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Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

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Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#71

Post by s_kilk »

zacharycohn wrote: post #49
rwhitman wrote: post #46

I worked for a consumer startup that fit the profile. CEO would come up with an exciting business model, raise money with the dream, staff up, fail the execution and then 6 months later lay off half the company to go lean, pivot and repeat. They've squeaked by with 4+ years in business doing this, raised tens of millions from good investors. I could definitely see why any VC firm would want to steer clear of a busine…

Why do you work there? And I don't mean that in a snarky way, I'm curious what motivates you to stay.

Not the parent, but "I worked..." -> past tense.

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#72

Post by adwf »

pmarca wrote: post #58
adwf wrote: post #15

Earlier quoted context omitted.

Losing the ability to identify or losing the desire? When you get down to it, if you have a $50m fund, you might want to invest in ~10 A-rounds at ~$5m each. If you have a $1.5bn fund however, do you really want to invest in 300 A-rounds? Nope. The best way to spend your time is looking at the bigger, later investments. You probably still only want to have roughly the same number of total investments to oversee. So i…

In our case that isn't actually how we think about any of this. First, when we (or any venture firm) makes an A-round investment, we typically reserve another 2-3x of the A-round investment size for participation in future follow-on rounds for that company. So a $5M Series A shows up on our books more like a $20M commitment. The other $15M isn't necessarily always deployed, of course, but we also double down even mor…

Interesting to know, thanks. My example was probably a bit too hastily made-up.

So I guess in summary, it's not so much about investor time and attention but mostly about managing the risks of the different sectors.

Consumer startups are inherently less predictable and therefore you invest only when a company appears to have found its market and be at least partly on the way to success. Whether that be A round or later is irrelevant.

Whereas the enterprise startups are more predictable, in that if you find a great founding team with a good idea, they are more likely to make a success of it in that sector. Therefore you can cast a wider net, earlier in the lifetimes of the companies, than you would for consumer startups.

Or to summarise the summary: A good, predictable bet is better than an unpredictable one. Or maybe, never look a gift horse in the mouth?

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#73

Post by jacques_chester »

sillysaurus2 wrote: post #7
asanwal wrote: post #6

This shift is yesterday's news. Given their size, brand and PR, however, when Andreesen Horowitz does it, they get an article in the WSJ. The reality is that tons of VCs have already migrated away from consumer startups.[1][2] Data to support above [1] 84% of 2013's largest exits in tech have been to enterprise companies - http://www.cbinsights.com/blog/trends/enterprise-tech-consum... [2] 70% of 2013's largest tech…

Looking at 2013 exits (or financings) is missing the mark. VC is a game of 1000x returns. And those returns have come from companies like FB, Google, etc. Most of the value of YC's portfolio come from Dropbox and Airbnb. All of these companies are decidedly consumer companies.

Sample bias.

http://chester.id.au/2013/01/05/on-selling-to-consumers/

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#74

Post by debacle »

outside1234 wrote: post #31
codex wrote: post #25

Has the number of tiny trivial startups increased lately? Judging from demo days, I would say yes. The startup is the the new garage band. If you like what you hear, we're selling CDs after the show.

Is that bad though? We've democratized starting a company. Not everyone needs to be a $1B exit or even a $10M exit.

Yes and no. The signal/noise ratio is certainly lower, but there is also more signal overall, if you can sift through the noise.

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#75

Post by rwhitman »

zacharycohn wrote: post #49
rwhitman wrote: post #46

I worked for a consumer startup that fit the profile. CEO would come up with an exciting business model, raise money with the dream, staff up, fail the execution and then 6 months later lay off half the company to go lean, pivot and repeat. They've squeaked by with 4+ years in business doing this, raised tens of millions from good investors. I could definitely see why any VC firm would want to steer clear of a busine…

Why do you work there? And I don't mean that in a snarky way, I'm curious what motivates you to stay.

I don't anymore.

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#77

Post by zacharycohn »

rwhitman wrote: post #75
zacharycohn wrote: post #49

Earlier quoted context omitted.

Why do you work there? And I don't mean that in a snarky way, I'm curious what motivates you to stay.

I don't anymore.

Whoops. That's what I get for posting at 2am.

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#78

Post by pmarca »

adwf wrote: post #72
pmarca wrote: post #58

Earlier quoted context omitted.

In our case that isn't actually how we think about any of this. First, when we (or any venture firm) makes an A-round investment, we typically reserve another 2-3x of the A-round investment size for participation in future follow-on rounds for that company. So a $5M Series A shows up on our books more like a $20M commitment. The other $15M isn't necessarily always deployed, of course, but we also double down even mor…

Interesting to know, thanks. My example was probably a bit too hastily made-up. So I guess in summary, it's not so much about investor time and attention but mostly about managing the risks of the different sectors. Consumer startups are inherently less predictable and therefore you invest only when a company appears to have found its market and be at least partly on the way to success. Whether that be A round or lat…

Generally yes. Distilled down, quality of team seems to be a better predictor of success in enterprise than consumer, in that we see many more great consumer teams struggling to get traction than we do great enterprise teams struggling to get traction (on a proportional basis). There are many other factors for both but the "lightning in a bottle" element for consumer startups is real and very frustrating for teams that end up not being able to capture it.

I would just take out "only" from your comment -- there are exceptions everywhere. When we talk about patterns like these, they really are only patterns -- the truth is always in the specific details.

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#79

Post by pmarca »

pkj wrote: post #70
pmarca wrote: post #57

Earlier quoted context omitted.

Maybe you're right, but that's not what Scott was saying and that's not what I think. In my own words: consumer startups more and more have this very interesting "lightning in a bottle" effect where sometimes they take off like crazy and sometimes they just don't. I give full credit to the teams that figure out how to get the flywheel spun up, but it is also important to realize just how many highly capable founders…

>"That plays well to our market development program where 1,200 big company management teams are coming through our office every year -- we ask them what they think about new ideas and they tell us." How about asking BigCos their top pain points once in a while? That would be a 1200x treasure for current/future entrepreneurs.

Yep, we do, and we set up many opportunities for our entrepreneurs to do that themselves. (I just got back from our annual CIO/CMO conference where there was a lot of exactly that.)

Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar

#80

Post by pmarca »

amirmc wrote: post #69
pmarca wrote: post #63

Earlier quoted context omitted.

I'll go read several textbooks on fruit fly genetics and get right back on this.

Now that's what I call a pivot :) More seriously, I was just trying to point out a source of confusion. In any case, I'd love to hear more about the enterprise space as it's something I'm interested in but have little visibility into. Elsewhere you mention 1200 execs (annually) tell you what they think of new ideas. Can you share any of the insights or problems? I bet there are lots of nascent startups/ideas that may…

Here are a bunch of general observations:

* Enterprises have a continuous ongoing need for new technology. Some they build in-house but like anyone else they are mostly busy running their current business and so they tend to buy important new technology from technology companies. I bring this up because it was in doubt a while ago -- and enterprises really slowed down buying new technology between ~2000 and ~2008 -- but I think it's a constant truth.

* Just like consumers, in enterprises there are early adopters, mainstream adopters, and laggards. The good news is that there are almost always early adopters for any interesting new idea -- we always tell enterprise startups to look for the first 5 customers -- if you can make them happy, then you can reference sell to the next 10, then the next 50, then the next 100, then the next 500, and then you are huge.

* Consumerization of the enterprise is real. The bar on usability and ease of adoption is being set by the consumer product industry; employees are increasingly bringing their own devices and services with them to work; there are more and more enterprise products that can be bought and adopted bottoms-up.

* However, it is hard to get a lot of MONEY from enterprises through only bottoms-up adoption. To get the money, at some point you have to strap on your big boy shoes and go in top-down and explain to senior executives why your technology is going to give them real competitive advantage or save them a lot of money. (This is the "enterprises don't have credit cards" principle -- you have to go get the money.)

* There are real constraints around what technology enterprises can adopt and how they can adopt it. A short and incomplete list: internal bureacracy, sunk costs, existing vendor relationships, regulations, data protection laws (e.g. in Europe), security requirements, need for integration with existing systems. At first these seem very frustrating to deal with. Later you realize that these can become a source of competitive advantage for you once you are in. Figuring out how to navigate that is really key and something the best enterprise entrepreneurs are very good at.

This doesn't get into specific insights/problems that they have at any given moment but this is a good general framework to begin an enterprise discussion.

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