The fund will make investments of $50,000 to $50 million (yes, $50 million), but will generally focus on early stage opportunities. And here’s a fun fact: they don’t currently have a website, and apparently they aren’t sure they will have one in the future. For now they’ve reserved a16z.com for use if they do ever launch a site. Basically, if you don’t already know Andreessen or Horowitz, or know someone who knows them, getting in contact with them is going to be…difficult.
Andreessen has long been one of my favorite people to interview, because he is tapped into nearly every hot company and isnt afraid to answer questions directly. That is, when you can actually get him to sit down with you and a camera, notepad or tape recorder. But last week, he had to chat it up with the press since he and long-time partner Ben Horowitz were announcing their the new venture fund. This is not going to be your typical venture capital firm.
For one thing, theres that $300 million fund size. Thats pretty big for a first-time fund and gargantuan when you consider there are only two general partners, Andreessen and Horowitz. Its big enough that some people didnt think theyd be able to pull it off.
How did they? Well, did we mention Andreessen was one of the partners? Heard of the browser? And the lesser-known Horowitz is no slouch. He was the CEO of their second venture, Opsware, which sold to Hewlett-Packard for $1.6 billion. As instant as Netscapes success may have been, Opsware was the opposite, a hard post-bubble slog.
Its too early to tell how well Andreessen’s third company, Ning, will do, but Andreessen and Horowitzs angel stakes in companies like LinkedIn, Delicious and Twitter show their savvy at picking good teams and how much other entrepreneurs in the Valley value their advice. For instance, Andreessen is the only independent member on Facebooks tiny board of directors. And investors were impressed by the 45 or so companies that Andreessen has independently invested in over the years. Just one, TipMobile, has gone under so far.
So, thats how they raised $300 million in the worst fundraising environment in 40 years, heres why: Andreessen says there are only fifteen companies started each year that matter. By matter, he means theyve got the potential to generate $100 million year or more in revenues, and those companies wind up making up 97% of the aggregate industry returns. The firm wants the flexibility to invest as much as they want in those fifteen names, whether it’s $500,000 or $50 million per deal. Considering the two have run big teams and small teams over their time at Netscape, Opsware and Ning, theres no logical reason they should tether themselves to just one stage of investing.
Like Founders Fund and unlike most everyone else, Andreessen and Horowitz are more comfortable investing when an entrepreneur wants to stay the CEO. Hiring a grown up CEO always sounds like a great idea, but almost always hastens a companys failure, Andreessen argues. Theres strong evidence that the biggest hits come when the founders stay engaged at a C-level position. See: Google, Oracle, Microsoft, Hewlett-Packard, Amazon, Apple and Facebook.
Another distinction: Theyre not meddlers. Because there are just two of them, Horowitz and Andreessen wont always take board seats. If they pick the right entrepreneurs, Andreessen argues they shouldnt have to.
The whole interview lasted about an hour, and you can see many of the highlights on my Yahoo show, TechTicker, today. Meanwhile, here are five other interesting things he said:
1. Twitter and Facebooks investors arent worried about monetization, but its sweet of you to. Twitter has spent about $15 million acquiring 30 million users. Itd be a no-brainer to recoup that if need be. Meanwhile, Facebook will generate more than $500 million in revenues this yearits spent far less than that to build the company to date. In other words, these are pretty fiscally conservatively run businesses with huge growth potential and no trouble raising additional cash.
2. Digg isnt done. Andreessen is still bullish on Digg, citing the fact that Kevin Rose is no longer distracted with Pownce and Jay Adelson is moving to San Francisco to manage the company full-time. He thinks having both guys focused on the company will make a huge difference in the next twelve months.
3. The venture capital market should stop whining about Sarbox and other factors that are hurting their ability to take companies public. Says Andreessen, Build Companies More Valuable and You Wont Have this Problem. That said, he sees a conceivable scenario where public markets are no longer how investors get returns at all. Instead, the same institutional names that used to buy the bulk of the shares at an issue, will just buy out VCs at premiums in private deals. Thatll essentially mean everyday Joes can no longer invest in high growth companies. Thats a good thing or a bad thing, depending on how many scars you have from the dot com bust.
4. At least 300 venture firms will go out of business in the next five-to-ten years.
5. Innovation and opportunities to build businesses on the Web arent done. They wont be done for a long time because the Web is one of the only inventions thats pure software, compared to computers, the television or even the railroads. That means it can completely change without having to fit into set molds. AnyoneAndreessen includedis deluding themselves if they think they know where its going. (In other words, dont listen to anyone making Web 3.0 predictions.)