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Marc Andreessen's 3-Part Test for Startup Investing

By Marc Andreessen · Investing · 2 min read

Big market. 10x technology change. Outstanding team. You need all three. But if you have to compromise on one — surprisingly, Andreessen says compromise on the product.

Key Points

Is there a big market? Is there a 10x technology or economic change? Is the team outstanding?
If it's not 10x faster, cheaper, or better — is it really worth doing?
If you compromise, compromise on product. A great market is easier to make up for than a small one.

If it's not 10x, we really have to ask ourselves — is it really worth doing? It's really hard to start new companies.

The Three Things

Andreessen: The three big things you always come back to. One — is there a big market? Either a big existing market you can displace incumbents in, or a new market that will be big.

Two — is there a fundamental technology or economic change? Is something 10x faster, 10x cheaper, 10x better? If it's not 10x, we really have to ask — is it really worth doing? Because it's really hard to start new companies. Existing companies are usually pretty good at what they do.

Three — is the team outstanding?

Is there a big market? A 10x technology change? An outstanding team? If it's not 10x — is it worth doing?

Compromise on Product, Never on Market

Andreessen: You need all three. But if you're going to compromise on one, it would actually be the product. A great market is a lot easier to make up for with iterative product execution than a poor market.

The problem with a small market — even if you do a great job on the product, there just aren't that many customers. It's hard to ever get big. People get demoralized.

A great market is easier to make up for with iteration. A small market — even with a great product — people get demoralized.

The Team You Need Now

Andreessen: We don't need the team that's going to run the company when it's 500 people and $100 million in revenue. That's irrelevant. We need the people who can get the product to market in a big market — and if they're wrong, keep adjusting to get into the right market.

You want at least one super strong technologist. Possibly more than one. Some of the best startups have more than one founding technologist. And it helps to have someone with a really good understanding of business. Complementary skill sets.

We don't need the team to run 500 people. We need the team to get the product to market — and keep adjusting.