One of the most influential Silicon Valley investors reveals how his firm decides whether to back a company
Andreessen is one of the most influential technology investors; before launching Andreessen Horowitz, he helped create the Mosaic Internet browser and co-founded Netscape.
On the podcast episode, Andreessen shared some insights into the process Andreessen Horowitz uses to decide whether to make an investment.
What they're looking for, Andreessen said, is a "great" investment, as opposed to merely a "good" one. A good investment might have solid founders and a solid product - but nothing really stands out as special and the company probably won't go anywhere.
A great investment, on the other hand, captures their attention. It might have lots of problems, too, Andreessen said, "but there's something at the core of what it is that's really special and magical."
If one general partner feels that a company would be a great investment, they can pull the trigger - even if there isn't a consensus from the rest of the partners. In fact, if they relied on consensus, Andreessen said, they "would only invest in the good ones as opposed to the great ones and then [we] would fail as a firm."
That said, the team still takes pains to make sure that the general partner who believes in the investment is making the right decision.
"It's the responsibility of everybody else in the room to stress test the thinking," Andreessen said. Sometimes they'll create what he called a "countervailing force" made up of people designated to argue the other side.
Andreessen noted that he and Ben Horowitz, the other founding partner of Andreessen Horowitz, consistently use this method on each other: "Whenever [Ben] brings in a deal, I just beat the s--- out of him. And I might think it's the best idea I've ever heard and I'll just like trash the crap out of it. And I'll get everybody else to pile on."
If at the end of that pile-on, the person is "still pounding the table saying 'No, no, no, this is the thing,' we'll say, 'Okay, we're all in, we're all behind you,'" Andreessen said. "It's a disagree and commit kind of culture."
Andreessen Horowitz's decision-making methods are backed by science: Recent research suggests teams that can engage in healthy debate are the most successful, compared to teams with high levels of interpersonal conflict and teams without any conflict at all.
Whether you're part of an investment firm or another business team, you can probably replicate Andreessen Horowitz's process. It's a question of recognizing that the best ideas won't necessarily be the ones that draw unanimous support, but that every idea requires rigorous analysis before execution.
Listen to the full podcast episode »