When Scott Kupor talks, startups and entrepreneurs listen. As Managing Partner at Andreessen Horowitz (a16z), a large venture capital firm that backs entrepreneurs who are dedicated to building the technology franchises of the future, Kupor has lots of experience and ideas to share.
What’s in a name?
A name can say quite a lot, especially in this case. The founders of the VC firm put a lot of thought into a16z. Founded by Marc Andreessen and Ben Horowitz, the “a” stands for the first letter in “Andreessen” and the “z” is the last letter of Horowitz; 16 is for how many characters are in between the “a” and the “z” (go ahead count them). According to Scott, they were afraid their full names would be too hard to spell out and remember. The goal was a short URL to consider when you want people to easily remember, and find, your company.
The a16z approach
Scott says the a16z team likes to join the cap table (the capitalization table that shows ownership stakes in a company) as a lead investor with roughly 80% of their investment in seed or A rounds. This doesn’t mean they shy away from later stage investments. Overall, their ticket sizes range from $2 million to over $100 million.
Past a16z investments include Facebook, Skype, Airbnb, Slack, Oculus VR, Magic Leap, and many more. Not a bad track record for a firm founded in 2009. With over 100 employees, the a16z team is much bigger than more traditional VC firms. But they aren’t just packed full of partners. The a16z difference is in the army of support functions available to their portfolio companies. They provide or assist in marketing, executive, and technical talent to corporate development & operations and policy and regulatory affairs. This high level of functional support is unique among Silicon Valley VC firms.
The firm also runs the Executive Briefing Center, a large team of support staff that helps corporates such as FedEx, NASCAR, and Crate & Barrel, established companies looking to understand and discover the latest trends in the valley. Although viewed as a no-strings attached networking tool, the executive briefing service helps corporates ultimately connect to a16z’s portfolio companies.
Here are seven of our key takeaways from the fireside chat.
Seven tips for startups
1. Aim for the moon.
The main focus of the fireside chat with Scott Kupor was to share some basic but important tips for investment hungry startups. The most important message is that a16z relies on so-called “moonshots”, that is, startups that bet big and aim for the moon. Scott commented that a 3x return is nice, but ultimately they’re in it for anything above 10x. This may not be news to most of you out there, but it is good to keep in mind.
2. Pick the right market.
When a16z is looking at a startup investment, it’s all about potential market size. If you’re not going for a large piece of a huge and growing market, then your chances are slim. If you pass the market size filter, team and product come next. What makes you and your experience the right fit for that market? Do you have deep expertise in that domain? In the end, your product will almost certainly change significantly within the first months and years. Having domain expertise is essential for you to have the flexibility and know-how to help the product evolve and adapt to the market over time.
3. Be yourself, but be informed.
For most, presenting in front of a VC can be a nerve-wracking experience. The main advice Scott offers is what you might hear before a job interview – be authentic. They don’t want you to say what you think they want you to say. They don’t expect you to be perfect or to answer every question.
However, you should clearly demonstrate that you have a deep understanding of your domain. Don’t be quick to agree with every suggestion the VC makes– they’re not always right. Another key point is that a16z is looking for moonshots. Dream big and don’t lead with an exit strategy. They don’t want their portfolio startups reducing the risk. They want you to be making the risky bets! This is very specific to the a16z approach. It doesn’t mean if you aren’t aiming for 10x return you won’t get backed. But you should be aware of any VC’s investment approach before stepping in the pitching room.
4. Find your connections.
Scott claims that they read almost all of the cold inquiries they receive at a16z, however, it’s definitely not the best (right) way in. If you can’t find a way to connect with someone inside the firm, then you have some work to do. Generally, introductions through existing portfolio companies or through the firm’s referral nodes (angels, incubators, etc.) are the way to get your foot in the door.
5. It’s OK to do it alone.
Running a one-man show has pros and cons. Quite often you hear that investors prefer engaging with co-founders, and it’s certainly something to think about when you start a company. That being said, out of a16z’s last 90 investments, 15 had sole founders. Scott said it’s not seen as a handicap, so don’t be discouraged if you’re on your own.
6. Founders can grow, too.
Some VCs have a reputation for ousting founders once the company begins to scale. A16z doesn’t invest in a team unless they feel that they have the capability of leading the company further down the road. They actively help founders grow the skills they need to get there– remember the army of support functions!
7. Grow your team early.
Reflecting on previous investments, Scott pointed out that the number one mistake startups made was waiting too long to hire experienced executives, especially CFOs. He suggested hiring these vital roles earlier rather than later.
Feeling overwhelmed? Don’t give up!
Don’t worry if a16z doesn’t sound like the right fit for you. There is lots of venture capital money up for grabs and US-based VCs are increasingly open to the idea of investing in international startups. Raising money isn’t the only way; bootstrapping your startup is also a great option. Whichever path you choose, it’s always good to stay in the know. If you’re interested in staying up-to-date with the latest VC activities, sign up for Strictly VC and/or Launch Ticker; both have a great daily newsletter with the latest Silicon Valley stories. Benedict Evans from a16z also has an interesting weekly newsletter you can subscribe to for free.