In the venture capital world, most partners are paid based on two numbers: 2 and 20. The norm in the industry is to charge limited partners (the institutions and wealthy individuals who invest in VC funds) a 2 percent management fee and 20 percent of any profits after the initial capital is returned in any given fund. Andreessen Horowitz doesn’t work that way. It charges investors up to “3 and 30” (the numbers can be less too, but that is the maximum on a sliding scale). And those investors are happy to pay it.

If you want to understand how dominant Andreessen Horowitz is as a VC firm after only three years in existence, you need to understand those two numbers: “3 and 30.” Only a handful of the top VC firms are able to command similar fees, and most of them have been around for decades. Andreessen Horowitz is now one of the top dogs, but it plays by its own rules. I detail how it got there and how it is shaking up the VC world in “The Andreessen Horowitz Effect,” an article I wrote for Techonomy (where I will be a regular contributor).

Here is an excerpt:

In the three short years since Marc Andreessen and Ben Horowitz set up shop as venture capitalists on Sand Hill Road, they’ve already established Andreessen Horowitz as one of the top VC firms in Silicon Valley, right up there with Accel, Benchmark, Greylock, Kleiner, and Sequoia. Some would argue that it is the top firm. They’ve raised $2.7 billion across three funds and they somehow seem to get into every deal that matters. The Andreessen Horowitz portfolio includes such familiar names as Skype, Facebook, Instagram, Twitter, Foursquare, Pinterest, Airbnb, Fab, Groupon, and Zynga.

To say Andreessen Horowitz is shaking up the VC world is putting it mildly. “They are maniacs. They bully their way into every deal,” says a well-connected Google executive. A competing VC characterizes their arrival in the VC industry this way: “They are going around putting bombs in all the mailboxes on Sand Hill Road saying, ‘Fuck you, we are here.’”

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