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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

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/ 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 failure rate than competing funds (of course failure rate doesn't matter as much for VC returns, but it's still an interesting fact). I have no connection to FF whatsoever, but have learned a lot from the way they invest and much prefer their model to the spray and pray style (YC, Ron Conway, A16Z, etc).

lquist 7y ago
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.
- georgewsinger 7y ago
  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 own has a hit rate of better than 1 in 20. Now assuming YC paid $100K per company and gets to keep a blended 1% of the $100B (is that too small?), they've put in about $200M in funding to get back $100B*1% = $1B to net roughly $800M in profit for their stakeholders. So they're a 5x fund. But that's really...not that good...(at least it's not world class). But am I missing something? They've definitely gotten a lot better at picking companies during the Sam Altman era (by, IMO, funding deep tech companies that actually have the chance of 10,000xing), but it'll still take another 5-10 years to really prove that. Now YC might argue that they're not purely a profit-driven fund. And that's true. But isn't it a bit worrying that after thousands of investments they haven't funded a single $100B+ company? YC has an enormous influence on the startup ecosystem. Is an institution with a 0.85% hit rate really sending us the right lessons?
  - thebladerunner 7y ago
    Is there a fund that is better than 5x in aggregate? Everybody flaunts their unicorns, but at the end, those bets are balanced by many more losing bets...
  - deleted 7y ago
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  - jamiequint 7y ago
    YC invests 150k for 7%, so a 10,000x is more like $21bn of which it has 2 so far, Stripe and AirBnB.
    - georgewsinger 7y ago
      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.
      - Judgmentality 7y ago
        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.
      - tfehring 7y ago
        As I understand it, YC has the right to participate in priced rounds at the same valuation as other investors to retain their 7% stake. That does reduce the return on their most successful investments (since the denominator is bigger), but it also causes those investments to make up a larger share of their portfolio, which helps their aggregate ROI.
  - deleted 7y ago
    [deleted]
  - lquist 7y ago
    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.
allenleein 7y ago
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)
allenleein 7y ago
> 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 control. You achieve it by patiently building your business at the same time as ensuring that you will be insulated from future competition. It takes time and it takes investment dollars as resources. Put out some crappy minimum viable product and you lose some options to control because you have shown your hand to others. Instead, what you want to do is put out a complete product with a strategy to acquire the complementary resources to insulate it from future competition. There is, however, another sort of monopoly — a path that gets you 100 percent of a real market. This is done by having the capabilities to beat all rivals on either quality or cost. To see how this arises consider a very structurally price-competitive market (in economics, Bertrand competition). Now suppose that you develop an innovation that allows having lower marginal costs than everyone else. In this situation, you will be able to capture 100 percent of the market and so you will be a technical monopoly. Faster: Focusing on finding the timing You can term Marc’s approach to entrepreneurial strategy: focusing on execution(finding the timing). It is not so obvious that one path to monopoly is more profitable than the other. If you focus on execution you can get to market quicker and with fewer resources. You can learn as you go and actually invest for the capabilities that will give you a competitive advantage in the future. In other words, while it takes on-going work — no resting on your monopoly laurels here — you can still ‘own’ a market. The difference is that your pricing is constrained by potential competition from other firms. Finding the timing is the most important part of the execution. You need to execute your idea fast and good enough within the critical window to succeed. Most importantly, you may need to survive long enough to find the right window. [1] Marc Andreessen vs. Peter Thiel https://allenleein.github.io/games/1930/01/02/narratives.html https://allenleein.github.io/games/1930/01/02/narratives.htm...
- streetcat1 7y ago
  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.

lquist 7y ago

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.

georgewsinger 7y ago
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 own has a hit rate of better than 1 in 20. Now assuming YC paid $100K per company and gets to keep a blended 1% of the $100B (is that too small?), they've put in about $200M in funding to get back $100B*1% = $1B to net roughly $800M in profit for their stakeholders. So they're a 5x fund. But that's really...not that good...(at least it's not world class). But am I missing something? They've definitely gotten a lot better at picking companies during the Sam Altman era (by, IMO, funding deep tech companies that actually have the chance of 10,000xing), but it'll still take another 5-10 years to really prove that. Now YC might argue that they're not purely a profit-driven fund. And that's true. But isn't it a bit worrying that after thousands of investments they haven't funded a single $100B+ company? YC has an enormous influence on the startup ecosystem. Is an institution with a 0.85% hit rate really sending us the right lessons?
- thebladerunner 7y ago
  Is there a fund that is better than 5x in aggregate? Everybody flaunts their unicorns, but at the end, those bets are balanced by many more losing bets...
- deleted 7y ago
  [deleted]
- jamiequint 7y ago
  YC invests 150k for 7%, so a 10,000x is more like $21bn of which it has 2 so far, Stripe and AirBnB.
  - georgewsinger 7y ago
    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.
    - Judgmentality 7y ago
      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.
    - tfehring 7y ago
      As I understand it, YC has the right to participate in priced rounds at the same valuation as other investors to retain their 7% stake. That does reduce the return on their most successful investments (since the denominator is bigger), but it also causes those investments to make up a larger share of their portfolio, which helps their aggregate ROI.
- deleted 7y ago
  [deleted]
- lquist 7y ago
  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.

allenleein 7y ago

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)

allenleein 7y ago

> 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 control. You achieve it by patiently building your business at the same time as ensuring that you will be insulated from future competition. It takes time and it takes investment dollars as resources. Put out some crappy minimum viable product and you lose some options to control because you have shown your hand to others. Instead, what you want to do is put out a complete product with a strategy to acquire the complementary resources to insulate it from future competition. There is, however, another sort of monopoly — a path that gets you 100 percent of a real market. This is done by having the capabilities to beat all rivals on either quality or cost. To see how this arises consider a very structurally price-competitive market (in economics, Bertrand competition). Now suppose that you develop an innovation that allows having lower marginal costs than everyone else. In this situation, you will be able to capture 100 percent of the market and so you will be a technical monopoly. Faster: Focusing on finding the timing You can term Marc’s approach to entrepreneurial strategy: focusing on execution(finding the timing). It is not so obvious that one path to monopoly is more profitable than the other. If you focus on execution you can get to market quicker and with fewer resources. You can learn as you go and actually invest for the capabilities that will give you a competitive advantage in the future. In other words, while it takes on-going work — no resting on your monopoly laurels here — you can still ‘own’ a market. The difference is that your pricing is constrained by potential competition from other firms. Finding the timing is the most important part of the execution. You need to execute your idea fast and good enough within the critical window to succeed. Most importantly, you may need to survive long enough to find the right window. [1] Marc Andreessen vs. Peter Thiel https://allenleein.github.io/games/1930/01/02/narratives.html https://allenleein.github.io/games/1930/01/02/narratives.htm...

streetcat1 7y ago
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.