A Boston entrepreneur’s take on the secret of a16z's success.
Flying back from a few productive days at the Andreessen Horowitz Executive Briefing Center. That such a place even exists speaks volumes about their philosophy and approach, but it’s worth some deeper reflection for the benefit of my friends on both the entrepreneur and investor sides of the startup equation.
a16z has been an investor in my company, Actifio, for a few years now. Our board member, Peter Levine, is great — professional, engaged, grounded in real world experience, and looking to add value where he can. The same can be said of our other board members, though, so the differentiated value prop of a venture capital firm, beyond a certain threshold, has to come from something other than the quality of its partners.
For the uninitiated, the pressure to differentiate among VC firms today is huge. The holders of capital that invest in these firms know a disproportionate share of the returns come at the very top of the startup pile. Returns on the capital class as a whole are driven not by limiting strike outs and hitting doubles consistently, but by a handful of moonshot grand slams that separate the winners from the losers year in and year out. By the time most of these deals get done everyone knows about them, making the competition to get the buyer (meaning the entrepreneur) to purchase the commodity (meaning the cash) with still-unrealized enterprise value is often intense.
The usual dynamics are at play in this decision, of course… personal relationships, brand reputation, track record etc. I used to think Andreessen Horowitz’ success was rooted in the reputations of its founding partners and extended team, collectively representing a karmic goodwill repository of epic proportion in the valley and beyond. But that’s only part of the story.
Seeing it all up close and personal this week, I came up with a way to visualize what separates the firms I believe will dominate the venture landscape in the future, and those that will be left behind:
Let’s start at the bottom. By definition, every VC firm brings Cash to the table. The same is essentially true of Counsel, and while there’s certainly variability in the quality of this counsel, that variation arguably accrues more to the individual partners and less to their respective firms.
Next up is Contacts, for which the same can be said. Andreessen Horowitz does more than most to aggregate, accumulate, and activate their partners’ collective Rolodex, however, using tools like Envoy and a firm-wide contact database to make sure every portfolio company gets the full benefit of its collective reach.
Content is next in the hierarchy, specifically content useful to startups in general and founder/CEO’s in particular. Fantastic VC blogs have been around for a long time, of course, including personal favorites like Fred Wilson, Brad Feld, Mark Suster and Jeff Bussgang.
A16z takes this to a new level. Their excellent and consistent flow of blog content is second to none, and reflects the personal participation of their managing partners, not just associates and dedicated functionaries. Their podcast channel is a must-listen among global technology thought leaders, and a powerful platform to increase the visibility of portfolio companies. The partners maintain a pretty consistent presence on social media channels from Twitter to Medium, and if all that weren’t enough, Ben Horowitz even wrote a goddam book in his spare time, which people actually read and talk about.
But none of that is what makes Andreessen Horowitz special.
What makes Andreessen Horowitz special is that they added a whole new cap to the pyramid of VC value-add: Capability.
There’s a huge difference between helping someone understand how to do something (“Content,”) and doing it for them (‘Capability.”) A16z isn’t just publishing information on how to implement a content marketing program; how to use it to attract the audience you’re interested in, engage that audience over time, convert awareness into interest, and harvest opportunities through face-to-face dialog. They are doing it for us.
I was at their Executive Briefing Center to meet with a prospective customer we hadn’t been able to get to after months of focused sales and marketing effort. A Dow component company, whose CIO and entire technology management team showed up in exactly the right frame of mind, wanting to learn what was new and exciting and how they might leverage it in support of their business priorities over the coming year. We met on neutral ground, in a plush and relaxed setting, bathed in the validating light of a16z’s proven market prescience, and the mutually held knowledge they had believed in us enough to write us a very large check.
We did the same with a key West Coast technology partner, and 2 more prospects already qualified as having problems we could solve. In the days I was on site meetings like this were taking place in every conference room of the dedicated space, every hour from 8 to 6. A parade of portfolio company execs marched through these rooms; plugged in, presented, and talked with exec level decision-makers. Each customer prospect had been hand-picked based on vertical targeting and “wish lists” we had provided in advance, and each left feeling connected to the next generation of enterprise technology in the valley and beyond. The scale and quality of execution of the machine they’ve built there was nothing less then awe inspiring, and I left feeling an unusual mix of humility and gratitude.
We do a lot with a little in Actifio marketing, but I promise you there is simply no other way we could have made this happen the way it did. We’re so committed to this lead channel we’ve just relocated a dedicated, full-time inside sales person to Palo Alto to act as a day-to-day liaison — to an investor — in what just might be the coolest job our company has.
As I write this en route back to Boston I worry it will be seen as some kind of “Boston VC sucks” post. It’s not. The Boston venture ecosystem is pulsing with innovation right now, perhaps nowhere more so than among the capital providers themselves.
Even as firms like Spark, Bain, and Matrix execute and compete successfully on the traditional levers of nationally focused venture capital firms, individual VC’s like David Skok, Michael Skok, and Bijan Sabet are investing heavily in the development of content that adds value to entrepreneurs.
NextView is doing the same through the lens of an exclusive focus on early stage, while programs like MassChallenge, TechStars, and Project 11 are taking a hands-on approach to giving especially first-time entrepreneurs better odds at hitting the big time. New firms like G2o (where I am an LP) and Pillar — rising from the ashes of the old guard VC firms — are innovating to bring aspiring entrepreneurs together with accomplished venture veterans. Accomplice and Assemble are leveraging platforms like AngelList to effectively crowdsource the provision of specialized expertise, and firms like Breakaway and Archtop are even providing access to in-house marketing consulting and other capabilities, though in some cases just for portfolio companies who are willing to pay for them.
That last model points to what powers Andreessen Horwitz’ ability to deliver real value-adding capabilities: Scale. It takes a few billion-dollar funds to create the carry necessary to fund these initiatives, not to mention a willingness on the part of the guys with their names on the door to take a little less out of the till each year and put it back to work helping the portfolio succeed.
That willingness — to forego some current compensation in hope of creating and capturing more value over the long run — is something entrepreneurs obviously relate to. Here again… it’s one thing to say your firm is “entrepreneurs helping entrepreneurs,” the most overused, tired, and meaningless trope in the venture business. It’s quite another to be entrepreneurial in the way you run your own investing business today.
Will it work? Can a venture firm really put billion-dollar fund after billion-dollar fund to work in a market that generates a finite number of truly huge ideas each year? Marc and Ben would be the first to admit a16z remains an experiment, albeit an increasingly promising one. As for what the implications of their model are for the rest of the VC business, in Boston and beyond, only time will tell.
The good news for entrepreneurs, though, is that their approach draws a line in the sand for every other investor on the planet: Find new ways to add value to the companies you invest in, or relegate yourself to picking through the leftovers of those who have.
That’s a good thing for us, a good thing for venture, and a good thing for the innovation economy as a whole.
NOTE CREDIT: https://medium.com/@miketrap/whats-so-special-about-andreessen-horowitz-85416438a414#.qe4n643k9