How Andreessen Horowitz Disrupted VC & What’s Coming Next

At that time, the major VCs seemed overwhelmingly invincible. They were giant, long-lasting businesses; the industry had existed for 50 years. Some of these firms, like Sequoia, had invested in an impressive array of successful companies. We were trying to challenge this status quo. One idea was to make numerous angel investments in addition to venture investments, which was unheard of then. We'd start complementarily, building enough reputation to eventually do venture deals ourselves. That's how we pitched it, and we actually took it around.

This has happened before. The centralized media environment we've experienced, particularly those who grew up in my generation, is a historical anomaly. This phenomenon is a direct result of technological advancements, specifically the rise of mass publishing, mass media, mass radio, television, and newspapers, which truly began in the 1940s. Consequently, what we consider corporate branding is an artifact of a specific period, roughly from the 1940s to the 1980s. All the playbooks taught in business schools for brand marketing, corporate messaging, and crisis management were developed for a time and place characterized by a limited number of centralized media outlets wielding immense influence and control.

The firm always had a clear mission. It was never about making a lot of money. Both of us had enough money to be happy before starting the firm, so that wasn't the goal. Our aim was always to make it easier and better to build great companies, and then to make those companies better. What activity could be more important than that? Mark and I both believe that perhaps the single best way to improve the world is to build a company that delivers a product or service that genuinely improves the world.

Our bet, when we pursued scale and built the teams Ben described, was that the "death of the middle" would occur. The barbell effect would play out, creating an opportunity for a handful of firms to achieve high scale. Only a few, however, would reach this level, as scale economics would then take over. On the other side, we anticipated the rise of seed and angel investors. We had been part of that trend, on the other side of the barbell. This transformation in venture capital meant that original venture firms from the 50s, 60s, and 70s, who were typically the first money in, would evolve.

The question then becomes: why is it always overfunded? He explained that it's a consequence of the broader financial landscape. LPs, or large pools of institutional capital, are invested for various reasons, but much of it ultimately serves as retirement funds. These large capital pools must generate a certain return over the next 50 to 100 years to cover people's retirements. To achieve this, they need to hit a specific return level. The modern economy's nature, with declining populations, means more older people and fewer younger people.

Tyler suggests that whenever a part of the economy involves an entrepreneur undertaking a high-risk, high-return endeavor, where the outcome is uncertain, and there are far more aspirants than available funding, a multifaceted skill set is required. Furthermore, as Ben noted, funding isn't enough; you must actively work with them to help execute the entire project. That's an art, not a science, though we might wish it were science. How do we know it's art? Every great venture capitalist in the last 70 years has missed most of the great companies of their generation.