George Bernard Shaw said “Imitation is not just the sincerest form of flattery – it’s the sincerest form of learning.”
To that end, Marc and Ben of Andeessen Horowitz — the most successful of the most recent venture capital entrants — this week explained their thinking of the important functions of an investment firm that actually gets in there kneading the dough along with the entrepreneurs.
On the functions that are important:
Those 45 folks are across five teams of professionals that work with our entrepreneurs. And those are across five disciplines: executive recruiting; engineering recruiting, so two different what we call talent functions; a function we call market development, which helps companies meet the big companies that matter in their industry. We’ll do on the order of 1200 briefings in our executive briefing center downstairs with Fortune 500 management teams, connecting them to the best and brightest new startups. And then fourth, marketing and PR, which is fundamental: How do you get your message out, how do you break through all the noise. And then fifth is corporate development: How do you raise money, how do you go public, how do you — you know, if it comes to it, how do you sell yourself, and how do you deal with all the issues around corporate finance.
On compensation and incentives:
Yeah. Well, exactly. You know, it’s funny, and we took this model off of CAA, but it’s actually more applicable to us in a lot of ways. So in CAA, the way they were able to build a platform is the talent agents didn’t take any salary for the first several years, and they used the commissions that they got from the actors and actresses and screenwriters to kind of build the platform.
In our case, venture capitalists get paid two ways, not just one way. That was the only way the CAA guys got paid. One is what’s called the fee stream, which is the kind of money to pay salaries and operate the business. And the other is the investment, like the carrier, the return on investments. We thought like if you’re an investor, you ought to get paid on investments, not just for being there. So Marc and I, when we started the firm we didn’t take any salary. We copied the CAA model. We used the fees to build out the platform. And even now, we like to pay the investing partners far below market on their salary and pay them over market in carry, or their money on investments, because that’s just a much better alignment of incentives.