If You're A Consumer Startup, Don't Bother Asking Andreessen Horowitz For Series A Money
While it's happy to dump tens - or even hundreds - of millions into later stage companies, it by and large avoids making Series A investments in consumer startups.
Series A investments are typically raised to help startups scale from the idea stage to the money-making stage. It's often the second batch of money an entrepreneur raises, following a "seed" round, which helps a startup idea get off the ground and prove its concept.
One of A16Z's partners Scott Weiss told the Wall Street Journal that as a matter of principle, his firm tries to stay away from Series A investments in consumer startups. It has found that too many companies are unproven at that stage, and they raise millions of dollars only to later "pivot" - change ideas - or fail.
It's true that A16Z has paid big bucks to get into later stage companies. It invested in Foursquare, Lyft, Pinterest and Fab's Series B rounds. But occasionally the firm makes exceptions.
It put $100 million into GitHub's Series A round, for example, however the company was already making a lot of money by that time. It's also an enterprise company, not a consumer company. In addition, A16Z invested $15 million in Rap Genius' "venture" round (essentially a Series A), but the lyric analysis company already had a lot of traffic and users. The firm has made five Series A investments this year, WSJ reports. Last year it made nine.
While A16Z stays away from Series A rounds, it will take a chance on even earlier consumer startups and put money into seed stages. The firm has a relationship with startup accelerator Y Combinator. It also recently invested in a startup that hasn't launched yet, Clinkle. Clinkle is a payment startup that raised a $25 million seed round. There were a lot of investors in the round though, so A16Z didn't have to forfeit a ton of money to participate.
A16Z's Weiss likened consumer startups in the Series A stage to "fruit fly experiments," of which his firm doesn't want to partake. But enterprise companies are a whole different game. "There isn't a better time to be an enterprise investor," he said.