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In the late fifteenth century, Queen Isabella of Spain provided Christopher Columbus with capital for a risky business venture. Some might even call her a world-class venture capitalist because she was willing to take on such risks and it paid off in the long run.
In today’s world, start-up companies are backed by venture capitalists. These entrepreneurs have a high risk of failure because most start-ups fail.
This is where venture capitalists come in. They provide capital to help promising founders bring their ideas to life. In return, the VCs receive an ownership stake in the company. In addition, they advise founders on long-term decision making and how best to reach strategic goals.
Many people in the start-up world wonder what venture capitalists do. Fortunately, Scott Kupor works at one of the biggest VCs, Andreessen Horowitz. In this article, you’ll learn some insights into how he and his co-workers think about investing in new companies.
This book will talk about the Y Combinator and how it changed venture capital, as well as why the author’s firm invested in Airbnb.
Big Idea #1: The nature of venture capital has changed over the last few decades.
In the early 1970s, Silicon Valley had a number of new businesses in the world of venture capital. For thirty years, only a few companies held most of that money. This meant that they could decide which entrepreneurs received funding and who didn’t.
But starting in the early 2000s, things began to change. Advances in technology meant that fewer resources were required to start a company. The cost of servers and networking decreased while cloud computing made it cheaper to rent office space because companies no longer needed on-site storage for their data. As a result, founders didn’t need as much VC funding as they had before.
The second development that changed the relationship between venture capitalists and entrepreneurs was the founding of Y Combinator. It’s a school for entrepreneurs that teaches them how to found companies and secure VC funding. Famous alumni include founders of Airbnb and Dropbox, which are two successful startups. The YC helped bring together an entrepreneurial community that had previously been dispersed, helping even out the balance of power in terms of who has more control over their investments (VC firms or entrepreneurs).
At this point, the author’s venture capital firm entered the picture. In 2009, Marc Andreessen and Ben Horowitz founded Andreessen Horowitz. They realized that VCs needed to provide more than just money to entrepreneurs; they also need help in other areas like recruiting or sales.
The VCs at Andreessen Horowitz are important because they help CEOs build up their businesses by advising them on relationships with people and institutions. They’ve been successful in helping Pinterest, Slack, and GitHub grow into huge companies.
Big Idea #2: There are three important things VC firms look at when deciding which early-stage companies to fund.
Founders of early-stage companies usually don’t have a product to show potential investors. They come up with an idea and pitch it to venture capitalists. This means that VC firms can only analyze the qualitative aspects of those ideas, because they don’t have any hard data about them.
The first aspect of analyzing a company is to look at the founders. What are their backgrounds? Are they credible? Can they bring an idea to market effectively? And, in particular, what makes them stand out from other companies that have had the same or similar ideas?
One way to evaluate the founders of a startup is by looking at their founder-market fit. This means that the founder or founders have unique experience and insight into what they’re trying to build.
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