Culture As An Investment Strategy

I worked at one of the largest marketing communications agencies at the beginning of my career. After three years, I was recruited to startup life by one of my clients and I never looked back. While the startup pace is more intense and unpredictable (therefore stressful), there are many things about it that appeal to me, especially: team vision, pride in building something big, accountability and speed. These cultural dynamics result in innovation at a level rarely seen at big companies.

That’s why I find interesting a new venture-capital firm launched by Marc Andreesen (Netscape founder) and Ben Horowitz. At the New York Times Bits blog, Claire Cain Miller writes about their secret investment strategy: to watch which startups get acquired by big companies — and then finance ones that are doing what those acquired startups would have done if they had remained independent. In other words, they’re betting on strong industry peers who aren’t hampered by the deadly forces of bigness and ownership.

Miller quotes Andreesen:

When these things have big opportunities, in general the right thing to do is to keep it independent. Silicon Valley would have more franchises otherwise. There could be more Oracles and Ciscos…When companies are acquired quickly, innovation slows down. YouTube, if it had a gun to its head to make money, might have come up with a path to profitability faster than it will as part of Google.

I’ve seen firsthand what Andreesen describes. On the other hand, I’ve seen startups lose their innovation because they adopted, on their own, big-company mindsets and cultures – in greater proportion to the size and complexities of their organizations.

Regardless, Andreesen and Horowitz have an investment strategy based on culture. Their thesis is that bigness kills cultures of innovation, while independence doesn’t. What matters more than first-mover innovation is sustained innovation.

I think strategy makes a lot of sense. But it takes a leap of faith because culture is not easily quantified, often a prerequisite of investment decisions. Indeed, their proxy for sustained innovation is independence, which is relatively black and white.