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Andreessen: High burn rates risk more than just running out of cash

By Michael Carney , written on September 25, 2014

From The News Desk

Earlier this month, Benchmark’s Bill Gurley and Union Square Ventures' Fred Wilson weighed in on the biggest red flag in Silicon Valley. Surprisingly, it wasn’t rising valuations that had the two venture luminaries worried, but swelling burn rates and the implied lack of fear and pragmatism that they signaled among both founders and the boards and investors that back them.

Today, Marc Andreessen* weighed in on the issue in a classic Tweetstorm. From @pmarca’s perspective, burn rates are indeed a major issue, but not simply because it makes running out of capital far more likely. Rather, Andreessen is worried about the institutional bloat and false sense of success that often result when companies spend lavishly.

Andreessen also predicts that the good times and easy money that support this kind of spending won’t last forever. Unfortunately, like the burst of the real estate bubble in the middle aughts, these shifting conditions are likely to catch many first time entrepreneurs by surprise. And when it does, "we will find out who has been swimming without trunks on: many high burn rate co's will VAPORIZE," Andreessen says, paraphrasing a famous Warren Buffet line.

He ends his screed with an appropriate, yet simple warning: "Worry."

As I wrote earlier this month,

This is a obviously a loaded discussion and one that may preclude a clear cut answer as to whether burn rates are too high that can be applied to all companies. ... But where Gurley and Wilson [and now Andreessen] seem to agree is that this spending needs to be commensurate with the return on that capital that the company can reasonably expect generate independent of the infusion of future rounds of venture cash. There will always be those that argue that Silicon Valley is in a bubble, or that startups valued in the multiple-millions of dollars are out of touch with economic realities. But when [three] of the luminaries of the industry begin to agree, and not only agree but do so publicly and loudly, it may be time to sit up and take notice.
Here's Andreessen's Tweetstorm in full:

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014

— Marc Andreessen (@pmarca) September 25, 2014 *[Marc Andreessen is a personal investor in Pando]