Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley • Hacker News Board

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#31

Post by ajju » Fri, May 01, 2015, 10:34 PM UTC

jtzhou wrote: post #14

vonklaus wrote: post #13

Earlier quoted context omitted.

Just like in a venture portfolio, the venture industry is characterized by a few big winners. While the industry in general may lose money, a few firms consolidate most of the profits of the entire industry. AH is one of the smartest firms, and one of the first to push the philosophy that "it is easier to train a technical founder to be ceo, than a ceo to be a technical founder". This was one of the firms that lead t…

> AH almost certainly beats 10% annually. AH was started in July 2009, at the start of a bull market. Since that period, the S&P 500 has had an annualized return, with dividends reinvested, of 17.2%. http://dqydj.net/sp-500-return-calculator/ This is significantly better than AH which has much greater single-sector risk (early stage/small cap, Bay Area, technology companies with little to no earnings). And AH at leas…

"This is significantly better than AH which has much greater single-sector risk"

Are you saying a16z will make less than 17.2% per year in average returns on the years 2009-2015? Want to bet?

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#32

Post by michaelochurch » Fri, May 01, 2015, 11:12 PM UTC

SamReidHughes wrote: post #30

michaelochurch wrote: post #12

Earlier quoted context omitted.

Venture capital does a great job when it comes to the VCs' real objective function, which is to maximize for their own careers and those of their buddies. It's a mediocre investment vehicle, but it's a great gig for a 21st-century job seller. Instead of selling off prestigious civil and foreign service jobs, they're selling executive positions in fast-growing companies. Chasing "unicorns" doesn't actually work out we…

> Instead of selling off prestigious civil and foreign service jobs, they're selling executive positions in fast-growing companies. If what you're saying has any connection to actual reality, how much do these executive positions cost?

They don't sell them in an explicit jobs-for-cash trade, so much as they use them to curry favor with counter parties. It's about information and favorable future action (e.g. I'll make your kid VP/Eng if you agree to make your employer buy us at $2B no matter what.)

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#33

Post by SamReidHughes » Fri, May 01, 2015, 11:29 PM UTC

michaelochurch wrote: post #32

SamReidHughes wrote: post #30

Earlier quoted context omitted.

> Instead of selling off prestigious civil and foreign service jobs, they're selling executive positions in fast-growing companies. If what you're saying has any connection to actual reality, how much do these executive positions cost?

They don't sell them in an explicit jobs-for-cash trade, so much as they use them to curry favor with counter parties. It's about information and favorable future action (e.g. I'll make your kid VP/Eng if you agree to make your employer buy us at $2B no matter what.)

What are some examples of this? Or more generally, why do you believe this happens?

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#34

Post by adventured » Sat, May 02, 2015, 12:18 AM UTC

garry wrote: post #20

jtzhou wrote: post #10

There is definitely a lack of transparency in venture funding, and studies show overall how VC's have been barely breaking even. Most of the big name investors were successful entrepreneurs (e.g. Andreessen and Netscape, e.g. Khosla and Sun, etc) who are assumed to be good investors. In reality, if most of these founders put their money in standard index funds, they would have better returns adjusted for risk, but wi…

> In reality, if most of these founders put their money in standard index funds, they would have better returns adjusted for risk, but without all of the publicity that they crave. This demonstrates a lack of understanding of venture returns. Actually Khosla, Andreessen, Benchmark and the rest of the top tier account for the vast majority of the outsize returns. The "average" VC you haven't heard of, and those are th…

Your 100x and 1000x example would represent the best of the best of course.

Then you use that to contrast how a public company may only yield 2X at an extreme over a year.

First, VC investors are rarely looking at a one year horizon on a new investment, so I have no idea why you chose a year as a reference point. Why would you compare an elite outcome of 1000X in VC to a typical public company?

Second, just like the best VC investments, some of the best public companies have returned 100X and 1000X. Dell, Microsoft, Oracle, Cisco, Walmart, Berkshire Hathaway, AOL, and numerous others.

Berkshire is closing in on a 1,000X return. Walmart has produced a 1000X return.

Cisco pulled off a nearly 100X return in the first seven years as a public company (it took Facebook eight years to IPO, and Google six years).

Apple recently did it as well, with a 100X return since 2003. Las Vegas Sands managed an 85X return over five years recently.

The only valid hit against public companies like these, is the time frame it took.

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#35

Post by tptacek » Sat, May 02, 2015, 1:02 AM UTC

michaelochurch wrote: post #32

SamReidHughes wrote: post #30

Earlier quoted context omitted.

> Instead of selling off prestigious civil and foreign service jobs, they're selling executive positions in fast-growing companies. If what you're saying has any connection to actual reality, how much do these executive positions cost?

They don't sell them in an explicit jobs-for-cash trade, so much as they use them to curry favor with counter parties. It's about information and favorable future action (e.g. I'll make your kid VP/Eng if you agree to make your employer buy us at $2B no matter what.)

"I'll make your kid VP/Engineering if you agree to make your employer buy as at $2B" does not sound like something that has ever happened. Has it?

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#36

Post by dylanjermiah » Sat, May 02, 2015, 1:40 AM UTC

foobarqux wrote: post #23

garry wrote: post #20

Earlier quoted context omitted.

> In reality, if most of these founders put their money in standard index funds, they would have better returns adjusted for risk, but without all of the publicity that they crave. This demonstrates a lack of understanding of venture returns. Actually Khosla, Andreessen, Benchmark and the rest of the top tier account for the vast majority of the outsize returns. The "average" VC you haven't heard of, and those are th…

I guess the entire professional investment community is incompetent then for investing so little of their money in VC.

VC is a relatively small sector, it was ~50bn last year.

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#37

Post by dylanjermiah » Sat, May 02, 2015, 1:50 AM UTC

jtzhou wrote: post #14

vonklaus wrote: post #13

Earlier quoted context omitted.

Just like in a venture portfolio, the venture industry is characterized by a few big winners. While the industry in general may lose money, a few firms consolidate most of the profits of the entire industry. AH is one of the smartest firms, and one of the first to push the philosophy that "it is easier to train a technical founder to be ceo, than a ceo to be a technical founder". This was one of the firms that lead t…

> AH almost certainly beats 10% annually. AH was started in July 2009, at the start of a bull market. Since that period, the S&P 500 has had an annualized return, with dividends reinvested, of 17.2%. http://dqydj.net/sp-500-return-calculator/ This is significantly better than AH which has much greater single-sector risk (early stage/small cap, Bay Area, technology companies with little to no earnings). And AH at leas…

Any source on AH's returns from 2009-present?

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#38

Post by ForHackernews » Sat, May 02, 2015, 3:31 AM UTC

as27 wrote: post #18

ForHackernews wrote: post #11

Earlier quoted context omitted.

Doesn't overpaying help pump up the company and solidify the idea that it's "worth" whatever that inflated valuation is? In other words, it's a signaling game as much as an honest appraisal?

Yes its a signaling game in the short run. But is there a point when people realize the company has been overvalued?

Maybe the VCs hope they will have already cashed out by then?

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#39

Post by throwawaymaroon » Sat, May 02, 2015, 7:31 AM UTC

tptacek wrote: post #35

michaelochurch wrote: post #32

Earlier quoted context omitted.

They don't sell them in an explicit jobs-for-cash trade, so much as they use them to curry favor with counter parties. It's about information and favorable future action (e.g. I'll make your kid VP/Eng if you agree to make your employer buy us at $2B no matter what.)

"I'll make your kid VP/Engineering if you agree to make your employer buy as at $2B" does not sound like something that has ever happened. Has it?

True, it isn't the hard justification for his post that Church was being asked for.

But it seems to me to be an acceptable rhetorical exaggeration of the many mechanisms of unspoken negotiation, plausible deniability, and favor bartering that happen in a network.

We know nepotism exists, we know cronyism exists. We don't have to speculate about the existence of these mechanisms, and in some ways it's very odd that we're trying to build evidence for them.

It's not unfair in and of itself, but it does reveal an asymmetry, I think.

Re: Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley

#40

Post by michaelochurch » Sat, May 02, 2015, 6:07 PM UTC

tptacek wrote: post #35

michaelochurch wrote: post #32

Earlier quoted context omitted.

They don't sell them in an explicit jobs-for-cash trade, so much as they use them to curry favor with counter parties. It's about information and favorable future action (e.g. I'll make your kid VP/Eng if you agree to make your employer buy us at $2B no matter what.)

"I'll make your kid VP/Engineering if you agree to make your employer buy as at $2B" does not sound like something that has ever happened. Has it?

I don't know that it's ever been put so explicitly, but I have seen startups and ex-startups give out very highly compensated positions (over $300k) to people who were spouses, proteges, and children of people on purchasing boards at other companies.

Usually the explicit quid pro quo isn't needed because self-interest is enough to keep the parties in step. In that example, once the kid is given the job, the guy on the purchasing board has an obvious desire to buy at as high a price as possible, since it's not his money.

These are the sorts of issues that would be considered conflicts of interest, and require the decision-makers to recuse themselves, anywhere but Silicon Valley.