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To me this is essentially admitting that Andreesen Horowitz is loosing the ability to identify impactful startups. That is fine, its harder to do at scale, but

To me this is essentially admitting that Andreesen Horowitz is loosing the ability to identify impactful startups. That is fine, its harder to do at scale, but nothing is different now than 5 years ago. We have lots of people doing experiments, some hit early success, some pivot. Once you get product market fit, you raise that B/C/IPO on the back of the growth you've been able to afford thanks to your raises and revenue. Just as Berkshire Hathaway had to change their investment strategy when they grew very large, it is fine for AH to do the same, but I don't believe for a second that things are hugely different in 2013.

aaronbrethorst 13y ago
Andreesen Horowitz is loosing the ability to identify impactful startups Pet peeve: it's losing, not "loosing". I don't know if anyone can properly guess if a consumer startup is going to get traction until it does, especially in the mobile space. That said, they did manage to get a 312x return on their seed investment in Instagram (which they declined to invest in a second time as explained here: http://bhorowitz.com/2012/04/22/instagram/ http://bhorowitz.com/2012/04/22/instagram/) A-H offers seed investments to YC companies in order to get a foot in the door with the small fraction who will succeed. Offering blanket seed investments confirms that they really don't have any idea at first either. There's nothing wrong with that, it's just the nature of the beast. (http://venturebeat.com/2011/10/14/andreessen-horowitz-to-give-50k-to-all-y-combinator-startups-through-start-fund/ http://venturebeat.com/2011/10/14/andreessen-horowitz-to-giv...)
- devindotcom 13y ago
  Or maybe they are actually loosing the ability, like loosing the hounds of war! But I doubt it.
- 001sky 13y ago
  I don't know if anyone can properly guess if a consumer startup is going to get traction until it does A classic example is the drug Viagra, one of the most profitable consumer technology investments in recent history. Its (most profitable) use today was originall reported as a "side-effect" in early clinical trials.
- 3pt14159 13y ago
  This will probably come off as dickish, but that is not my intention. No where in your comment did you outline where my reasoning is wrong. Losing vs Loosing. Instagram doesn't address why they are dropping series A investments. 300x growth on nothing is still nothing. As for seed investments into YC companies, who cares? If they are getting out of the seed and series A game, I assume that that extends to everything else. The fundamental point is that the further you move down the investment line the less you are likely to be able to identify revenue before it happens.
  - aaronbrethorst 13y ago
    I don't take it as being dickish. When did they ever have that golden touch you refer to? None of the exits, except Instagram, listed on Wikipedia were invested in at a seed or A stage. http://en.m.wikipedia.org/wiki/Andreessen_Horowitz http://en.m.wikipedia.org/wiki/Andreessen_Horowitz
    - mattschmulen 13y ago
      alternative perspective VC SV startup is at a tipping point and "smart money" is being more cautious ( conservative ) as the market swings down .
adwf 13y ago
Losing the ability to identify or losing the desire? When you get down to it, if you have a $50m fund, you might want to invest in ~10 A-rounds at ~$5m each. If you have a $1.5bn fund however, do you really want to invest in 300 A-rounds? Nope. The best way to spend your time is looking at the bigger, later investments. You probably still only want to have roughly the same number of total investments to oversee. So if an A-round company is gonna take the same amount of attention as a B-round or later, you shouldn't waste even a second of your time considering them. It's nothing to do with ability to identify, just correctly prioritising the time the VC's have available to them.
- pmarca 13y ago
  In our case that isn't actually how we think about any of this. First, when we (or any venture firm) makes an A-round investment, we typically reserve another 2-3x of the A-round investment size for participation in future follow-on rounds for that company. So a $5M Series A shows up on our books more like a $20M commitment. The other $15M isn't necessarily always deployed, of course, but we also double down even more strongly in certain cases (either out of opportunity or sometimes necessity) so it balances out. Second, it's not either/or -- we do venture rounds as small as $3-5M and we do growth rounds as high as $100M. Each fund has a blend of both. In practice, we don't pay a lot of attention to any of this. When we get a great A round opportunity, we take it. Same with B rounds, and same with later-stage growth rounds.
  - adwf 13y ago
    Interesting to know, thanks. My example was probably a bit too hastily made-up. So I guess in summary, it's not so much about investor time and attention but mostly about managing the risks of the different sectors. Consumer startups are inherently less predictable and therefore you invest only when a company appears to have found its market and be at least partly on the way to success. Whether that be A round or later is irrelevant. Whereas the enterprise startups are more predictable, in that if you find a great founding team with a good idea, they are more likely to make a success of it in that sector. Therefore you can cast a wider net, earlier in the lifetimes of the companies, than you would for consumer startups. Or to summarise the summary: A good, predictable bet is better than an unpredictable one. Or maybe, never look a gift horse in the mouth?
pmarca 13y ago
Maybe you're right, but that's not what Scott was saying and that's not what I think. In my own words: consumer startups more and more have this very interesting "lightning in a bottle" effect where sometimes they take off like crazy and sometimes they just don't. I give full credit to the teams that figure out how to get the flywheel spun up, but it is also important to realize just how many highly capable founders are hard at work trying to get traction who don't. There are a lot of really excellent founders pursuing consumer ideas that just never work -- that's why companies like Yahoo and Google and others can do so many acquihires. So, if we have the theoretical ability to invest in a given category -- remembering that we can only make one primary venture investment per category -- in either the A or B round, we find it often makes sense to let other firms fund the A rounds before anything is proven and wait to see the early signs of lightning and then step in hard at the B. The end markets are so large for the winners that the investment returns in the B can still be outstanding, and we can still offer a lot of useful help to the companies at the B stage such as talent sourcing. In contrast, enterprise startups are much more (take your pick) tractable, execution centric, brute force, predictable (as startups go). If you back a killer founder with a great engineering team, with a great idea, into a big market, the odds are high that magic will happen -- a very interesting product will get built, early customers will adopt, and value will be created. In other words, the link between founder/team competence and success is more direct. One thing that helps a lot is that whether the product will be adopted by customers or not is far less of a mystery -- you can simply go talk to the likely customers ahead of time and they will give you a very good indication. That plays well to our market development program where 1,200 big company management teams are coming through our office every year -- we ask them what they think about new ideas and they tell us. So here, backing the A round when possible makes more sense. None of this is religion -- we still do plenty of consumer A's and enterprise B's. We just think it's useful to talk about these things in public so that entrepreneurs know before they come see us how we are thinking about things -- it optimizes their chances of getting to the right outcome with us (whatever that is).
- pkj 13y ago
  >"That plays well to our market development program where 1,200 big company management teams are coming through our office every year -- we ask them what they think about new ideas and they tell us." How about asking BigCos their top pain points once in a while? That would be a 1200x treasure for current/future entrepreneurs.

aaronbrethorst 13y ago

Andreesen Horowitz is loosing the ability to identify impactful startups Pet peeve: it's losing, not "loosing". I don't know if anyone can properly guess if a consumer startup is going to get traction until it does, especially in the mobile space. That said, they did manage to get a 312x return on their seed investment in Instagram (which they declined to invest in a second time as explained here: http://bhorowitz.com/2012/04/22/instagram/ http://bhorowitz.com/2012/04/22/instagram/) A-H offers seed investments to YC companies in order to get a foot in the door with the small fraction who will succeed. Offering blanket seed investments confirms that they really don't have any idea at first either. There's nothing wrong with that, it's just the nature of the beast. (http://venturebeat.com/2011/10/14/andreessen-horowitz-to-give-50k-to-all-y-combinator-startups-through-start-fund/ http://venturebeat.com/2011/10/14/andreessen-horowitz-to-giv...)

devindotcom 13y ago
Or maybe they are actually loosing the ability, like loosing the hounds of war! But I doubt it.
001sky 13y ago
I don't know if anyone can properly guess if a consumer startup is going to get traction until it does A classic example is the drug Viagra, one of the most profitable consumer technology investments in recent history. Its (most profitable) use today was originall reported as a "side-effect" in early clinical trials.
3pt14159 13y ago
This will probably come off as dickish, but that is not my intention. No where in your comment did you outline where my reasoning is wrong. Losing vs Loosing. Instagram doesn't address why they are dropping series A investments. 300x growth on nothing is still nothing. As for seed investments into YC companies, who cares? If they are getting out of the seed and series A game, I assume that that extends to everything else. The fundamental point is that the further you move down the investment line the less you are likely to be able to identify revenue before it happens.
- aaronbrethorst 13y ago
  I don't take it as being dickish. When did they ever have that golden touch you refer to? None of the exits, except Instagram, listed on Wikipedia were invested in at a seed or A stage. http://en.m.wikipedia.org/wiki/Andreessen_Horowitz http://en.m.wikipedia.org/wiki/Andreessen_Horowitz
  - mattschmulen 13y ago
    alternative perspective VC SV startup is at a tipping point and "smart money" is being more cautious ( conservative ) as the market swings down .

adwf 13y ago

Losing the ability to identify or losing the desire? When you get down to it, if you have a $50m fund, you might want to invest in ~10 A-rounds at ~$5m each. If you have a $1.5bn fund however, do you really want to invest in 300 A-rounds? Nope. The best way to spend your time is looking at the bigger, later investments. You probably still only want to have roughly the same number of total investments to oversee. So if an A-round company is gonna take the same amount of attention as a B-round or later, you shouldn't waste even a second of your time considering them. It's nothing to do with ability to identify, just correctly prioritising the time the VC's have available to them.

pmarca 13y ago
In our case that isn't actually how we think about any of this. First, when we (or any venture firm) makes an A-round investment, we typically reserve another 2-3x of the A-round investment size for participation in future follow-on rounds for that company. So a $5M Series A shows up on our books more like a $20M commitment. The other $15M isn't necessarily always deployed, of course, but we also double down even more strongly in certain cases (either out of opportunity or sometimes necessity) so it balances out. Second, it's not either/or -- we do venture rounds as small as $3-5M and we do growth rounds as high as $100M. Each fund has a blend of both. In practice, we don't pay a lot of attention to any of this. When we get a great A round opportunity, we take it. Same with B rounds, and same with later-stage growth rounds.
- adwf 13y ago
  Interesting to know, thanks. My example was probably a bit too hastily made-up. So I guess in summary, it's not so much about investor time and attention but mostly about managing the risks of the different sectors. Consumer startups are inherently less predictable and therefore you invest only when a company appears to have found its market and be at least partly on the way to success. Whether that be A round or later is irrelevant. Whereas the enterprise startups are more predictable, in that if you find a great founding team with a good idea, they are more likely to make a success of it in that sector. Therefore you can cast a wider net, earlier in the lifetimes of the companies, than you would for consumer startups. Or to summarise the summary: A good, predictable bet is better than an unpredictable one. Or maybe, never look a gift horse in the mouth?

pmarca 13y ago

Maybe you're right, but that's not what Scott was saying and that's not what I think. In my own words: consumer startups more and more have this very interesting "lightning in a bottle" effect where sometimes they take off like crazy and sometimes they just don't. I give full credit to the teams that figure out how to get the flywheel spun up, but it is also important to realize just how many highly capable founders are hard at work trying to get traction who don't. There are a lot of really excellent founders pursuing consumer ideas that just never work -- that's why companies like Yahoo and Google and others can do so many acquihires. So, if we have the theoretical ability to invest in a given category -- remembering that we can only make one primary venture investment per category -- in either the A or B round, we find it often makes sense to let other firms fund the A rounds before anything is proven and wait to see the early signs of lightning and then step in hard at the B. The end markets are so large for the winners that the investment returns in the B can still be outstanding, and we can still offer a lot of useful help to the companies at the B stage such as talent sourcing. In contrast, enterprise startups are much more (take your pick) tractable, execution centric, brute force, predictable (as startups go). If you back a killer founder with a great engineering team, with a great idea, into a big market, the odds are high that magic will happen -- a very interesting product will get built, early customers will adopt, and value will be created. In other words, the link between founder/team competence and success is more direct. One thing that helps a lot is that whether the product will be adopted by customers or not is far less of a mystery -- you can simply go talk to the likely customers ahead of time and they will give you a very good indication. That plays well to our market development program where 1,200 big company management teams are coming through our office every year -- we ask them what they think about new ideas and they tell us. So here, backing the A round when possible makes more sense. None of this is religion -- we still do plenty of consumer A's and enterprise B's. We just think it's useful to talk about these things in public so that entrepreneurs know before they come see us how we are thinking about things -- it optimizes their chances of getting to the right outcome with us (whatever that is).

pkj 13y ago
>"That plays well to our market development program where 1,200 big company management teams are coming through our office every year -- we ask them what they think about new ideas and they tell us." How about asking BigCos their top pain points once in a while? That would be a 1200x treasure for current/future entrepreneurs.