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Andreessen Horowitz Returns Slip, According to Internal Data
- deleted 7y ago[deleted]
- nafey 7y agoWith this and soft Bank going to great lengths to ensure WeWork IPO's, I think we will see more desperate moves by the investors in coming weeks.
- rememberlenny 7y agoKey points: The funds the firm raised in 2010 and 2011 showed a net internal rate of return of 16% and 12%. The results are a significant drop from the 44% return rate of its 2009 fund.
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- ProAm 7y agoDid people think a 44% return was sustainable?
- AJRF 7y agoI would imagine that 44% return went a long way towards the vaunted status A16z had. In that, while perhaps not expecting to stay at such a high level of return, it's news because it wouldn't have been expected that such a drop (to the point where investing in common stock market index funds would have yielded a similar or better return) would have happened.
- andy_ppp 7y agoAnd isn't 16% ans 12% still excellent? It seems better than almost anything else really...
- khuey 7y agoThe S&P 500 has returned an average of 12.5% annually since 2011.
- rongenre 7y agoThis isn't an index fund we're talking about.
- AJRF 7y agoCertainly not excellent - Obviously there is a lot that goes into it - but 20% would be closer to the average expected return on a VC fund like A16z based on the style of investing, not achieving that - or higher - would be a disappointing run.
- dmix 7y agoThe point, as mentioned by the article, is to consistently beat out other similar investments at that scale (ie, index funds, private equity, etc). 44% isn't the competition, no. At a minimum 15-16% in the long run. But otherwise at a more local level high risk capital expects high rewards.
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- jormungand 7y agopaywall ha. Could we perhaps agree that whomever posts an article with a paywall should summarize the points made?
- dingdongding 7y agoWhat are returns of VC firms generally? Anyone has done analysis on this?
- m_ke 7y agoThis was posted earlier today https://news.ycombinator.com/item?id=20984000 https://news.ycombinator.com/item?id=20984000
- ramphastidae 7y agoIt is nearly impossible to do so given the private nature of these numbers but having worked in the industry extensively I can tell you the returns are generally atrocious and that no one invests in VCs to be fiscally responsible in the traditional sense. Investors who put money in VC are generally so wealthy that by the time they are ready to invest in VC they have exhausted all other standard investment opportunities like stocks, private investments in mature companies, personal trusts and real estate and are simply looking for anything with a higher chance of return than a bond. I’d estimate 90 out of 100 times the VC burns entirely through the money, 9 out of those 100 break even, and 1 out of 100 is profitable. 0.1 generate a return of something like Apple or Google. That 0.1 in a 100 chance is good enough for the investors as they don’t feel any pain when it’s lost. That’s why VCs have no interest in sustainable but mid-size businesses, only 100x opportunities. Their public marketing will push that it is because they are visionaries, the reality is that they have no interest or expertise in building mid-size businesses and the returns are so awful for their ‘visionary’ picks that without that 100x investment working out their funds would consistently be total losses.
- nautilus12 7y agoTranslation: Its set aside money for the purpose of gambling. If they roll a 7 then thats all the better, but its not critical cash flow.
- TuringNYC 7y agoTwo Thoughts: 1. Consistent High Performers vs Everyone Else: As with colleges, grad schools, starting salaries, hedge funds, and a host of other things -- it would be good to have a top-20 "typical" return and an aggregate "typical" return. 2. Returns are only one aspect, returns correlation is another. Even post-fee returns at s&p500 rates would be awesome if they are uncorrelated to the rest of the portfolio.
- jbottoms 7y agoThe paywall link should be disabled after 50 people unsuccessfully try to reach the site.
- josu 7y agoIs there a way to pay per article, or do I have to buy the $999 yearly subscription?
- dawhizkid 7y agoSee link to a chart on returns by year/fund from the article: https://twitter.com/vcstarterkit/status/1173611439833006080 https://twitter.com/vcstarterkit/status/1173611439833006080
- breck 7y agoThat looks pretty good to me. One dumb math question: when is a good time to compare against something like an S&P benchmark and should annualized rates or absolute growth be compared? In other words, is Fund I "cashed out" now, or could it's 44% return go up? Just doing simple math, adding 1 year to a CAGR calculation and doubling the FV of Fund I from 12B to 24B, seems to jump the return rate only to 48% from 44% (even though that more than doubles the profits). So would it be better to compare the absolute growth of the S&P to the growth of a fund, instead of the rate of return?
- pmart123 7y agoWell, once cash is returned to the investor, using cash returned on the initial capital base to calculate a compound annual return is the best way. This would allow you to compare the fund’s return to a public market index over the time period. Before this happens, there is no best or one way.
- thesausageking 7y agoVenture funds typically take 10-15 years for the investments to cash out. It's been close to 10 years for fund II, but I believe they invested in Foursquare and AirBnB, so depending on how those companies do it could change their returns. In general, it's hard to answer questions based on this chart. In addition to IRR, VC funds are judged on two other key numbers: TVPI (Total Value to Paid In) which is the total value of all of the fund's investments divided by the capital LPs have put into the fund, both realized and unrealized. For the latter, LPs will often look at the investments themselves and make their own determination of value. Especially in this environment, many funds have investments in unicorns that are inflated and never end up being realized. A fund with a $800m TV may not actually look great if a large % of that is in WeWork and is based on a $40B valuation. This is also the case for IRR. DPI (Distributions to Paid In) which is the total amount of cash a VC fund has sent to LPs divided by the amount of the LPs paid into the fund. At the end of the day, this is the most important number as it's what the fund's investors make, but it can take 10-15 years for a fund to completely distribute everything, so it's not that useful unless the fund has been around a long time.
- roseway4 7y agoThe data is apparently a year old (see chart). A16Z has seen a number of large exits since then (Lyft, GitHub, etc)
- lquist 7y agoI've heard talk about this from VCs for years. Their reputation and results don't match.
- relaunched 7y agoBe very careful. The IRR for a fund that is very young is deceiving. Fund V, for example, closed at the end of 2016. AT the time the documentation was put together, there could have been very little capital deployed and it doesn't represent subsequent rounds that have yet to be raised.
- deleted 7y ago[deleted]
- hobofan 7y agoWould be interesting to know how much of an impact their bullish stance on cryptocurrencies and related projects had in this.
- mbesto 7y agoI don't have access to the full article, but from the lede this looks like not very well researched journalism: 1. A16Z has 17 funds, with varying degrees of investing angles (early stage, crypto, bio, etc). So trying to do a fund by fund analysis is unfair. 2. IRR can be deceiving as it's time based. Some LPs invest based on "X Return" or IRR, and so cherry-picking one over the other is disingenuous without mentioning the other. 3. The larger the fund, the harder it is to have a higher IRR. A16Z keeps growing the size of it's funds (latest is $1b+). There are just simply not enough good deals out there to deploy that amount of capital. This is just like growing your top line revenue 50% from $1M to $1.5M, vs 10% from $10 to $11M. The former appears to have be semantically "better performing growth", when actually you made $500k more than you did previously. 4. The fact that they, a VC firm, are even returning their money means LPs will continue to invest. VC as an "asset class" is notoriously underperforming, with exception to the top 10% of the firms (which A16Z would likely be). Which begs the question, "so what?".
- seem_2211 7y agoI don't think this is poor journalism (I think The Information do a good job reporting industry specific information in a non click baity way). I see this as reporting on a player in an industry that a substantial number of their subscribers are either exposed to, or interested in. But I agree with the rest of your statements. Better to have a VC investment that brings a 12% return or whatever than some negative returning European or Japanese government bonds.
- mbesto 7y ago> I see this as reporting on a player in an industry that a substantial number of their subscribers are either exposed to, or interested in. Except the implication of the article is that A16Z funds are getting "worse" and thus underperforming ( = "A16Z must be a bad firm") making it newsworthy. I am far from an A16Z fanboy, but this is not newsworthy. Normally business journalists refer to industry expert (for example, an LP analyst) to determine whether "is this bad or good?" rather than what appears to be "IRR is down, this must be bad".
- vasilipupkin 7y ago
- seem_2211 7y agoA few thoughts spring to mind: It seems like the more money you have, the harder it is to deploy it efficiently. It would be interesting to know the influence of David Swensen (the CIO at Yale), who's put a large portion of their endowment into Private Equity and Venture Capital investment, and how other large funds might be mimicking his strategy. People always compare VC vs the S&P500 but I wonder if there's a side benefit to VC in that it's not necessarily linked to stock market fluctuations. Are VC returns in the aggregate going to turn to absolute crap over the next ten years as hundreds of new funds (with a new one popping up every day it seems) all grinding it out - or will we see the opposite, where a lot of these smaller funds have very successful first funds (partially constrained by the sizes they're initially able to raise), only to be dramatic underperformers as they raise second and third funds? Finally, it seems like more money doesn't make for better results (past a point). The Vision Fund being example A.