Never mind the slew of economic concerns — hell, make that catastrophic concerns — hanging over the world. Silicon Valley is riding high. And no venture firm is leading the charge harder than Andreessen Horowitz.
The company started three years ago this month by longtime business partners Marc Andreessen and Ben Horowitz (first Netscape, then LoudCloud and Opsware). They’ve since raised $2.7 billion and have backed 150 companies, including newly-public Facebook, Zynga and Groupon, as well as hot private companies such as Pinterest and AirBnb. Earlier this month, Andreessen Horowitz made a $100 million bet on GitHub, a cloud/social play for software engineers to share and store their code.
I caught up with Ben Horowitz at the firm’s offices on Sand Hill Road in Menlo Park, Calif., to talk about the impact of Facebook’s messy IPO, the investing climate overall, and, most importantly, why entrepreneurs really can learn from hip-hop.
How has Facebook’s rocky IPO changed the landscape?
Horowitz: I think it’s more that the landscape stayed the same. Public multiples for tech companies are low. They’re certainly low compared to the ’90s and even low compared to the ’80s. There was a hope that Facebook might change that with its IPO, like it would trade at a $150 billion valuation or something like that. But it’s still trading at a very healthy valuation and a pretty healthy multiple relative to Google or Apple, and it’s still a great company.
How do you value some of these young, fast-growing businesses, such as Pinterest?
Horowitz: Pinterest is one we were heavily criticized for at the time. It’s one of those things where the numbers were growing very fast but it was early. But when the entrepreneur, Ben Silberman, described what he did and how he thought of it, it was incredibly ingenious. He kind of deciphered this core human behavior that people have that was completely unrepresented on the Internet. And he just painstakingly designed a product that worked for it.
People’s feelings about Pinterest are different than anything else. People love Facebook and Twitter, but it’s not with the depth of feeling that they have about Pinterest. It’s such an emotional product. As design problem, this was one of the hardest out there. Ben completely cracked the code on it, he had the vertical takeoff of the community, and that wasn’t going to slow down.
Where does the revenue come from?
Horowitz: When we invested, Martha Stewart was getting more referrals from Pinterest than Google and Twitter combined. There are many models, but if you’re driving lots of traffic to products like that, that’s worth something. Ben’s got a lot of ideas on that.
If you build a primary consumer Internet franchise, it’s going to be worth a lot more than $200 million. That’s simple math, so we bought an option [by investing $27 million in October 2011] — at a $200 million valuation — on Ben figuring it out. And he has made us look very good so far.
And why do you incorporate so much hip-hop into your blogging? Does it all really start with Erik B. & Rakim?
Horowitz: The thing about hip-hop is that the hip-hop guys really do view themselves as entrepreneurs. They’re not all good entrepreneurs — like Jay Z — but they all think of themselves fundamentally, at a very basic level as an entrepreneur, and it comes through in the lyrics and music.
And you spin the lyrics into blunt management advice.
Horowtiz: It’s the emotional part. How to run an organization intellectually is pretty trivial. But emotionally it’s very complex and people play on your emotions all the time. If you’re not aware of that and connected to it, and understanding how to manage the emotional conflicts, then you’re going to have a very dysfunctional organization and people are always going to feel like management lies and is full of shit.
But it’s generally not because managers are bad people but because they’re dodging the emotional challenge, and the rappers are only talking about the emotional challenge – the emotion of competition, the emotion of someone doing something you didn’t like and that sort of thing.
Like about how to minimize politics in your company. I can go through an analysis with somebody and and say, ‘Well, if somebody comes in and says this, then if you react like this, then that’s going to happen and so forth.” But Rick Ross says it better in Hustlin’ : ‘Who the f@@k you think you f$&kin’ with? I’m the f%@king boss.’
And that’s how you have to feel about it to actually do it. Because you’ve got to say to your employees, ‘Don’t f@%king ask me that question because you know if I answer it you’re going to use it to undermine your peers and I’m not having it. But this is how it works. People find it jarring. I get, ‘Good god, Ben, I can’t believe you put that quote in there?’ But I feel it’s good — it’s good cultural and life lessons.
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