How does a16z achieve the ultimate in investment?

Looking at the entire cryptocurrency venture capital circle, it may be difficult to find an institution like a16z that does not look like a VC, but does its investment to the extreme.

From the founder to the GP, it seems that every member has a deep understanding of marketing and makes good use of media tools to pave the way for investment. Even the original partner Benedict Evans also said with a smile, “a16z is a media company that makes profits through venture capital.” .

Open a “crypto entrepreneurship school”, intensively recruit talents with financial supervision/government background, organize a lobbying team to contact officials around the president, and submit cryptocurrency supervision proposals to the government… where traditional VCs rarely play, a16z is all in Try one by one.

However, it is such a VC that is not like a VC, but it has successfully captured the top projects in the cryptocurrency market in many fields such as public chain, payment, DeFi, and trading. The best record is undoubtedly the largest CEX platform Coinbase in the United States. Over 7 billion US dollars in return on investment.

In the Internet track, a16z also has a remarkable record. Since its establishment in 2009, the agency has successively invested in Facebook, Twitter, Skype, Airbnb, Stripe and other giants. It has been named a “Silicon Valley VC Disruptor” and has been among the top three venture capitalists in Silicon Valley within 6 years of its establishment.

What is the method to make a16z the “victorious general” in the venture capital circle? How did they achieve the ultimate in investment?

1. The soul of a16z: Marc Andreessen

Any great company cannot do without an outstanding founder, and a16z is no exception.

As one of the helms, Marc Andreessen’s acumen and forward-looking for technological development has become an important reason why a16z can repeatedly bet on unicorn companies, and this can also be found in his early experience.

Like Vitalik, the founder of Ethereum that most people know, Andreessen is also a technical genius. At the age of 9, he began to contact computers, taught himself the Basic language, and developed the earliest browser software during the university in 1992. After graduation, he was invited to join the communications company Mosaic (later renamed Netscape), and with the lead development of the new version of the Mosaic browser (the first web browser that is commonly used in the history of the Internet and can display pictures) for Netscape to seize the browser market Over 80% share.

In the capital market, Andreessen’s impact is more intuitive. It has shaped Netscape’s competitiveness in the Internet field, which has greatly pushed up market expectations for the company. In 1995, Mosaic went public, and its opening price soared to US$71 (the closing price of the day was US$58.5), far exceeding the investment bank’s estimate of US$14 per share. The Wall Street Journal commented on this, “It took General Dynamics 43 years to reach a market value of $2.7 billion, while Netscape only took 1 minute.”

However, although Netscape has a great advantage in the browser market competition and is also favored by the capital market, it was eventually sold to AOL in 1998 due to its defeat in the subsequent competition with Microsoft. ). For Andreessen, this result led him and his old partner Ben Horowitz (colleague at Netscape, then project manager) to jointly establish a cloud computing and cloud storage company Loudcloud in 1999, with a valuation of 6,600 in two months. Ten thousand U.S. dollars.

Coincidentally, Loudcloud’s fate was as bad as Netscape. Under the Internet bubble, the company was forced to sell to HP in 2008. The following year, Andreessen joined Horowitz to enter the venture capital field, naming the organization “a16z” after their surnames (there are 16 letters between Andreessen and Horowitz).

Judging from Andreessen’s early experience, although the two participating companies were eventually forced to change hands, in these two experiences, his technical acumen and insight into trends are fully revealed. While in college, it was when he discovered the limitations of the World Wide Web and realized that easy-to-use, graphical web browsers have a potential market, Andreessen embarked on the development of browsers. Before starting his business, he realized that the browser market continued to expand. , Cloud computing based on software and network services will affect all enterprises, so Loudcloud, the company recognized as the first to enter the field of cloud services, was founded.

With his acumen and foresight in technological development, Andreessen predicted that software will penetrate into all walks of life as early as ten years ago, and put forward the forward-looking view of “software swallowing the world”. It is also based on Andreessen’s keen observation that in 2013, when most people did not understand and called Bitcoin a tulip, he boldly led a16z into the field of cryptocurrency, and once again predicted that “20 years later, we are like Discussing the Internet today is the same as discussing the blockchain.”

In addition to having an insight into the development trend of technology, he prefers to break conventional ideas/products, he is crazy about new things, and he is radical…..all the labels that can portray the portrait of Andreessen confirm that the founder of technical origin is natural Suitable to be a venture investor.

“In our opinion, the entire art of venture capital is a major breakthrough in ideas. The essence of innovation is that they are not so predictable.” Andreessen’s understanding of investment directly explains why he himself discovered and believed in BitTorrent in 2013. The potential of the currency and why a16z will deploy the cryptocurrency market before most traditional VCs. In terms of pursuing investment returns, Andreessen also clearly recognizes that it is difficult to make money by success and consensus, because if certain things have reached a consensus, then a large influx of funds will disappear and profit opportunities will disappear. Therefore, the essence of venture capital is to continuously invest in things that have not reached a consensus, that is, non-consensus things. Here, Andreessen defines “non-consensus” as “crazy”, investing in things that seem crazy.

a16z

(Picture: Andreessen published an article in The New York Times in 2014 to introduce the importance of Bitcoin)

Obviously, in Andreessen’s eyes, Bitcoin is another “non-consensus thing” after software. Its view of “investment must be radical” also makes a16z an agile cheetah, as long as it finds food that can be preserved. The offensive will be launched quickly. In 2019, after seeing the immeasurable investment potential of the cryptocurrency market, a16z did not hesitate to accept more stringent supervision as a cost to switch from a venture capital to a registered investment advisor in exchange for the right to freely conduct crypto transactions. (Note: Sequoia Capital also announced in October this year that it plans to register as an investment advisor to increase investment in cryptocurrencies)

In the scale of a16z’s capital injection, Andreessen’s “radical” investment style can also be seen. Since 2013, a16z has injected capital into Coinbase 8 times and has become the largest external investor on the platform. This year, according to incomplete statistics, a16z has invested in more than 40 projects (accounting for two-thirds of the total investment), of which more than 70% belonged to the lead investment. In addition, in the two rounds of financing completed by the NFT platform Opensea this year, the venture capitalist participated as the lead investor. In the unfinished month of November, a16 invested in 8 projects related to web3.0, games and NFT, and a transaction was conducted in about 4 days. It can be seen that Andreessen has accelerated the pace of a16z’s deployment in the cryptocurrency field.

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2. Horizontal development: looking for and serving smart brains

Every VC has its own investment strategy, and the rule of a16z is “investment.”

Within a16z, “pattern recognition” is often mentioned. When talking about investment, Andreessen pointed out that “to fight against innate pattern recognition”. In fact, “pattern recognition” refers to the automatic processing and research of patterns by computer using mathematical techniques. Interpretation, and “mode” is a collective term for environment and object. In Andreessen’s words, “to fight against innate pattern recognition” implies “to overcome the recognition of things with inherent thinking patterns.”

Because the future is unpredictable, a16z believes that only truly strong teams with R&D capabilities can cope with the unpredictable market, and those weak teams that cannot adapt to changes usually fail. “Identifying the right people is pattern recognition.” If the company’s entrepreneurs are good enough, they can correctly recognize and respond to market changes. This emphasis on entrepreneurs’ own abilities not only affects a16z’s selection of investment projects, but also makes it more inclined to choose entrepreneurs or CEOs when recruiting general partners. **

However, compared with searching for “smart brains”, most of a16z’s work focuses on “serving smart brains”, and this constitutes the most distinct difference between it and most VCs. “For true venture capitalists, VCs spend their time on hiring engineers for investment projects. This is not a glamorous job, but it is essential,” said Tren Griffin, a member of a16z.

a16z’s emphasis on post-investment makes it look more like Party B than Party A, and more like a brokerage company that focuses on marketing, rather than an employer who simply waits for returns. In fact, in the internal construction and development strategy of a16z, this venture capital, which deeply believes the importance of marketing, does intend to promote team members to become brokers of the projects they invest in, and opinion leaders in a certain field. Investment projects provide assistance to obtain a higher rate of return on investment and achieve a win-win situation.

Since September this year, Chris Dixon, a partner of a16z, has continued to publish Web3.0-related articles or opinions on social media. The company’s executives/legal advisors also spoke out on Web3.0 legislation during this period, and tried to communicate with government regulators. touch. During the three months that a16z promoted Web3.0, the company led the investment in projects such as XMTP, Mem Protocol, Nym and Kosen Labs, and about half of the Web3.0 projects that completed financing during the same period were included in its subordinates.

Remarketing is not a unique strategy of a16z in the cryptocurrency market. It was determined early in its establishment that marketing is essential to success, and it is Andreessen, the soul of this venture capitalist, who put forward this point. “Since the Internet bubble burst in 2000, a new generation of entrepreneurs has appeared in Silicon Valley. They are very technology-focused and very product-centric. (Although) they are building great technologies, but they don’t know anything about sales and marketing… …Many entrepreneurs who build great products don’t have a good distribution strategy at all. What’s worse, they insist that no distribution strategy is needed…”

Andreessen’s admiration of marketing has not only the impact of the family environment, but also the ideological penetration of the Hollywood gold broker Michael Ovitz.

In 1971, Andreessen was born in Iowa, USA. Both his parents were engaged in sales of agricultural products, perhaps due to the influence of the family environment. His marketing talent has been fully demonstrated since he entered the venture capital circle. At the personal level, Andreessen frequently appeared on social media, outputting opinions, and indirectly increased the exposure of a16z; at the company level, in the second year of a16z’s establishment, Andreessen recruited Margit Wennmachers, known as the “Silicon Valley Public Relations Sister”, to join the team to enhance marketing strength.

In the specific marketing strategy of a16z, I have to talk about Michael Ovitz. In 2009, when a16z was founded, Andreessen wanted to help the company quickly get out of the circle and gain popularity. At this time, Michael Ovitz, a co-founder of Hollywood’s top talent agency CAA (Creative Artists Agency), gave him a suggestion. It is precisely because of this suggestion that a16z has developed into a re-marketing and re-invested VC.

At that time, Michael Ovit said, “Think of every entrepreneur as a customer. It is necessary to have a long-term perspective of the platform instead of focusing on the flow of transactions in front of you. Call everyone a partner and provide them with other people. Without services, help those who have not yet become your customers. Through the model of’machine that executes dreams’, you can make yourself unique and disrupt this industry.”

Judging from a16z’s current play, whether it’s Ovit’s “treating entrepreneurs as customers”, “taking a long-term perspective,” or “helping those who haven’t become your customers,” this Silicon Valley venture capitalist is practicing all of them. , And specific measures such as “turning the role from the investor to the service provider”, “professing to be an all-weather investor”, and “opening an encryption entrepreneurship class” more clearly show that Andreessen is using the “marketing philosophy” of the brokerage company Run a VC.

Interestingly, judging from the learning results, a16z is indeed becoming the CAA in the encryption world. In order to better “serve the smart brain”, a16z has used a large amount of funds to recruit experts in different vertical fields such as technology, market, and enterprise development, and maintains a list of more than 2,000 entrepreneurs to provide professional guidance and contacts Resources to help the invested projects grow rapidly. This approach taken by a16z is almost the same as that of CAA, which has developed and grown by establishing a team of experts to serve customers.

3. Vertical extension: establish a strong network of relationships and participate in the formulation of game rules

In the process of pursuing refined investment, a16z is not satisfied with horizontal development, and it also spares no effort in vertical extension.

At the beginning of 2020, a16z opened a free online “Encryption Entrepreneurship School” to teach knowledge about cryptocurrency technology and how to build an encrypted enterprise. Before the start of the course, the number of applicants exceeded a thousand, and a16z selected 45 students who could participate in the training. These students were either from Internet giants, well-known blockchain projects, or from Silicon Valley startups. Since then, the venture capital launched the “Talent x Opportunity Fund” (TxO Fund) in June of the same year to invest in talented and thoughtful entrepreneurs who lack educational background and resources.

Whether it is to “train” professionals for the industry for free or invest funds to provide support for entrepreneurs, a16z has been constantly looking for potential investment opportunities in the process of vertical development, and in the process, it has extensively accumulated human resources and established its own network of relationships. , Paving the way for the expansion of investment territory.

However, compared with the downward extension, a16z intensively hires government officials and actively engages upwards with the supervisory authority. The performance is even more impressive.

In June of this year, a16z announced 5 new heavyweight employees, including Bill Hinman, former head of the US SEC Finance Department, Tomicah Tillemann, former senior adviser to President Biden, Brent McIntosh, US Deputy Secretary of the Treasury, and Rachael Horwitz, Coinbase’s first vice president of communications. . Prior to this, a16z had hired former federal prosecutor Katie Haun and former head of the New York Stock Exchange regulatory department Anthony Albanese. The above-mentioned Tillemann was recruited by Katie Haun.

As a16z introduced more talents with regulatory background, the agency began to actively contact the regulatory authorities and lobby the government. According to the New York Times, the venture capitalist conducted a five-day lobbying blitz in October this year and “sent a group of Washington insiders to present their views.”

Also in October, a16z submitted a cryptocurrency regulatory proposal to the U.S. government, suggesting “establishing an encryption regulatory system in accordance with the U.S. Consumer Financial Protection Act”, “giving DAO legal rights similar to standard registered entities”, and “establishing an industry self-regulatory organization “, and “Establishing a non-profit organization for technical supervision.”

In this proposal, a16z provides objective advice on industry regulation from four directions. However, experts in financial regulation do not seem to buy it. They believe that the essence of these recommendations is to “seek their own interests and enable consumers to avoid existing laws and regulations.” In a weak position.”

The New York Times quoted Dan Awrey, a Cornell University Law School professor and a financial supervision expert who advises global financial institutions, as saying, “If the a16z proposal is implemented, it will open loopholes for the institution and other financial industry participants, and even hedge funds. , They can use these loopholes to reorganize themselves, and this reorganization method may undermine the existing financial supervision system.”

Regarding the DAO proposal, experts believe that since the project invested by a16z is established in the form of DAO, the purpose of its proposal is to protect the investment project from the SEC. “This is a very naked and transparent attempt, and the ultimate goal is to profit from it,” criticized Lee Reiners, the former supervisor of the Federal Reserve Bank of New York and systemically important financial institutions.

Although the a16z proposal has not been recognized by relevant parties, and whether it can really affect policy makers is not yet known, its own resources in government relations and efforts to build the industry will enhance the style. The market competitiveness of investment.

Fourth, the conclusion

Andreessen is the key engine for the success of a16z. Its precise prediction of technological development and unique understanding of venture capital have greatly promoted this venture capital, which has only been established for only 12 years, to successfully capture the stars of the two major tracks of the Internet and cryptocurrencies. project. As it said, “We are not Mother Teresa. We want to invest in great companies, companies that want to influence the world.”

In terms of horizontal development strategies, a16z does not only provide financial support for the invested projects, but also provides “nanny services” in various aspects such as marketing, technology, and human resources. pass through

Promote the rapid development of invested projects to improve the ultimate return on investment. Therefore, the a16z approach looks more like “investment” rather than “investment.”

In the process of vertical layout, a16z will choose to work from different directions according to the different development stages of the industry. In 2020, the cryptocurrency market has entered a period of rapid growth. The venture capital will “train” professionals for the industry through training and capital injection, and accumulate contacts from them; in 2021, as the market is increasingly being scrutinized by legislators and regulators, It began actively recruiting new employees, expanding talents in government relations, advising on the development of the industry, and trying to influence game rule makers.

In short, whether it is to pour resources to serve investment projects or contribute to the development of the industry in different forms, a16z’s approach is to make itself the ultimate altruist, and the essence of altruism is self-interest.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-does-a16z-achieve-the-ultimate-in-investment/
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