An article published by The New Yorker in its May 18, 2015 issue titled “Tomorrow’s Advance Man: Marc Andreessen’s plan to win the future” is already going down as something of a magnum opus of long form writing dealing with Silicon Valley’s venture capital industry. It specifically analyses six-year-old VC firm Andreessen Horowitz (a16z), now widely regarded as one of the top three in the Valley alongside the likes of Sequoia Capital (by consensus taking the number one spot).
At just shy of 14,000 words in length, it’s fair to say that Tomorrow’s Advance Man goes into an exquisite amount of detail in its reporting of the scene, recounting of events, and vivid storytelling-like stylistic execution. And we learn a lot, not only about a16z, but about the VC industry as a whole.
We also learn about the deliberation process around investments, what separates the top 20 or so VCs from the rest (“A leading investment banker who has taken numerous software companies public told me, ‘I put 90 per cent of my effort into seeking out deals from the top eight venture firms, 10 per cent into the next twelve, and zero per cent into all the rest,‘”) and just why the Netscape founder’s vision is so far ahead of his time (“Andreessen seethes with beliefs,” New Yorker writer Tad Friend wrote).
“[Andreessen] believes that tech products will soon erase such primitive behaviours as paying cash (Bitcoin), eating cooked food (Soylent), and enduring a world unimproved by virtual reality (Oculus VR),” Friend writes. Indeed, many of Andreessen’s biggest bets have paid off. From his US$50 million investment in Skype in 2009 for three per cent which returned his investment four-fold, to the US$130 million a16z spent in 2010 to “acquire shares of Facebook and Twitter at unprecedented valuations.”
What can VCs and founders in Asia, where the ecosystem is still very much developing, learn from the living-breathing masterclass that is Andreessen Horowitz and more specifically, Co-founder Marc Andreessen himself? I picked three insights from the piece that I thought would be fun to explore, and asked for comments from VCs and founders in the Asian ecosystem.
1. Mediocre VCs want to see that your company has traction, top VCs want you to show them you can invent the future
This is one of the earliest quotes in the article from Suhail Doshi, the 26-year-old CEO of a data-analytics startup Mixpanel. The company has raised US$65 million in rounds up to Series B from investors including a16z, Sequoia, and Y Combinator to date.
Alexander Jarvis, the Founder of Asia-focussed venture builder and VC firm 50Folds, tells e27: “There are only 15 ideas each year that account for 95 per cent of returns. If you have a large fund, you need to be in these deals to make your fund. Crowd-following (consensus) VCs never make up for the losses of failed startups, since at least half of companies will return no capital.”
“‘Invent the future’ is really VC code for ‘help me raise the next fund.’ Before you go thinking you’re going to come up with something nuts and you will get funded now, there are a few things to consider. It is highly likely you will need to be a serial founder to prove you can execute on the vision (to be trusted with all the cash), and you will actually need to start and validate the business too, just like any normal ‘consensus’ startup idea. Top VCs are susceptible to the ‘Innovator’s Dilemma’ of wanting to see some traction too,” he says.
In the US alone there are now 803 VCs, according to the New Yorker article, which last year collectively invested US$48 billion into promising tech startups. For founders, what that means is that there’s a high level of liquidity in the market; there is VC money available if you are genuinely onto a good idea and investors believe you can execute.
We know from Arnaud Bonzom’s recent Q1 2015 report on VC funding in Asia-Pacific that US$9.4 billion was invested into tech startups in this region alone. Average that over four quarters and you have as much VC money flopping around Asia as you do in the US, where the ecosystem is much more mature.
“The bottom 70 per cent of VCs just go down a checklist: Monthly recurring revenue? Founder with experience? Good sales pipeline? X per cent of month-over-month growth?” Jordan Cooper, a New York entrepreneur and VC, was quoted in the article. But as Stewart Butterfield, a Slack Co-founder, adds, “It’s hard to overestimate how much the perception of the quality of the VC firm you’re with matters — the signal it sends to other VCs, to potential employees, to customers, to the tech press. It’s like where you went to college.”
The take away for founders? If you want to land one of Asia’s top VCs, show them that you can ‘invent the future.’ And for VCs, look for founders that come to you with more than just traction data and projections. Do they have the long-term vision and perhaps that streak of madness that it takes to break out and be a maverick? Oftentimes, the geniuses history acknowledges in hindsight are the ones called madmen and mavericks in their own time (echoed in lesson three).
2. Every opportunity comes with an opportunity cost
This is one of the big lessons I am starting to appreciate deep in my gut every month that I spend in tech journalism: Every interview and every article I write comes with a corresponding “opportunity cost.” Put simply, by taking on one story I am usually turning down another — and who says that other story might not have turned out better? The same is true for investors and founders. If you decide to invest in one startup or listen to a pitch from one team, you have to equally opt out of other potential startups and teams.
For founders, accepting money from one VC may mean you have closed the door to money from another, so you’d better hope you are getting backed by the best investment minds you can find. Don’t simply rush wide-eyed into accepting an enormous check because you’ve been bootstrapping for the past six or 12 months and just want to get all this pitching over with. Or perhaps you’ve been turned down by the “top VCs” on your list and so decide to settle for second (or third) best; maybe you even decide to just take some “dumb money” from investors with no knowledge of your field. Yikes.
When you start giving away equity in early rounds to investors that aren’t going to really accelerate your growth and introduce you to the right networks, you have less opportunity to work with really great investors down the line. As Andreessen explained in one televised Stanford University interview, alongside angel investor Ron Conway of SV Angel and Zenefits’ Co-founder Parker Conrad, “You want to think about it as a ticket that you have a limited number of holes that you can punch, and every time you make [or receive] an investment you punch a hole. When you’re out of holes to punch, you’re done — you can’t make any more investments. That’s very much how venture capital operates.”
3. The key to investing is to be aggressive and to fight your instinct to pattern-match (“breakthrough ideas look crazy”)
Patrick Grove, a Co-founder of international investment firm Catcha Group, told e27 that: “[Andreessen] is one of those rare VC’s that actually was an entrepreneur beforehand. I think this is super critical. He comes at the VC industry from a disruptive ‘how can we add more value’ viewpoint and I believe it’s the right way to go.”
“Too many VC’s here actually have very little experience running a startup themselves. I often wonder what kind of advice they are giving to startups, and too many startups and VC’s also have such small goals for their companies. They should swing harder and try to produce something amazing rather than something average,” he said.
Grove’s comments echo the idea that “breakthrough ideas look crazy,” as shared by Andreessen himself, and that the key to investing in startups looking to “invent the future” is resisting the urge to “pattern-match.” If history has taught us anything, it’s that so much of the future is unpredictable despite our best efforts to analyse current trends and extrapolate future outcomes from them.
Alvin Koay, CEO and Founder at Malaysia-based MobileAds, told e27 that, “Breakthrough ideas are often so brilliant that they appear borderline absurd. Top VCs must… have a vision to see beyond the absurdity and the intuition to know that the idea will work in the future.”
Meanwhile, Veronica Chew, a Co-founder of Singapore-based med-tech startup Healint, which most recently raised more than US$1 million in seed funding, told e27 that, “When we started two years ago, the idea of your mobile phones [being able to] tell you so much about a person’s well-being (big data and sensors) seemed like rocket science to many. When we pitched the idea, many were intrigued but weren’t really ready to dive into it, or they [just] didn’t believe in it. Many were trying to fit us into certain companies that they knew.”
But many of the top VCs and startups don’t repeat what has come before, or they don’t fit nicely into our preconceived ideas of the world, how things should be, or where we thought the future was going. If you’re smart, you’ll read the full New Yorker article, meditate on it and all the words of wisdom from Andreessen himself (among the many other sources quoted in the piece, including the likes of Mark Zuckerberg himself), and let it sink deep into your belly, before stepping out into your local Asian neighbourhood and putting it to practice.
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