Elite Venture Capital Firm Andreessen Horowitz Looks for These 3 Things in Startups Managing partner Scott Kupor spoke in Nashville recently about what the Silicon Valley staple looks for when it researches potential investment opportunities.
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Airbnb. Box. BuzzFeed. Facebook. Foursquare. GitHub. Groupon. Lyft. Oculus. Pinterest. Product Hunt. Skype. Slack. Twitter. Zenefits. Zulily.
This is a list of some of the biggest and most transformative tech companies that have launched in recent years. It is also a list of companies included in the portfolio of the elite Silicon Valley venture capital firm Andreessen Horowitz. With a roster that deep, a startup gets more than just money when it gets an investment from the firm. It gets access to a network of connected professionals and the accolades and bragging rights that comes gratis with being included in such an elite cadre of companies.
But how does an entrepreneur get a ticket? What does it take for a Sand Hill Road legendary venture capital firm such as Andreessen Horowitz to take a pricey risk on your business?
"When you think about this business ... about 50 percent of what we do goes to zero. We might end up getting a few pennies back on the dollar," Scott Kupor, a managing partner at Menlo Park, Calif.-headquartered Andreessen Horowitz, told an audience last week at the 3686 South entrepreneurship conference in Nashville. "For those of you who are baseball fans, this is not a batting average business, it doesn't matter actually how many hits you get when you get up to bat. It's really a slugging percentage business, meaning when you get a hit, you have to get a home run. You are going to strike out so many times that you need something that can actually make up for all of those losses."
Here are the three primary things Andreessen Horowitz investors look for when they are considering startups, according to Kupor.
1. A technical product.
Andreessen Horowitz shows a preference for technical co-founders. That's primarily because of its firm-wide belief in the transformative future of internet-based systems.
The corollary to that maxim, though, is that Andreessen Horowitz VCs are going to want to hear that you can be flexible and can evolve your product when necessary. Having a rockstar product is a starting point, but needs to come along with mental agility.
"We recognize and are very comfortable with the idea that a product is going to evolve many, many times," Kupor says. "But at least I want to understand your thinking why this problem is the right problem and the way to solve the problem in the market and your flexibility to move things around as the market demand changes and ultimately converges between the product and the market fit."
2. A market that's got room for your business to grow into the billions.
Because venture capital is a "slugging business," investors need to be placing their bets on startups that are playing in a market big enough to feed some serious revenue growth. Andreessen Horowitz is looking for entrepreneurs building startups that can "hopefully go public and be a billion plus dollars in market cap," Kupor says. And VCs want the entrepreneurs to educate them on just what the market is for a particular product.
Related: Entrepreneurs Can Raise Money in a Whole New Way. Here's What You Need to Know.
Companies that have the potential to accelerate into that kind of growth are likely to be forward-thinking technology companies. "Things that are fringe today might become mainstream over time," Kupor says. "If you think of autonomous driving, if you think about bitcoins or even drones for example, you could have found the historic analogues to those in probably in GitHub repositories five to seven years ago. So we are trying to find things like that that may not be mainstream today but are deeply in the tech community that have a following around them and hopefully can become mainstream technologies."
3. A team that has deep-seated motivation.
Even the most brilliant idea will lose investor money if it's poorly executed. That's why the founding team is so fundamental for scoring elite VC dollars. "Is this team, relative to a 10 other teams who might come in with the same idea over the next year, really the one to back?" Kupor asks.
Venture capitalists can sniff out a newbie entrepreneur that wants to start a business just because it's cool. They aren't interested. "It has to be something that says you didn't just sit at a white board and you decided it was fun to start a company and you came up with ideas to start something," Kupor says. "We want something that is more organic that therefore you felt compelled to build a company around a product vision you had as opposed to the other way around."
To be sure, getting in the door of a top-tier venture capital firm is no easy task. Cold emails often get lost in the shuffle, Kupor admits. Instead, entrepreneurs need to figure out how to get an introduction. And that sort of networking resilience is an unofficial first test for startups.
Related: Venture Capitalists Are More Likely to Help Startups They Can Visit Via a Direct Flight
"You can send cold emails, but it reflects much better on you as an entrepreneur if you can find some way to get a slightly warm introduction. That would be my advice for you," Kupor says. "The reality is cold stuff often doesn't get looked at very carefully but I do think it is a reflection of your creativity and stick-to-it-ness to figure out how to get to these guys."
