It’s a strict rule in the venture business that you don’t fund two direct competitors, for obvious reasons. There’s a massive difference between the valuation of the number one player in the market (think YouTube) and the number two player (think any of the other hundreds of online video companies launched in the mid-2000s). It’s in a venture capitalist’s best interest to make his presence on a board of directors a competitive advantage, otherwise he’s just a checkbook and checkbooks are interchangeable in an industry with too much money floating around. Two companies can’t very well have the same competitive advantage.
So yesterday’s announcement that Andreessen Horowitz was following up a seed investment with a venture investment in Dalton Caldwell and Bryan Berg’s new company Picplz was a bit of a surprise, given the firm’s existing investment in Halloween-costume-capturing-darling Instagram. The two are essentially direct competitors. I asked Marc Andreessen about it today, and he was quick to point out that’s not how the two started, and if they had the firm wouldn’t have invested in both of them.
What’s more– now that the firm has made the decision to do a venture capital round in Picplz, it has essentially picked between the two. Without another pivot, the firm will not make another investment in Instagram, he said. Already, Andreessen Horowitz didn’t have a board seat in the company, and it will become an even more passive investment for the firm as a result of the Picplz deal. “This kind of stuff happens all the time. Entrepreneurs are like heat-seeking-missles; they gravitate towards good opportunities,” Andreessen says. “It’s less of a choice against Kevin and Instagram as it was we were just very excited about working with Dalton.”
Andreessen had nothing but kind words for Instagram’s founders, giving them credit for pivoting away from the original vision, as we wrote about here. The company was originally called Burbn and was a larger, more vague iPhone app that the team worked on for a year, and then mostly tossed out in favor of the part they liked, which wound up being Instagram.
Picplz has hewed closer to its original plan, although the vision is much larger. “We’re taking a big swing here,” Caldwell said on the phone today. So far, the entrepreneurs are mum on details– understandable given the bruising experience with their previous company Imeem. But the idea is to build something in the vein of Zynga, Slide or ngmoco, a company that leverages a common technology stack, distribution network and monetization engine to roll out lots of apps built by a network of small teams. That makes it less surprising this is the company Andreessen Horowitz picked. The firm prefers big potential homerun companies, not so much solitary iPhone apps.
It’s gotta be awkward though. And given the huge increase in seed funding this kind of thing will happen more and more.