The Producer of Tomorrow (Part 6)
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Most venture capital firms work as guilds: each partner works with its own range of companies, and a small common team helps in business development and personnel search. A16z has introduced a new model: a venture company. The senior partners in such a company receive about three hundred thousand dollars a year, which is much less than a million dollars standard for the industry, and the rest goes to pay for sixty-five specialists in business, technology, market development, corporate development and marketing. A16z supports a network of twenty thousand contacts. Two thousand verified companies annually participate in meetings with fund startups in a special project launch center. This generates a long chain of transactions of more than three billion dollars. Andreissen tells me: “We give the founders all the superpower of our network in order to give hyper-acceleration to one of the founders, turning it into a full-fledged CEO for five years.”
The fourteen people involved in the deal preparation team provide quick access to any new technology. The A16z is similar to the Iron Man ★ costume for Andrissen’s flights in his imagination. Jim Breyer ★ , who led the first round of funding for Facebook at Accel Partners, says: “Most of the time I spend trying to draw the future in terms of points: what will it be in five or seven years? But I do not think that my attempts can be compared with the work of Mark, Ben and their team. They understood the next generations of agrarian technology, smart clothes ★ , software for drones, while many of us do not have such expertise and such connections. ”
Andriessen and Horowitz launched the company in 2009. At that time, the venture capital market was stunned by the recession. Their friend Andy Racleff (Andy Rachleff ★ ), a former venture capitalist, helped them develop a strategy by talking about their calculations. Each year, only fifteen new technology companies reach annual revenues of one hundred million dollars. They form 98% of the market capitalization of all companies that have become public. So a16z should just find these fifteen companies and meet them. “The quality of the flow of offers ★ decides everything,” says Andriessen. "If you're in the second tier, then you have no chance of meeting with one of those great companies." A leading investment banker who brought a lot of software developers to the public market explains: "I send ninety percent of my efforts to search for deals from the eight best venture funds, ten percent to the next twelve, zero percent I give to everyone else."
')
Everyone knows, but they prefer to keep silent about the fact that over the past five years, three-quarters of venture funds have not been able to show profitability above the Nasdaq ★ indexes. In her caustic report, ★ Diane Mulkahi (Diane Mulcahy ★ ) calculated: “Since 1997, venture capitalists have received less cash than they have invested.” The truth is that the majority of venture capitalists exist only for the fees they receive for forming new funds once every three years. Capital return rates are hidden behind non-disclosure agreements. Venture funds routinely overstate them, luring both investors and entrepreneurs. "You can not find a venture capital fund, which states that it is not in the upper quartile," one of the younger partners angrily resents. Often, venture capital funds buy only the name, investing at a high price in the "hot" companies in the later rounds to add them to their portfolio.
A16z at first did not have any small achievements to show itself. Therefore, Andreissen and Horowitz turned to their friend Michael Ovitz (Michael Ovitz ★ ), who in 1974 founded the Creative Artists Agency (CAA ★ ) talent search agency in Hollywood, for tactical advice. To distinguish himself from others, Ovitz advised to consider an entrepreneur as a client: “Develop your platform in the long run, do not dwell on a specific transaction. Call each partner, offer unique services, help people who are not your customers. Break away from competitors, becoming a machine for the fulfillment of desires. "
Assuming that the very best CEOs grow from the founders - look at Intel, Apple, Oracle, Google, Facebook - Andriessen and Horowitz invited senior partners who themselves were the founders or started the company. The next step was to create an illusion of authority: rent an office on Sand Hill Road and cover it with paintings by Robert Rauschenberg ★ and Saul Levitt ★ . (This is another imitation of Ovitsa who donated a picture of Roy Lichtenstein ★ to the CAA lobby. It was so huge that when the company moved to a new office, the picture had to be left in the old one.) They were deliberately punctual, fining each other for every minute of late on the pitch, they preferred glass to plastic, spoke without haste and gave detailed explanations (until the entrepreneur confirms his understanding) in handwritten notes. A16z beat the drums, convening startups, while most venture funds did not do that (the Sequoia Foundation uses the slogan “Entrepreneurs Lead Entrepreneurs”). Techno-publicist Margit Wenmahers (Margit Wennmachers ★ ) gathered a marketing department of eight people and made publications in Forbes ★ and Fortune ★ .
Andrissen and Golovitsov believed that the formation of a qualitative flow of transactions will take years. Therefore, instead of fighting for participation in round A - the most competitive, because it is here that you can acquire the largest chunk of a rising company - you decided to provide seed investment for eighty startups. They will not get the usual seats for investors on the board of directors (otherwise they would each have to take a seat on forty councils), but they will help eighty companies, and then they will provide round A for the twelve best ones.
The strategy contained omissions. Entrepreneurs want to see a venture investor on the board of directors, and the younger partners of the fund also want the same: this is how you can truly recognize the company. If the fund does not invest in the company at the next round, it gives a strong negative signal to the market about it, which is not very friendly towards entrepreneurs. Moreover, investing in such a number of companies at the same time, a16z creates significant costs for lost profits ★ . In the first year, the foundation invested two hundred and fifty thousand dollars in a company called Burbn, which soon found its niche and turned into Instagram ★ . But a16z could not increase their share, so they already invested in the short-lived photo application PicPlz. And although the return on investment reached 312x when Facebook bought Instagram, this huge multiplier was appended to a modest sum of seventy nine million dollars. Elizabeth Obershaw (Elizabeth Obershaw ★ ), managing director of the Horsley Bridge Foundation, a prominent junior partner who invested money in a16z after some debates, says: “Our arguments against were that we didn’t think their original model would work at all . The pros were Mark and Ben themselves. We decided that they know how to learn and adapt, and that they recognize the shortcomings of the model quickly enough to fix them. Well, there were changes in the industry, there was an opportunity to create it anew. ”
They learned quickly. The A16z Foundation received the management of three hundred million dollars and in July of 2009 opened its doors. After completing many planting rounds, he among other things spent fifty million dollars on the purchase of three percent Skype. Two years later, Microsoft bought Skype, the return on investment was 4x. Andreyssen believed that everyone underestimated the volume of the Internet market. So, in 2010, having collected a much more voluminous second fund, the company spent one hundred and thirty million dollars on the repurchase of Facebook and Twitter shares with unprecedented high marks. Other venture capitalists were freaking out that, supposedly, a16z was trying to “buy their way”: Skype was a recognized company, not a start-up, and deals with Facebook and Twitter were more likely to buy beautiful names for a portfolio. But, as Ron Conway ★ , a leading business angel of Silicon Valley, remarked: “Twenty-four months later, the whole city was gossiping about Andreessen Horowitz.” The company managed to get a hundred millionth round A for GitHub ★ , which Conway called the “deal with the toughest competition in five years.” Chris Wanstrath ★ , co-founder and CEO of GitHub, says that he was most attracted by the level of service at a16z: “As if in a buffet, they offered a choice of delicious dishes, and we wanted to try each one of them.”
Six years later, Andreissen believes that a16z is considering and concluding enough new deals to confidently hold a place among the three most sought-after venture companies. (And this is quite consistent with the generally accepted point of view in the Valley.) The very first investment return was 2x, which included such powerful companies as Slack and Okta authorization service. The internal rate of return on investments of the fund of 2009 (average annual profit) is fifty percent, which is a fairly high value among the funds created in the same year. (The Sequoia’s corresponding fund figure is sixty-nine percent.) The second year of investment includes Pinterest and Airbnb, and the third year includes Zenefits, GitHub, and Mixpanel; and both are in the black. Dear junior partner of the company emphasizes: "They are among the leaders." Andriessen is cautious: “We still have a lot to do to ensure a good return on investment. I would not like to say that we are “number one” until it is ten to fifteen years old. Until then, we are like a Schrödinger cat, and I have strong arguments both in favor of the fact that our cats are alive and that they are dead. " ▼
To be continued…
Part 1 | Part 2 | Part 3 | Part 4 | Part 5 ← | Part 6 | → Part 7 | Part 8
About the author: Ted Friend has been a regular contributor to The New Yorker since 1998. Author of various reports and investigations, multiple winner of awards in the field of journalism.
Photo: Kooroshication CC BY 2.0
Most venture capital firms work as guilds: each partner works with its own range of companies, and a small common team helps in business development and personnel search. A16z has introduced a new model: a venture company. The senior partners in such a company receive about three hundred thousand dollars a year, which is much less than a million dollars standard for the industry, and the rest goes to pay for sixty-five specialists in business, technology, market development, corporate development and marketing. A16z supports a network of twenty thousand contacts. Two thousand verified companies annually participate in meetings with fund startups in a special project launch center. This generates a long chain of transactions of more than three billion dollars. Andreissen tells me: “We give the founders all the superpower of our network in order to give hyper-acceleration to one of the founders, turning it into a full-fledged CEO for five years.”
The fourteen people involved in the deal preparation team provide quick access to any new technology. The A16z is similar to the Iron Man ★ costume for Andrissen’s flights in his imagination. Jim Breyer ★ , who led the first round of funding for Facebook at Accel Partners, says: “Most of the time I spend trying to draw the future in terms of points: what will it be in five or seven years? But I do not think that my attempts can be compared with the work of Mark, Ben and their team. They understood the next generations of agrarian technology, smart clothes ★ , software for drones, while many of us do not have such expertise and such connections. ”
Andriessen and Horowitz launched the company in 2009. At that time, the venture capital market was stunned by the recession. Their friend Andy Racleff (Andy Rachleff ★ ), a former venture capitalist, helped them develop a strategy by talking about their calculations. Each year, only fifteen new technology companies reach annual revenues of one hundred million dollars. They form 98% of the market capitalization of all companies that have become public. So a16z should just find these fifteen companies and meet them. “The quality of the flow of offers ★ decides everything,” says Andriessen. "If you're in the second tier, then you have no chance of meeting with one of those great companies." A leading investment banker who brought a lot of software developers to the public market explains: "I send ninety percent of my efforts to search for deals from the eight best venture funds, ten percent to the next twelve, zero percent I give to everyone else."
')
Everyone knows, but they prefer to keep silent about the fact that over the past five years, three-quarters of venture funds have not been able to show profitability above the Nasdaq ★ indexes. In her caustic report, ★ Diane Mulkahi (Diane Mulcahy ★ ) calculated: “Since 1997, venture capitalists have received less cash than they have invested.” The truth is that the majority of venture capitalists exist only for the fees they receive for forming new funds once every three years. Capital return rates are hidden behind non-disclosure agreements. Venture funds routinely overstate them, luring both investors and entrepreneurs. "You can not find a venture capital fund, which states that it is not in the upper quartile," one of the younger partners angrily resents. Often, venture capital funds buy only the name, investing at a high price in the "hot" companies in the later rounds to add them to their portfolio.
A16z at first did not have any small achievements to show itself. Therefore, Andreissen and Horowitz turned to their friend Michael Ovitz (Michael Ovitz ★ ), who in 1974 founded the Creative Artists Agency (CAA ★ ) talent search agency in Hollywood, for tactical advice. To distinguish himself from others, Ovitz advised to consider an entrepreneur as a client: “Develop your platform in the long run, do not dwell on a specific transaction. Call each partner, offer unique services, help people who are not your customers. Break away from competitors, becoming a machine for the fulfillment of desires. "
Assuming that the very best CEOs grow from the founders - look at Intel, Apple, Oracle, Google, Facebook - Andriessen and Horowitz invited senior partners who themselves were the founders or started the company. The next step was to create an illusion of authority: rent an office on Sand Hill Road and cover it with paintings by Robert Rauschenberg ★ and Saul Levitt ★ . (This is another imitation of Ovitsa who donated a picture of Roy Lichtenstein ★ to the CAA lobby. It was so huge that when the company moved to a new office, the picture had to be left in the old one.) They were deliberately punctual, fining each other for every minute of late on the pitch, they preferred glass to plastic, spoke without haste and gave detailed explanations (until the entrepreneur confirms his understanding) in handwritten notes. A16z beat the drums, convening startups, while most venture funds did not do that (the Sequoia Foundation uses the slogan “Entrepreneurs Lead Entrepreneurs”). Techno-publicist Margit Wenmahers (Margit Wennmachers ★ ) gathered a marketing department of eight people and made publications in Forbes ★ and Fortune ★ .
Andrissen and Golovitsov believed that the formation of a qualitative flow of transactions will take years. Therefore, instead of fighting for participation in round A - the most competitive, because it is here that you can acquire the largest chunk of a rising company - you decided to provide seed investment for eighty startups. They will not get the usual seats for investors on the board of directors (otherwise they would each have to take a seat on forty councils), but they will help eighty companies, and then they will provide round A for the twelve best ones.
The strategy contained omissions. Entrepreneurs want to see a venture investor on the board of directors, and the younger partners of the fund also want the same: this is how you can truly recognize the company. If the fund does not invest in the company at the next round, it gives a strong negative signal to the market about it, which is not very friendly towards entrepreneurs. Moreover, investing in such a number of companies at the same time, a16z creates significant costs for lost profits ★ . In the first year, the foundation invested two hundred and fifty thousand dollars in a company called Burbn, which soon found its niche and turned into Instagram ★ . But a16z could not increase their share, so they already invested in the short-lived photo application PicPlz. And although the return on investment reached 312x when Facebook bought Instagram, this huge multiplier was appended to a modest sum of seventy nine million dollars. Elizabeth Obershaw (Elizabeth Obershaw ★ ), managing director of the Horsley Bridge Foundation, a prominent junior partner who invested money in a16z after some debates, says: “Our arguments against were that we didn’t think their original model would work at all . The pros were Mark and Ben themselves. We decided that they know how to learn and adapt, and that they recognize the shortcomings of the model quickly enough to fix them. Well, there were changes in the industry, there was an opportunity to create it anew. ”
They learned quickly. The A16z Foundation received the management of three hundred million dollars and in July of 2009 opened its doors. After completing many planting rounds, he among other things spent fifty million dollars on the purchase of three percent Skype. Two years later, Microsoft bought Skype, the return on investment was 4x. Andreyssen believed that everyone underestimated the volume of the Internet market. So, in 2010, having collected a much more voluminous second fund, the company spent one hundred and thirty million dollars on the repurchase of Facebook and Twitter shares with unprecedented high marks. Other venture capitalists were freaking out that, supposedly, a16z was trying to “buy their way”: Skype was a recognized company, not a start-up, and deals with Facebook and Twitter were more likely to buy beautiful names for a portfolio. But, as Ron Conway ★ , a leading business angel of Silicon Valley, remarked: “Twenty-four months later, the whole city was gossiping about Andreessen Horowitz.” The company managed to get a hundred millionth round A for GitHub ★ , which Conway called the “deal with the toughest competition in five years.” Chris Wanstrath ★ , co-founder and CEO of GitHub, says that he was most attracted by the level of service at a16z: “As if in a buffet, they offered a choice of delicious dishes, and we wanted to try each one of them.”
Six years later, Andreissen believes that a16z is considering and concluding enough new deals to confidently hold a place among the three most sought-after venture companies. (And this is quite consistent with the generally accepted point of view in the Valley.) The very first investment return was 2x, which included such powerful companies as Slack and Okta authorization service. The internal rate of return on investments of the fund of 2009 (average annual profit) is fifty percent, which is a fairly high value among the funds created in the same year. (The Sequoia’s corresponding fund figure is sixty-nine percent.) The second year of investment includes Pinterest and Airbnb, and the third year includes Zenefits, GitHub, and Mixpanel; and both are in the black. Dear junior partner of the company emphasizes: "They are among the leaders." Andriessen is cautious: “We still have a lot to do to ensure a good return on investment. I would not like to say that we are “number one” until it is ten to fifteen years old. Until then, we are like a Schrödinger cat, and I have strong arguments both in favor of the fact that our cats are alive and that they are dead. " ▼
To be continued…
Part 1 | Part 2 | Part 3 | Part 4 | Part 5 ← | Part 6 | → Part 7 | Part 8
About the author: Ted Friend has been a regular contributor to The New Yorker since 1998. Author of various reports and investigations, multiple winner of awards in the field of journalism.
Photo: Kooroshication CC BY 2.0
Source: https://habr.com/ru/post/292894/
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