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Marc Andreessen, the venture capital investor and early web pioneer, has an idea for regular investors wondering where to invest their money. “Put it in an S&P 500 Index Fund,” he said. “Don’t get fancy.”
Andreessen, whose VC firm Andreessen Horowitz now counts $18 billion under management, has made some of the most prescient bets in the tech industry. He was an early backer of companies like Twitter Inc. and Facebook Inc., where he sits on the board. But his advice for laypeople is more pedestrian: Investors should “go in very cautiously” to the “very speculative area” of venture capital, he said.
Regular investors are generally not invited to invest in firms like Andreessen Horowitz, and the venture capital industry can be treacherous. Individual startups often fail. At the same time, though, Silicon Valley startups have been booming. Some industry watchers believe that current valuations have reached a level that’s unsustainable. Andreessen floats another possibility for the run-up in prices: “Society is going through a technological transformation,” he said. “You have these new tech companies driving this change and realizing the benefits.”
During the pandemic, tech has been particularly indispensable, Andreessen said. He pointed to the development of the Moderna Inc. vaccine—born out of an American biotech startup—that used combinations of biology, engineering and software to code the mRNA formulation just in two days. And tech companies made lockdowns more endurable with fast video conferencing and easy deliveries, he said.
Andreessen is also betting on some of the less practical elements of technology. Andreessen Horowitz is bullish on cryptocurrency, and the investor said he’s interested in the decentralized system it’s built on. “Many of the smartest people in computer science are going into this field,” he said, adding that it represented “a new kind of financial system” where people are “able to form trust relationships in an untrusted environment.”
Andreessen Horowitz currently has 60 people on staff and 22 general partners. Not everyone needs to agree on each investment idea. Just one investor can champion a deal, he said, a strategy that contrasts with consensus-based decision-making where you “end up talking yourself out of the best deals,” Andreessen said.
Andreessen’s best advice for would-be VCs is to get to know a topic deeply. And for regular investors who still want to try their hand at VC investing despite the risks, he recommends AngelList, which allows people to make their own startup picks. His biggest mistakes are usually sins of omission. Some bets will go south, he said, but “if I don’t make an investment and it goes up 1,000X, then I have to read about it every day for the next 30 years.”
Bloomberg LP, the parent company of Bloomberg News, has invested in Andreessen Horowitz.
The interview has been edited and condensed.
For more insights from the biggest names in investing, watch “Bloomberg Wealth With David Rubenstein” at 9 p.m. Eastern.
The venture capital world has been booming. Why is so much profit being realized now?
Well, two possibilities. One is we’ve gotten carried away, the other is society is going through a technological transformation. It was already going through a transformation before Covid and there’s a good argument that Covid has accelerated that. You have these new tech companies driving this change and realizing the benefits.
It seems that there are no losses anymore. Now, you seem to make money on everything.
I can confirm that that is not the case. We made a commitment to our investors. I said, we’re going to try to get to the moon. Every once in a while, we’re gonna have rockets blow up on the launch pad. It’s actually about a 50/50 success rate.
When a firm like yours does a Series A round, you expect to do a Series B and then typically you go public maybe after a Series C?
Sometimes, these days, companies will actually stay private for longer and they'll raise five or six or seven rounds of private financing. A lot of what’s happening is the markets have gotten bigger. You have this gigantic addressable market for these companies. You’ve got 5 billion people on the planet with smartphones and you get one of these companies that has mass appeal, they can get really big. We have tech companies now that are worth more than $1 trillion and so, some of these companies just end up raising a lot more money than the historical norms would suggest and they stay private for longer.
What about Silicon Valley versus other parts of the United States?
Pre-Covid, you actually had the industry consolidating more into northern California. In the post-Covid world, that looks like it’s changing pretty dramatically because we’ve all gotten so much more used to this idea of remote work and distributed companies. Now, you see a lot more motion and activity happening outside the valley. And not just in other cities. It’s also possible Silicon Valley, as we like to say, just moves to the cloud.
You wrote an article recently about how technology is something that we should be more thankful for during Covid—at least in Washington, we kind of beat up on tech companies to some extent.
The expectation I had, going into Covid was this is gonna be a five-year slog, potentially another Great Depression. And you know, here we sit, 18 months later, coming through it. A huge part of that is the vaccine.
Moderna is a classic, American biotech startup backed by venture capital with a new technology called mRNA. It usually takes five or 10 or 20 years to develop a vaccine and they were able to do it in two days. That’s an example of the kind of breakthrough innovation that’s coming out of this ecosystem that we have in the U.S. The experience of going through Covid, while it’s been bad, hasn’t been nearly as bad as it would’ve been without modern technology. And we’ve come out of Covid so much faster as a result.
How much money do you manage now?
About $18 billion today.
Do you have more confidence in your ability to assess what’s going to work than you did 10 years ago?
No. We have greater confidence in our ability to construct the portfolio. I have a lot of confidence now in our ability to put together a portfolio of 20 or 30 or 40 companies that will represent what top-tier VC looks like in this era. Which of those companies will be the ones that work? Don’t know. There’s a lot of obvious unknownness in the process. I don’t think that ever goes away.
It’s not that easy to get in your funds because funds in Silicon Valley that are well known are often oversubscribed. How do you know what a good venture firm is and how do you get into one?
So generally they’re the ones you can’t get into. The venture capital firms that are kind of open for outside money are generally the ones you don’t want to invest in.
There is a platform that is worth looking at for people who want to learn more called AngelList, where angel investors are able to take money from people who want to follow their deals. People should go in very cautiously.
How does somebody become a venture capitalist?
There’s basically two routes. There’s the classic route which is business school, becoming trained up as an investor, maybe working at an investment bank. The other approach is to get really good at building and running tech companies. Be a practitioner and be really good at building products. And then leverage those skills across into the investment side.
Is it hard work or intelligence that you think is more vital?
The highly successful VCs are very idiosyncratic, people from very different backgrounds. Mike Mortiz is a former newspaper reporter and John Doerr is a former chip salesman. I think it’s some set of skills and some set of knowledge. And then there seems to be a taste component to it that’s really hard to measure and really hard to predict.
What is it about cryptocurrencies that makes it an enduring investment proposition?
There’s a fundamental technological breakthrough that has actually happened—an area of computer science called distributed consensus. It’s the ability for a lot of people and software on the internet to be able to form trust relationships in an untrusted environment.
Money is one application. There are many other applications, many other things that people are going to be able to do with this technology. Many of the smartest people in computer science are going into this field and they’re pushing it forward at a really rapid rate. So, to us, it looks like it’s just the eighth or ninth fundamental architecture breakthrough transformation happening in the tech industry. And we take it very seriously because of that.
How come the inventor of Bitcoin hasn’t surfaced publicly?
This is one of the most amazing things I’ve ever seen. Most people, when they invent something this profoundly breakthrough, don’t realize how important it is at the time they invent it. Whoever this person, or thing, AI, government agency, is—they knew the importance of what it was from the very beginning such that they knew it was important to hide their identity.
Another area people are very interested in is biotech.
We think biotech, computer science and engineering are merging. What you have now with a lot of biotech entrepreneurs is people who understand biology but also understand engineering, software, data and AI. They’re slamming these disciplines together and building a new kind of biotech. Moderna is a great example.
What’s the best investment advice you’ve ever received?
Warren Buffett, probably: Put all your eggs in one basket and watch that basket. Really know what you’re doing. Really deeply understand the nature of what you’re investing in.
If I gave you $100,000 tomorrow, what would you do with it?
Put it in an S&P 500 Index Fund. Don’t get fancy.
What mistake have you made that you wish you hadn’t?
For most forms of investing, the mistakes are the investments you make where you lose money. In our world, it’s the investments you don’t make.
If I make an investment in venture capital, I can lose 1X. But if I don’t make an investment and it goes up 1,000X, then I have to read about it every day for the next 30 years and think about all the money that I didn’t make that I could’ve made.
Finally, if somebody wants to be a venture capital investor, what would you like them to know most about the art?
I think that it’s an alchemy of understanding people, technology and markets. It’s quite literally a liberal art.
