Recently I watched a David Rubenstein interview with the successful venture capital founder & investor Marc Andreessen. I watched the later half which mainly focused on Andreessen’s investment advice.
I’ve enjoyed Rubenstein’s interviews but this one stood out to me immediately. I caught it again a couple of days later on TV and I realized what made the interview stick out in my mind.
Rubenstein has a very serious personality interspersed with bits of dry humor. Andreessen on the other hand is extremely lively and chuckles at his own jokes. The two could not be more different in their personalities but they are both incredibly successful businessmen.
Andreessen had some interesting investing advice he revealed in this interview. Before I get into the advice itself I want to add a little background to who Rubenstein & Andreessen are, and what they’re known for.
David Rubenstein
The Carlyle Group has since grown to manage $260 billion and has 29 offices around the world.
He is a published author and currently hosts The David Rubenstein Show: Peer-to-Peer Conversations on Bloomberg & PBS.
He is an avid historian and owns rare copies of some famous legal and historical documents such as the Magna Carta, the Declaration of Independence, and the U.S. Constitution.
Rubenstein typically interviews influential business leaders on his show that are well known or attempting to do extraordinary things. His show gives us an insight into the lives and thoughts of these people.
What makes his interviews so interesting is that he is more of a peer than just a professional journalist. This adds another layer to the interview that usually isn’t present when most professional journalists obtain interviews.
Marc Andreessen
Andreessen is an influential billionaire venture capitalist investor. He got his start in tech by co-founding Netscape along with other important early internet companies before they became acquired by larger companies.
a16z has funded companies such as Twitter, Facebook, GitHub, Airbnb, and many more.
Part of the reason that Andreessen has been so successful is that he has experience founding companies and the founders he invests in respect that.
He also mentioned multiple times in the interview with Rubenstein that he is in the relationship business, and you can tell he is extremely personable.
Private Equity & Venture Capital
These two businessmen are both active in the world of finance, albeit in slightly different ways. Venture capital and private equity are very similar but have important distinctions.
Private Equity
Private equity is when investors purchase equity in a company privately, in other words not through the stock market.
Think of it as a direct transaction with the company you are purchasing equity from. Private equity is interested in beating the market and generating sizable returns.
They are usually interested in more stable companies that may have a reason for wanting to remain private, including not having to answer to public shareholders. Another reason firms invest may be that they see a way to grow the business’s revenues and make their equity share more valuable.
Furthermore, these companies are no longer considered start-up companies. These are more mature and stable companies, I like to think of the distinction as fewer engineers leading and more MBAs.
Venture Capital
Venture Capital investors have the same idea as private equity investors but they target different companies. VCs target startup companies, from early stage to late stage companies.
Startups need VC money to grow their company and build their products because their business is not generating significant cash flow yet. You’ll see that technology is one of the most popular industries to invest in at the VC level because of its scalability and user stickiness.
Investment Advice From Marc Andreessen
At one point in the interview, Rubenstein starts asking questions about investing and getting Andreessen to give his take on investing decisions. Andreessen had some interesting answers to the following questions.
I think this is great investing advice for someone who wants to invest but maybe doesn’t have the confidence to pick and choose specific ETFs or stocks.
How Do I Invest With A Good Venture Capital Firm?
Surely a great VC like Andreessen would have some tips and tricks for investing with top VC firms, right? Think again.
MA: “The venture capital firms that are open for outside money are generally the ones you don’t want to invest in”.
The top-tier VC firms that make 20%-40% returns on their money are not open to the general public. They are open to very wealthy individuals with connections to the industry who have a lot of capital to put forward into a VC fund.
What’s The Best Investment Advice You’ve Ever Received?
MA: “It’s probably from Warren Buffett. Put all your eggs in one basket and watch that basket. Really know what you’re doing. Really deeply understand the nature of what you’re investing in”.
Warren Buffett is famous for being one of the most successful investors of all time. He understands his company’s business model, its industry, and its customers as well as the CEO running the business.
Invest your money into companies that you know inside and out, speculative investing is a sure way for you to lose money in the long run.
What’s The Most Common Investment Mistake You Observe?
MA: “I think it’s the opposite of [putting all your eggs in one basket and watch that basket]. I think it’s when people read something in the paper or see it on TV and they take a flyer on it without really understanding it”.
This correlates with speculative investing. Investing in a business because it’s hot right now without understanding the business and its goals and its customers will surely lose you money in the long term.
It’s important to do your due diligence before investing. We want to grow our wealth not gamble with it!
If I gave you $100,000 tomorrow what would you do with it?
MA: “I’d put it in an S&P 500 index fund. Don’t get fancy”.
If you are investing in the public markets it is very difficult to outperform the S&P 500 in the long run. Those 500 companies are some of the best companies in the world and with an index fund, you have an equity stake in them.
Even many professional investors agree that with smaller amounts of capital it’s generally a solid idea to track the public markets instead of actively trying to beat them.
Time will tell if Kathy Woods’ ARK funds will end up proving that popular investing philosophy wrong.
Keep Things Simple
What does all of this mean for us? It pays to keep investments simple.
Have fun with your portfolio, really research the individual companies you choose to invest in, and follow their quarterly earnings and shareholder letters. Andreessen’s investment advice is to become an active equity investor.
At the same time, it’s probably a good idea to keep the majority of your money in an S&P index fund for long-term growth.
VC and PE investors have access to amounts of capital we don’t and therefore they have the ability to purchase meaningful equity in private markets and they have the ability to realize much greater gains than in the public market.
Until we reach that level of wealth. Keep things simple and invest abnormally.
Do you agree with my conclusions? What do you make of Andresseen’s advice? Any thought on private equity or venture capital? Let me know in the comments!
Author Bio
Drake is a freelance writer who’s interested in history, economics, art, & beer. Drake graduated with a degree in Supply Chain Management and began working at General Motors. He writes about popular personal finance topics and shares his journey. Make sure to check back for more posts on Abnormal Money.