Silicon Valley investor Marc Andreessen offered some rare insight to start-up founders in a Q&A blog post Thursday, including why his firm requires a warm introduction to a founder before investing, and why enterprise start-ups need to charge more for their products.
Andreessen gained fame as the creator of Netscape in the 1990s, and co-founded one of Silicon Valley's best-regarded venture capital firms, Andreessen Horowitz, in 2009. He used to offer regular advice and commentary through his Twitter account, which has more than 600,000 followers, but quit Twitter cold last September.
He agreed to answer questions from founders in Stripe Atlas, a program run by payments start-up Stripe that offers help setting up a company; Andreessen Horowitz was a seed-stage investor in that company.
Here are some highlights:
Introductions are vital. Andreessen's firm doesn't make investments in companies unless it has an introduction to the founder. While this sounds short-sighted, it's actually a practical concern: "It turns out that the skill required to network into a VC is the same as the skill required to network into a customer, into a supplier, into a distribution partner, into the press, into an executive search firm. And so if a founder can't navigate a network into a VC firm, it is unlikely that founder has the skills to navigate the other networks required to succeed in building a company."
Be persistent. His firm receives about 2,000 inbound pitches per year. It invests in 20 to 40 companies, which is a 1 to 2 percent hit rate.
Expect an investment to take three to four months "from introductions and first meetings through to closed contracts and money in the bank."
For early stage investments, the numbers don't really matter. The team is more important: "We're almost always betting on a particularly special team doing something new and interesting – it's a qualitative evaluation, not quantitative."
Make sure you check an investor's references before taking their money. "As with anyone in business, any VC should be happy to give you a long list of people who he/she has worked with in the past who you can call. If a VC won't do that, beware beware beware."
Be honest about past failures. It shows persistence if you explain how you overcame failure. But if you "hide the ball," the investor will find out and will worry that you may try to hide bad news after they've invested.
It's a great time for founders who have a little gray hair. One trend today is toward building "full-stack" start-ups, who invent a technology and then use it to take on big incumbents in a market directly. This is a change from the past, when many founders focused on building tools that customers could use however they see fit. Andreessen says, "These full-stack start-ups are more operationally intense and tend to require more experienced founders and executives."
Correction: Marc Andreessen co-founded Andreessen Horowitz in 2009. An earlier version misstated the year.