Andreessen Horowitz

The story continues when Marc and Ben realized that this was the era of the web 2.0. They recognized that unlike the dot com bubble of the early 2000’s the valuations of the new wave of internet-driven companies were going to be very high, yet this time the so-called “bubble” would not pop because there really will be that much value being created. Therefore, Marc and Ben began to angel invest together. Angel investing is the first round of investment an entrepreneur raises. From there on there are Series A, B, C, D, and so on with different venture capital firms specializing in each round of funding. Venture capital firms help with two needs of any startup, capital or money and resources to better train and help startups make the necessary connections. Back to the story, Marc and Ben invest in the angel rounds of Facebook, Twitter, LinkedIn, and Zinga. Turns out Peter Thiel the same guy who took Elon’s job at PayPal and then funded SpaceX was the person who introduced Marc Andreessen to Mark Zuckerberg. When Yahoo offered to buy Facebook for one billion dollars Marc Andreessen was the one person who told him not to. Sequoia Capital (arguably the best VC firm to date) offered Ben a job. Ben immediately called up Marc and said we should start our own VC firm and Marc says I was thiniking (that was a typo from when I was writing this, but I thought it was funny so I left it in) the same thing. Once Marc and Ben decided to start their own VC firm they needed a strategy to become one of the larger firms immediately. This is because the bigger you are the more deals are sourced to you at better prices. Success breeds success. This was a key factor in Andreessen Horowitz’s success. Marc and Ben decided the way to become big fast was to counter-position themselves across from Benchmark an already existing and large VC firm. Funny enough the way Benchmark became a large VC firm was by counter-positioning themselves across from Kleiner Perkins another large VC firm. A former employee of Benchmark suggested this plan to Andreessen Horowitz. Other than counter-positioning another strategy Andreessen Horowitz utilized was investing in any round. This might not seem like a shocker, it did not seem like one to me either at first, but to understand you have to realize that each round of investing was unique and required different types of help from the VC firms. One of the negative effects that came from investing across all rounds was signaling. Signaling means that say Andreessen Horowitz invests in the seed round of company x but does not invest in the Series A, that is a signal to the rest of the VC firms that company x is not worth investing in. Another core thesis of Andreessen Horowitz was that the founder should always stay as CEO, and Andreessen Horowitz would provide the founder with the tools to learn how to be a great CEO. Most founders were extremely smart techy guys who had an amazing idea. Once their idea turned into a fully functioning company they needed to learn the skills of a CEO and that is where Andreessen Horowitz came in with its resources. This was different than other VC firms that would sometimes replace the founder with an experienced CEO and transfer the founder to be the CTO, (chief technology officer) something that the founder had more knowledge about. The last important belief that differentiated the firm was that they believed compute power was eventually going to zero and given free infinite compute they thought the possibilities were endless. Therefore, now was the best time to invest. Andreessen Horowitz’s first investment ever was in the Series C of Dig.com. In September 2009 they invested 50 million dollars in Skype. Andreessen Horowitz partnered with Silver Lake and invested a total of two billion dollars between them spinning Skype off from eBay. (They should have spun off PayPal haha). By 2011 they already brokered a deal with Microsoft selling Skype for a cool 8.5 billion. A quick 3x on their investment in under two years. In 2010 Andreessen invested in the Series A of Okta a cyber security company. Later when Okta IPO’d Andreessen owned almost 20% of the company valued at 1.5 billion. At the time when they made their initial investment, their whole firm was worth only 300 million. Hype becomes a self-fulfilling prophecy as I mentioned earlier, success breeds success. In November 2010 they raised their second fund of 650 million dollars. Jeff Jordan one of Marc and Ben’s hires, invested in Pinterest, Instacart, Groupon, Stripe, and Airbnb. He did so well with these investments Marc and Ben made him a general partner. Right before their biggest failure Marc Andreessen published the famous op-ed “software is eating the world.” At the time they were set up to close with Uber, but Marc started to get cold feet. Originally he messed with the valuation, yet Travis (CEO of Uber) still wanted to work with Andreessen Horowitz. This goes to show how big of a brand they already had so early in the game. Then Marc gave him a bad terms sheet and Travis had to walk away at that point. In the end, they did end up with 6% of Lyft at its IPO, but it was a massive loss when they did not sign with Uber. In January 2012 they raised a 1.5 billion dollar fund; it was 7.5% of all VC capital raised globally that year. Then, Marc and Ben hired Chris Dixon an entrepreneur and New York venture capitalist. Chris was the beginning of the next wave of innovation which was block-chain technology or the tech that is used in almost all cryptocurrencies specifically Bitcoin and Ethereum. Chris’s first investment was the 25 million Series B of Coinbase. The firm continued to buy up shares of Coinbase from other VC firms until the IPO and now their shares are worth about 11 billion. Throughout 2012 they invested in a total of 76 companies and in 2013 in another 97. In March 2014 Andreessen Horowitz raised another 1.5 billion dollar fund bringing the amount they had raised since Marc and Ben started the firm to about four billion. At this point, Andreessen Horowitz was pretty settled as a fund. I remember listening to a podcast about a year and a half ago of an interview with a VC employee and she said VC firms are always trying to find “disruption” within an industry a lot of times even the VC industry itself. In the case of Andreessen Horowitz, they disrupted the VC industry. Andreessen Horowitz went on to raise many more funds continuing through the present day. Some of the more recent funds they raised were crypto funds headed by Chris Dixon. Their first crypto fund was 300 million then a follow-up 350 million fund and finally, in 2021 they raised a 2.2 billion dollar crypto fund. One of their best investments was 150 million dollars in Roblox which is now worth 1.2 billion dollars. Lastly, one of the more quirky features of Andreessen Horowitz is that they invest in non-consensus bets, meaning one person can push through an investment. This ability comes with one condition there will be one other person whose sole goal is to come up with every possible reason not to invest in that company. Andreessen Horowitz has returned about 22 billion to date about a 3x return (still do not know all of their holdings or the valuations of some of the companies they still own).

Credit to the Acquired podcast