Uncapped #38 | Ben Horowitz from a16z
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This episode features Ben Horowitz, co-founder and general partner at Andreessen Horowitz (a16z), discussing his unique partnership with Marc Andreessen and their approach to scaling venture capital. (00:41) Horowitz explains how their firm operates more like a traditional company with clear leadership structures, rather than the typical shared-control model common in VC. (04:46) He delves into why scale matters in venture capital, comparing their platform approach to providing entrepreneurs with comprehensive support beyond just capital. (20:45) The conversation covers everything from managing high-powered, disagreeable investors to the evolution of media and brand building in the venture world.
- Main Theme: How Andreessen Horowitz built a scalable venture capital firm by reimagining traditional VC structures and focusing on comprehensive entrepreneur support rather than just capital provision.
Speakers
Ben Horowitz
Ben Horowitz is a co-founder and general partner at Andreessen Horowitz, managing $60 billion in assets under management. He previously co-founded and served as CEO of Opsware (formerly Loudcloud), which was acquired by Hewlett-Packard for $1.6 billion in 2007, and is the author of New York Times bestsellers "The Hard Thing About Hard Things" and "What You Do Is Who You Are."
Jack Altman
Jack Altman is a venture capitalist and the host of the Uncapped podcast. He is associated with AltCap and focuses on interviewing successful entrepreneurs and investors about building and scaling companies.
Key Takeaways
Focus on Strengths Over Weaknesses When Evaluating Entrepreneurs
Horowitz emphasizes that venture firms should evaluate entrepreneurs based on the magnitude of their strengths rather than their weaknesses. (15:24) He argues that you can always rule out a deal based on weaknesses, but it's a mistake to pass on someone who is truly world-class at their core competency just because they have gaps in other areas. The key question should be: "Is this literally the best person in the world at doing this thing?" rather than focusing on what they can't do. This approach is psychologically important because brilliant analytical people can find flaws in anyone, but there's something wrong with everybody - you just may not have found it yet.
Scale Enables Better Entrepreneur Support Through Platform Services
The traditional VC model of "smart person gives money and advice" is insufficient for modern entrepreneurs. (22:27) Horowitz explains that entrepreneurs need comprehensive support including network access, government relations, recruiting help, and customer introductions. A scaled platform can provide these services more effectively than individual investors trying to do everything themselves. This creates a better product for entrepreneurs and enables firms to have more board seats per partner because the platform handles many support functions that would otherwise require constant individual attention.
Winning Deals Matters More Than Perfect Picking
Horowitz argues that the ability to win competitive deals is more important than having perfect investment judgment. (49:12) Even if you identify the next Facebook early, it doesn't matter if you can't actually get into the deal. Being able to win automatically gets you into the top tier of returns, while picking ability helps you move up within that tier. This principle also creates a virtuous cycle - the best investors want to work at firms where they can actually invest in the deals they want to be in, so winners attract the best talent over time.
Venture Firms Need Clear Leadership Structure to Scale
Most venture firms operate with shared economics and shared control structures that prevent effective scaling. (46:33) Horowitz explains that to scale successfully, firms must be able to reorganize periodically, which requires redistributing power. Under shared control, people vote to protect their own interests rather than optimize for the firm, making reorganization nearly impossible. Additionally, you need operational leadership capable of making difficult decisions about structure and resource allocation, which most VCs lack the experience to handle.
Managing High-Powered Investors Requires Minimizing Conflict Through Design
The best VCs tend to be highly intelligent, disagreeable people who generate many ideas and don't like following rules. (10:47) Unlike managing traditional executives who understand chain of command, managing great investors requires organizational design that minimizes conflicts before they start. When conflicts do arise between investors, they can be extremely destructive because partners can undermine each other's work and "wreck each other's businesses." The key is designing fund structures with small, cohesive teams (no more than 5 GPs) and resolving any conflicts immediately rather than letting them fester.
Statistics & Facts
- Andreessen Horowitz manages $60 billion in assets under management and employs 600 people, making it one of the largest venture capital firms. (04:46)
- Ben Horowitz conducts 25 one-on-one meetings with portfolio company entrepreneurs every month to help them with CEO-related challenges, demonstrating the firm's hands-on approach to portfolio support.
- Marc Andreessen predicted in 2011 that the number of companies reaching $100 million in revenue would grow from 15 per year to 150-200 per year due to software eating the world, which Horowitz says has proven accurate and justified their scale strategy. (21:18)
