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it's not foolish. it's just not the most efficient way to spend capital. look at it from the point of view of the LPs. A VCs job is to deploy capital and maximi

it's not foolish. it's just not the most efficient way to spend capital. look at it from the point of view of the LPs. A VCs job is to deploy capital and maximize return to it's investors. they should reduce their management fee and carried interest income, and give them back to the LP, or re-invest them and fund more start-ups/create more jobs. My opinion on this would've been different if they said "I am personally giving 50% of my money to charity in perpetuity..."

yesbabyyes 14y ago
Now usually I don't do this, but: Who are you, jimmyvanhalen, to tell Paul Buchheit about "the most efficient way to spend capital", and how Marc Andreessen and Ben Horowitz should do their jobs? Since you apparently know so much about it, surely you top Paul's worth easily?
- daenz 14y ago
  appeal to accomplishment, appeal to poverty, appeal to wealth http://en.wikipedia.org/wiki/List_of_fallacies http://en.wikipedia.org/wiki/List_of_fallacies
  - paul 14y ago
    Capitalism is a system for transferring money from those who are bad at allocating capital to those who are good at allocating capital. That's the magic of it. It also implies that people like Andreessen most likely have an above average understanding of how to allocate capital :)
    - daenz 14y ago
      Doesn't make it any less a logical fallacy. Andreessen partners could wipe their asses with $100 bills. If someone with less money tells them that's a poor use of money, would you tell him clearly Andreessen knows better because they have more money?
      - paul 14y ago
        If only this were a logic problem consisting of three boolean variables... But reality is complex, and so I do give some weight to authority. For example, if I had a question about evolution, I would automatically trust an answer from Dawkins more than one from Santorum, even if you think that's some kind of fallacy.
        daenz 14y ago
        You are free to believe whatever you want, based on whatever criteria you want. But to argue that something is right or wrong because someone else has more money, has no weight. Re-read yesbabyyes comment. It makes no argument other than "who are you", "they are famous and accomplished" and "they are rich." It's a poor argument.
        paul 14y ago
        Typically the fact that someone has more money would not be relevant, except in this case it's a discussion of capital allocation and a person (Andreessen) who is making a lot of money by being very good at capital allocation. It's like claiming that Michael Phelps's 14 gold medals should carry no weight in a discussion of whether or not he's a good swimmer.
        daenz 14y ago
        > It's like claiming that Michael Phelps's 14 gold medals should carry no weight in a discussion of whether or not he's a good swimmer. Not really. It's like Michael Phelp's 14 gold medals should carry no weight in a discussion of whether or not his butterfly stroke has room for improvement. No one is arguing that Andreessan is not good at making money. If people were, then your analogy would be correct. People are arguing whether or not his money was put to efficient use in this specific instance (by donating to charity). Having 14 gold medals does not prove to anyone that your butterfly stoke technique could not be better. Nor does earning a lot of money prove that you always make good decisions with money. Take my $100 toilet paper example. Earning a lot of money through good investments does not make using $100 for toilet paper suddenly unassailable to criticism. Does this make sense?
  - yesbabyyes 14y ago
    Thanks, daenz. That's what "usually I don't do this" was referring to -- which is a lazy cop out, I agree. Usually I don't do that, either. My bad. It may not make it better, but I think I did it because jimmyvanhalen's argument was, to me, so... Preposterous. As I understand him, he is basically arguing that if you feel that you have money to give to charity, you should give that to whomever gave you that money. I wonder what he feels about my, admittedly ridiculously small, donations to charity. Am I, too, wrong to give? Should I lower my fees and "give" that money to my clients instead?
    - daenz 14y ago
      Yeah, it's a difficult subject. People are passionate about money. But kudos for owning up to your post... I made a ad hominem awhile back and someone was kind enough to point it out, thought I'd pass around the favor :)
      - yesbabyyes 14y ago
        I take it you think one should donate to charity anonymously, but humblebrags are ok? ;) I just wanted to add that I actually think wealth and investment accomplishments are somewhat relevant in this discussion, regarding your comment on fallacies. Especially given jimmyvanhalen's very strong opinions on what "a VCs job" is, what a16z "should" do, and his confused ending statement on that what they did would be fine by him if they did... Exactly what they are doing. Don't you agree?
        daenz 14y ago
        I wasn't bragging. I was trying to relate...I made an ad hominem attack and was called out on it. I don't really have an opinion on the actual thing being discussed though, other than my comments back and forth with "paul"
        yesbabyyes 14y ago
        I don't really have an opinion on the actual thing being discussed though, other than my comments back and forth with "paul" I.e., trolling. Yeah, I know.
paul 14y ago
The half they are giving away is money they would have otherwise taken as personal income, so it is in fact their own personal money. The other thing you should understand is that top VC firms such as AH (or YC) are not capital constrained. Dumping in twice as much money won't produce twice as much innovation or profits.
- jimmyvanhalen 14y ago
  Having capital to invest in more start-ups reduces risks and increases the chances of the VC earning bigger returns. In order to invest in more start-ups, the firm needs top-notch people (partners, associates, etc.). 1. The best people are not going to join a firm that's giving away 50% of their management fees and carried interest income. 2. Not enough people & capital means -Less investments, therefore more risks and less return. -Less due diligence and monitoring of portfolio companies (again more risks) -investors hate risk and low returns
  - pmarca 14y ago
    > Having capital to invest in more start-ups reduces risks and increases the chances of the VC earning bigger returns. That's true up to a point, but only up to a point. You hit the point of diminishing returns pretty early. I wish it were otherwise but there's 40+ years of history that support that theory. It's not even that there aren't enough potentially great startups. It's that the venture business is a business that scales mostly with people. Each GP can credibly be a primary investor and board member in maybe 10-12 companies at a time. I don't think arbitrarily taking that number up to 20-24 would generate twice the returns, at least without the GP's head exploding in the process.
    - jimmyvanhalen 14y ago
      >It's that the venture business is a business that scales mostly with people. I agree which is why I brought up the topic of management fees and carry. You need them both to pay for additional people in order to scale your business. (which you addressed in your other comment).
shazad 14y ago
As far as I can tell that's actually what they did say: "We are delighted to announce that the six General Partners of Andreessen Horowitz, with our families, are all committing to donate at least half of all income from our venture capital careers to philanthropic causes during our lifetimes." http://bhorowitz.com/2012/04/25/our-philanthropic-commitment/ http://bhorowitz.com/2012/04/25/our-philanthropic-commitment... I think it's an extremely positive statement for them to make.
sophacles 14y ago
So here's what I don't get: If people give them money to invest, and they generat returns for the investors in a way that the investors are happy with, what does it matter what fees they charge? It is a mutually beneficial transaction. The investors make money, the fees make the company money. Now the company money that goes directly to the owners, rather than say direct expenses, is the owner's personal money. It is their profit from the transaction. This is what they are giving 50% of away. The only way I can read your argument, is that the investment company should stop being generally profitable for the owners, and return more money to the investors. How does this make business sense? It would be like saying "Apple makes profit from selling iPhones, and just gives it away to shareholders. They should really bow to the customers and lower the costs and socialist bullshit to the shareholders". Unless of course Apple share holders are magical unicorns who deserve it, and the partners in a VC firm don't.
- pmarca 14y ago
  We do like to think of ourselves as magical unicorns.

yesbabyyes 14y ago

Now usually I don't do this, but: Who are you, jimmyvanhalen, to tell Paul Buchheit about "the most efficient way to spend capital", and how Marc Andreessen and Ben Horowitz should do their jobs? Since you apparently know so much about it, surely you top Paul's worth easily?

daenz 14y ago
appeal to accomplishment, appeal to poverty, appeal to wealth http://en.wikipedia.org/wiki/List_of_fallacies http://en.wikipedia.org/wiki/List_of_fallacies
- paul 14y ago
  Capitalism is a system for transferring money from those who are bad at allocating capital to those who are good at allocating capital. That's the magic of it. It also implies that people like Andreessen most likely have an above average understanding of how to allocate capital :)
  - daenz 14y ago
    Doesn't make it any less a logical fallacy. Andreessen partners could wipe their asses with $100 bills. If someone with less money tells them that's a poor use of money, would you tell him clearly Andreessen knows better because they have more money?
    - paul 14y ago
      If only this were a logic problem consisting of three boolean variables... But reality is complex, and so I do give some weight to authority. For example, if I had a question about evolution, I would automatically trust an answer from Dawkins more than one from Santorum, even if you think that's some kind of fallacy.
      - daenz 14y ago
        You are free to believe whatever you want, based on whatever criteria you want. But to argue that something is right or wrong because someone else has more money, has no weight. Re-read yesbabyyes comment. It makes no argument other than "who are you", "they are famous and accomplished" and "they are rich." It's a poor argument.
        paul 14y ago
        Typically the fact that someone has more money would not be relevant, except in this case it's a discussion of capital allocation and a person (Andreessen) who is making a lot of money by being very good at capital allocation. It's like claiming that Michael Phelps's 14 gold medals should carry no weight in a discussion of whether or not he's a good swimmer.
        daenz 14y ago
        > It's like claiming that Michael Phelps's 14 gold medals should carry no weight in a discussion of whether or not he's a good swimmer. Not really. It's like Michael Phelp's 14 gold medals should carry no weight in a discussion of whether or not his butterfly stroke has room for improvement. No one is arguing that Andreessan is not good at making money. If people were, then your analogy would be correct. People are arguing whether or not his money was put to efficient use in this specific instance (by donating to charity). Having 14 gold medals does not prove to anyone that your butterfly stoke technique could not be better. Nor does earning a lot of money prove that you always make good decisions with money. Take my $100 toilet paper example. Earning a lot of money through good investments does not make using $100 for toilet paper suddenly unassailable to criticism. Does this make sense?
- yesbabyyes 14y ago
  Thanks, daenz. That's what "usually I don't do this" was referring to -- which is a lazy cop out, I agree. Usually I don't do that, either. My bad. It may not make it better, but I think I did it because jimmyvanhalen's argument was, to me, so... Preposterous. As I understand him, he is basically arguing that if you feel that you have money to give to charity, you should give that to whomever gave you that money. I wonder what he feels about my, admittedly ridiculously small, donations to charity. Am I, too, wrong to give? Should I lower my fees and "give" that money to my clients instead?
  - daenz 14y ago
    Yeah, it's a difficult subject. People are passionate about money. But kudos for owning up to your post... I made a ad hominem awhile back and someone was kind enough to point it out, thought I'd pass around the favor :)
    - yesbabyyes 14y ago
      I take it you think one should donate to charity anonymously, but humblebrags are ok? ;) I just wanted to add that I actually think wealth and investment accomplishments are somewhat relevant in this discussion, regarding your comment on fallacies. Especially given jimmyvanhalen's very strong opinions on what "a VCs job" is, what a16z "should" do, and his confused ending statement on that what they did would be fine by him if they did... Exactly what they are doing. Don't you agree?
      - daenz 14y ago
        I wasn't bragging. I was trying to relate...I made an ad hominem attack and was called out on it. I don't really have an opinion on the actual thing being discussed though, other than my comments back and forth with "paul"
        yesbabyyes 14y ago
        I don't really have an opinion on the actual thing being discussed though, other than my comments back and forth with "paul" I.e., trolling. Yeah, I know.

paul 14y ago

The half they are giving away is money they would have otherwise taken as personal income, so it is in fact their own personal money. The other thing you should understand is that top VC firms such as AH (or YC) are not capital constrained. Dumping in twice as much money won't produce twice as much innovation or profits.

jimmyvanhalen 14y ago
Having capital to invest in more start-ups reduces risks and increases the chances of the VC earning bigger returns. In order to invest in more start-ups, the firm needs top-notch people (partners, associates, etc.). 1. The best people are not going to join a firm that's giving away 50% of their management fees and carried interest income. 2. Not enough people & capital means -Less investments, therefore more risks and less return. -Less due diligence and monitoring of portfolio companies (again more risks) -investors hate risk and low returns
- pmarca 14y ago
  > Having capital to invest in more start-ups reduces risks and increases the chances of the VC earning bigger returns. That's true up to a point, but only up to a point. You hit the point of diminishing returns pretty early. I wish it were otherwise but there's 40+ years of history that support that theory. It's not even that there aren't enough potentially great startups. It's that the venture business is a business that scales mostly with people. Each GP can credibly be a primary investor and board member in maybe 10-12 companies at a time. I don't think arbitrarily taking that number up to 20-24 would generate twice the returns, at least without the GP's head exploding in the process.
  - jimmyvanhalen 14y ago
    >It's that the venture business is a business that scales mostly with people. I agree which is why I brought up the topic of management fees and carry. You need them both to pay for additional people in order to scale your business. (which you addressed in your other comment).

shazad 14y ago

As far as I can tell that's actually what they did say: "We are delighted to announce that the six General Partners of Andreessen Horowitz, with our families, are all committing to donate at least half of all income from our venture capital careers to philanthropic causes during our lifetimes." http://bhorowitz.com/2012/04/25/our-philanthropic-commitment/ http://bhorowitz.com/2012/04/25/our-philanthropic-commitment... I think it's an extremely positive statement for them to make.

sophacles 14y ago

So here's what I don't get: If people give them money to invest, and they generat returns for the investors in a way that the investors are happy with, what does it matter what fees they charge? It is a mutually beneficial transaction. The investors make money, the fees make the company money. Now the company money that goes directly to the owners, rather than say direct expenses, is the owner's personal money. It is their profit from the transaction. This is what they are giving 50% of away. The only way I can read your argument, is that the investment company should stop being generally profitable for the owners, and return more money to the investors. How does this make business sense? It would be like saying "Apple makes profit from selling iPhones, and just gives it away to shareholders. They should really bow to the customers and lower the costs and socialist bullshit to the shareholders". Unless of course Apple share holders are magical unicorns who deserve it, and the partners in a VC firm don't.

pmarca 14y ago
We do like to think of ourselves as magical unicorns.