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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

#31

Post by api »

storgendibal wrote: post #12
ransom1538 wrote: post #11

Earlier quoted context omitted.

Ok. Picking on a firm because it didn't beat the 500 is harsh. Beating the 500 is damn hard. An 500index fund is basically a collection of large monopolies that extract cash.

Yes, but then why invest in an actively managed fund at all, as an LP? whole premise is that fund managers can beat an index such as the S&P500 or total market etc.

Shh... if all people do is invest in funds made up of existing blue chips, nothing new will ever be funded again and we'll end up with an economy of nothing but stale old Soviet bureaus.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#32

Post by georgewsinger »

Andreessen Horowitz has a very strong spray and pray feel to it relative to other funds in its class (much like YC). Look at how enormous its portfolio page is: https://a16z.com/portfolio/. I bet this list isn't all inclusive, either.

For comparison: Founders Fund has an IRR of ~55%, at ~$1B AUM scale. It tends to invest in fewer companies -- with much higher bar and conviction -- and its portfolio has a much lower failure rate than competing funds (of course failure rate doesn't matter as much for VC returns, but it's still an interesting fact).

I have no connection to FF whatsoever, but have learned a lot from the way they invest and much prefer their model to the spray and pray style (YC, Ron Conway, A16Z, etc).

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#33

Post by lquist »

georgewsinger wrote: post #32

Andreessen Horowitz has a very strong spray and pray feel to it relative to other funds in its class (much like YC). Look at how enormous its portfolio page is: https://a16z.com/portfolio/ . I bet this list isn't all inclusive, either. For comparison: Founders Fund has an IRR of ~55%, at ~$1B AUM scale. It tends to invest in fewer companies -- with much higher bar and conviction -- and its portfolio has a much lower…

YC (and probably Ron Conway) are apples to oranges with a16z. Spray and pray works when you are looking at 10000x multiples on your best investments. It doesn't when you are deploying billions and don't come near that order of magnitude for your best bets.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#34

Post by dpandya »

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.

Please correct me if wrong, but these are likely measured via the book value of the investments which reflects the private market valuations of the companies you mentioned.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#35

Post by boulos »

609venezia wrote: post #28
boulos wrote: post #25

Earlier quoted context omitted.

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?

Yep, but that’s equally true of any IRR calculation (for any IRR, you should compare to the risk-free rate or alternatively some other equal-risk benchmark). As an example, perhaps the real comparison for VC investment should be to having your “capital to be called” in the S&P 500 while waiting for capital calls. Except, as you allude, that’s quite risky for “you are required to deliver” (and IIUC, often within days). That makes the easiest assumption some sort of money-market fund or treasury something something.

In any case, the $X in S&P 500 at t=0 versus the IRR of a venture fund is not an apples-to-apples comparison. There are many ways to meet your capital calls, and I suspect that sophisticated investors aren’t keeping the cash in their checking account waiting for an email.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#37

Post by boulos »

xjoins wrote: post #30
EGreg wrote: post #17

What kind of slip did they return?

I, too, read this headline quite literally. It sounds like they could have returned something they bought on Amazon.

Yes, because they failed to use a possessive here. The headline should have been “Andreessen Horowitz’s Returns Slip”. Then we’d parse Returns as a noun rather than a possible verb.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#38

Post by irq11 »

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.

IRR takes into account the investor valuations of the unicorn investments. It would be absurd to do otherwise.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#39

Post by georgewsinger »

lquist wrote: post #33
georgewsinger wrote: post #32

Andreessen Horowitz has a very strong spray and pray feel to it relative to other funds in its class (much like YC). Look at how enormous its portfolio page is: https://a16z.com/portfolio/ . I bet this list isn't all inclusive, either. For comparison: Founders Fund has an IRR of ~55%, at ~$1B AUM scale. It tends to invest in fewer companies -- with much higher bar and conviction -- and its portfolio has a much lower…

YC (and probably Ron Conway) are apples to oranges with a16z. Spray and pray works when you are looking at 10000x multiples on your best investments. It doesn't when you are deploying billions and don't come near that order of magnitude for your best bets.

As far as I know YC doesn't have a single 10,000x investment (i.e., $100B+ exit). Not one. Yet I once listened to a YC video where Michael Seibel (President of YC) discussed some of their stats. He said they've funded over 2,000 companies, and of those have 17 unicorns that are worth ~$100B in aggregate valuation. So that means their hit rate is generously

17/2,000 = 0.85%

Compare to i.e. Jason Calacanis who on his own has a hit rate of better than 1 in 20. Now assuming YC paid $100K per company and gets to keep a blended 1% of the $100B (is that too small?), they've put in about $200M in funding to get back

$100B*1% = $1B

to net roughly $800M in profit for their stakeholders. So they're a 5x fund. But that's really...not that good...(at least it's not world class).

But am I missing something? They've definitely gotten a lot better at picking companies during the Sam Altman era (by, IMO, funding deep tech companies that actually have the chance of 10,000xing), but it'll still take another 5-10 years to really prove that.

Now YC might argue that they're not purely a profit-driven fund. And that's true. But isn't it a bit worrying that after thousands of investments they haven't funded a single $100B+ company? YC has an enormous influence on the startup ecosystem. Is an institution with a 0.85% hit rate really sending us the right lessons?

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#40

Post by thebladerunner »

georgewsinger wrote: post #39
lquist wrote: post #33

Earlier quoted context omitted.

YC (and probably Ron Conway) are apples to oranges with a16z. Spray and pray works when you are looking at 10000x multiples on your best investments. It doesn't when you are deploying billions and don't come near that order of magnitude for your best bets.

As far as I know YC doesn't have a single 10,000x investment (i.e., $100B+ exit). Not one. Yet I once listened to a YC video where Michael Seibel (President of YC) discussed some of their stats. He said they've funded over 2,000 companies, and of those have 17 unicorns that are worth ~$100B in aggregate valuation. So that means their hit rate is generously 17/2,000 = 0.85% Compare to i.e. Jason Calacanis who on his o…

Is there a fund that is better than 5x in aggregate? Everybody flaunts their unicorns, but at the end, those bets are balanced by many more losing bets...
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