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Andreessen Horowitz Returns Slip, According to Internal Data

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Re: Andreessen Horowitz Returns Slip, According to Internal Data

#21

Post by JumpCrisscross »

nradov wrote: post #16
outside1234 wrote: post #6

Why anyone invests in any VC fund, when you can do better in the stock market with an index fund, at much less risk, is beyond me...

Perhaps, but we don't really know how much risk many of those VC funds are actually taking. With liquid, publicly-traded stocks we can sort of use variability of returns as a proxy for risk. But there's no equivalent good way to really quantify VC fund risk. Sure you can do risk modeling but it's just an educated guess.

> there's no equivalent good way to really quantify VC fund risk

Distribution of returns. Longitudinal volatility is a (good) proxy for this.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#22

Post by boulos »

So, I keep seeing articles comparing S&P 500 return versus the IRR of a VC fund, but none seem to compute "IRR" for the S&P 500. That is, they all seem to assume $1 invested at t=0 in S&P 500 (and I assume total return, so reinvested dividends), and then compare that to venture investing.

Except an $100M fund isn't $100M instantly deployed. The investors are putting probably $20M/yr into it via capital calls. That makes a huge difference in IRR.

This isn't to defend the particular investments or performance of any firm, but it does seem like the reporting is quite poor. Even taking the time to compute a "what if each year you invested 1/5th into the S&P 500" would be a marked improvement. But you definitely don't get to say "The 2010 Andreessen Horowitz fund performed slightly better than investments made in the S&P 500 in the same year" (as the article does).

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#23

Post by Areading314 »

boulos wrote: post #22

So, I keep seeing articles comparing S&P 500 return versus the IRR of a VC fund, but none seem to compute "IRR" for the S&P 500. That is, they all seem to assume $1 invested at t=0 in S&P 500 (and I assume total return, so reinvested dividends), and then compare that to venture investing. Except an $100M fund isn't $100M instantly deployed. The investors are putting probably $20M/yr into it via capital calls. That ma…

If the fund manager leaves your money sitting around in cash for a few years, that impacts your returns, since you could have put that money to work elsewhere. Including the gradual investment as part of IRR is the correct thing to do.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#24

Post by iambateman »

This article is absurd. It says the 2011 fund return rate is 12%, which isn’t spectacular. That’s the whole point of the article.

Except the 2011 fund includes stakes in Airbnb and Stripe, two massive companies that have yet to go public.

So, sure, at the moment the returns aren’t awe inspiring. But give I can’t imagine anyone at AH is losing sleep over the long-term success of that fund.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#25

Post by boulos »

Areading314 wrote: post #23
boulos wrote: post #22

So, I keep seeing articles comparing S&P 500 return versus the IRR of a VC fund, but none seem to compute "IRR" for the S&P 500. That is, they all seem to assume $1 invested at t=0 in S&P 500 (and I assume total return, so reinvested dividends), and then compare that to venture investing. Except an $100M fund isn't $100M instantly deployed. The investors are putting probably $20M/yr into it via capital calls. That ma…

If the fund manager leaves your money sitting around in cash for a few years, that impacts your returns, since you could have put that money to work elsewhere. Including the gradual investment as part of IRR is the correct thing to do.

Sorry for not making it clear: they don’t ask for the money, until it’s “needed”. The term of art is “capital call” and while it’s possible to call at any time (perhaps you want to make a huge investment and you don’t have the cash currently), it’s usually somewhat spread out. The “default” behavior is an even-ish set of calls over say a 5-year period for a (nominally) 10-year fund.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#27

Post by PopeDotNinja »

outside1234 wrote: post #6

Why anyone invests in any VC fund, when you can do better in the stock market with an index fund, at much less risk, is beyond me...

Most people don't get promoted by saying they invested 100% of available assets in an S&P 500 index fund.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#28

Post by 609venezia »

boulos wrote: post #25
Areading314 wrote: post #23

Earlier quoted context omitted.

If the fund manager leaves your money sitting around in cash for a few years, that impacts your returns, since you could have put that money to work elsewhere. Including the gradual investment as part of IRR is the correct thing to do.

Sorry for not making it clear: they don’t ask for the money, until it’s “needed”. The term of art is “capital call” and while it’s possible to call at any time (perhaps you want to make a huge investment and you don’t have the cash currently), it’s usually somewhat spread out. The “default” behavior is an even-ish set of calls over say a 5-year period for a (nominally) 10-year fund.

Isn't the money in some sense tied up if it has to be ready for a capital call? At minimum it should be in some relatively low risk liquid investment. So there is opportunity cost regardless of whether the investor or the fund holds it until it is deployed?

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#29

Post by 609venezia »

iambateman wrote: post #24

This article is absurd. It says the 2011 fund return rate is 12%, which isn’t spectacular. That’s the whole point of the article. Except the 2011 fund includes stakes in Airbnb and Stripe, two massive companies that have yet to go public. So, sure, at the moment the returns aren’t awe inspiring. But give I can’t imagine anyone at AH is losing sleep over the long-term success of that fund.

Those positions are still being valued according to some internal measure at AH, I think. So they should be factored in already.
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