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Software is eating the world, and a16z is eating the venture capital world. It's no surprise LPs are throwing money at them. They've been around for less than

Software is eating the world, and a16z is eating the venture capital world. It's no surprise LPs are throwing money at them. They've been around for less than five years and are already setting the standard by which other VCs are measured. Case in point: they made something like a 5-10x multiple on their investment in Oculus-- in 3 months.

Jormundir 13y ago
They are doing quite a good job as VCs, but lets not start painting a picture of skill based on one of their companies. Investing in startups is gambling, and A16Z is basically rolling up to the roulette wheel and placing a bet on every square. The only difference is the payout of one success is (maybe) large enough to offset the loss of betting on everything else. I can't look up the numbers now, but I'm pretty sure when the investments are pooled, the returns are modest, relatively in line with returns on other types of investments. (Would love for someone to back this up or correct me if I'm wrong based on the numbers).
- bulltale 13y ago
  Fred Wilson gave a nice overview.[1] Indeed not much better than other investments. [1]: http://avc.com/2013/02/venture-capital-returns/ http://avc.com/2013/02/venture-capital-returns/
  - DaniFong 13y ago
    The returns for top notch VC firms like a16z and the returns for VC as a whole are like a difference in kind.
    - foobarqux 13y ago
      Sure, but they still aren't abnormally outsized, probably even before adjusting for risk. If they were they would do like the very top hedge funds and charge more than 2/20. If you know specific rates of return please share.
      - ironchef 13y ago
        A set of example return information (albeit old and only from the first fund) is here: http://finance.fortune.cnn.com/2012/07/23/nice-ira-andreessen-horowitz-returns-first-fund-twice-over/ http://finance.fortune.cnn.com/2012/07/23/nice-ira-andreesse... I would anticipate there would be diminishing returns over time as the "bets are spread" if you will... that being said they're doing a damned amazing job so far.
        foobarqux 13y ago
        Besides being only a single data point the returns for one $300M fund aren't a good indicator of the returns for 2-3 concurrent $1+ billion dollar funds.
        ironchef 13y ago
        I concur...that's why I said: "only from the first fund" and "I would anticipate there would be diminishing returns over time as the "bets are spread" if you will". That being said it is counter to your statement "Sure, but they still aren't abnormally outsized, probably even before adjusting for risk." That particular data point is quite higher than both the median and the means of VC returns that I've seen (and would probably lend more credence towards DaniFong's statement). I look forward to seeing how their other funds progress so that we have more data points. note: edited in a paren that was missing.
    - deleted 13y ago
      [deleted]
UVB-76 13y ago
> Case in point: they made something like a 5-10x multiple on their investment in Oculus-- in 3 months. Oculus is an exceptional case, but that's how VC funds work. A minority of investments pay off big time and make up for often catastrophic losses on the remaining majority of investments.
mbesto 13y ago
Well statistically speaking (IIRC) that the top 10 VC firms incorporate 86% of the overall gains in VC, and the top 15 make up 93%. > Case in point: they made something like a 5-10x multiple on their investment in Oculus-- in 3 months. But no one ever talks about the numerous businesses that fail in their portfolio, which ultimately is why such large investments are required in order for them to sustain profitability. VCs know this won't last forever, so they have to milk it for all it's worth today.

Jormundir 13y ago

They are doing quite a good job as VCs, but lets not start painting a picture of skill based on one of their companies. Investing in startups is gambling, and A16Z is basically rolling up to the roulette wheel and placing a bet on every square. The only difference is the payout of one success is (maybe) large enough to offset the loss of betting on everything else. I can't look up the numbers now, but I'm pretty sure when the investments are pooled, the returns are modest, relatively in line with returns on other types of investments. (Would love for someone to back this up or correct me if I'm wrong based on the numbers).

bulltale 13y ago
Fred Wilson gave a nice overview.[1] Indeed not much better than other investments. [1]: http://avc.com/2013/02/venture-capital-returns/ http://avc.com/2013/02/venture-capital-returns/
- DaniFong 13y ago
  The returns for top notch VC firms like a16z and the returns for VC as a whole are like a difference in kind.
  - foobarqux 13y ago
    Sure, but they still aren't abnormally outsized, probably even before adjusting for risk. If they were they would do like the very top hedge funds and charge more than 2/20. If you know specific rates of return please share.
    - ironchef 13y ago
      A set of example return information (albeit old and only from the first fund) is here: http://finance.fortune.cnn.com/2012/07/23/nice-ira-andreessen-horowitz-returns-first-fund-twice-over/ http://finance.fortune.cnn.com/2012/07/23/nice-ira-andreesse... I would anticipate there would be diminishing returns over time as the "bets are spread" if you will... that being said they're doing a damned amazing job so far.
      - foobarqux 13y ago
        Besides being only a single data point the returns for one $300M fund aren't a good indicator of the returns for 2-3 concurrent $1+ billion dollar funds.
        ironchef 13y ago
        I concur...that's why I said: "only from the first fund" and "I would anticipate there would be diminishing returns over time as the "bets are spread" if you will". That being said it is counter to your statement "Sure, but they still aren't abnormally outsized, probably even before adjusting for risk." That particular data point is quite higher than both the median and the means of VC returns that I've seen (and would probably lend more credence towards DaniFong's statement). I look forward to seeing how their other funds progress so that we have more data points. note: edited in a paren that was missing.
  - deleted 13y ago
    [deleted]

UVB-76 13y ago

> Case in point: they made something like a 5-10x multiple on their investment in Oculus-- in 3 months. Oculus is an exceptional case, but that's how VC funds work. A minority of investments pay off big time and make up for often catastrophic losses on the remaining majority of investments.

mbesto 13y ago

Well statistically speaking (IIRC) that the top 10 VC firms incorporate 86% of the overall gains in VC, and the top 15 make up 93%. > Case in point: they made something like a 5-10x multiple on their investment in Oculus-- in 3 months. But no one ever talks about the numerous businesses that fail in their portfolio, which ultimately is why such large investments are required in order for them to sustain profitability. VCs know this won't last forever, so they have to milk it for all it's worth today.