Big Venture Firm Raises Networking Stakes
Andreessen Horowitz, a three-year-old venture capital firm, has made a big mark in Silicon Valley partly through the sheer scale of its endeavors, with big funds totaling some $2.7 billion and big investments in high-profile companies including Facebook, Twitter, Zynga and Groupon.
Now it is aiming to go big with another aspect of venture investing, one it says has often been more talk than action: providing start-up companies with business connections that can help them succeed.
The company has built a special facility, dubbed the Executive Briefing Center, and hired a partner and a small staff to connect entrepreneurs with companies that might buy their products.
The idea of VCs opening their Rolodexes to help their portfolio companies is hardly new, and in fact is often part of the pitch that blue-chip VCs make to entrepreneurs when they want in on a promising deal.
"It's something we've been doing for a over a decade, in a formal way," Sequoia Capital partner Jim Goetz said of his firm's "customer days." At Kleiner Perkins Caufield & Byers, several hundred connections a year are being made between portfolio companies and Fortune 500 companies, a spokeswoman said. Other large VC firms cited similar efforts.
The trouble is, these efforts in many cases don't ultimately amount to much, many entrepreneurs say. Sometimes, the contacts are at the right company, but the wrong level to help a particular project. Sometimes the partners fail to share contacts among themselves. It is something Marc Andreessen and Ben Horowitz found wanting when they worked together at Netscape and then at Opsware.
"We got 2-3 introductions from VCs that actually amounted to anything," said Horowitz. "It was underwhelming."
Andy Rachleff, the former partner at Benchmark Capital who handled the Opsware investment, acknowledged that such networking was not a priority. He called Andreessen's and Horowitz's requests for introductions to chief information officers during 1999 and the early 2000s "a source of constant frustration."
Rachleff says his most important contributions were in strategy, including in advising the company to move from service to software, and he remains close with the duo; they turned to him for tips when launching their own firm.
FOCUS ON INTRODUCTIONS
While Andreessen and Horowitz stress that their overall experience with VCs was positive, they felt there was an opportunity to systemize and upgrade the introduction process. They hired Mark Cranney, who had previously worked at Opsware and was an entrepreneur-in-residence at Andreessen Horowitz, to run the program full-time.
Cranney and his staff of three tap their contacts, as well as those of other partners, and invite established companies to visit the firm. Once a company commits, Cranney and his team select a group of portfolio companies to make presentations to them, one-on-one. About 200 briefings took place last year.
For the visiting company, the allure lies in getting a sense of what the latest developments are in Silicon Valley, and the possibility of finding a start-up whose services could help.
"What Andreessen is able to do is see these innovative technologies early," said Beth Comstock, chief marketing officer at General Electric, who estimates about 25 GE executives have been involved in briefings on topics ranging from consumer Internet technology to health data.
For the portfolio companies, the goal is customers.
On one recent morning, seven business-development executives from First Data, an Atlanta-based payment processor, sat in an Andreessen conference rooms as a stream of companies came through giving 25-minute presentations. It was First Data's third visit to the firm.
As they munched on pastries, the executives went over some of the company's challenges, including data-mining, improving customer service, and making sure all the companies' platforms work in the same way in each country where First Data operates.
Then the presentations began, kicked off by data-analytics company Quantifind. After Quantifind's corporate development director Sean Wilkinson wrapped up, the First Data executives peppered him with questions on topics like fraud analytics and how data is pulled from social-media sites.
"If you didn't have this, you'd have to try and get to those people, you'd have to fly and go see them, and the chance of getting more than 1-2 people in a room is difficult," said Tim Eades, chief executive of Silver Tail Systems, an online-fraud prevention company that was part of the First Data line-up. He estimated that business generated by the Andreessen Horowitz briefings have added more than 15 per cent to 2012 sales.
At Lookout, a mobile-phone security company, chief executive John Hering said the briefing program had led to several deals, including one he plans to announce shortly with a leading mobile operator in a part of the world where he previously lacked a mobile partner.
Some companies say VC-driven networking is not a big concern for them.
"Sure, the introduction, at a high level, to the Verizon CEO is awesome," said Tony Zingale, chief executive of Jive Software, who recalls several helpful connections forged thanks to his position as a Sequoia portfolio company. "But what's more awesome is the strategic guidance." Jive's IPO late last year generated $161.3 million.
Indeed, some in Silicon Valley grouse that the executive briefings amount to little more than a slick branding move by Andreessen Horowitz. But Ben Horowitz takes no offense at that.
"Our companies really appreciate that we have a strong brand because it accrues to them," said Horowitz. "When they go recruit engineers they say 'We're backed by Andreessen,' and the engineers say, 'Oh great, they have a lot of money, I like what they're about.'"
He shrugs off the critics with a quote from the rapper Drake. "Jealousy is just love and hate at the same time," Horowitz said. "We welcome the love."