Was Venture Capital an Attractive Industry to Enter in 2009? What Entrepreneurial Opportunity Did Andreessen and Horowitz See?

1. Was venture capital an attractive industry to enter in 2009? What entrepreneurial opportunity did Andreessen and Horowitz see? 

I don’t think it was very attractive to enter in the sense that typically only the top dogs made money or had success. Being a new VC, that would make it extremely hard to become successful as a VC. Also being that this time period is coming after some major financial crisis’s high valuations for tech companies. In the case it states, “When we started a16z, many investors were convinced that Google was an anomaly and that no other Internet company would ever again grow that big.” They were clearly at a disadvantage for their VC frim right from the beginning because many did see success happening.

Why I do think the VC industry was ultimately attractive to Andreesen and Horowitz can be summed up in this paragraph from the case, “We’d been customers of venture capital for 15 years. Not just at Netscape and Loudcloud, but also indirectly as angel investors, board members, and start-up advisors. We’d had terrific experiences with Kleiner Perkins’s John Doerr at Netscape and Benchmark’s Andy Rachleff at Loudcloud—they represented the very best of what venture capital has to offer. But we’d heard lots of other entrepreneurs tell horror stories about their VCs or ask, “Is that all there is?” There’s plenty of dysfunction inside venture firms. So we set out to create a firm that we would have wanted to work with.” They were customers of VC firms. They knew the process of how it went. They also had something to motivate them in the sense that they had friends with horror stories and their own experiences to pull from so that they could now begin a VC firm of their own to actually help entrepreneurs.

2. "To succeed as a VC, you have to do three things really well: source, pick, and win" (case, p.8). What does a traditional VC firm do to source, pick, and win? How does a16z approach these key success factors differently than other VC firms?

Traditional VC firms typically look for companies that have few weaknesses in the sense that they are “safe bets.” They don’t want any surprises or don’t feel the need to take too many risks. They want to know that what they’re investing in is going to be an instant success rather than trying to turn an idea or business that may have more weaknesses than others, into something that could be a goldmine.

With a16z, its stated in the case, “We look for strength rather than lack of weakness. It’s easy to point out what’s wrong with a deal, particularly when you say ‘no’ 98% of the time. We want a passionate advocate— at least one general partner who is just pounding the table to do the deal.” Another reason why I think a16z is a success is because I think they are the advocate for the underdog or the business or idea that gets overlooked often because maybe the CEO isn’t what a “typical” CEO is like or that maybe the market or idea itself doesn’t look promising immediately. I really liked this quote from the case about some business having weaknesses and flaws up front but how they shouldn’t be the only determinant for success. “Google, Facebook, eBay, and Oracle all had massive flaws as early-stage ventures, but they also had overpowering strengths. Some VCs have all their partners score a deal’s potential. We’ve learned that those aggregate scores don’t correlate strongly with ultimate returns.”

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