The lyrics to Mase’s 1998 hit “Lookin At Me” graced the page of Ben Horowitz, of Andreessen Horowitz, personal blog on Sunday afternoon. Horowitz needed to set the record straight. There’s a lot of haters out there (I know this personally) and people were asking questions. Ridiculous questions if you ask me, but still they were asking.
Andreessen Horowitz invested $250,000 in Kevin Systrom’s first company Burbn, and with the $1 billion dollar purchase of Instagram by Facebook the venture capital firm stands to make $78,000,000 thats 78 million dollars for those of you that aren’t good with numbers. That’s a return of 312 times their money. Yet people have been asking why Andreessen Horowitz didn’t make more.
Horowitz took to his blog to explain why they didn’t make more. But first he said:
Ordinarily, when someone criticizes me for only making 312 times my money, I let the logic of their statement speak for itself. However, in this case, the narrative that some critics put forth has the nasty side effect of casting two outstanding entrepreneurs—Kevin and Dalton Caldwell—in an unfair light and glosses over an important ethical issue that we faced. As a result, I will clarify what happened and why we didn’t make even more money.
More after the break
Andreessen Horowitz, in their first year, invested that $250,000 in Systrom’s first startup Burbn which was more or less a new social network. At that time they also invested in Caldwell’s PicPlz a photo sharing startup that was open faced like Twitter. Since Systrom’s original idea was more of a social network and not a photo sharing startup there was no conflict of interest and it was totally Kosher to be invested in both.
Well as we all know Systrom pivoted into Instagram. That’s because the photo portion of Burbn because the hottest part of it. He took that idea and ran with it. He didn’t steal Dalton’s idea. In fact Horowitz reiterates that a lot in his blog post.
At the same time the firm needed to decide if they were going to invest in Caldwell again. Now that they knew what Systrom was up to they needed to decide if they were going to participate in the venture round of PicPlz, Instagram or both or neither. They decided that funding Systrom and Instagram, as Instagram would violate their agreement with Caldwell. They were in a unique position because funding Caldwell would not violate their agreement with Systrom because they had invested in Burbn and not Instagram.
That’s not all though. Horowitz reported (what we all pretty much would assume) that because they had invested in Burbn during it’s seed round they had information and pro rata rights to the series B. They decided that it would be totally unethical to exercise those rights because they were not invested in a competitor to Instagram. So they did the noble thing and without compensation or consideration gave the rights back to Systrom and didn’t invest in Instagram.
There seems to be no love lost either. Andreessen Horowitz made $78,000,000 (there’s that big numb again) from their investment in Burbn and they are now invested in Caldwell’s newest project called app.net.
It’s not often that you can get 312x your investment in under two years. The Burbn/Instagram deal was “special” according to Horowitz (and the rest of the world). It’s actually pretty absurd that people are giving the firm a hard time for not making enough money isn’t it?
No wonder Horowitz wants to know “Why you over there looking at me”. We love it when some of the biggest players in the industry show their human side, with a quote from someone like Mase. You should check out our OMGPOP, Dan Porter story “You earned that bump like a mother fucker”.
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