Thursday, March 27, 2014

Horowitz and His Latest "Venture"

Horowitz:  Fighting to open doors
Many MBA students and graduates who covet careers in finance perceive venture capital as closed-door clubs whose members operate by making quiet, stealth financial movements:  first-round funding, mezzanine funding, second-round investments, and then--bang!--the IPO.

Members of the club fight fiercely to determine and support the next new thing. They prefer to locate in offices near each other, the better to watch each other's steps and moves. They respect each other and occasionally band together to do deals or share ideas.

To those on the outside, the doors to the club appear bolted, opened only to outsiders who bring influence, contacts, funds, and technology patents. It is arguably the toughest network in business or finance to penetrate.

Andreessen Horowitz is one of the most acclaimed names in venture capital in Silicon Valley.  At Andreessen Horowitz, Marc Andressen is the better known name of the two.  He is the one out  front, the prodigy entrepreneur who helped create the popular Internet browser Netscape back in the 1990's. After a series of glowing entrepreneurial successes, he decided he preferred to invest in new things instead of running or operating them. From a Valley perch, he gets to decide what that next new thing will be.

He and Ben Horowitz formed their venture-capital group in 2009 after they "retired" from the life of managing the struggles and swirling phases of new companies (including also Loudcloud and Opsware).  They still dabble in new ventures and sweep across the landscape to decide which ones are worthy of their mentoring and money. They ditched their days of spending every waking hour building a new company and now run investment funds exceeding $2.5 billion. They were first-round investors in Twitter, Groupon, Zynga, and Facebook.

Andreessen is the one the business media go to for quotes and perspectives on the Valley and opinions on matters related to California's fragile economy, social media, and technology innovation. He has been a news item for much of 2014 with his spats regarding investments in Skype with investor Carl Icahn. Just this month, he declared Warren Buffet too old to understand technology investments. 

Ben Horowitz is the "other" guy, the other name on the door, although he doesn't shy away from media attention. In fact, he has written a popular blog to share his thoughts on topics ranging from  technology to business strategy, management challenges, and human resources. Sometimes he tackles accounting topics and world politics.  He shares lessons he learned in running companies that stumbled now and then on their way to financial health.

With a new book just published (The Hard Thing about Hard Things) and a Fortune magazine cover, he isn't avoiding publicity. Of course, he wants to sell  the new book, but he claims he wants to open up bolted-down doors of venture capital and technology entrepreneurship to those who have been shunned, those who were discouraged, and those who haven't benefited from the bundles of wealth that new ventures sometimes spawn. This includes those from under-represented minority groups--blacks, Latinos, and women.

Horowitz, as a successful mentor in a second phase of adulthood, is pushing the door slightly ajar, hammering a few cracks to permit others to take a peek and perhaps rush in. In recent years, besides presiding over a portfolio of investments with meteoric returns, he has devoted substantial time in roles as mentor, teacher, or coach to show those who never dreamed of starting a company or working in venture capital they might have the knack for it.  For new entrepreneurs, he lays it out: How to get the company going, how to keep a company growing and solvent. And he tells the truth: It will be hard.

Stories are widespread about Horowitz's ties to the black and Latino communities in Oakland and Los Angeles, his attraction to hip-hop culture, and his nose for finding entrepreneurial talent in areas outside the cloaked venture-capital huddles in the Bay Area.

His new book is a guidebook for those on both sides, those inside the right circles and those outside.  He offers advice on how to manage the toughest aspects of starting a new company and keeping it alive. He provides lessons from his own hiccups and failings when he was a CEO, mostly at Loudcloud, where he harnessed the company through periodic tumbles and upturns before it was finally sold.

This is not a book of romantic reflections in building a company, nor a storybook of tales of how a product idea results in easy profits and returns. It's nuts, bolts, and late-night worries of how his company will generate cash flow to make payroll. It's about what managers should do to dampen debilitating office politics. And it's about about difficult decisions entrepreneurs will inevitably encounter to keep companies alive:  Do you sell the company, sell a unit, lay off staff, seek another round of capital or transfer out an ineffective manager?

Venture capital and private equity reside on the periphery of entrepreneurship.  Venture capitalists and private-equity investors sit in the middle of the ring to help managers in strategy, funding, hiring and product distribution.  This appeals to many business-school students, including Consortium MBA's.

However, the pathway to a prominent firm is tricky, uncertain, not neatly outlined.  The firms don't usually have close relationships with business schools. Many prefer to hire and recruit based on their own needs, schedules and whims.  And most are indifferent to general diversity hiring practices or objectives. Many support diversity initiatives, believe in them, but don't make it a public priority.

Unless MBA students have an entree, somebody they know, somebody with whom they went to school, a previous tie, acquaintance, professor or contact with a senior principal, then an entry-level spot in a major firm is almost impossible to garner. Nonetheless, it's the in-depth experience in deals, transactions, industry, corporate finance, and firm valuation that new graduates covet and need--and don't get if the doors are shut.

Signs indicate that with support from respected people like Horowitz, people who bark and insist that opportunities be made available to a wider community, some of these venture-capital doors might crumble. Horowitz, by the way, has announced that his portion of the proceeds of the book's sales will go to women's programs.

Consortium students and graduates for years have expressed interest in venture capital and private equity, even if they know they will encounter obstacles in getting inside.  They know they can't raise hands, express an interest, prove talent and experience, and then expect job offers to flow in.

Some have gotten the chance to work at big-name firms (Carlyle, Kleiner Perkins, Sequoia, and Blackstone are examples of "big names"), regional firms or firms that specialize in an industry niche or geography (real estate, manufacturing, consumer goods, the Sun Belt). Because of obstacles or because they were discouraged, others simply decided to pursue more welcoming and more familiar sectors in finance.

And then some try the boldest of tactics. They have gone off on their own to form their own small private-equity or venture-capital companies. (Capital A Partners and Romherst Capital are examples of private-equity companies launched by Consortium graduates.) They opted for the toughest road with the greatest challenges, but possibly with the best experiences and maybe with superb performance and returns--and a chance one day to bring others like them into the fold.

Horowitz, needless to say, would be pleased with these kinds of efforts.

Tracy Williams

See also:

CFN: Venture Capital Diversity Update, 2011
CFN: Knocking Down Doors in Venture Capital, 2012
CFN:  Making Demands on Diversity, 2013
CFN:  MBA Diversity:  A Constant Effort to Catch Up, 2012

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