
Andreessen Horowitz, Dealmaker to the Stars of Silicon Valley - boskonyc
http://www.nytimes.com/2015/05/03/upshot/andreessen-horowitz-dealmaker-to-the-stars-of-silicon-valley.html?&moduleDetail=section-news-2&action=click&contentCollection=DealBook&region=Footer&configSection=article&isLoggedIn=false&module=MoreInSection&pgtype=article&abt=0002&abg=1
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pasta_2
That part about Andreessen warning about "risks" was really just a response to
Bill Gurley sounding the alarm in a WSJ story. Until that time if you followed
Andreessen on Twitter, you'd see him talking down the idea of a tech bubble,
mocking Janet Yellen for her warning about valuations in social media, etc. It
was basically that or go against another prominent VC in a fight about
valuations. And this is not like the rest of Wall Street, there's not going to
be any Icahn vs. Ackman style fights in the VC world. Relationships matter too
much.

But at least 10 years from now once the current cycle has come to an end
Andreessen can point to that one time he was on the record as warning about
"risks" when really his M.O until then was to talk up valuations.

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jtzhou
There is definitely a lack of transparency in venture funding, and studies
show overall how VC's have been barely breaking even. Most of the big name
investors were successful entrepreneurs (e.g. Andreessen and Netscape, e.g.
Khosla and Sun, etc) who are assumed to be good investors. In reality, if most
of these founders put their money in standard index funds, they would have
better returns adjusted for risk, but without all of the publicity that they
crave.

Also, the quote attributed to Andreeseen at the end was originally from Warren
Buffet's 2001 letter to shareholders. "After all, you only find out who is
swimming naked when the tide goes out."
[http://en.wikiquote.org/wiki/Warren_Buffett](http://en.wikiquote.org/wiki/Warren_Buffett)

~~~
vonklaus
Just like in a venture portfolio, the venture industry is characterized by a
few big winners. While the industry in general may lose money, a few firms
consolidate most of the profits of the entire industry. AH is one of the
smartest firms, and one of the first to push the philosophy that "it is easier
to train a technical founder to be ceo, than a ceo to be a technical founder".

This was one of the firms that lead the founder first philosophy, and is run
(obviously) by well known entrepreneurs. They atrract top talent (founders)
like the article says, and gain great positioning in rounds, and in the
ecosystem.

> if most of these founders put their money in standard index funds, they
> would have better returns adjusted for risk, but without all of the
> publicity that they crave.

The market typically delivers ~10% on average[0], while you are correct that
their isn't a lot of transparency, AH almost certainly beats 10% annually.
Another top VC/Angel is Chris Sacca. I have heard that his initial fund which
was heavily in twitter, was single or double digit millions and is now worth
over 1 billion dollars. So key firms do have outsize gains.

As to the MA tweet

> "When the market turns, and it will turn, we will find out who has been
> swimming without trunks on. Many high burn rate companies will VAPORIZE."[1]

This is not about a bubble, but individual companies not focusing on business
fundamentals. In a climate where raising money is easy, he is pointing out
these companies grow without underlying businesses. The grow big enough to
sell advertising/information is not sustainable, as everyone was made
painfully aware of in the 90's and 00's. Vanity metrics and valuations mean
nothing if you are not profitable (or even generating revenue), and it will be
apparent if there is a funding freeze.

[0][http://quicktake.morningstar.com/index/IndexCharts.aspx?Symb...](http://quicktake.morningstar.com/index/IndexCharts.aspx?Symbol=SPX)
* This has the 10 year around 8.3

[1][http://www.businessinsider.com/marc-andreessen-on-startup-
bu...](http://www.businessinsider.com/marc-andreessen-on-startup-burn-rates-
worry-2014-9#ixzz3Yv4aRdMN)

~~~
jtzhou
> AH almost certainly beats 10% annually.

AH was started in July 2009, at the start of a bull market. Since that period,
the S&P 500 has had an annualized return, with dividends reinvested, of 17.2%.
[http://dqydj.net/sp-500-return-calculator/](http://dqydj.net/sp-500-return-
calculator/) This is significantly better than AH which has much greater
single-sector risk (early stage/small cap, Bay Area, technology companies with
little to no earnings). And AH at least by many sources is a "best-of-the-
best" VC, so woe to the less successful VC's.

Whether they are good at intangibles, such as training future CEO's, providing
jobs to highly-networked individuals, and encouragement to founders, is less
relevant from an investor's standpoint.

~~~
ajju
"This is significantly better than AH which has much greater single-sector
risk"

Are you saying a16z will make less than 17.2% per year in average returns on
the years 2009-2015? Want to bet?

~~~
ironchef
That information is definitely not public, so he's just guessing. One could
look at some of a16z's hits and show they have done well at least in some
cases. 50 mil into skype which they made into an estimated 150 - 170. They
were one of nicira's biggest backers who sold to vmware for north of a
billion. They were investors in Facebook, etc.

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georgeglue1
Going beyond the article, it feels like a16z gets in on a lot of the "hottest"
startups of the moment. This makes sense given some people think a16z is the
best VC in business, but it givens them a really weird slice of sv/hype-market
risk that I don't think anyone really understands.

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as27
Inflating a valuation by 50% to 100% over "fair market value" means that the
company will have to grow by 50% to 100% to grow into it's own
shoes/expectations.

Holding all else equal, if future investors value the company at fair market
value A16Z will have over-paid to get into the round.

If this is true then what is A16Z's angle? Do they believe that overpaying is
a cost they are willing to incur to get the best deals and concentrate talent
in their portfolio? Does this concentration of talent make up for a company's
overvaluation? Ie: does a 100% overvaluation with A16Z lead to a greater than
100% company growth compared with other investors?

~~~
nedwin
Overvaluation is fine if they have put in place protections for their capital,
like liquidation preferences and anti-dilution clauses for down rounds.

In that case by pumping up a companies valuation in a financing event they're
able to win the deal and put a stake in the ground for any acquisition offers.

If the company is acquired for less than the last valuation they still get all
their capital returned to them under the liquidation preference as well as a
percentage of the proceeds.

~~~
as27
What about up rounds?

~~~
nedwin
Well in an up round they would probably participate and the value of their
stock goes up either way so they're winning.

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foobarqux

       Mr. Andreessen and his partners have invested so much
       in so many start-ups that it would take a remarkable 
       string of successes to make the approach pay off. For 
       all their skill — the firm bought into the likes of 
       Airbnb, Instagram and Pinterest relatively early — their 
       track record suggests it’s unlikely. Already, they’ve 
       suffered a few impressive flameouts, including Fab, on 
       which they are likely to lose tens of millions of dollars.

~~~
onewaystreet
That's probably a short-sided opinion. There's a lot of companies in a16z'a
portfolio that I could see going public or having a big acquisition in the
next 5 years: [http://a16z.com/portfolio/](http://a16z.com/portfolio/)

