Monday, December 1, 2014

Reflections on USV vs. a16z

Decided to share these thoughts from March 2014:[1]

I was reflecting on Fred Wilson’s comment where he analogized Union Square Ventures (USV) to a boutique clothing store and Andreessen Horowitz (a16z) to Walmart.  That suggestion sets up a jarring contrast but I believe it’s deceptive.  Discussion about the case on a16z brought out some of the reason why the analogy is imperfect, but we never really covered why a16z is a bit of a strange animal.

A better analogy for USV vs. a16z would be a boutique consultancy vs. a big consulting firm—and a few people touched on a16z as a McKinsey analogue.  The dichotomy between boutique and big consulting is fitting because it covers many of the differences we observed between USV and a16z.  In particular, the benefits of scale are quite real in consulting (as are returns per GP at a16z), but a boutique firm may still be a better option for a “power player” who can attract business and charge high rates without the branding of a large firm (Fred Wilson at USV?).

What’s both interesting and puzzling about a16z—and I think what led to so much equivocation in class—is that Marc and Ben are each independently power players.  So why go off and build a scaled monolith where other GPs and an army of professionals drag down the returns you could get with a big-shot boutique?  In that regard, a16z appears truly anomalous because Marc and Ben don’t seem to be doing it for money, fame, power, success, etc.  They seem to believe that scaling the organization allows them to make a bigger impact—an impact they are happy to share, both with their organizational pyramid and through their significant philanthropic efforts.

Thus it seems that a16z breaks the mold because Marc and Ben themselves break the mold.  Having had such incredible success already (and still in their 40s), they are not in it for any of the reasons that many others pursue venture capital.  Instead, they are in it for the game.  [And I’m sure Ben could provide some apropos lyrics.]

[1] This was written in March after Fred Wilson visited Launching Technology Ventures, a course at Harvard Business School (HBS) taught by Jeff Bussgang.  Originally for an internal HBS blog, I have made only slight edits to clarify for a broader audience.