Andreessen Horowitz Isn’t Hedging its Bets with Picplz and Instagram; It Has Picked Picplz

It's a strict rule in the venture business that you don't fund two direct competitors, for obvious reasons. There's a massive difference between the valuation of the number one player in the market (think YouTube) and the number two player (think any of the other hundreds of online video companies launched in the mid-2000s). It's in a venture capitalist's best interest to make his presence on a board of directors a competitive advantage, otherwise he's just a checkbook and checkbooks are interchangeable in an industry with too much money floating around. Two companies can't very well have the same competitive advantage. So yesterday's announcement that Andreessen Horowitz was following up a seed investment with a venture investment in Dalton Caldwell and Bryan Berg's new company Picplz was a bit of a surprise, given the firm's existing investment in Halloween-costume-capturing-darling Instagram . The two are essentially direct competitors. I asked Marc Andreessen about it today, and he was quick to point out that's not how the two started, and if they had the firm wouldn't have invested in both of them. What's more-- now that the firm has made the decision to do a venture capital round in Picplz, it has essentially picked between the two. Without another pivot, the firm will not make another investment in Instagram, he said.