Marc Andreessen Has Grow...

Marc Andreessen has grown a16z from their first fund of $300M in 2009 to over $25B+ in AUM as of 2022. His framework for understanding any business is simple. It comes down to unpacking what he calls "the onion theory of risk." Here's what he means... (View Tweet)

"If you’re an investor, you look at the risk around an investment as if it’s an onion. Just like you peel an onion and remove each layer in turn, risk in a startup investment comes in layers that get peeled away — reduced — one by one." @pmarca So what are the risks? (View Tweet)

(1) Founder Risk: Does the startup have the right founding team? A great technologist, plus someone who can run the company? Is the technologist really all that? Is the business person capable of running the company? (View Tweet)

(2) Market Risk: Is there a market for the product (using the term product and service interchangeably)? Will anyone want it? Will they pay for it? How much will they pay? How do we know? (View Tweet)

(3) Competition Risk: Are there too many other startups already doing this? Is this startup sufficiently differentiated from the other startups, and also differentiated from any large incumbents? (View Tweet)

(4) Timing Risk: Is it too early? Is it too late? (View Tweet)

(5) Financing Risk: After we invest in this round, how many additional rounds of financing will be required for the company to become profitable, and what will the dollar total be? How certain are we about these estimates? How do we know? (View Tweet)

(6) Marketing Risk: Will this startup be able to cut through the noise? How much will marketing cost? Do the economics of customer acquisition — the cost to acquire a customer, and the revenue that customer will generate — work? (View Tweet)

(7) Distribution Risk: Does this startup need certain distribution partners to succeed? Will it be able to get them? How? (For example, this is a common problem with mobile startups that need deals with major mobile carriers to succeed.) (View Tweet)

(8) Technology Risk: Can the product be built? Does it involve rocket science — or an equivalent, like artificial intelligence or natural language processing? Are there fundamental breakthroughs that need to happen? (View Tweet)

(9) Product Risk: Even assuming the product can in theory be built, can this team build it? (View Tweet)

(10) Hiring Risk: What positions does the startup need to hire for in order to execute its plan? E.g. a startup planning to build a highscale web service will need a VP of Operations — will the founding team be able to hire a good one? (View Tweet)

His advice for founders? "Take a hard-headed look at each of these risks — and any others that are specific to your startup and its category — and put yourself in the VC’s shoes: what could [we] do to minimize / eliminate enough of these risks? Then do those things." (View Tweet)

For more startup thoughts and frameworks from @pmarca check out the archives of his blog. There's a lot there. https://t.co/z2stOOrIOh

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