Key Takeaways
- • Venture returns follow a power-law distribution: per the post, roughly 4,000 technology startups a year seek venture capital, about 20 are funded, and about 15 of the fundable ones generate 95% of venture economic returns.
- • Marc Andreessen argues that successful venture investing requires non-consensus bets, which he describes as seeming "crazy" at the time of investment, since consensus opportunities are already priced in.
- • Andreessen says people matter most in venture decisions, estimating that about 90% of the investment decision rests on the team, with courage being the trait most learnable.
- • Permanent, locked-up capital is presented as a core advantage of venture firms over hedge funds and mutual funds, allowing investors to hold positions through downturns and cycles.
- • The post frames the biggest venture mistake as errors of omission, citing Charlie Munger's view that missing big winners such as Google and Facebook is the costliest error.
Summary
A blog post on the Andreessen Horowitz site compiles twelve lessons drawn from quotations by firm cofounder Marc Andreessen. The post's central premise is that venture capital returns are a power-law distribution. Andreessen has said that about 4,000 technology startups a year seek venture capital, the firm sees roughly 3,000 referred opportunities annually, narrows these to a couple hundred taken seriously, and invests in about 20. He estimates that about 15 of the roughly 200 fundable startups a year will generate 95% of economic returns, and that even top venture firms write off half their deals. The post links this to cumulative advantage and path dependence, citing Robert Merton and describing the Matthew effect and positive feedback loops.
On strategy, Andreessen argues that venture investors must be non-consensus and right. He describes a two-by-two matrix of consensus versus non-consensus and successful versus failed outcomes, noting that profits come from successful, non-consensus bets. He cites breakthroughs such as PCs, the internet, Bitcoin, Airbnb, Uber and Twitter, all of which initially seemed unusual. The post contrasts this with Howard Marks' view that superior results require superior insight into value. Andreessen also says the firm is closer to the approach of Benchmark Capital and Arthur Rock, focusing on large breakthrough ideas rather than value-chain mapping.
Andreessen emphasizes people over markets in decisions, saying roughly 90% of the decision rests on the team, and that courage, defined as not giving up in the face of adversity, is the quality founders can most readily develop. The post also notes that successful technology companies often pivoted into different markets, citing Microsoft, Oracle and AOL.
On capital structure, Andreessen credits locked-up capital with allowing a ten-year investment horizon, contrasting venture funds with hedge funds and mutual funds. The post cites Bruce Berkowitz on permanent capital and recounts Andreessen's account of raising a fund in spring 2009, which he describes as the harshest fundraising environment in 40 years. Finally, the post cites Charlie Munger on errors of omission, noting that the largest mistakes in venture capital are often missed winners rather than failed investments.
On strategy, Andreessen argues that venture investors must be non-consensus and right. He describes a two-by-two matrix of consensus versus non-consensus and successful versus failed outcomes, noting that profits come from successful, non-consensus bets. He cites breakthroughs such as PCs, the internet, Bitcoin, Airbnb, Uber and Twitter, all of which initially seemed unusual. The post contrasts this with Howard Marks' view that superior results require superior insight into value. Andreessen also says the firm is closer to the approach of Benchmark Capital and Arthur Rock, focusing on large breakthrough ideas rather than value-chain mapping.
Andreessen emphasizes people over markets in decisions, saying roughly 90% of the decision rests on the team, and that courage, defined as not giving up in the face of adversity, is the quality founders can most readily develop. The post also notes that successful technology companies often pivoted into different markets, citing Microsoft, Oracle and AOL.
On capital structure, Andreessen credits locked-up capital with allowing a ten-year investment horizon, contrasting venture funds with hedge funds and mutual funds. The post cites Bruce Berkowitz on permanent capital and recounts Andreessen's account of raising a fund in spring 2009, which he describes as the harshest fundraising environment in 40 years. Finally, the post cites Charlie Munger on errors of omission, noting that the largest mistakes in venture capital are often missed winners rather than failed investments.
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