Silicon Valley’s stealth power

February 27, 2014, 4:39 PM UTC
Horowitz in his Menlo Park office
Photo: Nigel Parry

Ben Horowitz, the venture capitalist, is talking about the legends who watch over him in his Menlo Park, Calif., office. On one wall the stern faces of some of the forefathers of computer science — the likes of Alan Turing and John von Neumann — stare from inside a row of picture frames. Another wall is reserved for boxing greats: Ali, Frazier, and Foreman, James “Cinderella Man” Braddock, Sugar Ray Robinson, and a handful of others. “It’s a little bit of a reminder to myself of what we are looking for in an entrepreneur,” Horowitz says. “Great genius and great courage.” The genius part is self-evident; without it there would be no Apple or Google or Microsoft. The courage part is less obvious. But Horowitz says no other quality — not vision, not creativity, not charisma — is more essential to succeed as an entrepreneur. Building a company is a lot like boxing, he says, and not because of any rush that comes from landing a metaphorical punch on your opponent. Building a company is hard and lonely. It demands relentless focus. And no matter how well you do, you must be ready to be pummeled again and again. “In boxing, you get hit, it’s painful, then you sit on the stool when the adrenaline is gone and you feel that pain,” he says. “And then you fight the next round.”

Horowitz isn’t a boxer, but he knows what it’s like to be down for the count. Loudcloud, the company he co-founded with Internet wunderkind Marc Andreessen and two other Netscape alums, nearly went belly-up — not just once or twice, but half-a-dozen times. Horowitz, who was CEO, not only rescued it, but also led it to the Silicon Valley equivalent of a knockout victory, selling it to HP for $1.6 billion in 2007. Horowitz used “force of personality and willpower to make a business out of it,” says Herb Allen III, the CEO of Allen & Co. “It was one of the hardest turnarounds in technology, and it was a complete turnaround.” Two years later Horowitz teamed up with Andreessen again to start Andreessen Horowitz, a venture firm that has raised $2.7 billion, backed the likes of Airbnb, Facebook, Pinterest, Skype, and Twitter, upended the clubby VC world with a new business model, and soared into the industry’s top ranks in record time.

Through it all, Horowitz, 47, had been content to toil in the shadow of his best friend, Andreessen, a voluble, opinionated fellow who revels in the spotlight. (“He was Beyoncé, and I was Kelly Rowland,” wisecracks Horowitz.) But as the visionary Andreessen was out burnishing the firm’s public profile, Horowitz, its de facto CEO, was quietly racking up a reputation as the go-to mentor for a new generation of entrepreneurs. Drawing largely on his experiences at Loudcloud, he’s counseled everyone from Facebook’s Mark Zuckerberg to Jawbone’s Hosain Rahman to Skype’s Tony Bates, now a Microsoft exec. Increasingly, CEOs of traditional Fortune 500 companies are seeking his advice too. With his low-key, no-nonsense style and his devoted following — not to mention his use of profanity — Horowitz is often compared to Bill Campbell, Intuit’s chairman, who has advised the likes of Jeff Bezos, Steve Jobs, and Eric Schmidt, and is known throughout the Valley as “Coach.” “Ben is the management guru to all of the young entrepreneurs in the Valley,” Zuckerberg says.

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Yet as ingrained as Horowitz is in the culture of the Valley, he defies expectations in many ways. The son of a Marxist intellectual turned ultraconservative thinker and provocateur, Horowitz grew up in nearby Berkeley, playing football on a high school team where he was one of the few white kids. While he and his wife, Felicia, live in tony Atherton, Horowitz is a Raiders fan who says he’s more at ease hanging out with his childhood friends in one of his old haunts in Oakland. He happily passes up Valley gatherings to stay home preparing barbecue for an evening with his eclectic entourage. (The festivities inevitably include watching a boxing match on TV and jamming to hip-hop until late into the night.) On his widely read blog, Horowitz sprinkles his management advice with rap lyrics from the likes of Nas and Kanye West, who have since become friends. And Horowitz is not the typical CEO “whisperer” who advises entrepreneurs on tech trends, strategy, or business school wisdom. CEOs call on him when they have to fire a friend or make an unpopular decision, or when they realize that despite their well-laid plans, they’re getting clobbered in the market. “That’s when CEOs get serious,” says Andreessen. “That’s when they go talk to Ben.” Horowitz has compiled his insights for the wider world into a forthcoming book called, appropriately, The Hard Thing About Hard Things.

Shortly after Dick Costolo became Twitter’s CEO, he realized he had a problem. While Twitter’s audience was soaring, chaos was spreading inside the company. One of the most glaring issues was the lack of management consistency. Some managers were veterans of Google and did things the Googley way; others relied on what they had learned at eBay or Facebook. Some insisted on one-on-one meetings with their staff; others thought those meetings were a waste of time. It was a recipe for inequity, erratic results, and an unhappy workforce. When he confided in Horowitz, Costolo found a sympathetic ear. Horowitz had faced the same problem at Loudcloud and addressed it by teaching a management class. So over the next few months Costolo worked with Horowitz and another close adviser to develop what became known as the “Managing at Twitter” class. Costolo personally teaches the six-hour class twice a quarter to about two dozen managers at a time. Costolo says he sought out Horowitz in part because he never romanticizes the job of CEO. “He paints a very pragmatic view of things,” Costolo says. “There are no silver bullets. There are choices, and all choices have downsides.”

Horowitz, who studied computer science at Columbia and in graduate school at UCLA, showed a seemingly intuitive knack for management early in his career. After joining Netscape as a product manager in 1995, he rose through the ranks quickly in part because of what colleagues said was his uncanny ability to lead. “He was one of the young Turks who had very little management in their résumé but picked up stuff on the job,” says Rick Schell, a former Netscape executive and now a venture capitalist. Along with one of his Netscape employees, David Weiden, Horowitz wrote a paper called “Good Product Manager, Bad Product Manager,” which became a bible for the startup’s unpolished young executives. Horowitz says that the paper was written out of frustration, and with inspiration from Andy Grove’s High Output Management. “We had hired people extremely fast,” he recalls. “They were all smart, but, boy, they didn’t know what they were doing.” With nuggets such as “A good product manager acts like and is viewed as CEO of the product; bad product managers see themselves as marketing resources,” the paper has become a classic. It’s been used in business school classes at Stanford and is posted on the website of Khosla Ventures, where Weiden is a partner. Drew Houston, the CEO of Dropbox, recently sent it around to his staff.

But Horowitz’s real management education came at Loudcloud. Shortly after AOL acquired Netscape in 1998, Andreessen became restless and began brainstorming startup ideas with Horowitz and two other Netscape veterans, Tim Howes and In Sik Rhee. The group settled on an idea that was, at the time, fairly radical: It would remotely manage corporate IT and website operations for businesses over the Internet. The founders named the company Loudcloud and installed Horowitz, widely acknowledged as the best product manager at Netscape, as CEO. A pioneer in cloud computing, the company, founded in 1999, grew to 600 employees in just 18 months. Its IPO, early in 2001, should have been a crowning achievement, but the public offering bombed. The Internet world was collapsing, in the process wiping out many of Loudcloud’s customers. The company was burning through cash, and Horowitz took it public not out of choice but out of necessity. It was the only way to raise money to live another day.

Things only got worse. The company missed its revenue forecast by a wide margin during its first public quarter. Then came layoffs — the first of many — and a plunging stock price. And before Horowitz could come up for air, the 9/11 attacks hurt the economy further, and with it the prospects of Loudcloud. Its biggest competitor, Exodus, went bankrupt, and Horowitz believed that Loudcloud would too. Plan B, crazy as it was, came to him as he lay awake in the middle of the night fretting on behalf of his employees and investors: Sell most of the Loudcloud business and rebuild the company around the software, called Opsware, that automated many of the cloud computing tasks of its customers.

Ultimately Horowitz managed to strike a deal with EDS to sell the Loudcloud business for $63 million. As part of the deal, 150 employees would go to EDS, 140 would be laid off, and only about 80 would remain. Acting on the advice of “Coach” Campbell, a Loudcloud board member, Horowitz canceled a planned trip to New York City to announce the deal so that he could personally tell each of the remaining workers where they stood. He rented 40 rooms in a motel near Santa Cruz for a retreat, and explained the Opsware plan in stark but realistic terms. The chances of success were slim, he said. Only two employees quit that day, and all but two of the 78 who stayed remained with Opsware until its sale to HP five years later. (For 14 months after the Opsware sale, Horowitz ran a 3,000-person unit at HP Software.) “No one in Silicon Valley has gone through the number of near-death experiences that he has,” Campbell says. “Each time he carefully calculated what he had to do. It took a lot of courage.”

Andreessen Horowitz was built largely on the premise that no first-time entrepreneur is good at being CEO. While some other firms address that issue by encouraging startups to bring in seasoned managers — “adult supervision,” in Valley vernacular — Andreessen and Horowitz decided that they, and in particular Ben, would coach entrepreneurs on being CEOs. The firm has since grown to eight partners in its top ranks, and all have the operational experience and networks that come from having been a founder or CEO. The firm also quickly ballooned to nearly 100 employees — far more than at typical VC firms — many of them Opsware veterans, following its plan to become a “full service” investor.

Plenty of VC firms help their companies with marketing, communications, and other functions, but Andreessen Horowitz has ratcheted up those efforts by several notches. Take hiring. While many firms have an in-house recruiter to help portfolio companies, Horowitz realized that companies had to learn to staff up on their own. “Ben said we need to flip the model,” says Andreessen. “Companies have to be good at recruiting themselves.” So the firm’s 12-person-strong recruiting group painstakingly put together a database of qualified engineers, product managers, and other professionals from its vast network. No prospect is entered into the database without the firm running what amounts to an extensive interview process to make sure the person is qualified. As a result, when a startup is looking at a potential hire from the database, the closure rate is high. As of now, the database has more than 6,000 names. The goal is to make that talent network so strong that as an entrepreneur, you could not “imagine starting a company in Silicon Valley in 2014 if you didn’t have this talent engine behind you,” Andreessen says. While veteran VCs grouse about the power and publicity that the firm has gotten, many are imitating some of its practices, hiring high-profile communications executives, designers, or engineers in order to offer more of a soup-to-nuts service to entrepreneurs.

Like his partners, Horowitz believes that software is disrupting industry after industry — that, in the words of Andreessen, “software is eating the world.” Horowitz has focused on enterprise with deals like Nicira (software to disrupt networking) and Usermind (software to unify sales, marketing, and services). He’s also been a vocal advocate of Bitcoin, the digital currency, and he has championed investments in — and taken board seats on — a range of cool companies such as camera maker Lytro; speaker and activity-tracker maker Jawbone; Rap Genius, where musicians and users annotate rap lyrics and other content; and social-networking site Foursquare.

It’s too early to judge the firm’s performance, but it has already had some blockbuster wins, like the IPO of Twitter and the sales of Skype and Nicira, which sold for $1.2 billion six months after Horowitz invested in it. Perhaps more important, Andreessen Horowitz has become the firm that scores of entrepreneurs most want as their investor.

Horowitz tends to dispense management advice in a kind of one-two punch. First comes the self-deprecating quip about mismanagement and misery, delivered with a knowing grin and capped with a two-beat chuckle. But soon the smile will vanish, and he’ll turn dead serious. His brow will furrow slightly, his eyes will widen and focus with an intensity that borders on scary, and he’ll speak slowly, deliberately. It’s almost as if you can’t afford not to listen. “Starting a company is not this glamorous thing,” says Boris Sofman, the co-founder and CEO of Anki, an artificial intelligence and robotics startup. “There’s all these hard details that you need to get a handle on, and Ben has a skill for bringing that to life.” And if you want to get those details right, nothing short of clear thinking and unflinching resolve will do. When Michel Feaster, the CEO of Usermind, an enterprise-software startup in Seattle, told Horowitz at a board meeting that 75% of potential customers liked her product road map, there was no pat on the back. “You’re not as early to the market as you think you are,” Feaster remembers Horowitz answering. “Go faster.” Feaster says she immediately sped up her hiring and product-development plans.

Externally Horowitz comes across as thoughtful, reserved, and even mild-mannered. But Andreessen compares his character to that of the pioneering chipmakers from Fairchild and Intel, who essentially founded Silicon Valley. “He’s tough as nails,” Andreessen says. Entrepreneurs say that when they are coping with a crisis or during a tricky negotiation, it’s Horowitz that they want in their foxhole. When Jawbone’s UP activity tracker inexplicably started shutting down just weeks after its 2011 launch, Horowitz helped CEO Hosain Rahman figure out how to resolve the crisis. “‘What would you do if economics were not an issue?'” Rahman recalls Horowitz asking. Within 24 hours, Rahman had made a decision. He issued a public apology to customers and offered them a full refund even if nothing was wrong with their units. Jawbone was so committed to the product “that we’re offering you the option of using it for free,” Rahman wrote in an open letter to customers. “Ben had no specific guidance,” Rahman says. “He may think that there is a certain direction you should go, but he always lets you come to the conclusion yourself.”

On a recent Saturday evening, Horowitz, dressed in jeans, sneakers, and a long-sleeve Raiders T-shirt, is dancing. Well, bouncing is more like it. Kanye West’s “Black Skinhead” is blaring out of the speakers. This is not the measured, well-spoken Horowitz that most techies know from his appearances on the conference circuit. But then again, he’s letting loose among friends in a large gym that he built in the back of his Atherton mansion. The space doubles as something of a giant man cave: There is a comfy couch and a row of chairs in front of a high-def television screen the size of a small billboard and a sound system that, in the words of Andreessen Horowitz partner Jeff Jordan, “can be heard from Oakland.” The guests have polished off the barbecue ribs that Horowitz and his brother-in-law, Cartheu Jordan, have been painstakingly preparing since the night before. (The pair take their barbecuing seriously. Last year they traveled to Kansas City for a week to participate in the American Royal, the world’s largest barbecue contest.) Horowitz and crew are dancing and lip-synching along with the tunes. As always, the crowd is eclectic — members of his close-knit family, Andreessen Horowitz employees, friends from high school, a rapper or two, entrepreneurs he has backed. (Some regulars have been “adopted” by the Horowitzes, and Felicia often drags them to events at San Francisco’s Glide Memorial Church, where she helps cook meals for the city’s homeless.)

Horowitz was steeped in African-American culture from an early age. He was born in London but raised in Berkeley. His mother, Elissa, was a nurse. His father, David Horowitz, was an outspoken member of the so-called New Left before becoming an ultraconservative activist. (He founded Students for Academic Freedom, whose goal is to combat “leftist indoctrination” in academia, and runs the David Horowitz Freedom Center, a conservative think tank.) Before his ideological U-turn, the elder Horowitz was a close friend of Huey Newton, the founder of the Black Panther Party, who frequently visited their home during the 1970s. Ben Horowitz grew up dividing his time between his house and that of his best friend, an African-American kid who lived three doors down. “I was very much part of that family,” Horowitz says. He was the only Berkeley High football player who was also taking the toughest math courses the school offered. “I ended up moving in multiple social circles and hanging out with kids with very different outlooks on the world,” Horowitz writes in his book. The proceeds of the book will go to help women through the American Jewish World Service, one of the philanthropies that the younger Horowitzes are especially involved with. Like the other partners of the firm, Horowitz has pledged to give away at least half of his fortune during his lifetime. (Horowitz will not disclose his net worth, but it is safe to say he’s banked tens of millions of dollars; his stake in Opsware alone was worth $88 million at the time of the sale to HP.)

One summer, while in college, he met Felicia Wiley, a University of Southern California student who had grown up in Compton, on a double date with one of his high school football teammates. The two have been married for almost 25 years. After graduating with his master’s in computer science, Horowitz moved to Silicon Valley to work for Silicon Graphics, one of the hottest tech companies of the era, where his mentor was Kenneth Coleman, one of the best-known African-American executives in the Valley and now a special adviser to Andreessen Horowitz. After a stint at an ill-fated startup, Horowitz joined Lotus Development, and in 1995 went to work for Netscape.

Horowitz seems to know the hip-hop repertoire the way a diehard Deadhead knows the Grateful Dead: He can recite virtually every lyric of every song and wax poetic about its meaning. One summer during college, Horowitz and two of his buddies recorded a rap album as Blind-Def Crew; the tracks can be heard only on cassette (amazingly, there appears to be no piece of technology in the Horowitz home that can play the tape), and the liner notes fail to reveal the real identities of the artists, though after a night of revelry Horowitz will confirm that he’s the crew member called Tic-Toc.

But rap didn’t become a regular part of his business repertoire until the dark days of Loudcloud. One day the company’s lawyer came to tell him that Morgan Stanley and Goldman Sachs, the banks that took the company public and had promised to never drop coverage of the company, dropped coverage of the company. Horowitz blurted out, “What’s the difference between me and you/You talk a good one/But you don’t do what you supposed to do.” For the uninitiated, that’s a line from a song by rapper Dr. Dre (and it was meant as a dis to the bankers, not the lawyer). Since then, epigraphs from hip-hop tunes have become a feature of his blog, which has attracted 10 million readers. Quotes from Rakim, Jay Z, Drake, and many others accompany posts with titles like “Why Founders Fail,” “Hiring Sales People,” “Demoting a Loyal Friend,” and “Promoting From Within.” “Ben schools me about hip-hop,” says Nasir bin Olu Dara Jones, who goes by Nas. “And I know a lot about it.”

Over the past few years, Horowitz has worked quietly to open doors to African Americans, who are underrepresented in the Valley. He’s backed Code:2040, an organization that helps blacks and Latinos pursue opportunities in tech, and NewMe, an accelerator for black entrepreneurs. He’s worked with Kaiser Permanente CEO Bernard Tyson on initiatives by the Executive Leadership Council to bring more African Americans to corporate boards. “He walks the walk when it comes to diversity,” says Henry Louis Gates Jr., a Harvard professor and director of its W.E.B. Du Bois Institute for African and African American Research. Most of all, Horowitz has been a bridge builder who has connected young entrepreneurs of all races with bigtime execs or introduced his rap-star celebrity friends to tech luminaries. “You show for a barbecue, and you’ll have the chairman and CEO of Kaiser Permanente sitting next to a rapper in deep conversation, or you could be sitting next to one of the biggest icons in Silicon Valley,” says Tyson. “That’s who he is.”

Horowitz says he feels awkward when people credit him with connecting people from different walks of life. “It’s less of a mission for me than something that’s just natural. I’m very big on helping people reach their potential and get access,” he says. And there’s one other thing, he adds: In a world where talent is scarce, it’s good business for Andreessen Horowitz. African Americans “are a very valuable talent pool that for some reason people don’t engage,” Horowitz says. The top ranks of Andreessen Horowitz don’t look much different from those of any other firm: a group of mostly white, mostly male faces. But the firm has helped, with money and mentorships, a group of African-American entrepreneurs, and its beneficiaries speak of Horowitz with something bordering on devotion. Entrepreneur Nait Jones says Horowitz not only invested in his company, AgLocal, a marketplace that connects restaurants and farmers, but also took him under his wing and opened up his Rolodex to Jones. “Ben’s work and the work of those with him is creating authentic diversity and participation in science-and technology-related fields,” Jones writes in a blog post.

For Jones and a growing number of other entrepreneurs in the tech world and beyond, Horowitz isn’t merely “the other guy” who founded Andreessen Horowitz; he’s the main act. At a recent startup conference where Horowitz was the keynote speaker, he was greeted as something of a rock star by hundreds of young entrepreneurs. A grinning Horowitz was clearly in his element. It’s hard not to think that part of why he relishes his role as investor and adviser is that when things go haywire with one of his startups, he’s there to lend a hand, but he’s not the one in the ring getting pummeled.

This story is from the March 17, 2014 issue of Fortune.