Worrying Too Much About Valuations? Marc Andreessen Thinks You Are

Marc Andreessen Answers the Tech Valuation Question
The venture capitalist says many investors don’t grasp what’s changed



Are you a venture capitalist, angel investor or start-up entrepreneur? Do you seed new technology firms, or write about them or work for one them? Then you are probably spending way too much time and energy obsessing about valuations.

So says the man who invented the first commercial internet browser, sits on the board of Facebook Inc., and helped back companies such as Airbnb Inc., Box Inc., Groupon Inc., Instagram Inc., Lyft Inc., Pinterest Inc., Skype Inc. and Slack Technologies Inc.

I sat down last week with Marc Andreessen of venture-capital firm Andreessen Horowitz to hear his thoughts on unicorns, technology, entrepreneurship, psychological scarring of investors, the future of e-commerce, Arpanet and really, just about everything else interesting under the sun. His insights are as profound as they are counterintuitive.

He thinks of himself is an engineer first, a problem-solver committed to “figuring out how things work — and then figuring out how to make them better.”  Some of the key points he made follow:

The Math of Venture-Capital Returns

Stock returns tend to be driven by a handful of big winners; for venture investors, it’s even more lopsided. Venture-capital funds typically have a 50 percent failure rate — half of the investments lose money, with half of those being total losses. The third quartile breaks even, or returns two or three times their money over five to 10 years. The real action is in their top quartile, which can generate return on investments of anywhere from three- to 1,000-fold.

Andreessen observes “We make our money on the ones that work and our reputations on the ones that don’t.”


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