The Sui Generis Startup

Ben Horowitz, the co-founder of Andreesen Horowitz has a guest post on All Things Digital titled “The Case for the Fat Startup."  In it he makes a case for raising a lot of money and investing it aggressively.  Ben’s argument is related to my post from yesterday about ”Winner Take All and Early Stage Valuations.“  He justifies massive fundraising and spending by saying it’s worse to be in "startup purgatory” than to run out of money:

What is start-up purgatory, you ask? Start-up purgatory occurs when you don’t go bankrupt, but you fail to build the No. 1 product in the space. You have enough money with your conservative burn rate to last for many years. You may even be cash-flow positive. However, you have zero chance of becoming a high-growth company.

This captures the same idea as my post yesterday that there is a huge benefit to being the number 1 in a space.

But there is a huge caveat that Ben fails to mention anywhere in his post.  There are extremely few people in the world that can raise money for super high burn businesses on the strength of their vision and reputation.  These are people such as Craig McCaw in telecom and Marc Andreessen in IT.  Well it just so happens that the Loudcloud/Opsware story that Ben relates in his post involves massive fundraising by Marc.  Similarly, how many $300 million venture funds were raised last year by two partners neither of whom had a prior track record as a VC?  As far as I know, just one: Andreessen Horowitz.

So while I agree with Ben that raising a lot and outspending the competition is a great strategy if you can pull it off, there are very few people who can.  Hence instead of the “fat” startup, this should probably be called the “sui generis” startup.