How Andreessen Horowitz Fumbled An Instagram Investment

http://bits.blogs.nytimes.com/2012/04/20/how-andreessen-horowitz-fumbled-an-instagram-investment/

by joao • 14 years ago

53 49 14 years ago

bits.blogs.nytimes.com

rexf• 14 years ago

Was the NYT headline updated? It currently reads 'How Andreessen Horowitz Bunted on an Instagram Investment'.

The piece describes how Andreessen Horowitz invested in both Burbn & Picplz. After Burbn pivoted to Instagram, Andreessen Horowitz had to choose between the two - since they competed directly. Andreessen Horowitz chose to go with the company that they put money for photo sharing.

dkrich2• 14 years ago

Ha, it must have been, because the URL still says "fumbled."

dkrich2• 14 years ago

Is it just me, or does this seem like a pretty savvy investment by A/H? They got their money into both companies, and ended up getting back (if the article is to be believed), a 400x return on their investment. There was a time and place where that was considered not too shabby, some might even say quite good.

Nobody can maximize every investment. How often does it happen that anybody maximizes their investment potential on any given deal? I wish I would have bought Apple stock in 1998 instead of 2005, but I wouldn't say I "fumbled an investment opportunity." When I first saw this headline, not knowing the backstory, I thought this meant that they did something to piss off the Instagram founders and lost out on the chance to put anything into the company at all.

ianterrell• 14 years ago

Extra, extra, read all about it! Firm makes wrong bet in high risk industry and still comes out with 40000% return! Epic fail!

fruchtose2• 14 years ago

What a tragedy! Andreeson Horowitz only earned $100 million on a $250 thousand investment. What amateurs! They might as well go work at McDonalds.

droithomme2• 14 years ago

I know, right?

For his next hit piece, that NYT "journalist" should write how Andreeson Horowitz are losers because they failed to buy enough Apple stock at $8 a share.

lpolovets• 14 years ago

I'd hardly call a 400x return 'fumbling'.

larrys4• 14 years ago

"At that market capitalization, Andreessen Horowitz’s stake would be worth $100 million — not bad for a $250,000 investment, but $200 million short of the return it could have earned had it stayed the course."

Amazing that you can turn $250k into (possibly) $100,000,000 and in the eyes of a NYT writer you have fallen short.

The writer will make a great parent.

mapgrep2• 14 years ago

I don't know Nicole, nor do I work for or with the NYT, but attacking her parenting because you disagree with the article does not seem reasonable.

By all means, make your point about the headline and story. Nicole is, presumably, an adult. But so are Andreessen Horowitz, and comparing them to a vulnerable child is not particularly convincing.

larrys4• 14 years ago

I am attacking (if you want to call it that) the tone of the article and the angle she choose to take. She could have just as easily said "while some might say that they missed $200 million, others are impressed with the way they made what they believed to be an honorable decision".

Of course in the end it's about selling newspapers or page views so she was just doing her job.

redthrowaway2• 14 years ago

I'm really not sure I get her beef.

If I bought $1MM worth of AAPL in 2003 at $10/share, I'd have $57MM. But if I bought it in December 97, at $3.30/share, I could have $150MM! What an idiot am I!

AH made out like bandits here; I'm sure they feel just fine about it.

larrys4• 14 years ago

"not sure I get her beef"

There is a saying in news business "if it bleeds it leads".

The negative angle draws in viewers and readers on certain topics and in certain situations. My guess is that that she decided this angle would get more views and interest.

pcwalton• 14 years ago

I'm personally sad to see what happened to picplz; they were the main option around for Android at the time and I always preferred their low-key feel to the more showy feel of Instagram. Competition is a good thing.

tzz• 14 years ago

Why didn't he just invest in both?

eternalban• 14 years ago

Because it would dilute the trust relationship between the investor and the companies involved. ... "never discussed strategy again" ... That is not a good vantage point to be in if you are investing in a company. How do you make effective decisions if you are not privy to the entire picture?

"moral reasons" ... Give me a break.

dalton2• 14 years ago

Anyone reading this article needs to remember to never be afraid of putting yourself out there because you are afraid of failure.

I saw the market first, I created picplz, and I went for it. I was a huge believe in the mobile photo sharing opportunity, and I went for it with all of my heart. Clearly, picplz didn't win, but I have ZERO shame or regret for doing my best.

When I read articles like these, which are about myself, my company and people that I know well, I can't help but feel vitriol aimed at me for DARING to create, launch and raise funding for picplz. I am not clear on what exactly people want, an apology for trying?

The fact is, I saw the writing on the wall that we wouldn't win early and pivoted out of photo sharing which I had ~90% of my series A cash still in the bank. It certainly seems like that was the right move, but all of this press makes it look like pivoting was the wrong call(?) The press I read is written in such a way that it assumed that the A16Z investment is dead and my entire company should just be written off to zero today. That is bullshit. If I started to take press like this too seriously I might as well just dissolve my company and stop coming into work.

I say this to the hn comminity: never be afraid of failure. No one knows what will happen. All of this arm-chair quarterbacking is a waste of time. Stop reading this kind of crap and instead put your energy into doing your best work. Sometimes you win, and sometimes you lose, but if you give yourself the opportunity to win enough times, you WILL be successful.

michael_nielsen• 14 years ago

I think you're reading something into the article that isn't there. I saw no vitriol aimed at picplz.

sachingulaya• 14 years ago

I read the article as being unnecessarily harsh towards picplz to bolster the 'fumble' that was Andreesen Horowitz's 4,000% return on instagram. This article is definitely a non-article and could easily be changed around to say "Andreesen Horowitz has done it again!".

carguy1983• 14 years ago

You're missing an obvious implication of the article, which paints a stark picture of winners vs. losers. Even when talking about Imeem it described it as being "buried" by MySpace - a word you usually use to describe a loser, not a winning sale.

Journalists, especially those writing for the NY Times, choose their words very carefully and are 100% deliberate in their conclusions, even if only implied through artful diction and innuendo.

This is techcrunch-style gossip writ large and it names names. You think NYT isn't doing this on purpose? We all read it didn't we?

brandall10• 14 years ago

First off, people like you are my heroes. Please keep on keeping on.

As to what the article said, I think you may be taking this too personally (although it sounds like you're referencing the media in general, and I don't know how much vitriol you may have had to absorb).

"Picplz has languished. After shopping the product around for possible cash deals last year, its founders finally ditched Picplz in July, choosing instead to spin it off to Sporcle, a maker of online trivia quizzes."

To me it sounds like basically saying "they did a pivot", but in language that an average reader can digest. Probably using a word other than 'ditched' would be more tactful though. I guess when one aims high taking punches now and then is part of the game, but in the end it doesn't mean a whole lot; other than well, you aimed high :) Haters gonna hate and all that jazz.

dalton2• 14 years ago

Thank you for the kind words.

The "vitriol" is mainly things that I read on Twitter inspired by articles like these. I am not going to link to them, but folks can choose to believe me or not.

jonny_eh• 14 years ago

The article was spinning a story, the story is that a VC passed on a big win. It's about Andreessen-Horowitz, not PicPlz. They didn't even try to explain why Instagram took off and PicPlz didn't.

DanBC• 14 years ago

> I say this to the hn comminity: never be afraid of failure

It's an important lesson. So important that a prestigious fee-paying girls school in England is having lessons in failing, and avoiding the fear of failure.

(http://www.bbc.co.uk/news/education-16879336)

EDIT: This post is in no way an insult to the parent comment. This post is meant to show that fear of failure is a problem, and it is being tackled at a very good school. Normally I ignore the downvotes, but this post is toggling up and down a fair bit. Reading my original post I guess I understand that it could be seen as being an insult. I apologise for that.

rdl• 14 years ago

It's depressing reading articles about yourself or things you know personally, seeing how wrong they are, and then realizing that's par for the course -- most journalism is just inaccurate, since the consumers don't actually need actionable intelligence, just entertainment.

dustineichler• 14 years ago

Dalton is awesome. Don't know him personally, but he spoke at Hacker School two years ago(?), maybe more. He speaks the truth, here and otherwise. I ran out of the auditorium afterwards like it was on fire ... or inspired.

Interesting side note about the article is VC funds tracking 'developers' early, for me at least.

brlewis• 14 years ago

Do you have a link to a video of the talk? I'm guessing this wasn't his 2010 Startup School talk about why not to do a music startup.

pmarca• 14 years ago

I'd like to add that all of us at AH are very proud of Dalton and his team, and we are highly excited about the new plan (including all the parts that aren't public yet :-).

2pasc• 14 years ago

If journalists knew how to start Companies, they would not write about it but just do it. Please keep on keeping on. You are the real deal.

History is written by the winners...I hope you can focus on being the winner in your market, and then tell your story the way you would want ;-)

AmericanOP• 14 years ago

I'm interested in hearing how Instagram won, if you have the time.

cpher• 14 years ago

I admire you for your tenacity and humility. It's clear to me that your best days are yet to come. I think anyone, whether trying to build the next "big" thing, to the folks like me just trying to build a "lifestyle" company in their free time between child-rearing, can learn a lot from you. Godspeed.

AznHisoka2• 14 years ago

"It took Picplz six months and two platforms to reach 100,000 users. Instagram acquired that many users within the first week of its launch."

It's a weird, twisted reality we live where 6 months is considered too long to reach 100,000 users.

When I read articles such as these written by the media, I always keep in mind that we entrepreneurs are the men in the arena. It's easy to second guess, and criticize when you're sitting comfortably with zero financial, and emotional risk.

masklinn• 14 years ago

> It's a weird, twisted reality we live where 6 months is considered too long to reach 100,000 users.

I think it's not so much considered too long as considered too long when a direct competitor does it in a week.

If one platform is growing at an explosive rate and the other one is struggling to get users, there's not much you can say beyond "second platform is struggling (comparatively)"

jerryji• 14 years ago

Hi Dalton, why do you think picplz's user acquisition rate falls behind Instagram's one-platform by a few factor? If travel back in time, what would you do differently to win?

kirtan• 14 years ago

ultimate boss level

ngranado• 14 years ago

There is SO much arm-chair quarterbacking it's sickening! You and your team have done an outstanding job. HATERS GONNA HATE! conversely ... PLAYERS GONNA PLAY!

sriramk• 14 years ago

Also tells you how difficult it is to figure out who is going to make it big. picplz had Dalton Caldwell, both an Android and an iPhone version and a several month head start. You can't blame a16z for picking them.

Besides, it looks like they did the most ethical/default thing they could - back the company they had already funded for photo sharing and avoid a conflict.

zackattack3• 14 years ago

Marc ensured the market expanded with his wise bet. I doubt he has any regrets. Who knows whether Instagram would have expanded unless they were motivated to get to a point of turning their backs on A16Z. $ talks.

zackattack3• 14 years ago

oh yeah i'm sure that marc andreesen is in cahoots with paul graham and has the extension to see your downvote..... way to curry favor there champ

zackattack3• 14 years ago

did not mean to imply that paul graham, of all people, would not respect privacy. i was just trying to be satirical, and i guess my attempt failed.

tptacek• 14 years ago

It's helpful to know as an entrepreneur that, whatever "A16Z" (heh) thinks about this particular instance, venture capitalists are, allegedly, as a species, way more motivated by fear of stories like this than they are of the fear that their investment in you will come to nothing. When they need to raise money for their next fund, nobody is going to hear about the investments that came to nothing, but the obvious missed opportunities are going to sting.

This helps explain why they'll plow money into shoot-the-moon me-too startups that have no discernable chance of success, but might turn you down even if you have steadily growing revenue.

larrys4• 14 years ago

"fear of stories like this".

As a matter of fact, Fred Wilson on his blog the day after the deal was announced was asked this by a commenter:

"I was looking for a lively discussion of the FB/Instagram deal today"

To which Fred replied:

"i'm not interested in that discussion really. somehow that takes energy from me. i am not inspired."

As you said "obvious missed opportunities are going to sting"

http://www.avc.com/a_vc/2012/04/life-liberty-and-blazing-bro...

chimeracoder• 14 years ago

Articles like these both reflect and perpetuate this problem. I'd don't like the idea of blaming successful people for the opportunities that they declined on principle - I'd rather look at the ones they chose to focus on, and see whether those were well-executed.

But furthermore, I'd rather have the decision to fund actually mean something more than "This is just barely convincing enough that there's a slight chance I might look like an idiot if I don't throw a bit of money at it'.

I'm painting a picture of extremes, but you get the idea. Fine, a16z made X on this investment when they could have made Y, where Y > X. But look at X itself - is that a respectable rate of return? And if not, do they make up for it by getting good returns on the other investments that they've also invested money (and time!) into?

The VC game is about identifying enough companies - not all companies - that will be successful. Errors of the first kind and errors of the second kind are not equally noteworthy, and it seems we're focusing too much on the wrong one. There are valid reasons for turning down a company even if you think it may be successful - if you feel that your limited time/money/effort will be more valuable other companies.

bravura• 14 years ago

It was a calculated bet against Instagram and it left Mr. Systrom livid, these people said. Instagram’s founders never discussed strategy with the firm again.

Curious: To what extent can you avoid disclosing information to your investors, once it becomes clear that they are competing against you.

But Mr. Systrom’s experience with Andreessen Horowitz taught him to choose his investors warily.

Why? It seems like A16Z did the most ethical thing, which was support the company that the original founded for this idea. When Instagram pivoted into a competing position, why would they expect A16Z to back them and bury picplz?

By the time Facebook acquired Instagram for $1 billion in a cash-stock deal a week ago, Andreessen Horowitz’s stake in the company had fallen to less than 10 percent.

If A16Z had half the seed round, then that means that the seed investors owned 20%, diluted. If Benchmark own 30% at the sale, that means that the seed angels must have took >30% of the company at the $500K seeding. Is this correct?

kposehn• 14 years ago

I actually find this article rather unfair to all involved. It is quite clear that the author seems to have it out for AH - after all, a $100m return is freaking AMAZING for $250,000, and Benchmark made a far lower multiple for the amount they invested.

In the end, I'd say the win goes to AH - they made a mistake, but also didn't exactly lose either.

droithomme2• 14 years ago

The article failed to convince me of the truth of the thesis proposed in its headline. Seems more a hit piece than anything solid or impartial.

How Andreessen Horowitz Fumbled An Instagram Investment

Related Stories