has experienced both the highs and the lows of tech, starting his career at one of the nation’s most notorious bubble companies and now managing its most revered venture capital firm, Andreessen Horowitz.
Kupor was back in the Triangle this week for a meet and greet with entrepreneurs planned by Bull City Venture Partners
and a live interview before students and entrepreneurs at Duke University, hosted by its Innovation Co-Lab and Venture Capital Club. I attended the latter.
The rise and fall of Opsware, the bubble-era infrastructure software company he built alongside many of his now partners at the firm, was a key topic of the event. And perhaps because Ben Horowitz has since published a book on the subject. In January 2014, Kupor spent most of his visit talking about investment strategies, providing helpful tips to entrepreneurs raising money. This time around, his stories revolved around company and team building. I did my best to round them up in the paragraphs below:
Kupor on OpsWare’s mistakes…. Too many expenditures—in datacenter space, servers, storage and networking equipment. Too many decisions based on the assumption that capital would be easy to find when more was needed. Here’s how Kupor described it: “If capital is free, then we can hire in any areas that we need, so trade-offs become largely irrelevant.”
Finally, Opsware relied too heavily on other venture-backed companies for business. When venture capital dried up after the bubble burst, Opsware lost its clients.
“We had to do reverse diligence to predict when they were going to go out of business rather than selling to new companies,” he said.
On filing an IPO, and watching the stock slide to 38 cents a share… Despite that equity and salaries were way less than they could have been earning at an investment bank, they stuck with the company (then called Loudcloud) even as it declined. Here's how Kupor described the team's commitment to the company: “There was this sense of camaraderie associated with being part of a Herculean, almost impossible turnaround pass."
He also recounted advice from Opsware board member and former Intuit CEO Bill Campbell,
that there was value in building loyalty to each other and to working together in the trenches.
That gives some context to the “Opsware Mafia”
, so-named because many startups were later formed by former staffers, including Andreessen Horowitz, which counts at least eight former Opsware execs as partners.
On lessons learned and shared with portfolio companies today…. The firm is careful not to fight the last war, but also not to bring its scars into new investments. Kupor's biggest advice to companies is to know that it’s always going to be hard: “You have to go into this with the view that you’re doing to walk through walls. This is your life mission and it's going to suck. There are times that capital won’t be free and you have to lay off your friends."
On the changing venture capital environment…. The $100-500M venture capital firms that provided two thirds of the capital pre-2007 provide just 25 percent today. They've been replaced by angel and seed investors with less than $100M under management, making up nearly 6 percent of deals, from 2 percent. Bigger funds, meanwhile, are even bigger, making up 55 percent of all capital raised each year.
The good is that early stage capital is "phenomenal" and the cost to start a company is way less, meaning experimentation can happen at the low end. That's as opposed to Opsware's days of pre-reserving servers and space in datacenters for when business boomed.
The bad news is that it's more expensive to build a winning company over time, because the consumer market opportunity is 10x what it was because of mobile phone adoption. And there is a lot less money for A rounds. While seed deals have grown 3-4x since 2007, A rounds have grown only 1.5x. The result is more failures and more acqui-hires, in which a startup's product isn't worth anything but the team is. Larger corporations acquire a company solely to acquire the team, requiring they sign several-year contracts at the company in return for equity and pay over time.
On women in tech.... Kupor admits that he, and most other people, have inherent biases based on their personal network, and that Andreessen Horowitz is making a concerted effort to network outside of its normal bounds to get more women to graduate with computer science degrees and start companies.
On crowdfunding... SEC rules or not, Kupor isn't convinced crowdfunding will change much about the current funding environment. He expects equity crowdfunding sites to continue to require accreditation. There are just too few people who understand the risk profile of startup investing.
On another tech bubble.... "There is no question today that valuations are nominally higher than they have been for the last several years—there are certain areas you can scratch your head," he told the crowd. But, we're not in one. Why?
Because the time to IPO is 9.5 years versus four years prior to the bust. 350 IPOs happened from 1999-2000, and the average life of those companies was 3.5 years and revenue just $12M. There was no such thing as EBITDA. In 2000, more than $105 billion in venture capital was raised. This year, we'll hit $55 billion.
Also, the large behemoth tech companies like Cisco, Microsoft, HP and IBM were part of the boom in the late 1990s. Today, they are growing by very small multiples.
Will there be "irrational exuberance" at some point? He predicts yes.
On the Triangle ecosystem…
Prior to joining Andreessen Horowitz, Kupor lived in Cary (2005-2009) and established an Opsware office after the company was acquired by Hewlett-Packard. Admittedly, a lot has changed since then and he hasn’t kept up. But his suggestions for a healthy startup ecosystem is to "get people to recycle themselves and their winnings back into the ecosystem."
The challenge in the Triangle, he says, is there are too many other opportunities for entrepreneurs to take a traditional job after they succeed or fail. We also need to specialize. Figure out where the Triangle has a competitive advantage to other places, and build a critical mass of engineers around that. So when one job doesn't work out, there are 20 or 50 more options of others. That was a drawback for him when he tried to recruit executives to town. They didn't want to upend their families and not have a back up plan if it didn't work out.
On investing in a t-shirt startup…. To get you up to speed, Andreessen Horowitz invested $20 million in Teespring earlier this year, and yesterday, the company announced another $35 million round. Kupor's response was that Teespring is doing more than just selling t-shirts, but monetizing "social affinity." The big picture is that the company makes many more people into celebrities by letting them design and sell their own shirts.
The other side? The team. "The fundamental need of a product could be obvious to more than one person, so the differentiator is what about this team makes you confident they know something no one else knows," Kupor said.