The story behind the resurgence of the venture capital Andreessen Horowitz

Today, the venture capital industry is in a state of super-growth. Silicon Valley venture capital giant Andreessen Horowitz suddenly announced the transformation. It abandoned the original VC model and switched to become a financial advisory company. In this way, it can increase the cryptocurrency contour. Investment in risk category assets can reach up to $1 billion, accounting for nearly half of the $2 billion fund to be announced.

(The simple version of the report can see this: venture capital fund A16z transformation: will provide financial support for cryptocurrency startups, up to 1 billion US dollars )

This news seems to be very simple, in fact, the amount of information is too much to explode.

What is the specific reason behind its transformation? How to turn specifically? What is the impact?

These, you need to search for answers from the original report of Forbes.

And below, this is the translation of this story:

After the financial crisis broke out in 2009, Marc Andreessen and Ben Horowitz launched a campaign to capture Silicon Valley. That year, their first VC fund investment platform promised to find the founders of a new generation of "arrogant arrogance", they are ambitious, confident, and unique, they will be Apple CEO Steve Jobs (Steve Jobs ) The pattern that uses technology to leave a dent in the universe. After supporting companies like Facebook and Twitter and earning billions of dollars, they started doing the same thing.

Andreessen Horowitz's headquarters office in Monroe Park, Calif., sits on his sofa, and his Netscape browser and subsequent corporate IPOs are the touchstone moments of the digital age. He understood that his original idea was not as applicable in 2019. His new point is: "The 21st century is an unpleasant century," which is the first time he has been interviewed by Forbes for two years. He said that in an era of connectivity, social media and information overload, these “unpleasantness” will challenge the status quo and create billions of dollars worth of companies. Conceit has disappeared in him, and anger or dissent is still there.

If this is an equally unpleasant prospect, consider Andreson, 47, who is a perfect messenger. From gorgeous check writing, to his popular blog (before Trump) and the weaponization of Twitter accounts, to hiring a group of operational experts, Andreson is one of the typical representatives of Silicon Valley's subversive rules. This was a success: Ten years later, Andreessen Horowitz joined the Silicon Valley elite venture capitalist, creating more than $10 billion in profits for investors. In the next year or so, at least five unicorns (Airbnb, Lyft, Pagerduty, Pinterest, and Slack) are expected to be available, and Andreessen Horowitz has investments.

“What is the biggest form of differentiation in any industry? It’s becoming No.1,” Andreessen said in a speech.

However, keeping the first is even more difficult than reaching the first. The optimism that technology will make the world a better place has worsened with the constant exposure of Facebook data scandals (Andreessen is an early Facebook investor and he is still a Facebook board member). Every disclosure of social media's tendency to train the worst forces of society challenges him and his company's iconic technology evangelism. In the conference room on Shashan Road, the next Instagram, Twitter or Skype (the three most famous early deals) is no longer the target of this venture capital firm. Today, in Softbank, there are record-breaking billion-dollar competition funds and a new $100 billion fund (Vision Fund), which makes the funds, including Andreessen Horowitz, look a bit odd. .

Therefore, Andreessen and Horowitz, who ranked 55th and 73rd respectively in this year's Midas List, also intend to deny themselves. They have just raised a $2 billion fund and are about to announce it (which brings Andreessen Horowitz's total assets close to $10 billion) in order to open bigger for its portfolio companies and the unicorn companies that were initially missed. Check. More aggressively, they also told Forbes that Andreessen Horowitz is registering 150 employees as financial advisors, making Andreessen Horowitz no longer a traditional VC company.

why? Before the era of cryptocurrency, the SEC saw some transactions as high-risk investments and needed more supervision. Then, Andreessen Horowitz said, “We do the same,” and by giving up its venture capital position, it will be able to go deeper. Make a more risky investment: If the company wants to invest $1 billion in cryptocurrency or tokens, or buy an unlimited number of shares from a public company or other investor, it can do so now.

"What's the use of feathers? They look like they are irritated," Andreason said with a smile. "Things that will be out of place will be those that are different."

Andreessen's adventure

Desiring to reignite success, Marc Andreessen and Ben Horowitz have already reserved experts for their venture capital firms from biotechnology to cryptocurrency, and their general partners. The number of (GP) has expanded to 16 places.

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From the beginning, Andreessen Horowitz had a simple creed:

“We want to build a venture capital firm that has always been profitable.”

Andresen, his Netscape company made him on the cover of Time Magazine at the age of 24, and his colleagues at Netscape subsequently formed a company that eventually became Opsware, and by Holloway. He was responsible for operations, and he sold it to HP for $1.7 billion in 2007.

Before the establishment of the venture capital firm two years later, they also ventured into angel investment, where they gained a reputation for rebellion, at least in the area of ​​Sand Hill Road.

Through his "PMARCA" blog, Andresen helped promote startup startups' predecessors, the predecessor of its Twitter streaming spirit, known for its surprising 140-character essay on economic theory to a network-neutral theme.

In order to build their venture capital firm, Andreessen and Horowitz's brand strategy model is not based on industry elites, but on Larry Ellison's Oracle and enterprise software wars. Active marketing strategy during the period. They welcome the media, host star-studded events, and swear to anyone who is willing to listen. When they started small-scale seed investments for companies like Okta (now worth $9 billion) and Slack ($7 billion), they ignored traditional wisdom, and companies like Twitter and Facebook have valued billions. In the dollar, they swallowed the shares of these companies.

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Andreessen Horowitz employees work at the headquarters of Shashan Road

Encouraged by the previous exit project, as well as some frugal behavior, Andreessen and Horowitz reinvested their money in the market, not so much that Andreessen Horowitz is a traditional venture capital firm. It is better to say that it is a Hollywood talent agency. They did not receive an annual salary, and the company’s new general partner’s salary was lower than the average person. Instead, most of the fund's expenses (traditional 2% fund management fees) cover all of the company's expenses, which are used by a fast-growing service team, including experts in marketing, business development, finance, and recruitment.

Need to raise another round of funds? Andreessen Horowitz's experts will help you a lot, they will help you write a speech, and then guide you through dozens of drills before scheduling a meeting. Need a vice president of engineering? The company's talent team will identify and mine the best search companies, monitor their effectiveness, and help select the best job seekers. Human resources issues? Accounting crisis? Lea Endres, CEO of NationBuilder, said: "If something goes off track, you have a 'bat phone'."

At Andreessen Horowitz's corporate headquarters and its executive briefing center in New York's subordinate office, the company's employees act as matchmakers, enticing big companies and government agencies to access cutting-edge technology, and then arranging related portfolio startups to showcase visitors.

GitHub, before it was acquired by Microsoft for $7.5 billion, the open source codebase company was backed by Andreessen Horowitz in 2012. The company's sales executive said the company sent a junior staff full time at Andreessen Horowitz. The office is hanging out. And consumer start-ups like the grocery distribution unicorn Instacart (Andreessen Horowitz, which is currently investing $7.9 billion), has established partnerships with international retailers and food brands. In a recent interview in March, more than a dozen startups met one after another with the Defense Innovation Department of the US Department of Defense. A few days ago, it was an example of the Hachette Book Group. "We have 40%-60% of the companies they pass, and then I think, wow, wait, we are not your sales force," Martin Casado said, he is Andreessen. Horowitz's general partner, who sold his startup Nicira for $1.3 billion.

This formula (or mode) works! According to sources, Andreessen Horowitz's first and third flagship funds ($300 million and $900 million, respectively) are expected to return five times the return to investors. Andreessen Horowitz's second and fourth funds ($650 million and $1.7 billion, respectively) are expected to give investors three times the return and are expected to climb.

Although Andreessen Horowitz is reluctant to disclose the company's practices, other companies are clearly following suit. From bloggers and podcasting experts to resident financial officers and security experts, the number of non-investment professionals in the venture capital industry has surged in recent years. Semil Shah, general partner of venture capital firm Haystack, said: "Many companies are copying this model about the idea of ​​providing services."

All these cheers and scorn movements created the enemy. Other investors have never forgotten how Andreessen Horowitz claims that the VC business model is wrong, and only it has a cure. Almost from the beginning, the rumors about the company’s over-acquisition transactions were so embarrassing that when Andreessen and Horowitz started collecting the third major fund in 2012, the partners could not Do not check each account with their investment company so they can refute this view with investors.

At the same time, they also participated in some failed investments (some of which are high-profile investments, including Clinkle, Jawbone, and Fab), and wrong investments like Zenefits have caused the investment company's problems to be magnified. . Andreessen Horowitz's widely advertised view is that what matters is not how many failed companies you support, but how many companies have become huge, extraordinary winners. Andreessen believes that only 15 trades will generate returns each year, and he plans to see all the top deals first.

To prove himself, Andreessen Horowitz wants to make a deal with Uber. Although the company does not currently recognize it, several sources familiar with the financing situation revealed that the company may soon acquire a large stake in Uber. So far, the story that everyone doesn't know is: In the fall of 2011, Uber co-founder Travis Kalanick was raising a round of hot B-round financing, eager for Andreessen Horowitz to lead, and of course Andresen Desire to achieve this goal, in early October, Kalanick called other companies to say that they had a deal with Andreson and another partner of the company, when Uber was valued at $300 million. However, after 11 hours, Andreessen Horowitz repented, although he said he would still invest, but the valuation given was significantly lower than $220 million. And this story is that Kalanick himself told Forbes.

“They tried to surprise us,” Kalanick wrote in a letter to investors. “That’s what happened, Uber’s next phase begins.”

Since then, Kalanick turned to Menlo Ventures and accepted a $290 million valuation offer from the other party.

Although Andreessen Horowitz invested Uber's competitor Lyft in 2013 and cashed in some of its shares, the company did not work with Uber. According to sources involved in the negotiations, the company participated in the merger negotiations of two taxi companies twice in 2014 and 2016. If the deal is successful, this will give the company a back door to Uber. In any case, it is hard to ignore Uber becoming a big fish slipping away from Andreessen Horowitz. Currently, Uber's valuation has reached $76 billion, and it is preparing for an initial public offering (IPO), which may be four to five times the size of Lyft. In this regard, Andreessen Horowitz declined to comment.

In addition, Andreessen Horowitz made other mistakes in leadership, and his management diversification was slow. His ten general partners (the people who actually controlled the investment and the check) were male, in part because According to the company, the GP must be the founder of the former startup company and cannot be selected from within the company. In the past year, Andreessen Horowitz added three female GPs, but before the loss of top talent.

In the months before Donald Trump was elected president of the United States in 2016, Andresen himself was involved in the rapidly changing culture of Silicon Valley, and he was against the now-defunct extreme right troll Milo. Yiannopoulos's tweet was very enthusiastic. After India rejected a new Facebook service, he joked that the country may have succeeded, which attracted the rare scolding of Mark Zuckerberg. In response, Andreson has since become a digital hermit. He deleted most of his past tweets. He said that this cleaning was not strongly opposed by his position on Facebook. Instead, he accused him. “Overall trends”, especially in political and cultural terms. He said that when things "return to normal", he may come back, perhaps in 2020.

In recent years, both Andreessen and Horowitz have changed their previous conceited styles. In this regard, Andresen himself admitted, "he said that venture capital is not an industry in crisis, which does not hinder How do we become a top investment company?" Horowitz went one step further, he said: "I regret a bit, because I feel that I hurt people who think their business is very good, I am doing too much." As for the company's employment regulations (causing its Without a female GP), he admitted that it is difficult to change the core part of the company's external image. He said: "This is a big deal for me. It may take a long time to change, but we are doing it."

Reversal, a major feature of Andreessen Horowitz, in addition to leaving the typical venture capital process behind, the company also invested in biotechnology, but it has said that the company will never touch. The pursuit of the status quo challenger means that the company needs to enter a new field, and now Andreessen Horowitz has raised $650 million for two funds in the industry. “The brand’s influence in biotechnology is not as great as in the tech world,” said Jorge Conde, who became a general partner of Andreessen Horowitz in 2017. “But we’ve worked together and set the banner.”

Now, Andreessen Horowitz's partners meet three times a week on the subject, evaluate the transaction, and then hold a company meeting on Monday and Friday to review possible investments.

It is noteworthy that the company began to invest in cryptocurrency. Last year, the company raised a $350 million fund for the field, and until recently, the company's partners Chris Dixon and Katie Haun had to privately with Hollo. Witz meets. Strictly speaking, this fund is an independent legal entity that is separate from the rest of Andreessen Horowitz. This means they have different email addresses and their own websites, as registration as a traditional VC Foundation is legally restricted. Although Andreessen Horowitz is an early investor in the cryptocurrency exchange Coinbase, and it also invests in other cryptocurrency companies , the SEC requires such investments to be considered “high risk” investments, and such equity investments and secondary markets Trading or fund or token investment is limited to 20% of traditional VC funds .

Therefore, Andreessen Horowitz decided at the beginning of the spring a strategy that surprised everyone: abandoning the VC exemption, then registering as a financial advisor, and his paperwork was completed in March. This is a costly and painful move that requires the company to hire a compliance officer, audit each employee, and prohibit investors from publicly talking about portfolio or fund performance (even on their own podcasts).

In the coming weeks, when the company announces that a new growth fund will complete the financing, it will come in handy, and one source said it will add $2 billion to $2.5 billion in investment funding for its newest partners. According to the new rules, the fund will be able to buy shares from founders and early investors, or trade public stocks.

This is how Andreessen Horowitz plans to stay competitive in a crowded VC investment environment.

In this regard, Slyford University VC research professor Ilya Strebulaev said that the pressure on traditional companies is greater than ever, because there are more mature angel investment groups and non-risk investment giants in the market, such as Softbank's vision fund.

“Venture investment is constantly changing,” he said. “We should expect a lot of fundamental changes.”

Some are inevitable, such as the industry's vision of Andreessen Horowitz's service as a sweetener. Or the inherent limitations of the Andreessen Horowitz model, which always requires large, growing funds to pay for it. Others are identifiable, such as a mixed report card for former employees. They say that high salaries are not enough to allow ambitious, young employees to stay in office for long periods of time with little upward mobility. Because the veterans of Anderson and the Horowitz old company Opsware are still spread throughout Andreessen Horowitz, some employees receive special treatment, they will not be sanctioned, and this will weaken morale. At the same time, the company insists on calling everyone a partner (even the lowest level of talent or accounting manager), which may seem harmless. However, as one of the company's former partners pointed out, if these titles limit the prospects for promotion and career development, they may retire as the company's past GP rules.

The most dangerous thing is to become the most well-known venture capital company in the industry, or to taunt them before the plagiarism, regardless of whether the entire industry will undergo radical changes.

The people of the world have come to realize the influence of big technology companies like Facebook and Google on society, from the direct shooting video of Christchurch in New Zealand to the white nationalist YouTube video. Faced with this ever-changing trend, the super-growth background of VCs and the description of Zachber's ambitions may make it plummet.

In an equally uncompromising choice, Andreessen cites the example of Facebook CEO as an unpleasant founder who is determined to take the necessary and painful steps to correct the problem. “He just released this memo, mainly to reshape Facebook in terms of privacy and information,” Andreessen said in March. “Close your eyes and imagine a classic character wearing a suit would do so.”

Although Andreesen said that he is busy with running the company, he has no hobbies, but he said that he now has a young son, and he also quoted a sentence from his favorite HBO new drama "Inheritance". To describe the mentality needed to achieve this goal:

"If you can't ride two elephants at the same time, what is your significance at the circus?"

If you read this story and don't quite understand what it means, then I will try to give you a brief summary of the key points:

In the context of growing congestion in the venture capital industry and the SEC and other regulators restricting traditional VC institutions from investing in high-risk assets, Andreessen Horowitz, the Silicon Valley investment giant, has reluctantly changed its model in order to expand its “high risk” on cryptocurrencies. The investment in assets, which sounds like a very strange logic. The reasonable explanation is that, in Andreessen Horowitz's view, the current cryptocurrency is actually a low-risk asset.