Different venture capitalists work in different ways, each having their own focus and objectives when it comes to finding technology companies they want to back. Peter Levine, general partner at Andreessen Horowitz, is looking for a few key things—and this does not include how hot a given technology is in the market today.
Levine provided his views on the state of the VC industry during a keynote at the Open Networking Summit (ONS) on March 16. A key part of the ONS event was the discussions about open-source software, an area with which Levine has a great deal of experience. Levine was the CEO of XenSource from 2006 until the company was acquired in 2007 by Citrix. Levine stayed at Citrix until 2011, when he joined Andreessen Horowitz.
Although Levine noted that open-source software is "eating the world," he was quick to caution that there will never be another company like Red Hat, which is the leading Linux vendor today and generates its revenue from support services. No company other than Red Hat has been able to generate consistent, sustainable revenue growth from open-source software, based on support alone, Levine said.
What will be the future of open source be based on?
"I believe that the future of open source will require business innovation," he said.
Levine noted that many of the companies he is invested in, or is thinking about investing in, do rely on open source, but they monetize in different ways than just following the Red Hat support model.
"The business models of open source will continue to evolve over time," Levine said. "I'm actually more excited about the business model evolution than the technological achievements of open source."
While Levine has an interest in open-source technologies, when he's looking at companies to invest in, Andreessen Horowitz's focus is on the technical founders of companies because the firm believes the best technology companies are led by technical people.
"If you're a technologist and you have a passion about your technology, you are more than qualified to be the CEO of a company," Levine said. "It's easier to teach a technologist the nuances of business than it is to teach a business person the nuances of technology."
Although some VCs see hot markets as places that are ideal to invest in, Levine is not one of them. "As an investor, investing in what's hot today is not a great strategy," Levine said. "As an early investor, we have to skate to where the puck is going, not to where the puck is today."
While it might sound easy and obvious, it's very difficult to predict where technology is headed, Levine said. For example, if 15 years ago someone had told him that Sun Microsystems wouldn't exist or, going even further back, that Digital Equipment Corp. wouldn't survive into the new millennium, he likely wouldn't have believed them.
Predicting the future and betting on the future is not an easy business model, but it's precisely the model that defines what a VC does. Levine commented that the first part of his job is venture and the second part is capital. "Venture means that you take risks. We're in the business of making a lot of mistakes."
Sean Michael Kerner is a senior editor at eWEEK and InternetNews.com. Follow him on Twitter @TechJournalist.