For over a year, Andreessen Horowitz has quietly piloted its own take on an accelerator for early-stage entrepreneurs, and today, the firm announced the program’s official debut.
In exchange for an unannounced percentage of ownership, “a16z START” will offer early-stage founders up to $1 million in venture capital. The checks are backed by a $400 million seed fund, which closed in August 2021.
Andreessen Horowitz unveils piloted program for early-stage entrepreneurs
The remote-first program will accept founders on a rolling basis and wants to connect folks with partners for advice, potential customers or investors, and of course, other entrepreneurs.
On the relatively brief application form for START, a16z names six categories — American dynamism, consumer, enterprise, fintech, games or other. Investment terms will be discussed with final candidates, the form says.
This program extends Andreessen Horowitz’s stamp of approval to the earliest step of an entrepreneur’s journey: the idea stage, or the pre-quitting-your-day-job part of startup life. The company has invested in solo founders before their companies ever existed, but this program appears to be a more formal effort to bring folks into entrepreneurship. Notably, there is no mention of a diversity mandate or focus.
The list of early participants in this program shows that a16z is certainly interested in international entrepreneurs, similar to how Y Combinator has increasingly grown its global presence over the past few years. Some of START’s first entrepreneurs include executives from Rappi, a Colombian unicorn.
TechCrunch reached out to Bryan Kim and Anne Lee Skates, the two partners running the program, for comment, but has not yet heard back. Until then, let’s walk through my biggest question for the duo: Why does a16z need its own Y Combinator?
I know that it’s not entirely fair to compare the two institutions beyond their focus on empowering early-stage founders with capital, networks and advice in exchange for equity. In fact, over the years, a16z has often led some of the buzziest rounds coming out of Y Combinator, including Tandem, Queenly and Contra — essentially sourcing deal flow from the accelerator.
Yet, hungry founders and boatloads of capital have encouraged investors in recent quarters to go early themselves, legacy be damned.
TFW a16z and YC want the same spot
Given the rapid proliferation of startups over the years, both a16z and Y Combinator have a ton of options to plant their capital. Yet, systemic diversity issues across the industry mean that their portfolios could look quite homogenous.
Since first running the program in fall 2021, a16z has received over 1,000 applications and accepted 11 entrepreneurs, which works out to a 1.1% acceptance rate. For comparison’s sake, Y Combinator received 17,000 applications and accepted 414 entrepreneurs for its latest batch for a 2.4% acceptance rate.
a16z declined to share how many founders will be accepted into the program, but it appears that the application-to-acceptance ratio will be similar in rigor to what Y Combinator has reached over time.
Both firms are challenged by tougher deal access and higher startup valuations today than in prior years. As Y Combinator has grown, the firm increased its investment size, which now includes a simple agreement for future equity with a “most favored nation” clause.
Reading between the lines, Y Combinator has decided to be more aggressive in its pursuit of ownership in portfolio companies, meaning that it can put more money to work when those dollars buy the most shares. a16z likely wants the same setup, even if it likely puts it into somewhat direct competition with the venerable accelerator.
a16z has a clear advantage over other firms: the insane amount of dry powder at its disposal. Just three months ago, the firm raised $9 billion in new capital, and its check-writing capabilities could see founders receiving nearly double the capital that YC offers in its recently expanded standard deal.
Another way to compete would be to adopt a more relaxed attitude about ownership, which we’ve seen even the most disciplined firms do in sectors under the spotlight.
A startup that gets accepted into the program may join for the stamp of approval, but it will gladly stay when it knows that a16z doesn’t just have the ability to make a first check, but lead literally every following round until the company is ready to go public. And given today’s founder friendly-ish market, that stability could resonate.
In a lot of ways, the new a16z program is a continuation of a trend that we’ve seen established venture capital firms follow over the past two years to keep up with all the new deals in the market.
For example, a16z has been investing in microfunds for years as a way to keep an eye on promising founders. Additionally, a number of venture firms such as NextView and Accel have created in-house accelerator programs.
The perks are obvious: Early checks mean more upside, less competition, and a way to diversify across different sectors without as much risk. (Note: Sequoia Capital, one of a16z’s most formidable rivals, was an early investor in an entity run by Y Combinator).
a16z’s program feels predictable, if not delayed, compared to other firms out there. The firm notoriously left the seed stage a few years ago to avoid the appearance of conflicts of interest — a dynamic some founders still associate with the firm today — before returning to an aggressive cadence of early-stage investing.
a16z START is yet another piece of evidence for the thesis that the early-stage fundraising market, despite some valuations pullback, still has hungry investors.
So, why does a16z need its own Y Combinator? The better question appears to be: Why not?
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