Here are several excerpts from an excellent article by Kevin Maney, a contributor for Fortune, Marc Andreessen Puts His Money Where His Mouth Is:
After co-founding Netscape, Marc Andreessen later co-founded his second enterprise, Loudcloud, with Ben Horowitz (formerly an unheralded product strategist at Netscape) and made him the CEO. Andreessen has since invested — often with Horowitz, sometimes alone — his own money in dozens of tech companies, including Silicon Valley’s star of the moment, Twitter.
Now Horowitz and Andreessen are turning their hobby into a full-time gig, with other people’s money: On July 6, armed with $300 million, they officially launched a new venture capital firm that aims to reinvent the way money is doled out in Silicon Valley while reflecting the founders’ obsessively Net-centric world view. The firm’s name: Andreessen Horowitz.
Over the past two years Andreessen has emerged as the most connected, prescient, right-place-right-time force in Silicon Valley. In addition to his Twitter stake, he sits on Facebook’s board and advises the CEOs at both companies. He is co-founder and chairman of Ning, a service that lets people create their own niche social networks, like 50 Cent’s ThisIs50.com. Ning, co-founded with CEO Gina Bianchini, adds 2.5 million members a month. Andreessen owns stakes in Digg, LinkedIn, and Will Ferrell’s Funny or Die comedy site. He recently joined the board of eBay to help that company turn around, and he is the author of a hugely influential blog that went on hiatus in August 2008. By the time this story appears, he promises, the blog will be back with a new design.
Entrepreneurs and investors seek him out for his blunt advice and because he’s experienced the ups and especially the downs of life in the Valley…
Just five years ago Andreessen’s image was more that of a smart, amiable billionaire playboy who dabbled ineffectually at technology’s fringes. He seemed more Paul Allen than Bill Gates. “Marc is like a rock star who had his first album hit big, and then the next ones were not quite the same,” says Steve Case, who ran AOL when it bought Netscape in 1999 and made Andreessen AOL’s chief technology officer. “There’s a lot of respect for the fact that he persevered. He evolved a couple of times and ultimately succeeded.”
Could Andreessen end up becoming the next great tech investor? He certainly is taking a great leap: There’s a huge difference between dabbling in startups with your own pocket change and investing big slugs of institutional money. Expectations for Andreessen’s venture may be especially high. Venture capitalists are always on the lookout for the “next Netscape,” a game-changing company that can produce off-the-charts financial returns for its initial investors; now imagine the pressure the co-founder of the original Netscape faces. Sure, Andreessen has been on a roll of late, but can he maintain his startup-picking hot streak? And so, at the ripe old age (by Silicon Valley standards) of 38, Andreessen is once again having to prove that he still has not only tech chops, but financial and management savvy too.
Andreessen’s faith in the power of the web isn’t terribly surprising, given his front-row seat at the outset of the Internet revolution. But Andreessen is an online absolutist. Andreessen’s unwavering view is that the Internet will soon take over all aspects of our lives. Online services won’t merely supplement your TV viewing or newspaper reading, but will replace those activities altogether. Amazon’s Kindle is okay, but it would be so much better with access to the Net.
In some ways Andreessen has already put his money where his mouth is. He invested in LinkedIn partly because he believes employees won’t be hired through jobs listings and résumés but through myriad connections. He built Ning because he feels people will move narrow aspects of their social lives onto the Net, convening online in groups specifically for, say, beagle owners.
He tells me Facebook “will be bigger than Apple” and declares that the social-networking company will become the mass-market window to the web, much as Google has been for the past six or seven years. Twitter, so far criticized for having no way to make real money, will get advertisers to pay to reach people as they are sending messages about the sponsor’s products.
His vision of an all-online world extends to corporations; he believes most applications are going to be delivered over the Internet. Companies such as Salesforce.com and Netsuite already offer “software as a service,” but Andreessen thinks the applications online today are just a start; even hard-core business tools will move to the so-called Internet cloud. He has personally invested in AppNexus, which aims to deliver the capabilities of an entire data center via the web, and in Good Data, which serves up data analytics.
He is, above all, bullish on Silicon Valley, where he sees the recessionary fog lifting. His new fund still has a chance to invest while valuations are low. Even better, a generation of entrepreneurs burned by the dotcom crash is being replaced by a generation that doesn’t remember the dotcom crash. Facebook CEO Mark Zuckerberg recently asked Andreessen what exactly Netscape did, then had to remind the mock-outraged Andreessen that at the time, Zuckerberg was still in junior high. The Valley’s fearlessness is coming back, Andreessen tells me.
Andreessen started the fund because he saw a chance to exploit a shift in the startup milieu. As he explains it, technology and software tools have driven down the cost of starting a tech company by more than 100 times compared with a couple of decades ago, when modern venture capital structures were put in place. A company that needed $20 million to get a product out the door in the late 1980s now needs just $200,000. If most cool tech startups today need six-figure investments or less, traditional venture funds can’t join in. Their rules allow them to invest only bigger amounts — usually in the millions — either to fund expensive first-stage companies or to get in on later stages.
The Andreessen Horowitz strategy of investing in a menagerie of startups could pose hazards. “If I were one of the guys whose company stumbles, will [Andreessen and Horowitz] be there to help me, or will they have time?” says Paul Holland, general partner at Foundation Capital, a Silicon Valley venture firm. “Where the pain part of it comes in is when you get up to those 60 or 70 investments. It will be an interesting chore to keep track of all that.” Adds another investor, who doesn’t want to be quoted and risk alienating Andreessen: “Marc is so good and persuasive, he should pick six companies and have a concentrated focus.”
The strategy will also lead to conflicts. It has happened already. When Andreessen invested in Twitter, no one thought it would turn into a Facebook competitor. Increasingly, though, that’s happening, and Andreessen is trying to straddle both companies. Ning, which allows organizations to create their own mini Facebooks, obviously could bump up against Facebook and Twitter. Andreessen says he doesn’t see a problem as long as he discloses his conflicts and guards confidential information.
