boom, not a bubble. So what’s different this time around?
Today, technology is easier to build than ever. The roles of founders and venture capitalists have been formalized - and even professionalized. Companies like Amazon, Facebook, Google, Dropbox, and Uber have grown beyond into “post-startups,” now platforms on top of which other companies are building their products. They form the third generation of infrastructure, as the web browser, payment systems, and the internet itself were to Marc’s era, and as personal computers running operating systems on silicon microprocessors were to the era preceding.
Andreessen Horowitz’s biggest bet, however, wasn’t on any individual company, but on a sociocultural shift in today’s founder-investor relationships: from the start, the team insisted that founders, especially technical visionaries, should run their own companies.
In 2009, when venture capital was at a standstill, a16z kicked off its fund by bucking the most popular trend in the Valley: instead of replacing nerdy, inexperienced founders, they would rebuild them into CEOs. The list of ingredients for a successful CEO is exotic: take some war stories gathered from running operations at the world’s biggest companies; sprinkle in a network spanning executives, sales sharks, ace technologists, and expert advisers amassed over decades of professional partnerships and collaborations; and mix it up with a profound will to power found in the grittiest of leaders. Like technology itself, a16z proved even experience and credentials could be disrupted.
Knowing that many of their founders will not have their own network, a16z has over 65 staff members working as professional bizdev and staffing partners. Their sole mission: making the firm’s portfolio companies more successful more quickly by connecting them to new hires, reporters, and customers. Plug into the a16z network and you’ll finally have the chance to close deals with airlines or banks, poach engineers from across the Valley, and find journalists banging down your doors.
To hack experience and operational skill, Andreessen Horowitz is staffed with partners who have been through The Struggle: every investor is also a founder who has served as CEO, known the pain of losing clients or staff, and learned how to build a successful venture the very, very hard way. Looking at Sheryl Sandberg and Mark Zuckerberg or Bill Campbell and Scott Cook, Marc admires (and attempts to replicate) the partnership of a skilled COO running operations, sales, and marketing alongside a technical and product visionary. Marc has answered the big question that started a16z - what are the partnerships we want to have with the technical visionary? - by empowering fresh-faced founders with veteran entrepreneurs who are not just their investors, but their lifelong mentors.
Andreessen Horowitz offers services few other firms can match, but there are traits of successful founders that are impossible to replicate, which - despite the importance of market and technology - Marc says make up 90% of the fund’s decision. In short, don’t come into the a16z office without courage - which Marc calls an unstoppable grit in the face of adversity - and genius. He describes the latter in two ways. First, it’s found in the founder’s ability to take you through the idea maze, showing you the pivots and failures that have brought him or her to this particular idea, this particular strategy, and these exact capital needs - so get in, or this rocket ship sets off without you. The second is less intuitive. In founder pitches, the last thing Marc and Ben want to see is an agreeable founder - they’d much rather be told exactly why and the length to which they are total idiots for making an uninformed suggestion, and why it wouldn't work. After all, the best founder has probably already tested that idea three times. Skills can be taught, networks can be hacked, but courage and genius cannot be faked.
What Will the Fourth Generation of Infrastructure Look Like?
The Valley is host to two main types of investors. The first group, including respected companies like KPMG, Bessemer, Accel, and Sequoia, are driven by markets and models. The brightest minds across industries convene here, spending hundreds of hours creating a detailed investment thesis: a model of the technology trends that should be or are happening in the next few years, with assumptions around the enabling technologies or opportunities these trends will present. Marc thinks of it like a checklist in which the firm attempts to pick a winner in each vertical based on their consensus worldview.
Marc is excited about tech and trends, but he’s an opportunist at heart. This second group of master pattern-matchers looks for breakthrough ideas, and Andreessen Horowitz leads the pack. The criteria: it should seem kind of nuts, but once the switch flips and the world sees the value, it will become a multi-billion dollar company. For a quick example, consider Oculus VR or Soylent.
The next big waves will be happening where we’ve least experienced them before, Marc argues:
Healthcare: Though not jumping into biotech, a16z is excited about genomics and big data applied to health, as well new consumer access to healthcare information supported by the IT sector.
Finance: Cryptocurrency like the BitCoin and the underlying blockchain technology have finally opened up the finance industry to disruption. Small business financing, crowdfunding, crowdsourced equity investing, and frictionless global money movements are soon to come.
Education: Not far from Chamath’s view, Marc is seeing academia and certification giving way to self-study and meritocratic hiring. He calls Clayton Christensen’s analysis of the future of the education sector a big inspiration.
Media: A strange thing happened once media began to monopolize after WWII: in order to avoid antitrust trouble, popular media outlets became objective, competing on distribution rather than content. Objectivism is an artifact of media centralization, Marc argues. To compete, new media companies must be prepared to compete by differentiating with access, format, and compelling subjective reporting - like Buzzfeed, Pando, and even TechCrunch. When content is plentiful - but attention isn’t - the classic pre-internet model for media will not work.
Law & Government: With investments in companies like OpenGov, a16z is betting on a more transparent, technical, and effective public sector.
Get the latest view of tomorrow from Marc at the Startup Grind's Global Conference on February 24th.