Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Andreessen Horowitz Returns Slip, According to Internal Data

theinformation.com

Post reply on HN
Print view View original

61–67 of 67 posts

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#61

Post by streetcat1 »

allenleee wrote: post #51
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…

> Look at how enormous its portfolio page is... > It tends to invest in fewer companies -- with much higher bar and conviction I created two theories[1] to explain the difference in investing perspectives between Marc Andreessen and Peter Thiel: (a16z ≠ Andreessen, Founders Fund ≠ Thiel) Run Faster vs. Jump Higher Higher: Investing for Control You can term Peter’s approach to entrepreneurial strategy: investing for c…

Nice theory. But does it holds when there are competitors with an infinite amount of cash (e.g. google)?

Not only they will copy your product, they would also offer it for free.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#62

Post by streetcat1 »

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…

You cannot compare the S&P returns to a VC return since the risk profile is different. You would need to compare the risk-adjusted return (alpha).

For example, as a hedge fund, I got 5%, and the s&p did 13%. Howver my stddev is 0.1% while the s&p is 20%.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#63

Post by nradov »

JumpCrisscross wrote: post #21
nradov wrote: post #16

Earlier quoted context omitted.

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.

Not enough data points, too much noise.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#64

Post by 609venezia »

boulos wrote: post #35
609venezia wrote: post #28

Earlier quoted context omitted.

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)…

I agree it isn't apples to apples. I wonder if it is nevertheless the best comparison, though, because they're two fundamentally different beasts.

If I have a lump of cash I need to deploy, I can buy lump sum SPX at t=0. I can't call a VC and say "here's X money, invest it all immediately."

The fairest comparison probably would be lump sum SPX against a blend of VC IRR and money market, converted from one to the other at a typical capital call rate, but as the number of variables increases so do the number of assumptions, and given the low returns on money market funds I don't see how the extra complexity adds much to the story.

Am I missing something?

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#65

Post by allenleee »

streetcat1 wrote: post #61
allenleee wrote: post #51

Earlier quoted context omitted.

> Look at how enormous its portfolio page is... > It tends to invest in fewer companies -- with much higher bar and conviction I created two theories[1] to explain the difference in investing perspectives between Marc Andreessen and Peter Thiel: (a16z ≠ Andreessen, Founders Fund ≠ Thiel) Run Faster vs. Jump Higher Higher: Investing for Control You can term Peter’s approach to entrepreneurial strategy: investing for c…

Nice theory. But does it holds when there are competitors with an infinite amount of cash (e.g. google)? Not only they will copy your product, they would also offer it for free.

Thanks! I believe it does. If you choose to "jump higher", then the key is to build the unique moats.

Besides, in the game of creation, I believe the outperformers are startups, not incumbents.

If you are interested, I wrote an article about this:

The Odds of Creating Your Own Game (https://allenleein.github.io/games/1930/01/01/avoid-competit...)

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#66

Post by thesausageking »

anxman wrote: post #58
thesausageking wrote: post #36

What are the "Parallel" funds? And why do they much better returns than the main funds?

Parallel funds tend to be funds that are used to double down into winners.

Those are "opportunity funds". "Parallel Funds" normally are funds that invest at the same time and in the same fund percentage as the main fund. These are often setup as a way to group together LPs; for example you may have a main US fund and one in the Caymans that's for foreign investors. They function as a "Fund Family" and because they make the same investments at the same percentages, they normally have the same returns.

Looking at the SEC filing for Pinterest, you can see this is the case for a16z. Fund III and Parallel Fund III invested in the same rounds, always at the same proportion:

https://www.sec.gov/Archives/edgar/data/1503674/000114420419...

What's not clear given this, is why the parallel fund has much better returns. It may have to do with how the fees are structured.

Re: Andreessen Horowitz Returns Slip, According to Internal Data

#67

Post by anxman »

thesausageking wrote: post #66
anxman wrote: post #58

Earlier quoted context omitted.

Parallel funds tend to be funds that are used to double down into winners.

Those are "opportunity funds". "Parallel Funds" normally are funds that invest at the same time and in the same fund percentage as the main fund. These are often setup as a way to group together LPs; for example you may have a main US fund and one in the Caymans that's for foreign investors. They function as a "Fund Family" and because they make the same investments at the same percentages, they normally have the sam…

Thanks for the clarification
Post reply on HN