Marc Andreessen explains what VCs look for in the companies they fund

Marc Andreessen, founder of Netscape and venture firm a16z, explains in the clip below that venture capitalist business is a game of outliers:

“The conventional statistics are that about 200 of the 4,000 venture-fundable companies per year will be funded by a top-tier VC. About 15 of those will someday get to $100MM of revenue, and those 15 will generate something on the order of 97% of all of the returns for the entire category of venture capital in that year.”

He continues:

“Venture capital is such an extreme feast or famine business. You’re either in one of the 15 or you’re not.”

Most VCs are looking for extreme outliers, and when they’re evaluating your startup, they’re asking themselves if this business is one of the 15 businesses that year that will get to $100MM in revenue.

One principle Marc believes helps firms invest in outliers is: invest in strength rather than lack of weakness.

“The default way to do venture capital is to check boxes: really good founder, really good idea, really good product, really good initial customers. Check, check, check, check. ‘Ok this is reasonable, I’ll put money into it.’ But what you find with those checkbox deals is that they don’t have something that makes them really remarkable and special. They don’t have an extreme strength that makes them an outlier.”

The takeaway for founders raising venture capital is to make sure you highlight that you have a really extreme strength across an important dimension.

Full video: Y Combinator “How to Raise Money with Marc Andreessen, Ron Conway, and Parker Conrad (HtSaS 2014: 9)” (Oct 2014)

P.S. We’ve put together a YouTube playlist with every Marc Andreessen insight we’ve ever shared. You can watch it here: "Best startup advice from Marc Andreessen