4 ms·

The investment returns on the funds sounded unimpressive given the time period. I found some info online from the WSJ suggesting the first fund was on track to

The investment returns on the funds sounded unimpressive given the time period. I found some info online from the WSJ suggesting the first fund was on track to return around 250% since 2009. Just investing in the NASDAQ would have returned over 500% over that same period. Am I missing something here or is the performance as unimpressive as it appears?

pbreit 8y ago
The article itself includes: "The firm’s first and third flagship funds, $300 million and $900 million, respectively, are already expected to return five times their money to investors, sources say. Its $650 million second fund and $1.7 billion fourth fund are expected to return three times their investment capital, good for the top quartile of firms, and are expected to climb." Selecting the NASDAQ in 2009 is a bit of a cherry-pick.
- mattnewport 8y ago
  I don't think selecting the NASDAQ in 2009 is a cherry pick given that is when the first fund started and we're talking about a tech focused fund. Even if the numbers here are more accurate than the WSJ, that still indicates the first fund is returning on par or slightly below what investing in the NASDAQ would have done over the same time period.
  - mrnobody_67 8y ago
    Venture as an asset class sucks. Returns also tend to be inversely correlated to fund size and fund reputation. Top 5 or 10 firms generate virtually all the returns in the asset class.
  - ajross 8y ago
    2009 was the end of the biggest market drop in a half century...
defen 8y ago
I had the same reaction. I've gotten better returns than A16Z over the same time period just through index funds and picking stocks of companies I like. Granted, I'm investing a tiny fraction of the amount they are, and I don't get to be a mover and shaker in Silicon Valley, but I was really not impressed by the overall return on investment.
ibarea277 8y ago
VC has historically done slightly better than the stock market, but returns over any time period are inversely correlated with how much money is flowing to VC (ie when everyone wants a piece of the action more bad deals are done, terms are better for companies etc) - so you'd expect the current period to produce okay returns (but probably less than the S&P). People imagine VCs return 100x or something, but if that really happened it would reveal an absurd amount of under-investment or really bad negotiating by founders. And given that these reasonable but not stellar returns put them in the top quartile (and VC has high variance even relative to hedge funds), you can guess how well things have gone for other folks.
- mattnewport 8y ago
  It seems like reasons you might invest in a VC fund could include portfolio diversification (if returns are counter cyclical or have low correlation with other asset classes), risk profile or expected performance. It would seem a little surprising if tech focused VC funds had low correlation overall with the NASDAQ but maybe it's the case. If it's mostly about risk profile and VC is riskier then at least according to traditional theory it ought to outperform the NASDAQ over a good period for tech like the last decade but would underperform in a down cycle.
  - ibarea277 8y ago
    It's somewhat hard to calculate the correlation because VC is so illiquid, but for sure it provides diversity and has historically been an excellent investment. The variance across VCs is also huge relative to other types of asset managers, so you have the potentially for really obscene returns. If you have enough money that you don't need to be liquid it is a good investment.
    - mattnewport 8y ago
      What you're describing doesn't sound like a particularly good investment. You replace the problem of picking stocks with the problem of picking VCs and have less liquidity. You have the potential for really obscene returns picking stocks too but there's no real reason to think picking VCs is any easier.

pbreit 8y ago

The article itself includes: "The firm’s first and third flagship funds, $300 million and $900 million, respectively, are already expected to return five times their money to investors, sources say. Its $650 million second fund and $1.7 billion fourth fund are expected to return three times their investment capital, good for the top quartile of firms, and are expected to climb." Selecting the NASDAQ in 2009 is a bit of a cherry-pick.

mattnewport 8y ago
I don't think selecting the NASDAQ in 2009 is a cherry pick given that is when the first fund started and we're talking about a tech focused fund. Even if the numbers here are more accurate than the WSJ, that still indicates the first fund is returning on par or slightly below what investing in the NASDAQ would have done over the same time period.
- mrnobody_67 8y ago
  Venture as an asset class sucks. Returns also tend to be inversely correlated to fund size and fund reputation. Top 5 or 10 firms generate virtually all the returns in the asset class.
- ajross 8y ago
  2009 was the end of the biggest market drop in a half century...

defen 8y ago

I had the same reaction. I've gotten better returns than A16Z over the same time period just through index funds and picking stocks of companies I like. Granted, I'm investing a tiny fraction of the amount they are, and I don't get to be a mover and shaker in Silicon Valley, but I was really not impressed by the overall return on investment.

ibarea277 8y ago

VC has historically done slightly better than the stock market, but returns over any time period are inversely correlated with how much money is flowing to VC (ie when everyone wants a piece of the action more bad deals are done, terms are better for companies etc) - so you'd expect the current period to produce okay returns (but probably less than the S&P). People imagine VCs return 100x or something, but if that really happened it would reveal an absurd amount of under-investment or really bad negotiating by founders. And given that these reasonable but not stellar returns put them in the top quartile (and VC has high variance even relative to hedge funds), you can guess how well things have gone for other folks.

mattnewport 8y ago
It seems like reasons you might invest in a VC fund could include portfolio diversification (if returns are counter cyclical or have low correlation with other asset classes), risk profile or expected performance. It would seem a little surprising if tech focused VC funds had low correlation overall with the NASDAQ but maybe it's the case. If it's mostly about risk profile and VC is riskier then at least according to traditional theory it ought to outperform the NASDAQ over a good period for tech like the last decade but would underperform in a down cycle.
- ibarea277 8y ago
  It's somewhat hard to calculate the correlation because VC is so illiquid, but for sure it provides diversity and has historically been an excellent investment. The variance across VCs is also huge relative to other types of asset managers, so you have the potentially for really obscene returns. If you have enough money that you don't need to be liquid it is a good investment.
  - mattnewport 8y ago
    What you're describing doesn't sound like a particularly good investment. You replace the problem of picking stocks with the problem of picking VCs and have less liquidity. You have the potential for really obscene returns picking stocks too but there's no real reason to think picking VCs is any easier.