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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

#41

Post by mattmaroon »

"Poor investments can contribute to a fund’s weak performance, but so can decisions to put too little money into startups that ultimately turn into smashes."

I'd guess the problem is the opposite. Too much money into startups that fail.

VC is hard now because there's so much money chasing startups. The valuations they're getting are absurd. When you pay twice as much, your hit gives you have the return and your failure twice the loss. VC has been a pretty poor investment historically, and the high valuations now are really hurting.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#42

Post by [deleted] »

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…

[deleted]

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#43

Post by jamiequint »

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…

YC invests 150k for 7%, so a 10,000x is more like $21bn of which it has 2 so far, Stripe and AirBnB.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#44

Post by [deleted] »

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…

[deleted]

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#45

Post by georgewsinger »

jamiequint wrote: post #43
georgewsinger wrote: post #39

Earlier quoted context omitted.

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…

YC invests 150k for 7%, so a 10,000x is more like $21bn of which it has 2 so far, Stripe and AirBnB.

I was assuming that YC's 7% equity gets diluted by the time a company gets to that size. If that's not the case then I stand corrected.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#47

Post by Judgmentality »

georgewsinger wrote: post #45
jamiequint wrote: post #43

Earlier quoted context omitted.

YC invests 150k for 7%, so a 10,000x is more like $21bn of which it has 2 so far, Stripe and AirBnB.

I was assuming that YC's 7% equity gets diluted by the time a company gets to that size. If that's not the case then I stand corrected.

Don't forget back when YC invested in AirBnB and Stripe that they only put in $20,000 for the 7%, which brings down your valuation quite a bit closer to something that might include AirBnB and Stripe as 10,000x exits.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#48

Post by allenleee »

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…

For people who want to dig into Founders Fund's philosophy:

FF's Bold bet: - Space X: Invest 10% of its fund in 2008. - Stemcentrx: Invest $300 million on Stemcentrx. AbbVie acquired Stemcentrx for up to $10.2 billion. Founders Fund owned about 16%.

> ...with much higher bar and conviction.

Agree. Here is a quote for it.

“The key to the strategy once we have conviction we are willing to invest a lot. So with Stemcentrx, over the multiple rounds of this company, we invested something like $300 million. It’s not enough to think something is going to be one of the most important companies on the planet you have to back it up. So, to me, venture capital is about having conviction and putting a lot of money behind it.” - Brian Singerman(GP of FF)

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#49

Post by propter_hoc »

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…

I agree that it's not an apples-to-apples comparison, but it's arguably somewhat in A16z's favor. This is because the fund manager has the ability to defer capital calls as long as possible, because that starts the IRR clock ticking.

This is fairly little known, but large fund managers like A16z have access to "capital call lines of credit," provided by specialty lending arms of banks. These are loans secured by the commitments from highly-creditworthy institutional investors that allow the fund manager to fund expenses and investments by drawing down on the LOC instead of making a capital call. This allows the fund manager to push out the IRR clock even longer, and effectively levers their returns.

A more effective comparison might take into account both your comment regarding deployment period, and also the effect of investing on margin with the CCLOC.

Edit: an article on the phenomenon and how it is a bit tilted towards the fund manager: https://www.pionline.com/article/20180402/PRINT/180409992/ri...

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#50

Post by lquist »

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…

Few comments: * As rightly pointed out below, YC's investment used to be $20k for 7%, meaning they had a 10000x return on AirBnb and Stripe (so far) * YC has funded increasing numbers of companies over time. Of the 2000+ companies that have been funded, the majority (75%) have not reached maturity. * Yes there is dilution to the 7% stake, but it is not as significant as mentioned, especially for the most successful companies. I would estimate their stake at closer to ~3% after dilution, not 1%.

Take all these together and you are looking at a much higher fund multiple than 5x. My estimate would be at least an order of magnitude higher.

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