the next generation,” he says. He mentions companies that seem to have come out of nowhere to become big players, including Groupon and Foursquare. (McAndrews would probably disagree with aQuantive co-founder Nick Hanauer, who recently told me he thinks online advertising is essentially “done,” the ecosystem is “baked,” and he is avoiding making new investments in that sector.)
Speaking of big players, I tried to pin McAndrews down on what the future will hold for Microsoft, his former employer, in digital advertising. “They’re behind, and they’re going to be a significant player,” he says. “They’re clearly focused on the online advertising area…They’ve turned the barrel towards search, they brought Qi Lu in [as president of the online services group]. I see them as a potential acquirer of companies we might invest in.”
Of course, McAndrews knows a few things about selling a company to Microsoft. The key in the 2007 aQuantive deal, he says, is that “we were building a company and we were very excited, it had long-term potential. We weren’t building it to sell to anyone. But we knew we’d be valuable to someone. We kept an eye on the strategic landscape. We were always aware that Google and Microsoft and Yahoo were large companies, and potentially could be threatened or feel complementary. When Google bought DoubleClick, that was a significant change in the landscape.”
He says aQuantive was fortunate to have a strong technology position and multiple bidders. “It was a great time and a great fit.” He adds that the integration of aQuantive within Microsoft, which some observers predicted would be a difficult one (in part because it involved an ad technology platform, an ad network, and a marketing agency), “went well” despite some “differences in culture.” (In the past year, though, there has been an exodus of former aQuantive execs from Microsoft; the latest is Scott Howe, vice president in the advertiser and publisher solutions group, who is leaving the company next month and will be succeeded by Rik van der Kooi.)
As a new VC, McAndrews says he thinks venture capital has a bright future. But there’s no question that some contraction of the industry is already occurring. “There was too much money in the system,” he says. “In 1999 and the 2000s, there were too many firms chasing too few great companies…What we will see is people investing less in venture. Our [limited partners] and others’, colleges and pension funds, when the downturn came, saw their liquid assets had to be spent, so non-liquid assets became an even larger percentage of their investment portfolio than they’re supposed to be.”
Indeed, there have been various reports predicting that anywhere from half to three-quarters of all VC firms will disappear in the next five to 10 years. This, McAndrews says, is “unfortunate” but probably healthy in the long run.
