The 10-year power shift in VC land
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The 10-year power shift in VC land

Protocol Pipeline

Hello and welcome to Pipeline, where unlike the public markets, we cover the low-risk, low-return world of VC investing! This week: why every VC firm has a marketing partner, the power shift from VCs to founders that underlies this and why VC firms may now cut back marketing and other services for founders.

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  • Up is down, down is up: The new finance pecking order concludes that VCs are media companies, CEOs are angels, and memelords rule Wall Street. If only Redditors could buy startup shares …
  • VC primping: Which VC firm has the best visual identity? I leave that to the design experts, but's video is … the hottest.
  • Brave new world: Sequoia Capital was forced to deny a rumor that it pressured Robinhood to halt trading of stocks.
  • Retail VC investors: Is the retail versus institutional battle around GameStop equivalent to what's happening with AngelList, syndicates, rolling funds, etc., versus traditional venture firms? Not really, since angel investors aren't retail the way WSB investors are, but it's an interesting comparison.

The Big Story

The power balance between VCs and founders

The growth of marketing functions at VC firms over the past decade is a key indicator of the intense competition between VC firms. But beneath that, it's a broader story of the shift in power between startup founders and venture investors that has changed how tech companies are built. With the news of Andreessen Horowitz launching a media property, it's worth looking at how we got here, and what that means going forward.

When Andreessen Horowitz formed in 2009, few VC firms did media outreach and few had an in-house marketing person. That changed when a16z brought on Margit Wennmachers in 2010.

  • The firm subsequently made a big push getting its story out into the media.
  • The firm also built out a large services staff, including recruiting and business development, to offer to its startups.

Meanwhile, and this has not been discussed as much, the VC startup market was changing.

  • With interest rates dropping and tech moving to the center of the economy, more capital was flooding into venture from micro VC (and later, seed and pre-seed) funds, hedge funds, sovereign wealth funds and elsewhere — not to mention the growth of AngelList.
  • Some entrepreneurs, particularly experienced ones, also came to believe they could build companies without needing as much support from traditional venture funds.

VCs were no longer in the position of power, where startups had to trek down to Sand Hill Road and seek money from a room full of partners. Competition to invest in top deals was getting fiercer than ever. Startups now had so many options for funding, they could choose. So VCs had to build their brand.

Marc Andreessen and Ben Horowitz, both experienced tech founders, wanted to build something different when they started their firm.

  • They wanted to find product wizard founders, but they wanted to offer a range of additional services to founders that they felt they could've used when they built companies.
  • Marketing was a big part of that. The firm also recognized that despite Andreessen's star power and Horowitz's well-respected reputation among Valley insiders, it needed to place its firm in the forefront of founders' minds if it wanted to win deals.

Meanwhile, this power dynamic between founders and investors has continued to push ever more toward founders to this day — with even more capital options for founders — and that probably won't change unless there is a big market downturn. So venture firms are continuing to look for new ways to add value for entrepreneurs, which will drive more future changes in the industry and create more ways for founders to raise funding.

When a16z first jumped into the market, some firms grumbled about the tons of coverage it was getting.

  • In 2013, Doug Leone, partner at top rival Sequoia, told me he was "embarrassed" by the self promotion of other firms — a thinly veiled reference to a16z.
  • "It's not about seeing our names in the press," he said.

But virtually every venture firm soon followed and hired a marketing partner, as the position became known. They also followed a16z and built out services teams in talent, business development and marketing. Why has marketing become critical for VC firms?

  • At the top of the funnel: When founders have new ideas, VCs want founders to think of them so VCs can invest.
  • Second: To win deals, VCs want to be able to offer services in addition to investing and advising chops.
  • Finally, VCs want to market (brag about) their successes. But this is not just to brag — it's so that founders associate a VC firm with a successful company such as Snowflake or Airbnb, which is often how founders choose which firm to take on as an investor. (The most common email to get form a VC is: "Why wasn't I mentioned in this IPO story?")

Now, the VC services trend may be changing as some firms start to quietly cut back on offerings for startups, whether through cuts or attrition. GV, for example, cut back last year. Kleiner Perkins hasn't replaced marketing chief Amanda Duckworth, who left last year. Beyond the pandemic, there are theories for why this is happening.

  • Services such as marketing, hiring and business development are not as hard to come by for founders as they once were; many founders get this from their many angel investors or their own network.
  • VCs may not be seeing clear ROI — in deals won or feedback from founders — from having large service teams.
  • And many VCs don't want to manage a company with lots of staff; they just want to work with founders. (At the same time, General Catalyst recently hired a CMO and Bessemer has been seeking a CMO for some time, showing the continued interest in senior talent to handle marketing and brand.)

Meanwhile, the news that a16z is launching its own media entity is a continuation of its original strategy. The firm always valued "owned" media, writing blog posts, books and WSJ opinion pieces, and this is another example of that. While there is certainly more tension between the press and VCs/tech companies — the reasons for which require another column — the purported beef between a16z and the press, and the idea that this new media venture is a move to avoid critical press coverage, is overblown, in my humble opinion.

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Inside Track

  • Power has also shifted in the markets: Younger investors are upending the system controlled by boomers, says Fred Wilson.
  • The two most interesting consumer startups now are Clubhouse and Substack, per Elad Gil. Can they replace Twitter?
  • Government is more likely to consolidate behind top tech companies than try to figure out how to enforce the rule of law, resulting in a "government-IT infrastructure complex,"Albert Wenger says.
  • Stacker helped the nonprofit Project N95 get PPE to the pandemic frontlines, writes Garry Tan.

Need to Know

  • This week in SPAC: Venture-backed companies Latch and Taboola announced SPAC plans. And WeWork is considering one.
  • Who doesn't have a SPAC? Science's SPAC raised $270 million, Tribe Capital filed for a $200 million SPAC IPO with Arrow Capital, and Howard Lindzon's Social Leverage SPAC filed for an IPO.
  • Who doesn't have a rolling fund? Even Robert Downey Jr. has one. Meanwhile, several firms rolled out new traditional venture funds, including TCV with $4 billion, Spero ($123 million) and NextView ($100 million), while new firm Untapped launched.
  • Diversity move: is a new nine-month fellowship to diversify VC from Seedcamp, Wilson Sonsini, HSBC Ventures, Microsoft's venture unit, Notion Capital and others.
  • From Protocol: China's ed tech industry is working for equality. (Check out our new Protocol | China vertical.)
  • This week in VC history: In 2011, Yuri Milner and SV Angel began offering new Y Combinator startups $150,000 each. There were 40 startups in that cohort, a new record. To compare, at its most recent 2020 Demo Day, close to 200 presented.
  • Your weekend reading: The dangers of "indentured servitude" from coding boot camps.

Five Questions With ...

Lux Capital's Deena Shakir

Deena Shakir is a partner at Lux Capital, a venture firm investing in emerging tech that raised $1 billion across two funds in 2019. She was formerly a partner at GV, worked at Google, and while at the State Department helped launch President Obama's first Global Entrepreneurship Summit in 2010. Her Lux investments include H1, Shiru, Mos and

What product or service are you totally, even irrationally, loyal to?

Google Home. One of my pandemic projects has been attempting to fully automate my household — or at the very least, my house. I have timers go off to remind the kids about dinnertime and bedtime, to automatically start my robot vacuum/mop after dinner, to turn on my bedroom lights and start playing NPR when I'm getting out of bed, to water my trees when it's dry out — and skip on rainy days — to turn on the patio lights at dusk. There may be a lot of chaos inside the house, but at least I've got the IoT on lockdown!

What's a secret obsession of yours that most people don't know about?

Fast food. My friends literally had a McNugget display for me at a surprise birthday dinner one year. I know, I know, I invest in health care and alternative proteins and am really into horticulture, don't @ me.

What problem do you want to see a startup solve?

A cure for cancer. And while we seek that moonshot, I will continue to invest in companies improving health outcomes and reducing risk for cancer and other debilitating diseases.

What company or startup sector is the most underrated right now?

Women's health! It shocks me how many investors still think it's a "niche market," despite representing 50% of the population and more than 80% of dollars spent in health care.

I'm digging a lot into fertility these days. There are so many challenges across the IVF journey, from sperm selection to embryo selection to misinformation. Lots of opportunity for innovation, especially the application of AI.

What's the biggest problem in venture and what needs to be done to solve it?

Bias. The "diversity" problem in VC is not a pipeline or talent issue; it is fundamentally about bias. I am passionate about addressing the challenges around biases in VC, and have written about efforts GPs and LPs can take to mitigate them.

Although 2020 was a record-setting year in terms of VC deals, the percentage of dollars going to women-founded companies dropped from the prior year. It doesn't help that the pandemic has had an outsized impact on women and under-represented minorities in general. Women — especially Black and Latinx women — are dropping out of the workforce at unprecedented rates. There is ample data that shows the greater ROI of investing in diverse founding teams and boards; it's better for the macro economy, scientific innovation and individual investors alike. And it starts with addressing the deep-rooted biases.

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