David Rosenthal: evaluation

Transcript context

…To say why because in this very clear-cut world which we're not in now of these crazy names for rounds and incredible fluidity of rounds, there was not a seed asset class, there were no seed firms. So the Series A was your first professional venture capital institution coming in and writing a cheque into your company, taking a board seat—the first time you had real governance—and before that you have whatever cowboy would help you as an angel investor get to something that looked venture capital fundable. If that even happened at all. In many cases, the Series A was the very beginning because you needed a few million dollars to go buy some servers and do all of that. By the time we're talking about here in 2008–2009, the Series A has really become this catbird seat from the venture capitalist because they can outsource all the real early-stage risk to the seed stage with way less capital—have these companies get going—and then once they start to show product/market fit and a lot of the risks has been removed, then the Series A venture firms can come in, lead around, and they're still all these hangover baggage with the round where it's like the norm that whoever leads your series A is going to get a huge ownership percentage in your company—25%–30% ownership—and it turns into this total bonanza for the venture firms who aren't really taking that much risk. Marc and Ben are like, well, what if we say that Andreessen Horowitz will do any round at any time. We'll do seed. We'll do lots of seeds and we won't take board seats in the seed investment. You don't need that much capital, and we won't give you that much capital, and we won't take that much ownership. Then we'll do Series A, sure, but we'll also do Series B, and we'll also do growth rounds. Listeners who are not professional venture capitalists listening to this, it sounds like okay, cool. They have a different strategy. They don't focus on a stage, they just focus on lots of stages. For anyone who has raised a fund before, you will know how insane this sounds. What venture capitalists classically pitch to LPs is our sweet spot investment is this. It is a company that looks like this. It's a stage that looks like this. It is an ownership percentage that looks like this. It's a cheque size that looks like this, and it's a set of governance rights that generally looks like this. We intend to do that 20–40 times. That is how we will construct our portfolio, so therefore there can be a bunch of different variations among the companies as they go along. There will be winners, there will be losers, but they will start out like this so that's what you're buying. By starting a venture firm being like we're stage-agnostic, we're government-agnostic, it's like, wait, what's the thesis?…

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