If you don’t read it already, we recommend that you start consuming Marc Andreessen’s blog. The creator of Mosaic and cofounder of Netscape, and LoudCloud — which became Opsware, which went public, and was later sold to Hewlett-Packard — is at it again now with his startup, Ning.
Marc blogs almost daily about the things he’s learned from these experiences. It’s a wealth of knowledge, and he distinguishes himself as a thoughtful, if loquacious, writer. Marc often writes serials on big topics like: startup funding; hiring; b-plans.
We love Marc’s stuff, so we’re going to start sharing the highlights with you here, including linkbacks to his original posts. We’re starting with his series entitled: The truth about venture capitalists, Parts I, II & III.
Marc possesses every perspective on VC: Netscape was VC-funded (KPCB). So was LoudCloud/Opsware (Benchmark). Ning took $44 million in July. Marc has been an angel investor, a board member on VC-funded startups, and a limited partner in several funds including, he says, “some of the best performing funds ever (1995 vintage) to some of the worst performing funds ever (1999).” All in, Marc’s concluding piece of wisdom is surely this:
A venture capitalist’s ideal investment is the one that would be a huge success without her.
Read Marc’s 3 Truths in their entirety, but the highlights follow:
Truth I: Startups with 10X-potential should take VC.
Most other startups should not… including: startups where the founders want to stay private and independent for a long time; startups where there’s no inherent leverage in the business model that could result in a 10x gain in 4 to 6 years; and startups working on projects with a longer fuse than 4 to 6 years. By leverage … I mean: the ability to make something once and sell it to a lot of people (1,000 business customers or 10 million consumers)… the classic “hockey stick” revenue projection. VCs shouldn’t, and can’t, invest in companies that don’t hit these criteria.
Truth II: Pick the partner, not the firm.
… Firm quality does matter — but the partner is the person you’re going to be working with [and] even strong firms have weak partners … VCs with operating experience are great when it comes to sitting down and talking about how to run a business (but their career was probably focused on one or two companies)… and a VC with an executive recruiting background can be incredibly helpful at [hiring] … But there is no substitute for the VC who has been a VC for 20 years and has seen more strange startup situations up close and personal than you can imagine.
Truth III: If you have a fundable idea, it’s a founder’s market.
Venture capital has become a permanent asset class of many large institutional investors … The average billion-dollar-plus university endowment had a 3.5% asset allocation to venture capital in 2006 … But it’s a small percentage of the [trillion-dollar] base. [So], although returns on venture capital have been poor [in] the last several years, institutions are not feeling much pain … [This is why] , in Silicon Valley, there are probably 200 venture capital firms within 20 miles [and] $20 billion of capital at their disposal, chasing a very small number of good potential investments.
Marc’s series has tons of other good advice: Part I offers explanations for why VC’s say ‘No‘; Part II outlines the kind of help you can expect from a VC; Part III gives more background on the $$ “overhang” and how it will alter the tradition of “seven years of boom, followed by seven years of bust.”