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Andreessen Horowitz Case Solution

Solution Id Length Case Author Case Publisher
2763 1756 Words (7 Pages) Thomas R. Eisenmann, Liz Kind Harvard Business School : 814060
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All in all, the case provides the background on Andreessen Horowitz, a venture capitalist firm, and explains how it differed compared to its counterpart. The case explains the different techniques deployed by the VC and why they decided to employ a completely different structure compared to that of other venture capitalists.

Although most VCs tend to avoid internet firms and do not invest in those, a16z differentiated itself by setting its foundations since internet companies have the potential to do extremely well. With experience in the internet industry, a16z believed that they knew more about this market than other VCs, which is why they invested in it.

On the other hand, the reasons provided by the co-founders for their decisions seem reasonable at times, but there are instances where the VC could have gone down a different route. Nevertheless, the VC does a good job by differentiating itself and adopting a different thematic basis.

Following questions are answered in this case study solution

  1. Was the capital an attractive industry to enter in 2009? What entrepreneurial opportunity did Andreessen Horowitz see?

  2. “To succeed as a VC you have to do three things really well: source, pick, and win” (case p.8). What does a traditional VC firm do to source pick and win? How does a16z approach these key success factors differently than other VC firms?

  3. If you were a first-time founder of a tech startup seeking Series A positive investor, would you find a16z’s value proposition attractive?

  4. Is a16z’s big investment in its operating team likely to yield a positive return? Should other top-tier VC firms copy this approach?

  5. Evaluate the following a16z organizational policies and practices: a) criteria for hiring General Partners: b) compensation approach for GP’s: and c) co-founders’ governance rights. How important will each be to the firm’s success?

Case Analysis for Andreessen Horowitz

1. Was the capital an attractive industry to enter in 2009? What entrepreneurial opportunity did Andreessen Horowitz see?

The venture capital industry was not attractive to enter during that period. This is owed to the fact that only the top 5% of VCs managed to be successful. These VCs had the experience and were aware of how to enter the industry. However, it was extremely difficult for new entrants as they had no experience in the industry, which was essential. The case states how most VCs believed that google was simply an anomaly and that no other company would manage to grow as successfully as google managed to. But this statement can be viewed from a different perspective too. 

The main reason for a6z to enter the industry was their investment thesis in 2009. They believed that most of the investors were underestimating the potential that consumer internet held, which is why they were making a wrong decision by not investing in it.

Horowitz stated that when they founded a16z, many investors believed that google was an anomaly and that no other company, based around the internet, would manage to grow as successful as google did. However, Horowitz stated that when Netscape peaked in 1998, it had 90% of the market share, and 55 million users made use of it. Now, approximately 3 billion people have access to the internet, and it is very likely to take off an internet company from no users to billions of them. 

Horowitz believes that most investors are undervaluing these startups and are not seeing the hidden potential that their CEOs possess. This theory served as the basis for their investment thesis and is what encouraged them to make investments in internet companies. They made investments in late-stage, high-profile consumer internet companies.

2. “To succeed as a VC, you have to do three things really well: source, pick, and win” (case p.8). What does a traditional VC firm do to source pick and win? How does a16z approach these key success factors differently than other VC firms?

Traditional VC firms tend to look for safe companies. These are companies with few weaknesses, and they are safer to invest in. Traditional VCs do not want to take too many risks and need to be sure that wherever they invest, it is going to be an instant success rather than looking for a company that has weaknesses but also has the potential to grow. 

A16z, on the other hand, had a different methodology. a16z tends to screen 3000 investment opportunities per year. The firm’s method to identify companies to invest in is by looking for strengths rather than lack of weaknesses. According to a16z, it is easy to point out what is wrong with companies as that is what most VCs do and say no 90% of the time. However, they want a partner that goes against the odds and wants to do the deal.

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