A few weeks ago, I posted some thoughts on Marc Andreessen and word that he and business partner Benjamin Horowitz had raised a $300 million venture fund. I thought the amount raised recognized Andreessen’s ascension to the role of valley godfather, while also indicating that the valley tends to view success along yardsticks such as taking companies public and personal wealth (and shareholder wealth) rather than the ability to build sustainable business models.
That sparked a nice conversation in the comments about what does constitute success as an entrepreneur.
By total coincidence, his PR folks contact myself and my colleague Scott Duke Harris for a pre-briefing on the official news about the fund just a few days after that post. We met with Andreessen and Horowitz to discuss the news, which was released today.
You can read Scott’s story here.
During our conversation, we covered a few other tidbits that didn’t make Scott’s story, but that I though were relevant to my previous blogpost. So let me share a few of them here:
*I’ve been writing for awhile that I think the VC model in the valley is in serious crisis. Andreessen doesn’t think the VC model is broken, per se. But he does acknowledge that only a few of the best and biggest VC firms are providing positive returns for investors. So the Andreessen Horowitz fund is essentially a bet that they can crack that top 10. They aren’t going to do anything radically different, but rather they think their history as entrepreneurs will give them a leg up on the VC competition.
*They are absolutely taking the long view. They point out that a seed stage investment will take seven to 10 years to payoff. In a couple years, if there aren’t any home runs, the pair will likely fall under heavy criticism. But really, it might take a decade or longer to know whether they’ve succeeded or not.
*I dinged Andreessen (and by extension Horowitz) for the fate of Opsware/LoudCloud. It sold for big bucks to HP, but never seemed like it would have been a sustainable business. But Horowitz made a point during our interview that is worth repeating. First, Loudcloud in and of itself meant that the pair saw the whole “cloud computing” trend way before most. They got caught in an ugly downdraft when the dot-com bust hit. Beyond that, they took some radical steps to reboot, which is something I think a lot of founders might have been unable to do: They sliced off a chunk of the services business and sold it to EDS and then started again as Opsware, focused more on their software. The stock came back enough that if you’d held from when they first went public to when they sold to HP, you would have gotten about 40 times your investment back.
*I’m sure this has been written elsewhere, but it’s worth nothing that when it comes to starting companies, Andreessen says he’s done: “I think three companies is enough. And starting a company is stressful. As far as I can see, it’s out of my system.” The angel investing he and Horowitz have been doing has been a kind of beta testing for moving on to a new phase of life for both of them.
The notion that Andreessen is finished as an entrepreneur truly marks the end of an era. But, he’s young. So, I would never say never that we’ll see him back in start-up mode again.
2 comments
elliot noss
the most important point in these two posts needs to be called out explicitly, the exits that lead to “success” in the last ten or so years are gone.
there are essentially no IPOs. there are bordering on no large exits to corporates. there are virtually no large exits to PE firms, who by definition are buyers of cash flow.
this fundamentally changes the operating dynamic. not to knock andreessen in particular, but imagine if there had been no large corporate to take netscape or opsware off the hook. those, and many businesses like them, had HUGE amounts of capital poured in and would have been nearly impossible to turn in to operating businesses that would have provided a solid ROE/ROI.
the game HAS changed, but on some very important levels I still see most of the financial world and most of the valley still playing the old game.
Jul 7, 2009
RC
I see the distortion field of the Valley notables was on stun. That 40x number is the all time low of the stock($0.47/share) not the IPO debut of $6.00/share. Reference this NYT post:
http://bits.blogs.nytimes.com/2007/07/23/marc-andreessens-loudcloud-finally-rains-money/
Once again Opsware was losing money and sold at the height of the market at 16x revenues and of course they weren’t making money. It was losing money when it went public. Netscape went public while losing money. Netscape sold at the height of the bubble for a ridiculous sum of $4.3billion to AOL. Of course AOL is one of the most storied collapses on record. I would say that Mark is at best lucky. How many people can sell money losing companies for billions?
As for the whole notion of ‘The Cloud’ I believe that was described long ago by the term ‘Ethernet’. When I first began working on the Arpanet we were accessing distant computing resources for intensive calculations. This allowed many individuals to use expensive distant computing resources. This whole notion of the cloud being some new concept is comical. I have always relied on some distant computer to process web and database requests, store data, route information and in general do most of the processing of items I interact with. The cloud is not going to be doing my work just a subset of computers that I’ve paid to have access to.
Jul 7, 2009