Killing them softly
This piece originally appeared in Reuters Magazine.
As the embodiment of all that is great and good about Silicon Valley, Marc Andreessen is surprisingly unassuming. He is the earnest, clean-cut Midwestern boy made good, the state school grad who built a better mousetrap—the Web browser—and saw the world beat a path to his door. If being on the cover of Time magazine at age 24 ever went to his head, he didn’t show it. Andreessen simply did what great entrepreneurs are supposed to do: start new companies, again and again. His subsequent ventures never achieved the notoriety of his first, Netscape Communications, but they put to rest any suspicions that his early triumph was a fluke.
Over the years, Andreessen has earned great respect around Silicon Valley as a true visionary who understands where the technology world is going. He sits on the board of leading companies such as Facebook, Hewlett-Packard, and eBay, and serves as a mentor to up-and-coming entrepreneurs, notably Facebook CEO Mark Zuckerberg. And he’s a nice guy to boot, unpretentious and always excited to engage intellectually on technology, finance, company creation, and just about any other topic. What Andreessen has not done, though, is the one thing required for admission to the top tier of the Silicon Valley pantheon: build and lead a great company that defines the technology landscape for generations. Think of Apple, Hewlett-Packard, Intel, or Microsoft, and you will also conjure up the names that head any list of great technology industry leaders: Steve Jobs, Bill Hewlett, David Packard, Bob Noyce, Andy Grove, Gordon Moore, and Bill Gates.
Andreessen’s response to such observations is that he has no desire to run a big company. “I’m not psychologically wired for it,” he says. “All the people and process aspects of it, I can force myself to do but I don’t really like. When I was in management I never really loved it. I found it very stressful.” But even though he might sometimes claim to like nothing better than curling upwith a good book, Andreessen still has big goals. One might even say he is out to show that the very particular type of Silicon Valley role-player that he embodies—the entrepreneurial technologist whose strength is vision rather than management—can be just as influential as the Fortune 500 CEO.
The vehicle of his ambitions is a venture capital firm, Andreessen Horowitz, which he launched in 2009 with his longtime collaborator, Ben Horowitz. In less than three years, Andreessen Horowitz has shaken up the venture world by raising $2.7 billion and adopting an unconventional approach that includes big, expensive bets on relatively mature companies like Facebook and Twitter, along with a startling volume and variety of smaller deals. Venture investors play a singular role in the unique business culture of Silicon Valley, and the great ones are powerful and revered figures in their own right. But Andreessen Horowitz aspires to create a new type of venture firm, one that puts the technical founder in the driver’s seat and provides a host of services beyond mere dollars.
As with any startup, success is hardly assured. It’s rare that new firms break into the top tier of venture capital, and rivals grumble that Andreessen Horowitz is moving recklessly fast and will never be able to generate the fat investment returns that the blue-chip venture firms often achieve. The specter of the great dot-com bust of 2000 also looms large. For now, though, Andreessen is in his element, indulging his endless intellectual curiosity even as he orchestrates deals and proselytizes about how “software is eating the world.” With Horowitz, he has an intimate business partnership that, by all accounts, is exceptionally effective. He works near Stanford University, out of a gleaming office complex on Sand Hill Road that was built by his wife’s father, a prominent real estate developer. (His wife, Laura Arrillaga-Andreessen, teaches philanthropy at Stanford and is the founder of two nonprofits; the family foundation is just next door.)
“When we started this, people asked, ‘Why are you shifting to the dark side—why not start another company?’” Andreessen recalls. “It feels like I’ve been in training my whole career to do this. I don’t think I’d be qualified to be an investor if I hadn’t spent the last 20 years trying to build these companies myself.”
At 6 feet, 5 inches tall, with a gleaming bald pate, Andreessen has a commanding physical presence, but his personal style is anything but domineering. His default demeanor is cheery and chatty; he carries his fame lightly and doesn’t much like to talk about it. What he does like to talk about, though, is his philosophy of entrepreneurship and his detailed theories about the nature of Silicon Valley and what’s necessary for a startup company’s success.
Andreessen begins a long conversation one recent afternoon by recalling a seminal story about the early days of Silicon Valley, an Esquire magazine article by Tom Wolfe entitled “The Tinkerings of Robert Noyce.” “When I discovered that piece it was really eye-opening to me,” he recalls. “It was the story of the Midwestern values transplanted to California.” In his rapid-fire speaking style, he lists the Midwestern virtues—practicality, self-reliance, hands-on work, egalitarianism—and then the promise that California represented for someone raised in that culture. “California, a new frontier, new horizons, entrepreneurism, the gold rush, we can do anything, we can create things from scratch, we don’t have to be held back by the conservatives in the rest of the country—for 150 years people have been coming to California to do new things.” He notes that Philo Farnsworth, the inventor of television,was also a Midwestern boy who moved to San Francisco to change the world. “When I read about those guys I see a lot of myself. I came to California and I was like, wow, you can do a lot more here. What you don’t learn in the Midwest is that you can really have an impact.”
Andreessen’s move west is a well-known tale. He’d studied computer science at the University of Illinois at Urbana-Champaign and led the group that created Mosaic, the first real Web browser, a software program that made the then-nascent Internet relevant for the masses. Upon graduation, he went to Silicon Valley to look for a job, and fielded a handful of inquiries from top-tier technologists who recognized the possibilities in what he had done. One of those who got in touch was Jim Clark, founder of computer graphics pioneer Silicon Graphics, and before long the Young Turk and the wizened industry veteran had joined forces to start Netscape.
The launch of Netscape in1994 marked the beginning of the Internet era as we know it, but it’s easy to forget that little of what happened subsequently was foreseeable. Big telecom, media, and software companies thought the Internet was, at best, a useful utility for scientists. The incipient “information superhighway” would be a closed system that they would control. “Interactive television,” to be delivered by the cable companies, was all the rage. “Everybody thinks the Internet was obvious, but that was not the case at the time,” says Horowitz, who first met Andreessen at Netscape. “Nobody saw it coming. But Marc saw it as a college kid, and figured out how it would become mainstream.”
Andreessen says his personal goals were clear enough: “I didn’t grow up with a lot of money, so I was going to make some money, that was high on my list of goals,” he told me. “The minute I realized it was possible to build a business I said, ‘Oh yeah, that’s what I want to do.’” What he didn’t want to do, though, was actually run a business. “The people shit,” as he once called it, was not his thing. “I’m more of an introvert and more of an abstract thinker. Reading and learning and talking to people and thinking and writing—all of the intellectual side of it I love more than the emotional side.” It might seem a bit of a paradox, then, that Andreessen Horowitz as a firm believes strongly in the idea of the founder-CEO. The traditional Silicon Valley model is that the visionary entrepreneur starts the company, and if it is successful, adult supervision then arrives in the form of an experienced CEO. But Andreessen points out that a large percentage of the truly great companies—IBM, Hewlett-Packard, Apple, Microsoft, Oracle, and now Facebook—were run by their founders for a long time.
Andreessen himself is the classic technical founder, the person who carries the vision, and, crucially, drives the product strategy, which as Horowitz notes is a function that is often misunderstood. In technology, product strategy is everything, and executing it well requires an acute sense of the industry landscape and how it is evolving, the needs of customers, and the technical and organizational capabilities of the company. If you have the visionary, you can do pretty well as long as you have someone else who can actually run the business. In Andreessen’s case, that person is Horowitz. “We have complementary skills,” says Horowitz. “I’m not a technology visionary in his class, but on how an organization works and is effective, how you build a company—I’m more intuitive and more knowledgeable.”
The two men have known each other for 17 years and did some investing together—“beta-testing” the concept, as Andreessen says—before they started the firm. Together they developed the model for Andreessen Horowitz, which involves providing abroad suite of services to the companies in their portfolio. Venture investors play a singular role in the unique business culture of SiliconValley, and the great ones are powerful and revered figures in their own right. Unlike most venture firms, Andreessen Horowitz has a professional staff of headhunters, finance experts, public relations pros, and corporate sales gurus who can help young companies fill the inevitable gaps in their expertise and introduce them to the right people. One of the inspirations for this structure, interestingly, was Creative Artists Agency, the Hollywood talent agency where Michael Ovitz, whom Andreessen considers a mentor, pioneered the idea of a full-service firm that packaged all of the talent necessary to make a movie.
At Andreessen Horowitz, the decision of whether to invest in a particular deal is made not by a vote of the partners (there are now six), but rather through a formal debating process in which people are assigned to be critics or supporters of a particular point of view. Andreessen is always persuasive, say those who have engaged with him, but as a matter of principle does not impose his own view. “He wants to make sure that he is heard, and that his point of view is considered, which is different from him having to have his way,” says Eric Vishria, cofounder of a startup called RockMelt, in which Andreessen has invested. “He always respects a counter-opinion.” With Horowitz, debate is a daily sport. “It’s hard to defeat Marc in an argument,” Horowitz says with a smile. “Sometimes I’ll just say, ‘I’m losing this argument but I’m right, and you just have to trust me on that.’”
Both men have a friendly mien that masks the exceptional aggression and competitiveness that’s critical for business success. These days, it is Horowitz who takes center stage in any public spat, as with a recent incident in which he responded to critics who said Andreessen Horowitz had mishandled its investment in a startup called Instagram, which was acquired by Facebook in April for a shocking $1 billion. “Despite Instagram’s awesome performance and our monstrous return, a number of articles have come out criticizing us for not making even more money on our investment,” Horowitz wrote on the firm’s blog. “Ordinarily, when someone criticizes me for only making 312 times my money, I let the logic of their statement speak for itself.” His original post, Horowitz says, was “more aggressive” than what was ultimately published, but Andreessen “toned it down a little.” What was perhaps most surprising was that the post appeared at all. But being more visible, more vocal, and more blunt than most venture capitalists is also part of Andreessen Horowitz’s plan.
One might think that when it comes to raising investment capital, everyone’s money is equally green. But in Silicon Valley that is most emphatically not the case. There are scores of venture capital firms, but just a handful are considered top tier. For the entrepreneur, having a blue-chip name behind the company is a huge advantage, as it confers instant credibility and thus makes it much easier to recruit good employees, convince early customers, network with the best and brightest, and raise more money when the time comes. The mirror of this dynamic is also critical: in order to be in the top tier, venture capitalists need to be able to invest in the best entrepreneurs and get in on the best deals. The truth is, if you have already done a successful startup and you have a good idea, or if you are an obviously brilliant technologist and you have a great idea, the venture capitalists will come calling. What results is a not so-virtuous circle in which the top-tier firms get all the best deals, which enables them to remain top-tier. Almost all the money that is made in venture investing comes from a handful of investments.
The key to starting a big-time venture firm, then, is to somehow be a big-time venture firm right out of the gate. It helps quite a lot to have Andreessen in your name (Horowitz said he had to convince Andreessen that his name should go first, for branding reasons). Having Andreessen in the name, and having the large fund that the Andreessen name helped raise, also enables the company to elbow its way into big-time, reputation-building deals like Facebook and Zynga and Groupon and Twitter, albeit at very high prices. Andreessen Horowitz might triple its return on the 2010 investment in Facebook, as opposed to the 1,000 times return that Accel Partners stands to reap on its 2005 Facebook investment.
All the services that Andreessen Horowitz provides—and the aggressive public relations strategy that has helped the firm build its visibility—are also designed to make the firm an appealing choice for entrepreneurs who have a choice. And then of course there is Andreessen himself. “Working with Marc was an intriguing notion because of the kind of leader he is, and that he was a hard-core entrepreneur himself,” says Osman Rashid, who started the successful textbook rental company Chegg and was seeking funding for his new education startup, Kno, around the time Andreessen Horowitz was launched. Chegg had been backed by Kleiner Perkins, and Rashid had little doubt that he could again get funding from a top-tier firm.
He was introduced to Andreessen by one of Chegg’s angel investors. “The idea of working with an entrepreneur turned investor was extremely appealing,” says Rashid. Still, Andreessen Horowitz was a new and unproven firm, so it wasn’t an obvious choice. But Rashid was persuaded almost instantly. “It was 15 or 20 minutes into the meeting when I saw that this was a different kind of meeting, based on the questions they were asking,” he recalls. “They were the kind of questions I would have asked. It became clear to me that this would be a different kind of relationship than the typical investor-entrepreneur relationship.” Andreessen Horowitz has now invested more than $30 million in Kno, and Rashid’s enthusiasm is unabated. “I can go to him and say, ‘Marc, I want to tap into this big beautiful brain of yours.’ He really helps us think through the strategy.”
Andreessen Horowitz has made more than 100 investments. Other venture capitalist firms, while griping that Andreessen Horowitz is stealing their deal flow and driving up prices for everyone, have now begun investing more heavily in recruiters and other professional staff too.
People in Silicon Valley like to talk about the “ecosystem” that makes it unique. Technology is driven forward and money is made by a continual process of combining and recombining talent—technical talent first and foremost, but also financial, legal, design, marketing, and sales talent. A company like Facebook emerges, people enjoy great personal success, and then they leave and start their own companies. An ecosystem, by definition, doesn’t have a leader. But it does have what one might call agents of fecundity, who feed nutrients across the landscape. The equivalent engineering metaphor would be the network, and Andreessen likens himself to a hub on a network, with the definition of an effective hub being one that “adds value to every node on the network.” Bob Sutton, a professor of management science and engineering at Stanford University, agrees: “Andreessen in particular and venture capitalists in general are in so many overlapping networks that they are in a position to see and understand things, and make connections, and act as brokers, and they have a structural position of influence.”
People who know Andreessen always speak of his intelligence and his track record of seeing around corners. Netscape aside, his second startup, Loudcloud, anticipated the cloud computing revolution, and his third, Ning, was to serve the nascent explosion in social networking. When he declares that any talk of a new tech bubble is wrongheaded, and that in fact we’re still at the front edge of the changes to be wrought by advanced software and virtually unlimited computer processing and communications capabilities, it’s hard to dismiss him as an engineer of hype. But what Larry Summers, the former U.S. treasury secretary and now anadviser to Andreessen Horowitz, calls his “capacity for aggressive commercial focus” may be less obvious but equally important. Building companies that have a big impact on the world, and making lots of money in the process, is more than a blood sport in Silicon Valley, after all; it’s the very essence of the place. Venture capitalists usually possess a cold-blooded side that enables them to unplug the dreams of an entrepreneur the minute the business dynamics don’t look right. That part of the game doesn’t seem an easy fit for an intellectual Midwesterner like Andreessen, but he’s thought it all through more carefully than one might think.
At dinner, he sips his Scotch delicately, a measure, perhaps, of his thoughtfulness in all things. Honesty and directness—that Midwestern thing again—can provide a simple basis for the tough decisions. “It’s better to stab someone in the front than to stab them in the back,” he says. “There’s a big difference.” He’s also hardened by some dark days—at Loudcloud, which almost did not survive the dotcom bust, and at Ning, which didn’t fulfill its promise, and even at Netscape, ultimately crushed by Microsoftand sold for scrap to AOL. In fact, for all his accomplishments and the enormous respect they command, Andreessen has yet to have an unqualified success. If he can prevail with Andreessen Horowitz—establish the first new top-tier VC firm in a generation and nurture some of the companies that lead the new digital revolution—he may just define a new type of business leadership.